Contemporary business realities, including the increasingly global nature of commerce, require companies to be aware of the expanding jurisdiction of Canadian courts to impose liability. Canadian companies operating in foreign jurisdictions must be cognizant of the changing landscape of liability for foreign operations, including subsidiaries.

More than ever, Canadian companies engaged in international business or cross-border transactions must carefully review their international practices and procedures, including appropriate due diligence for agents, contractors and business partners, to ensure they are protected against the financial, business and reputational damage that can result from a violation of Canadian or international law, in tort, contract or Canadian or international criminal or regulatory law.

The recent decision of Justice Carole Brown in Choc v. Hudbay Minerals Inc., 2013 ONSC 1414 is a reminder for Canadian companies of the expanding scope of liability in Canada with respect to foreign operations.

Hudbay Minerals Inc. (“Hudbay”) and its wholly-controlled subsidiaries HMI Nickel Inc. (“HMI”) and Compañia Guatemalteca De Níquel (“CGN”) brought a preliminary motion to strike three related actions pursuant to Rule 21.01(1)(b) of the Rules of Civil Procedure on the ground that it is plain and obvious that they disclose no reasonable cause of action. 

The actions all stem from allegations from 13 Mayan Guatemalans of rape and murder related to land disputes by security personnel working for Hudbay’s subsidiaries at the Fenix mining project formerly owned by Hudbay’s subsidiary in Guatemala.

Hudbay argued that in allowing the case to proceed the plaintiff was attempting to pierce the corporate veil and to hold Hudbay vicariously liable for wrongs committed by the employees of the Guatemalan subsidiary. Hudbay argued that this was an attempt to create and new a novel supervisory duty of care. Hudbay urged the Court to find that all of these positions are untenable at law. The Court found that the plaintiffs had pleaded all of the materials facts required to attempt to pierce the corporate veil and to establish the claim of direct negligence against Hudbay and that it was not plain and obvious that the claims would fail. Therefore, the motion to strike was dismissed, and the actions will be allowed to proceed against Hudbay and the other companies in the Ontario Courts.

This is the first time that a Canadian court has ruled that a claim made against a Canadian parent corporation for human rights related allegations at a foreign resources project can proceed in Canada. It should be noted that Hudbay chose not raise an argument regarding the jurisdiction of Canadian courts to hear this case at the motion. According to the press release from the law firm representing the plaintiffs, Hudbay dropped its jurisdictional argument (forum non conveniens) that the lawsuit against it should be heard in Guatemala, not Canada. As a result, Canadian companies will have to wait for a trial based on a complete factual record before drawing any conclusions on the impact that this case might have for foreign tort liability going forward.

One hopes that, once a final decision is released in this case, it will bring some clarity and predictability for Canadian companies engaging in foreign operations. As the Supreme Court stated in Club Resorts Ltd. v. Van Breda and Club Resorts Ltd. v. Charron (“Van Breda”): “[Justice and fairness] cannot be attained without a system of principles and rules that ensures security and predictability in the law governing the assumption of jurisdiction by a court. Parties must be able to predict with reasonable confidence whether a court will assume jurisdiction in a case with an international or interprovincial aspect.”

Nevertheless, Canadian corporations should be increasingly vigilant to ensure their companies and employees are not caught in allegations of human rights violations, corruption allegations and other illegal activities. 

In planning a strategy for operating or expanding into the international marketplace, companies must also consider the Canadian government’s increasing willingness to regulate in foreign business markets and the impact of actions taken by foreign officials and employees might have on Canadian operations. This includes consideration of the Corruption of Foreign Public Officials Act under which the Canadian government can impose sanctions including unlimited fines and prison sentences of up to 14 years. 

We recommend that every company that operates outside Canada should take the following minimum steps to practice due diligence with respect to its foreign operations:

  1. Carry out human rights, violence and corruption risks assessment that prioritize high risk geographical and functional areas. 
  2. Adopt a global code of business conduct and anti-corruption policy that sets a very clear tone that human rights violations, violence and bribery will not be tolerated, and provide ample and frequent training to both employees and third party intermediaries/business partners to reinforce the message. 
  3. Adopt specific procedures and internal systems and controls to monitor operations in foreign countries.
  4. Develop processes for the effective conduct of tiered, risk-based due diligence for the retention and monitoring of third party intermediaries and business partners in foreign jurisdictions.
  5. Anti-corruption due diligence should also figure prominently in any merger or acquisition activity.