Summer 2018

The UK and Canada are taking steps to regulate the area of business and Human Rights (“BHR”)

Introduction

Multinational businesses are facing increasing pressure to stay abreast of the rapidly developing field of business and human rights law in their home States and in the host States where they operate.  The United Kingdom and Canada are taking the lead among home States in adopting new regulatory initiatives in response to concerns about the human rights impacts of their corporations operating overseas.  Both countries have adopted innovative forms of legislation with extraterritorial regulatory effect in recent years.  The courts of both countries also are showing signs of being more amenable to entertaining claims against parent companies for human rights impacts involving their subsidiaries overseas.  The costs of non-compliance with new regulation and of defending against the new wave of lawsuits are high and reputational damage can be severe.

Legal and regulatory developments in the UK

In recent years, the UK has relied on the jurisdiction it possesses over UK domiciled parent companies to regulate the human rights impacts of those companies and, through them, their subsidiaries overseas.  For example, the Companies Act 2006 requires all UK listed companies to publish a strategic report containing information about social, community and human rights issues, including information about the companies’ policies and the effectiveness of those policies.

The Modern Slavery Act 2015 requires any company, wherever incorporated or listed, that supplies goods and services in the UK, with an annual global turnover of more than GBP 36 million, to publish an annual slavery and human trafficking statement on its website.  The statement should outline the steps taken by the company to ensure that slavery and human trafficking is not taking place in any of its supply chains and in any part of its own business. Beyond the reporting requirements, the Modern Slavery Act also created an Independent Anti-Slavery Commissioner and established slavery and human trafficking as criminal offences.

Claimants have been relying on the jurisdiction English courts possess over UK-domiciled parent companies to bring claims involving the human rights impacts of those companies and their overseas subsidiaries.  Vedanta, Unilever and Shell, for example, have faced claims before English courts regarding the alleged impacts of their subsidiaries’ operations overseas.  The jurisdiction to entertain these claims has been challenged in all three cases.  After the Court of Appeal affirmed jurisdiction over Vedanta and its Zambian subsidiary in 2017, the defendants appealed to the Supreme Court and a decision is expected in 2018. The claimants in Shell lost on the basis of jurisdiction at the Court of Appeal and reportedly are seeking permission to appeal to the Supreme Court, while the claimants’ appeal on the issue of jurisdiction in Unilever was rejected before the Court of Appeal.

The recent wave of claims against English parent companies and their foreign subsidiaries includes claims for actions taken by third parties, particularly police forces.  For example, a case against African Minerals concerns allegations that the defendants had been complicit in alleged police abuses in Sierra Leone during demonstrations by local villagers against an iron mine.  The case is ongoing and the High Court took what appears to be an unprecedented decision to hold two weeks of the six-week trial in Sierra Leone, with the presiding judge travelling to Sierra Leone’s capital, Freetown, to set up a makeshift courtroom.

Similarly, in Vilca & Ors v Xstrata Limited & Anor, the claimants were members of a local community in Peru who were alleged to have sustained injuries or been killed by Peruvian police during a protest at a copper mine.  That case was dismissed because of an expired limitation period under Peruvian law, but a similar claim has been filed case against Gemfields Limited, a London-based mining company that owns Fabergé.  That case involves claims that artisanal miners and members of communities surrounding Gemfields’ Montepuez Ruby Mine in North Mozambique have suffered serious human rights abuses over many years at the hands of security forces associated with the Mine.

Legal and regulatory developments in Canada

Canada has introduced administrative processes to promote human rights in international business.  In January 2018, the government announced the Canadian Ombudsperson for Responsible Enterprise (CORE), which will have a mandate to investigate complaints brought against Canadian companies for alleged human rights abuses committed abroad.  CORE’s role will be to receive complaints, gather facts and then make and monitor recommendations based on its findings.  It may recommend certain sanctions against companies violating human rights, which may include the Canadian government withholding trade commissioner services or access to government export credit.  In addition to CORE, the government will establish an advisory body on responsible business conduct, with a mandate to advise on further legal and policy development relating to business and human rights.

