Resource Companies Face Risk of Litigation in Canada Relating to Foreign Operations

A recent decision relating to a claim by Guatemalan plaintiffs against Hudbay Minerals (Hudbay) is another high-profile example of Canadian resource companies facing litigation in Canada for alleged acts or omissions involving their foreign operations.

In a decision released July 22, 2013, the Ontario Superior Court of Justice dismissed the motion to strike brought by Hudbay and its subsidiary, Compania Guatemalteca De Niquel ("CGN"). The claim, which comprises three actions, is brought by indigenous Mayan Q’eqchi’ and alleges serious misconduct by security personnel at a mining project in Guatemala that was originally operated by Skye Resources/HMI Nickel, and subsequently by CGN as a subsidiary of Hudbay. Hudbay sold CGN and the project in 2011. This claim is one of the first examples of a case of this kind proceeding to trial on the merits in Canada.

The Hudbay proceedings follow a very different outcome in a 2012 Quebec case involving allegations against Anvil Mining in connection with its activities in the Democratic Republic of the Congo. A group of non-governmental organizations sought to pursue an action against Anvil in Quebec court. In January 2012, the action was dismissed by the Quebec Court of Appeal, which ruled that Quebec courts lacked jurisdiction over the action due to an insufficient connection to Quebec.  

These cases are consistent with similar developments in the United Kingdom and the United States. Just last week, legal proceedings were filed in the U.K. High Court against African Barrick Gold in connection with alleged misconduct at the North Mara mine in Tanzania. In addition, foreign plaintiffs have for many years been relying on unique legislative provisions like the U.S. Alien Tort Claims Act to bring claims in the U.S. against multinational corporations (including Talisman Energy regarding activities in Sudan, Exxon Mobil regarding activities in Indonesia and Royal Dutch Shell regarding activities in Nigeria) with respect to alleged human rights abuses committed in other countries.

Claims relating to operations in foreign jurisdictions have been advanced on a variety of legal theories. In the case of Hudbay, the plaintiffs’ claims are based on the parent owing them a duty of care in negligence and an attempt to pierce the corporate veil on the basis that Hudbay’s Gautemalan subsidiary was acting as an agent of the parent.

We expect to see a growing trend of attempts to pursue litigation in Canada against resource companies in connection with the activities of their foreign operations, especially where the alleged conduct has occurred in jurisdictions with comparatively undeveloped legal systems. Resource companies should consider the following steps in order to mitigate this risk:

• Implement and regularly evaluate policies and procedures to ensure appropriate standards of conduct for foreign operations.
   
• Strengthen positive relationships with local communities near foreign operations sites.
   
• If they occur, respond promptly to address any incidents in the local jurisdiction.
   
• To preserve the separate corporate personality of the foreign subsidiary, ensure it operates with appropriate autonomy and limit direct involvement of Canadian head office employees in operating the subsidiary and being involved in its "on-the-ground" activities.