Legal Background
Leer la versión en español de este contenido: Antecedentes Legales.
What is a Corporation?
Legally considered persons, corporations can amalgamate multiple companies and stakeholders into a single entity. Multinational corporations (MNCs) are corporations that are incorporated in one country but produce and/or sell their products in another country. MNCs (also called transnational corporations) are responsible for the vast majority of mining businesses around the world. These companies often operate through subsidiaries,which are companies controlled by a parent company. While the parent company can exercise significant control over the subsidiary, Canadian law treats the two as separate. It is legal for a parent company to set up a subsidiary with the sole purpose of avoiding legal liability.Understanding the legal connection (and distinction) between a parent corporation and the actions of a subsidiary is important for understanding the legal complexities of international law in the context of resource extraction. There are currently lawsuits before Canadian courts that might set precedents to speed up this process. There is an increased international consensus on the responsibility of parent companies over their subsidiaries, but the ability for regulating these companies has not been developed adequately.
The Corporate Veil & Corporate Liability
The term for shielding parent companies from legal responsibility is called the corporate veil. A company headquartered in Canada can create a subsidiary in a foreign country where it wishes to operate a mine, and it can have any level of supervisory controls over that subsidiary. The law in Canada will treat the two companies (and their actions) as completely separate, even if the subsidiary only exists on paper. A subsidiary and a parent company might have the same board, the same management, and have exactly the same investments, but the risks of operation are only attached to one of the entities. This is the corporate veil. This means that the law makes a distinction between financial participation and legal liability/responsibility. In the Canadian context, this clear gap in accountability directly limits access to justice for victims of human rights and environmental abuses perpetrated by subsidiaries of mining companies. Through a network of subsidiary companies (and the corporate veil), corporations and their shareholders can legally distance themselves from liability.The culture of a legally untouchable parent company headquartered in Canada and operating in a foreign country prevents legal remedies for victims; this is especially true in nation-states where the capacity to effectively hold those responsible to account is weaker. The corporate veil allows mining companies to operate with impunity and is a means through which a cycle of profit over basic human rights is perpetuated.
Piercing the corporate veil in Canadian courts is a complicated legal process with uncertain results for litigants. Theoretically, if the corporate veil is ‘pierced,’ the parent company can be held vicariously liable for the behaviour of its subsidiary. But practically this is notoriously difficult to achieve in Canadian jurisprudence. Due to this uncertainty, one way that lawyers are trying to hold parent companies liable for their responsibility over overseas abuses (this has not happened successfully in Canada yet) is to seek to hold them directly liable for harms caused by their subsidiaries through allegations of a breach of the ‘duty of care’.
In cases of a breach of a duty of care, a parent company is held directly liable in parallel to its subsidiary. This leaves the separate identities of the parent and subsidiary companies intact yet allows for a parent company to be found negligent, usually in conjunction with the subsidiary. In order to get this direct liability to the parent, there is a need for lawyers to establish a direct duty of care to victims. This is an obligation of reasonable attentiveness when dealing with others to prevent reckless behaviour; in the context of MNCs, this means proving that the parent company’s negligence has made it possible for the subsidiary to behave in such a way to allow harmful conduct.
Vicarious liability is more difficult to establish than direct liability because courts fear that litigants will take advantage of a simple process. Since parent companies are larger and have more financial resources, a litigant might strategically decide who to bring to court regardless of the facts of a case. A parent company might be able to pay a bigger compensation than the subsidiary, but by creating a higher bar for vicarious liability, the idea is that litigants need to rely only on the details of the case. The corporate veil has been pierced in the past to ascribe vicarious liability, but taking this direction is risky because courts do not have universally applicable understandings of the law. Across common law jurisdictions, there are huge inconsistencies in the interpretation of vicarious liability.
