Canadian mining in the courts – the lowdown on litigation with McCarthy Tétrault
For Canadian mining companies getting caught up in litigation can be costly and time-consuming, but due to inevitable resistance to new projects and the expanding legal landscape it is often unavoidable. Specialist lawyers from Canada-based law firm McCarthy Tétrault discuss the keys cases and developments shaping mining litigation in 2014.
Canadian courts have been slow in keeping up with the country's globally operating mining industry, which accounts for two thirds of all mining companies worldwide. In recent years several notable cases have signalled the courts are finally catching up with the scope of the industry and are giving precedence to local opposition, most notably from First Nations, as well as those outside of Canada to be heard legally. The result is that Canadian mining companies are now finding themselves open to litigation more than ever.
For three years lawyers at Canadian law firm McCarthy Tétrault have compiled a review entitled 'Mining in the Courts: Year in Review', which details significant cases that have set a precedent and will inevitably affect the outcome of future law suits involving Canadian mining companies.
Partners Nicholas Hughes, Aidan Cameron and David Hamer discuss important litigation developments relating to First Nation vs Crown cases, human rights abuse, legal liability of parent companies as well and individual liability.
Heidi Vella: How has greater regard for First Nation rights influenced legal proceedings in Canada?
Nicholas Hughes: I think what is most important is there is a series of law suits that were commenced here [in British Columbia (BC)] and they ultimately exhibit a trend away from an expansive view of aboriginal claims. The courts seem to be narrowing down the duty to consult First Nations [in Canada the Crown must adequately consult with First Nations or Aboriginals who have a claim on land where a new mine is being proposed before approving it. This is due to the final decision in the 2004 Haida case. The overall final decision, however, lies with the Crown].
Essentially what has happened here is we have a fairly creative First Nations legal bar that promotes First Nations' rights and they have been pushing the boundaries of First Nations' rights with new cases all the time and slowly but surely they appear to have crossed a line the court is not willing to go across.
There are a series of cases and one talked about in the 'Mining in the Courts' report is the Louis decision [the British Columbia Court of Appeal determined that Crown consultation with a First Nation with respect to a mine expansion does not have to encompass impacts of the existing mine]; in some respects that is probably the latest in the string of those decisions that are clamping down on the need to consult. That also has the advantage of being a BC Court of Appeal decision so it has got significantly more presidential value.
HV: What are the most common reasons for legal action brought against a mining company or against the Crown?
NH: Almost invariably projects have to take in consideration First Nations' interest from the get go and if they don't they will suffer the consequences later. I think the majority - 99% - of projects have First Nation issues in Northern Canada which they have to contend with one way or another. You can contend with it through agreement or negotiation, or if that doesn't work you will wind up in court at some point in time.
The number of controversial mining projects around the world is on the rise and 2013 was no exception.
There is anti-development sentiment all over the country; be it First Nation communities or local communities or the urban centres. What happens is the average citizen only has a limited legal tool kit as to how they can stand in the way or oppose developments. The First Nations have a few extra tools in their tool kit that allow them to exercise their claims to Aboriginal right or Aboriginal rights to put a halt to projects. Basically, what happens is, in most resource projects, there has to be some concession from the Crown of a resource to a resource developer or there has to be some approval, whether it is environmental, whether it is in relation to explosives - the Crown has to consent to allow the developer to proceed.
Right of duty to consult and corresponding ability to force the Crown to consult is an additional tool that First Nations have to bring projects to a stop.
Aidan Cameron: One interesting thing we have seen recently is mining companies standing up and actually commencing litigation on their own asserting that they have suffered losses due to the Crown's failure to adequately discharge its duty to consult. That is a relatively new development that we are seeing in Canada. There is one decision in BC where the BC Supreme Court actually found the government liable for losses that a contractor had suffered. There are some cases in Ontario that are still in the early stages, no decisions yet, where similar allegations are being advanced against the government.
HV: The Choc vs Hudbay case has received lots of media attention for opening up liability in regards to human rights abuses overseas. Can you comment on this?
David Hamer: I actually think the significance of that case in Canada as decided so far is highly overrated. [The Superior Court of Ontario ruled in 2013 that lawsuits against Hudbay Minerals regarding shootings, murder and gang rape at its former mine in Guatemala can proceed to trial in Canada.] There has been a lot of panic talk in the newspapers about it being a case that overrides separate corporate personalities and the corporate veil being pierced, and so on. All the case has decided so far has been a couple of pleading points, that is, is the statement of claim against Hudbay an adequate document stating a claim that can be proceeded with or should the claim be struck out before it is heard in court?
