Clifford Chance

In a judgment that may prove influential worldwide, the Supreme Court of Canada has cleared a path towards possible liability of corporations for violations of customary international law in Canadian courts.

In Nevsun Resources v Araya (2020) SCC 5, Eritrean workers brought claims against Canadian mining company, Nevsun Resources Ltd (Nevsun), alleging they had been conscripted into forced labour through the country's national service programme and put to work at a mine owned jointly by an indirect subsidiary of Nevsun and the Eritrean National Mining Corporation. The claimants sought damages for domestic law torts, but also for breaches of customary international law (CIL) in the form of slavery, forced labour, cruel, inhuman or degrading treatment and crimes against humanity. The Canadian Supreme Court upheld lower court decisions in favour of the claimants, and the matter will now proceed to trial.

Features of the litigation are not uncommon among cases playing out in other jurisdictions around the world: an ultimate parent company is sued in its home jurisdiction for the alleged involvement of an overseas subsidiary in human rights abuses perpetrated by the authorities of a foreign state. As in other cases, the host state's courts present an unviable source of remedy for victims; and so litigation is initiated far from the place of the alleged abuse, with a key player - the foreign state - absent from the litigation.

Not unusually, Nevsun argued that the case should not proceed because it would require the Canadian court to pass judgment on the official, internal acts of a foreign state. The Supreme Court of Canada decided that the 'act of state' doctrine on which Nevsun relied has never had a place in Canadian law, in contrast with other jurisdictions such as the US and UK.

Multinational corporations will be most interested in the Court's other finding, that CIL is automatically incorporated into Canadian common (non-statutory) law through a "doctrine of adoption". According to the Court, in the absence of conflicting domestic legislation, jus cogens norms - non-derogable prohibitions under CIL including those concerning forced labour and cruel, inhuman and degrading treatment and crimes against humanity relied on by the claimants in this case - are part of judicially-enforceable Canadian law. Therefore, these norms, in principle, form the basis for actionable claims and provide remedies beyond those available under domestic tort law.

Nevsun had argued that CIL does not apply to corporations, a question that has vexed courts and academic commentators over many years. The majority of the Court in Nevsun concluded that the proliferation of international human rights law since the Second World War and its application not only to states but also to individuals means that 'it is "'not plain and obvious" that corporations today enjoy a blanket exclusion under customary international law from direct liability for violations of "obligatory, definable and universal norms of international law", or indirect liability for their involvement in …"complicity offenses".' In its rationale, the judgment somewhat obscures the distinction between the existence of substantive obligations at international law, and a system of liability for their breach applicable to corporations. An initiative to agree a 'business and human rights' international treaty providing for, among other things, an obligation on states to introduce a broadly comparable liability system for corporates has been under negotiation between states since 2014 (and is covered elsewhere).

Despite the progressive nature of the Canadian Supreme Court's judgment on these controversial issues, it falls far short of ensuring eventual victory for the claimants. There remain many serious hurdles for the claimants to overcome before liability for the alleged violations might be established, and the Court's judgment leaves many more questions than it answers. There are not direct parallels between the substance and subjects of the unwritten international legal norms, and the differently constructed domestic regime on which they may now be superimposed. The lower Canadian courts will now have to distil the elements of any new civil cause of action, what must be shown to establish the alleged abuses and how to define, attribute and prove corporate liability for them. The claims are likely to invite intense argument over various uncertain and unsettled principles before a court decides on the appropriate evidence and standards by which to determine whether a cause of action is made out, whether breaches in fact occurred, what principles govern liability and what remedies may be appropriate. The Supreme Court of Canada seemed willing to accept that domestic torts and existing remedies do not provide effective remedy in cases of serious abuse of human rights.

Notwithstanding the residual uncertainties, the Court's pronouncements on corporate liability for violations of international law is progressive and have potentially far-reaching implications. Whilst the judgment no doubt will encourage renewed reliance on international law in litigation elsewhere, it remains to be seen whether other courts will be persuaded that international law has developed as far as the Canadian Supreme Court believes and how this should appropriately be reflected in judge-made law in their jurisdiction.

The scope for similar claims in the US

In the United States, the Alien Tort Statute (ATS) was long seen as the route to remedy for victims of human rights abuse associated with corporations: it grants US federal courts jurisdiction over claims by 'aliens' (non-US nationals) for torts that amount to violations of international law. Over the last decade, the US Supreme Court has whittled down the scope of potential application of the statute, which now enables US federal courts to recognise a small handful of causes of action based on violations of international law, including those of a jus cogens nature. Yet decisions that the ATS does not apply extraterritorially and that it does not apply to foreign corporations have circumscribed the scope of potentially successful claims, and the US Supreme Court has so far sidestepped the need to decide whether US corporations are susceptible to liability under the ATS. The US federal courts of appeal have produced diametrically conflicting judgments on the latter question, and an appeal to the US Supreme Court is currently pending.

The scope for similar claims in the UK

Despite a progressive application of certain principles concerning jurisdiction and international law and a willingness to consider international law in the application of domestic law in recent years, judicial comment to date suggest that English courts take a more discretionary approach to incorporating CIL into domestic law and may prove disinclined to give effect to CIL through the recognition of 'new', directly enforceable causes of action rooted in CIL. English courts have also indicated their reluctance to invoke any form of universal tort jurisdiction over alleged abuses involving foreign governments, which the Nevsun decision can be seen as doing.

Implications for business

The litigation landscape has been rendered more uncertain by the Nevsun judgment. Multinational corporations that wish to avoid becoming mired in lengthy and complex litigation from their overseas operations would be well advised to redouble their efforts to demonstrate respect for human rights wherever they do business.