Supreme Court of Canada: Companies may face liability in Canada relating to foreign operations

The Supreme Court of Canada held, in Nevsun Resources Ltd. v. Araya, that Canadian companies can be sued for breaches of customary international law relating to their foreign operations. This is of particular relevance to many Canadian resource sector companies that operate internationally. Other businesses with international operations or global supply chains may also be impacted, such as those in the technology, infrastructure, garment and defence sectors.

What you need to know

• Businesses can be held liable in Canada for acts that take place as part of their foreign operations.
• Liability can be founded on breaches of customary international law, which expands the scope of potential liability beyond what previously existed.   
• The decision highlights a growing source of legal risk for Canadian businesses with foreign operations, particularly in the resources sector.
• The decision may make Canada a more attractive venue for pursuing litigation against businesses with foreign operations, particularly those that operate in jurisdictions with underdeveloped rule of law or legal systems.

Background

In Nevsun Resources Ltd. v. Araya, Eritrean workers brought a claim against Canadian mining company Nevsun Resources Ltd. (Nevsun). The Eritrean workers allege they were conscripted into a forced labour regime, through which they were forced to work at a mine jointly owned by Nevsun (through its subsidiaries) and the Eritrean National Mining Corporation. The plaintiffs claimed that while working at the mine they were subjected to violence and inhumane treatment.

In 2014, Eritrean workers commenced an action in British Columbia against Nevsun. They sought damages for breaches of several domestic torts as well as for breaches of customary international law. The Eritrean workers claimed that Nevsun had breached customary prohibitions against: slavery; forced labour; cruel, inhuman or degrading treatment and crimes against humanity.

Lower court decisions

Nevsun brought numerous applications to dismiss the claim. This included an application to strike the pleadings based on two grounds:

1. by relying on the “act of state doctrine”, which holds that domestic courts cannot assess the sovereign acts of a foreign government; and
   
   
2. that the Eritrean workers’ claims for breaches of customary international law had no reasonable prospect of success.

Both the Chambers Judge and the British Columbia Court of Appeal dismissed Nevsun’s motions to strike on these grounds. Nevsun appealed both points to the Supreme Court of Canada.

Supreme Court of Canada decision

The act of state doctrine

The Supreme Court ruled that the doctrine is not a part of Canadian common law and “neither it nor its underlying principles as developed in Canadian jurisprudence were a bar to the Eritrean workers’ claims”.

The Court ruled that the principles underlying the doctrine have already been subsumed within Canada’s existing jurisprudence, namely under the doctrines of conflict of laws, which generally call for deference, and judicial restraint, which allows courts to decline to enforce foreign laws where such laws are contrary to public policy, including respect for public international law. The Court therefore found that there was no separate jurisdictional bar to a Canadian court adjudicating the laws or actions of a foreign state, so long as the case satisfies the relevant conflict of laws and judicial restraint principles.

Customary international law automatically becomes common law

The majority of the Court held that the Eritrean workers’ claims for breaches of customary international law should not be struck, as it was not “plain and obvious” that they had no reasonable prospect of success, on the basis that:

• Customary international law is automatically adopted into domestic law without the legislature’s express approval. Thus, any rule that is recognized as customary international law is automatically domestic law, unless there is express legislation to the contrary.
  
  
• While international law initially developed to regulate relations between states, customary international law is no longer so restrictive. As a result, private actors, including corporations, can be held liable for its breach.
  
  
• Breaches of customary international law do not need to be converted into newly recognized categories of torts to succeed. Domestic common law should still be able to recognize a direct remedy for breaches of customary international law.

Implications

Managing international legal risk

While the decision is unlikely to require significant changes to the conduct of most businesses abroad, it does highlight a growing source of legal risk for Canadian companies with international operations. The resource sector stands to be most impacted by these legal risks. However, other businesses with international operations or global supply chains may also be impacted, such as those in the technology, infrastructure, garment and defence sectors. Risks can be mitigated with robust compliance, CSR and ESG programs, including robust training programs and meaningful grievance and remediation protocols. Investors should also consider implementing practices such as human rights due diligence to ensure such risks are proactively identified in advance. Care should particularly be taken when partnering with states or state-owned entities where the state has a mixed or poor human rights record.

Legal uncertainty

The majority’s decision leaves several questions unanswered. Notably, all breaches of customary international law alleged by the plaintiffs are peremptory, or jus cogens, norms from which no derogation is permitted. These norms are considered so “fundamental to the international legal order” such that the question of whether the alleged norms formed part of customary international law was not a live issue in the appeal. However, the decision provides little guidance on the scope of liability for customary international law outside peremptory norms, including how non-peremptory norms are shown to be customary international law.

The decision also provides little guidance on customary international law standards of liability, concurrent liability under other branches of law, limitation periods, and the calculation of remedies. The British Columbia Supreme Court may address these questions as the case proceeds to a hearing on the merits.

Canada as more attractive venue for plaintiffs

The decision may make Canada a more attractive venue for pursuing litigation against businesses with international operations, particularly those that operate in jurisdictions with weak rule of law or legal systems. Depending on the context, businesses may rely on doctrines of separate legal personality and forum non conveniens to resist claims improperly brought in Canada.

Broader trend of ESG focus on and international liability for human rights abuses

The decision aligns with a broader trend in some states towards accountability for businesses’ operations abroad. For example, Australia’s Modern Slavery Act 2018 requires businesses meeting a certain revenue threshold to report on their structure, operations, supply chains and associated risks to modern slavery. Similar legislation exists in jurisdictions including the United Kingdom, California, France, the Netherlands and Norway. In Canada, analogous legislation was introduced in December 2018 as a private members bill (Bill C-423), but Parliament was dissolved before the legislation progressed beyond first reading. Institutional investors and industry groups are increasingly enhancing their ESG focus on these issues.

Last year, the Canadian government announced the appointment of a Canadian Ombudsperson for Responsible Enterprise, who receives and reviews claims of alleged human rights abuses arising from the operations of Canadian companies abroad in the mining, oil and gas, and garment sectors. Recommendations made by the Ombudsperson are reported publicly, and companies that fail to cooperate could face measures including withdrawal of trade advocacy services and Export Development Canada support.

First introduced in 2014, Canada’s enhanced CSR strategy, “Doing Business the Canadian Way: A Strategy to Advance Corporate Social Responsibility in Canada’s Extractive Sector Abroad”, sets out means by which the Canadian government promotes corporate social responsibility in the resource sector. The strategy was also cited in the majority’s decision as support for the notion that the Canadian government has adopted policies to ensure that Canadian companies operating abroad respect peremptory norms of customary international law.

Provisions in support of corporate social responsibility have also been included in some of Canada’s recently concluded trade agreements.