Conflict of Laws
Another complicating factor in holding MNCs accountable is a concept called ‘conflict of laws’. The legal subject of conflict of laws refers to jurisdiction – the location where a judgement should occur. Canadian conflict of laws (in most provinces) is rooted in the common law tradition. Before a trial can take place, the court must determine if the case has a real and substantial connection of the case to where the court is located (jurisdiction simpliciter). The defendant may argue that even if the court determines it has jurisdiction, the court should still decline to hear the case because there is a more appropriate forum (normally the courts of the state where the harm is alleged to have occurred) that would be more appropriate (known as forum non-conveniens).Forum non conveniens allows courts to dismiss claims if another forum is better suited to try the case. The idea behind this is to prevent litigants from “forum shopping,” which means finding a court in a place with laws that are the most beneficial rather than the most appropriate. Even if the Canadian court can establish the legal authority to adjudicate (jurisdiction) and establish a real and substantial connection to the case, the law gives Canadian courts the ability to refuse the case in favour of the foreign forum.
International Law
In 2011, the United Nations’ Guiding Principles for Business and Human Rights, also known as the Ruggie Principles, were endorsed unanimously by the UN human rights council. This global initiative outlined guidelines for States and companies to prevent and address human rights abuses committed in business operations. The three pillars of the UN framework are: the state duty to protect human rights, the corporate responsibility to respect human rights, and access to remedy. The principles are supposed to work together to improve human rights. However, the second pillar relies on self-regulation by MNCs, ignoring that companies often prioritize profits over respect for human rights (in some jurisdictions their legal responsibilities to shareholders prevents companies from prioritizing rights over shareholder profits). As a result, without a binding international treaty or domestic laws that require companies to adhere to these guidelines, in practice, the Ruggie Principles are contradictory and corporate adherence is at best aspirational.Although a formal approach to international law discounts non-state actors as subjects, it is understood that non-state actors have a lot of power. In recognition of this power, the International Law Commission’s (ILC’s) Articles on State Responsibility for Internationally Wrongful Acts (ASRIWA) outlines the ways that states are considered direct-duty bearers for vicarious behaviour of private actors. This actively acknowledges the impact that private actors like MNCs can have on the international stage.
In an effort to close the international accountability gap that allows corporations to operate with impunity, the United Nations Human Rights Council’s Resolution 26/9 established a working group to develop a business and human rights treaty; this resolution was adopted in June 2014. What makes this treaty remarkable is that it attempts to codify that there is a shared responsibility between states and private actors to defend human rights. The intergovernmental working group was chaired by Ecuador and held sessions in 2015, 2016, 2017, and in July 2018 a Zero Draft was presented. In July 2019, the most recent version draft of the treaty was completed; this draft formed the basis of negotiations for the meeting of the United Nation's group, the Open-Ended Intergovernmental Working Group (OEIGWG) that took place 14-18 October, 2019. A revised draft is due at the end of February 2020.
In this draft, the Preamble states “all business enterprises, regardless of their size, sector, operational context, ownership and structure have the responsibility to respect all rights.” Article 3 states that the treaty would apply to “all business activities, including particularly but not limited to those of a transnational character.” In addition, article 4.9 protects vulnerable persons:
State parties shall take adequate and effective measures to guarantee a safe and enabling environment for persons, groups and organizations that promote and defend human rights and the environment, so that they are able to act free from threat, restriction and insecurity.
The additions to the latest version of the draft create a lot of space for access to remedies. In the context of resource extraction, the most noteworthy part of the draft is article 1.2 where it states that
Human rights violation or abuse” shall mean any harm committed by a State or a business enterprise, through acts or omissions in the context of business activities, against any person or group of persons, individually or collectively, including physical or mental injury, emotional suffering, economic loss or substantial impairment of their human rights, including environmental rights.
Unfortunately, Zero Draft differentiates between legal responsibility and legal liability, meaning that this draft leaves liability and enforceability in the hands of states and their respective national laws. There needs to be a harmonization between international law and national level laws. Canada should act on that. And in the interim, Canada needs to further develop the CORE and introduce mandatory legislation.
Further Resources
These UN instruments provide background information that directly connect corporate accountability to women’s rights:UN Committee on the Elimination of Discrimination against Women, 2016. "Concluding observations on the combined eighth and ninth periodic reports of Canada."
UN Working Group on Business and Human Rights, 2011. "Guiding Principles on Business and Human Rights."
UN Working Group on Mining and Human Rights in Latin America, 2014. "The impact of Canadian Mining in Latin America and Canada's Responsibility."