Legal uncertainty increasing when doing business abroad

Eritrean plaintiffs have won a narrow but important preliminary victory at the Supreme Court of Canada in a lawsuit alleging a Canadian mining company with Eritrean operations was complicit in human rights abuses abroad. Canadian resource companies should take note, as the case could have broad implications that include more litigation risk, more limited opportunity to defeat weak claims in a case’s early stages, and an area of increased focus in M&A risk assessment and diligence.

The Supreme Court released its decision in Araya v Nevsun Resources Ltd earlier in 2020. The judges split 5 to 4, with vigorous dissenting opinions. But the majority held that the plaintiffs could sue Nevsun in Canada for alleged complicity in forced labour at the Bisha mine in Eritrea, owned 40% by an Eritrean state entity and 60% by Nevsun (through subsidiaries).

Araya is part of a global trend. That trend’s arc is a growing willingness to allow claims by foreign residents for alleged harm abroad to proceed in companies’ home jurisdictions. Traditional constraints imposed by private law, including tort law and domestic rules dealing with interactions of multiple states’ laws, have in the past tempered transnational corporate accountability claims. Though much uncertainty remains, Araya and other Canadian, U.K., and U.S. developments show that traditional constraints are being tested.

The Araya Saga

In 2014, Eritreans sued in British Columbia related to alleged prior work at the Bisha mine. They claimed the Eritrean military service had conscripted them into forced labour, seeking remedies against Nevsun in B.C. for breaches of customary international law (“CIL”), a body of internationally accepted norms barring human rights abuses, including forced labour.

Since no court had yet endorsed direct liability for CIL breaches, Nevsun asked the B.C. court to strike out the claims at an early stage. But a slim Supreme Court majority let the claims proceed, finding that a Canadian company could be liable in Canada for CIL breaches abroad.

Despite this result, much remains unclear. No court has yet ruled on the claims’ merits. The judges at each level applied a lower standard than would apply at trial, without the benefit of evidence. Araya now returns to B.C. for discovery and other pretrial steps.

A Global Trend

Araya is not the first or last case of its kind. It is one of a small cohort of cases raising similar issues for Canadian resource companies with direct or indirect operations or investments abroad. Other Canadian cases raising similar interactions involving multiple states are Garcia v Tahoe Resources Inc and Choc v Hudbay Minerals Inc.

Araya reflects a growing willingness of some courts to let transnational corporate accountability claims proceed. In a similar transnational case across the Atlantic, Vedanta Resources Plc v Lungowe, the U.K. Supreme Court accepted in a pollution negligence case that a U.K. parent company could owe a duty of care in tort law to third parties affected by a foreign subsidiary’s operations. Later, leave to appeal to the U.K. Supreme Court was granted in a similar case, Okpabi v Royal Dutch Shell Plc. In contrast, the U.S. has a statutory but narrow approach. 28 U.S. Code § 1350 permits civil remedies for international law abuses, but whether U.S. courts should take jurisdiction in overseas matters remains controversial.

Legal Uncertainty

After Araya, the door may have opened a bit wider for transnational corporate accountability claims against Canadian resource companies. Canada’s highest court has now recognized – for the first time – that breach of CIL claims can survive motions to strike (if properly pleaded). Practically, that is significant in itself. Defending those claims may take longer and cost more. We will have to wait, however, to see how such claims fare at hearings with evidence, and how judges react to and interpret Araya.

Meanwhile, resource companies may see more claims by foreign residents for alleged human rights abuses abroad. Canadian companies doing business in other countries may wish to review with their lawyers what tools are available to help assess and monitor international law issues involving their subsidiaries, contractors, partners, suppliers, and others. For example, companies may wish to consider, and evaluate with their lawyers, corporate social responsibility policies, including any benefits – and, critically, possible exposure – that those policies could represent. These developments also underscore the importance of risk assessment and diligence in M&A.

Richard B. Swan is a partner and co-head of the Litigation Department at Bennett Jones in Toronto, where Gannon G. Beaulne is an associate.