Business and Human Rights in Foreign Operations: The Stakes Just Got Bigger

Written By Milos Barutciski and Josh Scheinert

Canadian courts took another step in further opening the country’s courts to civil claims by foreign victims of alleged human rights abuses against Canadian corporations for acts committed abroad. In a January 26, 2017, decision in Garcia v. Tahoe Resources Inc., 2017 BCCA 39, the British Columbia Court of Appeal reversed a lower court decision that ruled Guatemala was a more appropriate forum to hear the plaintiffs’ claim against Tahoe, a British Columbia registered mining company. Following the Hudbay and Nevsun decisions, it marks the third instance where a Canadian court has found that a Canadian mining company may incur liability before Canadian courts for failure to adhere to human rights and corporate social responsibility commitments (CSR).

The Court of Appeal's decision draws attention to the need for resource companies to make credible and objective efforts to mitigate tension between local communities and host governments. Companies that rely primarily on government support for addressing local oppositions run the risk of incurring liability if they become complicit in abuses condoned or encouraged by host governments. 

The Claim

The claim was brought after security personnel allegedly shot seven Guatemalan individuals at a protest against the Escobal mine in Guatemala in April 2013. The Escobal mine is wholly-owned by Tahoe’s subsidiaries. The plaintiffs brought three causes of actions against Tahoe:

• direct liability for battery;
• vicarious liability for battery; and
• negligence.

The Trial Decision

The trial judge sided with Tahoe’s application to have the proceedings stayed on the basis that Guatemala was a more appropriate forum for the claim. She noted two avenues existed for the plaintiffs in Guatemala: a criminal proceeding where an accused can be ordered to pay compensation; and a regular civil claim. At the time of her decision, there was a criminal proceeding against the head of security at the Escobal mine. Her decision also acknowledged several practical factors that seemed to favour a claim outside of B.C.:

• Tahoe’s B.C. operations were limited to what was necessary to meet statutory requirements of being registered in the province;
• the company was actually managed from Reno, Nevada; and
• the evidence related to the claim was in Spanish.

The Appellate Decision

On appeal, the appellants noted that the accused in the criminal case had since absconded from Guatemala to Peru, his home country, and that his extradition to Guatemala, and therefore the continuation of the criminal proceedings, was uncertain. The Court of Appeal admitted this new evidence, concluding that the “Guatemalan criminal proceeding–to which the appellants’ civil compensation claims have been joined–is not a more appropriate forum for adjudicating the dispute.” 

The Court of Appeal then dispensed with the finding that Guatemala was the more appropriate forum for a civil claim, demonstrating the enhanced scrutiny Canadian judges will give to foreign judicial processes.

The Court of Appeal held that Guatemalan procedures and safeguards for obtaining and introducing foreign evidence (i.e., documents in Tahoe’s possession) amounted to “difficulties” that were not adequately considered at the trial level. The court also noted that Guatemala’s one-year limitations period, which had since expired, also favoured against finding Guatemala to be the more convenient forum.

The most significant issue, however, related to the plaintiffs’ claim that corruption in the Guatemalan judiciary precluded a fair trial. The trial judge, noting that corruption was more probable in criminal than civil trials, dismissed this point and applied a test of whether Guatemala’s judiciary was “capable” of providing justice. The Court of Appeal rejected this test, and clarified the appropriate standard as whether there was a “real risk” that a trial would not be fair. Reliance on an incorrect standard meant that the trial judge “gave insufficient weight to the evidence of weakness and lack of independence in the Guatemalan justice system in her discretionary weighing of the factors.”

Based on the “real risk” test, the Court of Appeal was not convinced the plaintiffs would have a fair trial in Guatemala. A critical factor in finding for a “measurable” risk of unfairness was the controversial context in which the Escobal mine existed–namely, the fact that “it arose in a highly politicized environment surrounding the government’s permitting of a large foreign-owned mining operation in rural Guatemala.” With strong government interests in play, the claim, the court noted, “is not akin to a traffic accident.”

Going Forward

In siding with the plaintiffs, the Court of Appeal noted they were up “against a powerful international company whose mining interests in Guatemala align with the political interests of the Guatemalan state.” A fact that, it continued, “points away from Guatemala as the more appropriate forum.”

The Tahoe decision indicates that Canadian courts will consider the predicament of local stakeholders in foreign resource projects in the balance when their interests are in conflict with those of Canadian corporations. A company's CSR commitments, while important in advancing a project, can also contribute to liability when they are not properly implemented. Tahoe reinforces a trend toward greater judicial scrutiny of, and potential liability for Canadian corporations' foreign operations in the face of allegations that those operations have been used as vehicles for human rights abuses outside of Canada. It is important to note that the Tahoe decision addressed the issue of appropriate judicial forum, rather than jurisdiction, which Tahoe did not challenge. Plaintiffs will still need to meet the jurisdictional threshold that the conduct abroad has a "real and substantial connection" with Canada, as laid down by the Supreme Court of Canada in the R. v. Libman and Morguard Insurance cases.

For businesses operating abroad the consequences are significant. The result in Tahoe demands heightened efforts to mitigate tension between local communities and host governments lest they come back to haunt the Canadian investor. Such efforts must demonstrate genuine understanding of the issues in question, and the expectations companies put upon themselves by claiming to adhere to certain standards of CSR. The Tahoe plaintiffs highlight that local communities may take a company’s representations concerning its commitments to human rights and other aspects of CSR seriously and at face value.

Download PDF