Is parent company liable for crimes of foreign subsidiary?

The Ontario Superior Court has dismissed Hudbay Minerals’ motion to strike out the claims against it, and its subsidiary, for rapes and other human rights abuses allegedly committed in Guatemala. The Court concluded that the plaintiffs’ claim, that the Canadian parent company is liable, in Canada, for the subsidiary’s security personnel’s crimes in Guatemala, will not necessarily fail at trial.

The decision dealt with three related actions, brought by members of the indigenous Mayan Q’eqchi’ against the Canadian mining company, Hudbay, and its subsidiary CGN. CGN owned and operated the Fenix mining project in Guatemala, on land that the former dictatorship had seized from aboriginal communities and sold to foreign miners. The communities had returned to part of this land (see Choc v. Hudbay Minerals Inc., 2013 ONSC 1414).

In the Caal action, the plaintiffs assert that they were gang-raped by mining company security personnel, police and the military during their forced removal from their village. The removal was allegedly requested by the purchaser of the land, Skye Resources (since acquired by Hudbay). In the Choc action, the plaintiffs allege that Angelica Choc’s husband, a respected indigenous leader and outspoken critic of mining practices, was beaten, shot, and killed by CGN’s security personnel in the context of a land dispute. In the Chub action, the plaintiff alleges he was shot and left paralyzed in an unprovoked attack by security personnel employed at the mining project, again in the context of a land dispute.

Direct liability

In all three actions, the plaintiffs argued that a parent corporation can be liable in negligence for its own actions and omissions in another country. Hudbay, they said, was negligent in failing to prevent the harm that the security personnel committed. The Court concluded that the plaintiffs had pled all the material facts required to establish this novel duty of care – although it emphasized that these facts must still be proven at trial. Based on the facts as pled, the harm was a reasonably foreseeable consequence of the defendants’ conduct and there was a sufficiently proximate relationship between Hudbay and the plaintiffs.

Hudbay’s own statements that it was in discussions with local representatives, that it wanted to work with local stakeholders, that it was building trusting relationships with local communities, and that it was committed to promoting and respecting human rights, were an important factor in the finding of proximity. The court concluded:

[69] Based on the plaintiffs’ pleadings, there were numerous expectations and representations on the part of Hudbay/Skye and the plaintiffs. In particular, Hudbay/Skye made public representations concerning its relationship with local communities and its commitment to respecting human rights, which would have led to expectations on the part of the plaintiffs. There were also a number of interests engaged, such as Hudbay/Skye’s interest in developing the Fenix project, which required a “relationship with the broader community, whose efficient functioning and support are critical to the long-term success of the company in Guatemala”, according to Hudbay’s president and CEO. The plaintiffs’ interests were clearly engaged when, according to the pleadings, the defendants initiated a mining project near the plaintiffs and requested that they be forcibly evicted.

Both sides raised competing policy considerations in recognizing this novel duty of care. The Court decided not to dismiss the claim on a preliminary motion. In other words, it was not plain and obvious that policy reasons would prevent the courts from recognizing a duty of care.

Piercing the corporate veil

In the Choc action, the plaintiffs also claimed that the corporate veil should be pierced to impose liability on Hudbay for the torts of battery, wrongful imprisonment, and wrongful death committed by CGN’s employees or agents.

In Ontario, the courts have recognized three circumstances in which separate legal personality can be disregarded and the corporate veil can be pierced:

1. Where the corporation is “completely dominated and controlled and being used as a shield for fraudulent or improper conduct”
2. Where the corporation has acted as the authorized agent of its controllers, corporate or human
3. Where a statute or contract requires it.

The Court concluded that the plaintiff’s had plead the required elements of the second exception to the rule of separate legal personality:

[49] Whether or not this agency relationship is ultimately found to have existed at the relevant time, the allegation is not patently ridiculous or incapable of proof, and therefore must be taken to be true for the purposes of this motion. If the plaintiffs can prove at trial that CGN was Hudbay’s agent at the relevant time, they may be able to lift the corporate veil and hold Hudbay liable. Therefore, the claim based on piercing the corporate veil in the Choc action should be allowed to proceed to trial.

Door is open for a new duty of care

The plaintiffs successfully argued that Canadian companies may owe a duty of care to individuals harmed by security personnel at its foreign operations when there is direct control by the Canadian parent (at para.73):

•  recognizing a duty would support efforts taken by the federal government by encouraging Canadian companies to meet the “high standards of corporate social responsibility” that are currently expected by the Canadian government;
• recognizing a duty would support the government’s stated goal of reducing risks of excessive force or human rights abuse related to the deployment of private security at Canadian enterprises abroad; and
•  tort law should be evolving to accord with globalization, and local communities should not have to suffer without redress when adversely impacted by the business activity of a Canadian corporation operating in their country. In the words of former Justice Ian Binnie, “Ordinary tort doctrine would call for the losses to be allocated to the ultimate cost of the products and borne by the consumers who benefit from them, not disproportionately by the farmers and peasants of the Third World.”

Voluntary initiatives, such as the Voluntary Principles on Security and Human Rights, may also be helping to establish a benchmark of diligent conduct by overseas subsidiaries.

If the plaintiffs ultimately succeed, this case could create a precedent for holding Canadian parents liable for overseas environmental damage as well.