Three Canadian mining companies are defending lawsuits by foreign plaintiffs in Canadian courts based on alleged human rights abuses at mine sites outside of Canada. Two claims, one against Hudbay Minerals and another against Tahoe Resources, arise from separate activities in Guatemala. In both cases, the plaintiffs’ claims have survived motions by the defendant company to dismiss or stay the claims on legal or jurisdictional grounds and are now moving towards trial. A third claim, against Nevsun Resources, is based on allegations about a mine in Eritrea. In late 2017, the British Columbia Court of Appeal dismissed similar motions by the company. Nevsun requested leave to appeal to the Supreme Court of Canada and leave was granted in June.

There have also been business and human rights claims outside of the mining sector in Canadian courts. A group of survivors and relatives of victims of the 2011 Rana Plaza disaster in Bangladesh brought a proposed class action in Ontario. The defendants included well-known Canadian retailer Loblaws Inc. which sells a brand of clothing called Joe Fresh. A Loblaw affiliate company indirectly sourced garments from the closing factory at Rana Plaza. The plaintiffs claimed Loblaws owed them a duty of care on account it adopting company-wide corporate social responsibility standards. They also argued Loblaws was vicariously liable for the negligence of its suppliers. In 2017, the defendants succeeded in obtaining an order dismissing that claim as disclosing no reasonable cause of action and without certifying the claim as a class proceeding. A claim against the company Loblaws hired to audit the Rana Plaza factories was also dismissed. The judge found no duty of care under either Bangladesh law or Ontario law. The plaintiffs have appealed to the Court of Appeal for Ontario.

 

Practical implications for companies in the UK or Canada

As these developments show, legislators and courts in the UK and Canada are finding innovate ways to pressure parent companies with respect to their subsidiaries’ operations overseas.  There have not been any reported enforcement actions against companies for non-compliance with the new regulations, judgments on the merits against parent companies for overseas human rights abuses in either jurisdiction or claims before the CORE yet.  Nonetheless, the prospect of enforcement actions is real and imminent, and some companies have paid significant settlements, in addition to high legal fees and extreme costs to their reputations, in transnational tort cases in both jurisdictions.  The legal and regulatory risks relating to the human rights impacts for transnational corporations are likely to keep mounting.

There are, however, steps a company can take to minimise its chances of becoming the target of an enforcement action, a transnational tort lawsuit or a CORE complaint, even while its subsidiaries operate in challenging overseas environments.  As a preliminary matter, companies must comply with the transparency and reporting requirements set forth in the new regulations in the UK.  They also should adhere (not just proclaim adherence) to company codes of conduct and international guidelines on the risks of human rights abuses, such as the VPs and UNGPs.  In essence, that means, to avoid legal and regulatory risk, UK and Canadian companies should do due diligence on human rights impacts throughout their supply chains and in respect of third parties linked to their operations; establish internal compliance mechanisms and incorporate human rights provisions into contracts;  provide training for employees, contractors and third party security forces; initiate prompt investigations (internally or through outside counsel) when abuses do occur; and establish grievance mechanisms capable of providing effective remedies for human rights abuse.

There is good news here for UK and Canadian companies.  Companies that take preventive measures and think critically about corporate compliance and responsibility with respect to human rights are much more likely to avoid the new legal and regulatory risks emerging in their home countries.  While it may require some change in thinking to consider the human rights risks to others caused by the company and its subsidiaries, rather than focusing only on risks to the companies themselves, such a change in thinking is not unprecedented.  Most companies today have internalised the risks associated with bribery and environmental impacts, for example.  Just as in those areas, there are practical ways to internalise the risks associated with human rights impacts.  As this briefing has shown, doing so is no longer a matter of voluntary corporate social responsibility, but rather a matter of legal and regulatory compliance.