Legal Background
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 parent company. The parent owns at least 50% of the voting stock of the subsidiary, but under common law (the legal system used in Canada) the two are distinct.
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. Establishing a strong link between the actions of the subsidiary and the responsibility of the parent company, creating liability through the supply chain, can be the most successful method for achieving transnational justice in courts of law. There are currently lawsuits before Canadian courts of law might set precedents to speed up this process.
The Corporate Veil & Corporate Liability
The term for exempting shareholders from legal responsibility is called the corporate veil. This means that the law makes a distinction between financial participation and legal culpability. 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 determine in Canadian jurisprudence. Due to this uncertainty, one way that parent companies have been held liable for their subsidiary’s misconduct has been 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 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 to receive a bigger compensation than the actual perpetrator (the subsidiary) would be able to pay. 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. These questions are called jurisdiction simpliciter and forum non-conveniens. Judicial competence is determined through these questions to ensure that there is not a more appropriate court where the litigants could also have a fair trial.
Of relevance to resource extraction cases involving MNCs facing negligence charges is that lex loci delicti (the place where the tort/crime was committed) is the applicable law determining where trials take place. This means that Canadian courts will reject all cases unless it can be proven that the laws of a foreign country cannot be trusted for their validity due to judicial incompetence. The idea behind this law 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.
International Law
In 2011, the United Nations’ Guiding Principles for Business and Human Rights, also known as the Ruggie Principles, were endorsed. This global initiative defined the requirements for countries and companies to establish policies, standards, and procedures for their corporate responsibilities. The three pillars 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, but the second pillar relies on self-regulation from the MNCs that by law (through responsibilities to their shareholders) need to prioritize profits over human rights, which, in practice, make the Ruggie Principles contradictory and 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.
Going against the idea that international law can only preside over the behaviour of private actors when related to the state, 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 will form the basis of negotiations for the next meeting of the United Nation's group, the Open-ended Intergovernmental Working Group (OEIGWG).
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:
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 thatState 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.
Article 1.2 of Zero Draft establishes that, according to internationally recognized resolutions, there is a space for negligence claims and environmental damage to be legally significant in Canadian courts. This draft is ascribing legal responsibility, and standing, to MNCs.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 to the hands of states and their respective national laws. There needs to be a harmonization between international law and national level laws. In the interim, however, Canada needs to further develop CORE and mandatory legislation.
Further Resources
These UN instruments provide background information that directly connect corporate accountability to women’s rights:
- UN Working Group on Business and Human Rights
- The UN Committee on the Elimination of Discrimination against Women: CEDAW
Sources
- Thomas Donaldson & Lee Preston, “The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications,” Academy of Management Review 20, no. 1, (1995)
- Lee McConnell, “Extracting Accountability from Non-State Actors in International law: Assessing the Scope for Direct Regulation”
- Anil Vastardis & Rachel Chambers, “Overcoming the Corporate Veil Challenge: Could Investment Law Inspire the Proposed Business and Human Rights Treaty?,” ICLQ 67 (2018): 389-423
- Khimji & Nicholls, “Piercing the Corporate Veil in the Canadian Common Law Courts: An Emperical Study,”
- Tetiana Kravtsova & Ganna Kalinichenko, “The Vicarious Liability of Parent Company Liability for its Subsidiary,” Corporate Ownership & Control, 14, no. 1, (2016)
- Adams v Cape Industries plc [1990]
- Walkovszky v Carlton, 223 N.E.2d 6 (N.Y. 1966)
- Jonathan Hill & Maire Ni Shuilleabhain, “Clarkson & Hill’s Conflict of laws 5 th edn,” Oxford University Press, (2016)
- Lee McConnell, “Assessing the Feasibility of a Business and Human Rights Treaty,”: 146-147
- Rafael Domingo, “The Crisis of International Law,” Vanderbilt Journal of Transnational Law, 42, (2009): 1543-1593
- Robert McCorquodale, “Beyond State Sovereignty: The International Legal System and Non-State Participants,” International Law: Revista Colombiana de Derecho Internacional, 8 (2006):103-159
- Anne Trebilcock, “Due diligence on labour issues – Opportunities and limits of the UN Guiding Principles on Business and Human Rights” in Research handbook on transnational labour law ed. Adelle Blackett & Anne Trebilcock, Edward Elgar Publishing, Cheltenham (2015)