New Supreme Court of Canada guidance on liability for Canadian clients operating overseas

If you place commercial liability insurance for clients with supply chains outside of Canada, be sure and check out Friday’s Supreme Court of Canada ruling in Nevsun Resources Ltd. v. Araya.

In its divided ruling, Canada’s top court ruled that Canadian firms can be sued in Canada for alleged breaches of “customary international law” by partners abroad.

Friday’s ruling means a lawsuit by Eritrean refugees against Vancouver-based Nevsun can proceed in the British Columbia Supreme Court.  Nevsun’s appeal was heard in January 2019. Nevsun is 60% owner of the Bisha mine in Eritrea, which produces gold, copper and zinc. The plaintiffs in the case allege that workers were conscripted by the Eritrean military to work on constructing the mine.

The allegations against Nevsun have not been proven in court. Given the top court’s ruling, Nevsun has exhausted its last attempt to have the case thrown out of court. It will now be up to a B.C. provincial judge to rule on whether Nevsun is in fact liable for a breach in customary international law.

Along with companies controlled by the Eritrean government, the Eritrean military is alleged to have used forced labour to build the Bisha mine and related infrastructure. Plaintiffs took Nevsun to court in B.C., arguing that the firm should be held partly liable for the conduct of the corporations that built the mine, as well as for the conduct of Nevsun’s indirect Eritrean subsidiary.

With Friday’s ruling, the Supreme Court of Canada has rejected Nevsun’s contention that violations of “customary international law” do not give rise to a civil cause of action for damages in Canada.

The Nevsun ruling might provide some guidance on the liability risk to Canadian companies with supply chains overseas in areas with sub-standard or non-existent protection for workers, said Chris Burkett, then a Toronto-based partner with Baker McKenzie, in an earlier interview with Canadian Underwriter. Burkett made his comments after the top court heard Nevsun’s appeal, but months before the ruling was released. He has since been appointed national leader for Deloitte’s legal market practices.

“There is a real question mark in Canadian law about whether liability can extend to the end-user in the supply chain,” said Burkett, a lawyer who has conducted internal investigations of anti-corruption and human rights compliance issues for multinational corporations and their subsidiaries. He was referring to companies who buy goods in developing countries where labour laws are lax, non-existent, or not enforced.

Burkett was asked about Arati Rani Das, et al. v. George Weston Limited, a Court of Appeal for Ontario ruling released in 2018. Weston arose in 2013 when the Rana Plaza near Dhaka, Bangladesh collapsed, killing thousands. A plant in that that plaza was making clothing for Joe Fresh, a unit of Loblaws. The lawsuit was dismissed in Ontario because the Superior Court of Justice ruled the clothing manufacturer that was operating out of Rana Plaza was neither a subsidiary of Loblaws nor an independent contractor of the sort that could trigger vicarious liability. The plaintiffs’ application for leave to appeal to the Supreme Court of Canada was dismissed this past August.

With Nevsun, a motion from the defendant to have the Eritrean refugees’ case thrown out of court was initially denied in 2016 by the B.C. Supreme Court, a ruling upheld by the B.C. Court of Appeal.

B.C. judge Patrice Abrioux ruled the plaintiffs were not bound to lose and the lawsuit should be allowed to proceed for a full contextual analysis at trial.

“Customary international law is automatically adopted into domestic law without any need for legislative action,” Justice Rosalie Silberman Abella wrote for the majority of the Supreme Court of Canada.

The customary international law breaches that are now causes of action in Canada include forced labour and cruel, inhuman, or degrading treatment.

Plaintiff Gize Yebeyo Araya alleges he voluntarily joined the Eritrean military in 1997. He contends that instead of being released after completing 18 months of service, as he expected, he was forced to stay in the military. According to Araya, he was deployed to work at various sites, including the Bisha mine, in 2010. The following year, Araya escaped.

As an intervenor in favour of Nevsun, the Mining Association of Canada argued against creating a civil cause of action in Canadian law for breaches of customary international law.

In dissenting opinions, two Supreme Court of Canada judges, Suzanne Côté  and Michael Moldaver, sided with Nevsun. The plaintiffs’ claims fall in the realm of international affairs for resolution in accordance with the principles of public international law and diplomacy, Justice Côté wrote. The doctrine of sovereign immunity would prevent the plaintiffs from suing the Eritrean government in B.C, she noted.

“Although a court has the institutional capacity to consider international law questions, it is not legitimate for it to adjudicate claims between private parties which are founded upon an allegation that a foreign state violated international law. The adjudication of such claims impermissably interferes with the conduct by the executive of Canada’s international relations,” Justice Côté  wrote in dissent.