Ontario’s Superior Court of Justice has denied a motion  to strike out claims by indigenous Guatemalans for human rights abuses, including rape and murder, alleged against security staff employed by the defendant’s Guatemalan subsidiary.

In Choc v. Hudbay Minerals Inc., 2013 ONSC 1414, indigenous Mayan Q’eqchi’ from El Estor, Guatemala brought three related actions against Canadian mining company, Hudbay Minerals, and its wholly controlled subsidiaries.

The plaintiffs claim that security personnel working for Hudbay’s subsidiaries, who were allegedly under the control and supervision of Hudbay, the parent company, committed human rights abuses. The allegations of abuse include a shooting, a killing and gang-rapes committed in the vicinity of the former Fenix mining project, a proposed open-pit nickel mining operation located in eastern Guatemala.

The Court noted that the test for determining whether a pleading should be struck is whether, assuming the facts set forth in the Statement of Claim can be proven, it is plain and obvious that no reasonable cause of action is disclosed. The pleadings should not be struck if there is a chance that the plaintiff may succeed.

Neither the length nor the complexity of the issues, the novelty of the cause of action, nor the potential for the defendant to present a strong defence should prevent the plaintiff from proceeding with his or her case. Only if the action is certain to fail because it contains a radical defect should the pleading be struck out.

The court held that the plaintiffs had not pleaded one of the elements necessary  to pierce the corporate veil, namely that Hudbay had used its subsidiary “as a shield for fraudulent or improper conduct”, that the very use of the subsidiary was to avoid liability for wrongful conduct that it earned out through its subsidiary.

However, the plaintiffs had pleaded sufficient facts to found claims that the subsidiary had acted as Hudbay’s agent and that Hudbay had a direct duty of care to the plaintiffs and was, itself, negligent in failing to prevent the harms that they committed.

The plaintiffs had pled all material facts required to establish the constituent elements of their claim of direct negligence as against Hudbay, separate and distinct from any claims framed in vicarious liability as against it, namely

1. that the harm complained of is a reasonably foreseeable consequence of the alleged breach;

2. that there is sufficient proximity between the parties that it would not be unjust or unfair to impose a duty of care on the defendants; and,

3. that there exist no policy reasons to negative or otherwise restrict that duty.

This decision is not only a victory for the plaintiffs but also for Amnesty International who argued, as intevenor, that international norms, authorities and standards support the existence of a duty of care where a parent company’s subsidiary is alleged to be involved in gross human rights abuses.

Amnesty submitted that transnational corporations can owe a duty of care to those who may be harmed by the activities of subsidiaries, particularly where the business is operating in conflict-affected or high-risk, areas, such as Guatemala. Amnesty also argued that the transnational character of the dispute should not exempt the defendants from the application of established principles of tort law.

However, the decision is not limited to transnational companies. All Canadian companies especially those in the mining and extractive industries, will no doubt wish to give an urgent and careful review of the governance and risk management of their subsidiaries in light of this decision.

To read the, as yet unreported, decision please click here.