It is a very low threshold to satisfy an Ontario court that claims should not be struck out. The only thing that has been decided is that these plaintiffs should be able to proceed. I don't think it is a groundbreaking case in any way.
Having said all that, if the claims as set out in the statement of claim in writing were to succeed at trial after evidence and after argument about what the law really is on this point, that would be concerning. I think it is a case that will be followed very closely by the mining industry and the extraction industry generally.
HV: There have been new developments in regards to companies with subsidiaries working overseas that can now be taken to court in Canada. What's most important to note here?
Shell Canada and Caterpillar are testing a new engine and fuel mix using liquefied natural gas (LNG).
DH: The Chevron case [the Ontario Court of Appeal ruled in December 2013 that Ontario was a proper jurisdiction for Ecuadorean plaintiffs to press Chevron to pay up US$9.5bn awarded to them in an Ecuadorean court in 2011 for pollution of the Amazon. The Supreme Court of Canada is set to hear an appeal from Chevron] is, in my view, somewhat more interesting. It basically says that if I am a global holding company, that is Chevron US, and I have a subsidiary in Canada, the subsidiary is obviously subject to Ontario jurisdiction because it is in Ontario. But if I am a parent holding company with no establishment in Ontario at all, if am the US global parent, I can be dragged into an Ontario court to defend an action to enforce a judgment that was obtained in any country in the world because I have that subsidiary in Ontario.
That is an important and concerning development. Basically the way the Court of Appeal in Ontario got there was to say it is not just that the US holding company owns Chevron Canada, they have an active business relationship between themselves with chains of subsidiaries and sub-subsidiaries and so forth passing dividends up and funding down; that is a sufficient relationship for an Ontario court hearing an action to enforce an action, not just against Ontario Canada, but also Chevron US.
Now it may seem a little bit academic because the judge at first instance thought, 'how are the plaintiffs going to enforce their Ecuador judgment against Chevron US in Canada when Chevron US isn't even here [in Canada]'.There seems to be a suggestion in the court of appeal's reasons that the plaintiffs may be able to go after Chevron Canada and its assets at the end of the day - even though Chevron Canada had nothing to do with anything that happened in Ecuador. Again, though, nothing has been finally decided. All that has been decided is that these plaintiffs can proceed with their action to enforce the Ecuador judgment which has been thrown out in the US.
HV: Barrick Gold was the first Canadian mining company to sign up to the Voluntary Principles on Security and Human Rights initiative. Do you think initiatives like this are worthwhile?
DH: A number of respected organisations are promoting the idea that it is better for the NGO community and for business to be talking to one another and cooperating with one another than to be fighting all the time. There is a lot of trust that still that has to be built there. I think it is very good for industries and the NGO community to engage with one another constructively rather than meeting in the alley way for a fight. The big question is whether the interests of the two sides can really be reconciled in the long run. I think they can but that is more aspiration than what is always demonstrated.
HV: There have also been some interesting personal liabilities cases recently. Are these on the rise?
NH: From a regulatory perspective directors' and officers' liability has been around for some time and typically regulatory provisions contain provisions that say where a director or officer accented or caused or was responsible for making a decision that gave rise to the offence, then the director and the officer can also be charged with the offence. That is the process being taken for regulatory offences across the board - environmental, security related, and so on. Then there is civil liability, but typically there is none for directors and officers. Then along comes contaminated site legislation and now directors and officers have the potential for civil liabilities in respect to contaminated sites.
Canadian companies have been loath to name individual directors unless there is some wrongdoing, that is, an absolute refusal to come to the table with their companies or sticking to jurisdictional demands. In circumstances like that various regulators have stepped out and posed personal liability on the directors.
Northstar has taken this to the extreme. The Ontario ministry named a whole series of directors, including current and former directors. Some of these people would have had no involvement in the company during the period of time it was contaminating but just happen to be there due to their status.
The brutal thing about this case is it was so expensive for the parties to try and litigate their way out they gave up and paid a bunch of money to avoid any further prosecutions against them. So, nine or ten of directors paid up several millions of dollars [$4.75m] to crawl out from underneath this liability. When individuals have to pay this amount of money it is a significant impact and it may slowly but surely make it harder and harder to get directors.