Liability: how a new court ruling could put Canadian miners in the dock

More than half of the country’s coal mines are managed by pro-Russian separatist militia.

Credit: DmyTo/Shutterstock.

“There's no allegation that Nevsun was directly involved in the conscripted use of the labour but the contractors that built the mine were partly state-owned or controlled by the Eritrean military, it's alleged, and therefore, the allegation is that Nevsun benefited from the use of slave labour,” says Robert Wisner, litigation partner and international arbitration co-chair at McMillan LLP.

The plaintiffs allege that Nevsun bears vicarious liability for the human rights violations at the Bisha Mine, operated by Nevsun’s subsidiary, Bisha Mining Share Company. Previously, claims of this nature had little success in the Canadian judiciary, which has jurisdiction over parent companies resident in Canada, but also has discretion to decline to exercise their jurisdiction in favour of the plaintiff’s home jurisdiction. In other words, claims such as these would have to be pursued through the legal system of the country the alleged offence took place in.

A 2017 decision by the British Columbia Court of Appeal in Garcia v. Tahoe Resources, however, held that in countries with barriers to justice, or generalised allegations of corruption or bias against the judiciary, Canadian courts could find a “real risk” that plaintiffs would not obtain justice in their home jurisdiction. Wisner noted that the Canadian judiciary’s willingness to broadly condemn a foreign judiciary contrasts with a more careful approach of courts in the United Kingdom or the United States.

What makes the Supreme Court’s recent decision against Nevsun significant, though, is that a plaintiff may pursue litigation in Canadian courts for an alleged breach of customary international law by a corporate defendant.

Wisner explains: “Customary international law is by definition unwritten law, as opposed to a treaty between two states. It is one of the two main sources of international law, which are treaties and custom - that being widespread practice of states that is acknowledged to be followed out of a sense of legal obligation. And the classical understanding of customary international law is that it is the law that governs relationships between states.”

“What's novel about the case is that the Supreme Court said these are not just obligations that are imposed on states, they can be imposed on corporations as well. And that if a corporation breaches this obligation it can be liable in damages to a plaintiff.”

Customary international law, in essence, is made up of general customs that nation states adhere to out of a sense of legal obligation rather than any written treaties. Examples include the doctrine of non-refoulement – not returning asylum seekers to a country in which they would be in danger of persecution – and granting immunity to visiting heads of state. Customary international law is significant because it binds all nations, whereas a treaty is applicable only to nations that have ratified or acceded to it.

The Supreme Court’s decision that customary international law can be applied to private corporations potentially opens the door to a litany of litigation against Canadian companies for the activities of their international subsidiaries.

And beyond human rights and near-universally accepted norms against forced labour and slavery, the Nevsun case’s decision to apply customary international law to corporations could extend to unexpected areas. As global awareness of the need for action on climate change grows, it’s possible that notions of environmental standards could become something akin to customary international law.

“There are certainly some arguments the plaintiffs could make that there's a basic customary international law duty to take adequate precautions in terms of environmental matters, and to avoid using property in a way that creates harm to neighbouring landowners or residents,” said Wisner.

Canadian companies may also need to further consider the activities of their domestic operations. While the decision in Nevsun prompts a need for further consideration of operations in foreign countries, Wisner says customary international law could be applied to operations inside Canada too.

“Although [mining companies] need to consider it in terms of their operations abroad, they may also need to consider it in their operations in Canada, because there's nothing that restricts the Nevsun case exclusively to the foreign operations of Canadian mining companies. In theory, there could be a claim in Canada as well,” he explained.

The decision leaves a lot up in the air, with the Supreme Court allowing cases like this to proceed through Canadian courts, but without specific guidance on which areas of customary international law corporations may find themselves beholden to – or what types of claims can be brought against them. According to Wisner, it’s an issue that will have to be ironed out in the courts.

“What the Canadian Supreme Court has basically done is essentially, without any statute in place, authorised the development of these things as part of the common law,” said Wisner. “And so there will be, I think, a period of considerable uncertainty for some time, where mining companies will need to consider fuzzier, softer kind of legal standards, notions about the development of customary international law which, by definition, is unwritten and therefore this content needs to be ascertained from more obscure sources than is typically the case.”

While the exact scope of liability will be set out by future judicial decisions, there are ways Canadian mining companies can reduce the risk of being subject to one of those judicial decisions. Nevsun Resources Ltd. v. Araya alleges that Nevsun is vicariously liable for the actions of its Eritrean subsidiary operating the Bisha mine, and while the case has been given the go-ahead by the Supreme Court, there has been no declaration that the separate legal status of Nevsun and its subsidiary should be disregarded.

The principle of separate corporate personalities remains important. Wisner says that, from a legal perspective, separate corporate personalities still provide some protection to parent companies. It’s important that corporate formalities are still followed and that those actions are taken in a way that doesn’t confuse the different legal entities that might be involved in the chain of ownership.

Corporate Social Responsibility (CSR) – self-regulatory measures undertaken by private businesses that aim to contribute to wider societal goods of philanthropic or charitable nature – could be a key aspect of mining companies’ operations in light of the ongoing judicial uncertainty. While mining companies often adopt CSR policies pertaining to environmental sustainability or philanthropic efforts in local communities, Wisner warns that simply adopting a CSR policy isn’t enough.

“To some extent, merely adopting a policy without actually undertaking to enforce the policy can almost be worse than having no policy at all,” Wisner said. “Adoption of the policy has been alleged in some cases to show as proof that there was a duty of care owed to the neighbours of a foreign mining property and that the Canadian parent company had some obligations to take precautions.”

It’s important that mining companies audit their CSR compliance. Similar to environmental impact studies, CSR should be part of the process of project development. Indeed, considering CSR policies in conjunction with the project development process, or as a supplement to environmental impact studies, could be important as a measure to fully consider the social and human rights impacts of mining operations – issues that can often be more ambiguous than assessing environmental effects.