Commentary: The shifting liability landscape for Canadian miners abroad

Two recent lawsuits brought in B.C. by foreign plaintiffs against two Canadian mining companies for alleged human rights abuses abroad have raised the stakes for mining projects in foreign jurisdictions.

On June 18, 2014, seven Guatemalan men sued Tahoe Resources Inc., alleging that private security forces hired by Tahoe’s Guatemalan subsidiary opened fire on them in San Rafael Las Flores. On Nov. 20, 2014, three Eritrean refugees sued Nevsun Resources Ltd., alleging they were forced to work at a mine in Eritrea under threat of torture by Eritrea’s ruling party.

These lawsuits appear to be inspired by the decision of the Ontario Superior Court of Justice on July 22, 2013, in Choc v Hudbay Minerals Inc., the first case against a Canadian mining company over alleged human rights abuse abroad that was permitted to go to trial in Canada. In light of this recent litigation, it may be worthwhile for Canadian mining companies to revisit Hudbay to understand how plaintiffs are now using Hudbay to frame their claims, and to consider a risk management plan to mitigate the risks raised by Hudbay and the litigation it has spawned.

Hudbay decision

Three related actions were brought by 13 Guatemalan Mayan Q’eqchi’ plaintiffs against Hudbay in Ontario for human rights abuses allegedly committed by private security forces working for Hudbay’s Guatemalan subsidiary, CGN. The events arose in the context of a land dispute between Hudbay, which at the relevant time owned a proposed open-pit copper mine near El Estor, Guatemala, and indigenous Mayan Q’eqchi’ farmers, who claimed that part of the mining property fell on their ancestral lands.

Hudbay brought a procedural motion to strike the claims as disclosing no reasonable cause of action. Hudbay argued that it could not be liable to the plaintiffs in negligence, as there is no recognized duty of care owed by a parent to ensure that its foreign subsidiary does not harm the plaintiffs. This argument was rejected.

The test on this procedural motion was whether it was plain and obvious that the plaintiffs’ allegations, if accepted as true, would fail. The court ruled that it was not “plain and obvious that no duty of care can be recognized.” The court found that Hudbay’s public statements on its commitment to corporate social responsibility and the Voluntary Principles on Security and Human Rights suggested a relationship of proximity between the parties, “such that it would not be unjust or unfair to impose a duty of care” on Hudbay.

While Hudbay did not establish a new duty of care, it opened the door for Canadian courts to establish a new duty in appropriate cases and on a proper evidentiary record.

Cases inspired by Hudbay

In Adolfo Agustin Garcia et al v Tahoe Resources Inc., seven Guatemalan men sued Tahoe alleging that they were injured when private security forces working for Tahoe’s indirect Guatemalan subsidiary, MSR, opened fire on them during a peaceful protest held on a public road near the Escobal mine. MSR owned the Escobal mine, a gold and silver mine located in San Rafael Los Flores. The plaintiffs allege that Tahoe owed them a duty to ensure their safety based in part on public statements made by Tahoe affirming its commitment to CSR, and international norms like the Voluntary Principles and the United Nations’ Guiding Principles on Business and Human Rights.

In Gize Yebeyo Araya et al v Nevsun Resources Ltd., three Eritrean refugees sued Nevsun claiming they were forced to work at the Bisha mine in Eritrea and subjected to cruel, inhuman and degrading treatment by the Eritrean government. Nevsun’s Eritrean subsidiary, BMSC, owns 60% of the Bisha mine (a gold, copper and zinc deposit) in partnership with the Eritrean government. The plaintiffs claim Nevsun was an accomplice to forced labour and other crimes against humanity by entering into a commercial venture with the “rogue state of Eritrea” to develop the Bisha mine. They also allege that Nevsun is liable in negligence, as it owed them a duty of care to ensure BMSC did not cause them harm. They base this claim in part on Nevsun’s public commitment to CSR, minimizing adverse impacts on the local community and the IFC Principles, an international norm.

CSR and international norms

Canadian mining companies adopt CSR polices and publish CSR reports. TSX issuers are required to review CSR issues in their annual information forms. As part of their CSR policies, companies adopt international norms such as the Voluntary Principles, Guiding Principles and other international standards of conduct endorsed by the Canadian government. The plaintiffs in these new cases rely on public commitments made by the defendants to CSR and to these international norms to support their claim for a new duty of care. If a new duty of care is established, the court will likely look to these international norms to define the content of the standard of care.

Risk Management

Canadian mining companies that operate in conflict-affected areas should heed the risks raised by Hudbay and the litigation it has spawned in their risk management planning. The fact that their foreign operations are owned and operated by foreign subsidiaries in distant lands may not immunize Canadian mining companies from liability in negligence law. Certainly, this fact is not deterring foreign plaintiffs from pursuing Canadian mining companies in Canada.

Put simply, the best way for Canadian mining companies to mitigate these risks is to fulfill their commitments under their CSR policies and any international norms they adopt. If a proponent makes public commitments to CSR, the proponent should assume it owes a duty of care under Canadian law to local community members to ensure its foreign operations do not violate their human rights. Making this risk-management assumption may guide the proponent in planning the steps it should take, and the resources it should devote, to fulfill its CSR commitments.

While the nature and scope of such a plan will vary, some steps that may be considered include:

• Develop, continuously monitor and enforce protocols to observe CSR commitments;

• Conduct risk assessments and due diligence on actual and potential adverse human rights impacts of their operations to identify, avoid and mitigate such impacts;

• Provide adequate on-the- ground management of issues identified as high risk;

• Adequately screen, train, monitor and supervise security personnel;

• Conduct due diligence to avoid hiring security personnel who have been credibly implicated in past human rights violations;

• Set clear rules of engagement for security personnel — use force only when strictly necessary and only to an extent that is proportional to the threat; and

• Include clauses in contracts with private security forces that prohibit them from employing individuals credibly implicated in past human rights violations, and require them to observe international norms, such as and permit termination of the relationship where there is evidence of abusive behaviour.

Conclusion

The Canadian legal landscape is shifting. The new exposure faced by Canadian mining

companies in negligence law for their foreign operations call for risk-management planning to ensure compliance with CSR commitments. Fulfilling these commitments will also have intrinsic value to Canadian proponents and investors, and contribute to the lon
g-term stability and success of the foreign projects.

— Based in Toronto, Young Park is a partner in Fogler Rubinoff LLP’s litigation group, and has a diverse commercial litigation practice. He is a skilled advocate with extensive experience conducting trials, commercial arbitrations and regulatory hearings. Young also advises his clients on a wide range of regulatory and risk management matters.

Rick Moscone is a partner in Fogler Rubinoff’s Toronto office, and is chair of its Securities Law Group. He has over 10 years experience in corporate finance, mergers & acquisitions, and securities matters. His experience includes structuring and negotiating securities and commercial transactions, as well as providing general corporate commercial advice.

Fogler Rubinoff LLP is a full service law firm with offices in Toronto and Ottawa, comprising 110 lawyers and a support network of 125 legal and administrative staff. Please visit foglers.com for more information.