Legal developments regarding Canadian mining

Matthew Millmanby Matthew Millman-Pilon

Anecdotally, the Canadian flag is commonly found sewn on to the backpacks of our international travelers. The conspicuous yet modest display of our nationality used to make perfect sense, given our reputation as holders of progressive values and friendly demeanors. However, while I value genuine patriotic sentiment, I would caution that, from a strategic point of view, this approach may backfire in certain parts of the world today.

The inertia in our approach to environmental stewardship is certainly a general factor behind the decline of our reputation, and this post will focus on a particularly aggressive aspect of this neglect. Canadian mining companies are dominant players on the international mining scene, and in some cases may have contributed to human rights violations without ever having been held liable. The point of this post is to highlight recent and ongoing legal developments pertaining to these issues.

While I am currently working for One Earth Future on a report about human rights concerns surrounding state-owned oil companies from emerging economic powers such as China, I learned that Canadian enterprises are also seriously implicated in these issues. Approximately 75% of the world’s mining companies are Canadian in the sense that they are based here and listed on our stock exchanges, such as the TSX.

A leaked report commissioned by the Prospectors and Developers Association of Canada found that out of 171 companies identified in incidents involving extractive companies in the decade leading up to 2009, 34% involved Canadian companies. Incidents included cases of community conflict, environmental degradation, and unethical behaviour. It should be noted that methodological issues with the report have been raised, and that the numbers correspond with Canada’s position in global mining. The scope and severity of Canada’s contributions to these violations may be hard to precisely assess, but at the very least and in careful language, I think one could say that there is a problem that needs fixing.

Of course, mining operations within Canada are certainly contentious, particularly with regard to their impact on the environment and ignorance and neglect of aboriginal rights, and I look forward to learning about our domestic situation in this fall’s mining law seminar course. But when it comes to mining operations abroad, the situation is absolutely void of Canadian regulation.

Instead of regulation, there are voluntary principles and corporate social responsibility practices. In 2010, private member’s Bill C-300 was narrowly defeated in the House of Commons by a final vote of 140 to 134. The bill would have mandated DFAIT to set corporate accountability standards for Canadian oil and mining operations abroad. More importantly, it would have established a process whereby foreigners impacted by the operations could lodge complaints, which would then be investigated. If the investigation confirmed corporate non-compliance with the standards, then public financial support, such as from Export Development Canada and the Canada Pension Plan, could have been withdrawn as a consequence.

The extractive industry was vigorous in its opposition to the bill. For example, in its lobbying effort, the Prospectors and Developers Association of Canada stated that the proposed measures were unprecedented and would have rendered Canadian companies uncompetitive. Interestingly, it advocated waiting for specific recommendations to be made by John Ruggie, who at that time was leading the incorporation of the UN’s Guiding Principles on Business and Human Rights into the OECD’s Guidelines for Multinational Enterprises. The very same month that the vote took place, Ruggie actually stated that “the option of denial of public advantages must be kept on the table”.

In opposing the bill, former Minister of Natural Resources Lisa Raitt argued “The complaints process itself in the bill is irresponsible because it would offer no protection for responsible Canadian companies that are faced with false allegations.” This concern seemed to echo that of the Association of Mineral Exploration British Columbia, which worried that “Although section 4(7) of C-300 allows the Ministers to dismiss a complaint determined to be “frivolous or vexatious,” they must also provide reasons for this determination and publish these reasons in the Canada Gazette. This requirement will make it almost impossible to dismiss a complaint, out-of-hand, without some sort of an examination”. Personally, I do not consider out-of-hand dismissals as an effective method for change, and I consider the underlined portion to be desirable.

The vote was close. The issue is clearly divisive. I don’t agree with the Mining Injustice Solidarity Network that CSR and voluntary principles are “meaningless industry jargon”, but I certainly believe they should be supplemented by “hard laws” to deal with serious violations.

Since C-300 was shot down, human rights violations surrounding resource extraction have remained global impediments to peace and sustainable development. For example, Hudbay Minerals, a Canadian mining company founded in 1927, is facing three lawsuits regarding alleged murders and rapes committed in 2009 by security personnel belonging to one of its subsidiaries in Guatemala. The victims were Mayan Q’eqchi’ opposing mining operations or occupying contested territory (after these incidents, Guatemala’s highest court ruled that the Q’eqchi’ had legal rights to the contested lands).

Hudbay’s defense alleged that there was no cause of action. First, it argued that the subsidiary operating in Guatemala was a distinct legal entity and that the criteria for piercing the corporate veil were not met. It also argued that there was insufficient foreseeability and proximity to establish a duty of care between Hudbay HQ and the Q’eqchi’, and that holding them responsible would be akin to holding them vicariously liable for the actions of their subsidiary. Of note, Hudbay’s defense also argued that policy considerations negated the recognition of a novel duty of care, and listed Bill C-300’s defeat as evidence of that policy.

In June 2013, the Superior Court of Ontario dismissed Hudbay’s motion to strike, ruling that it was possible for the plaintiffs to prove that the subsidiary was acting as an authorized agent of Hudbay and that the elements of a novel duty of care could be demonstrated. NGO’s have interpreted this to mean that a “Canadian company could be held legally responsible for crimes committed in Guatemala”. I would put emphasis on the “could”.

On the legislative side of things, in the U.S., the Dodd-Frank Wall Street Reform Act mandated the Securities and Exchange Commission (SEC) to issue a rule that would require SEC-listed extractive companies to issue an annual report disclosing any payments made to foreign governments, including the type and amount of payment for each individual project. The main idea is that by making the exchanges between extractive companies and foreign governments more transparent, citizens in resource-rich countries will be able to hold their governments more accountable for their use of the revenues, decreasing corruption and increasing benefits to the population and affected communities.

The SEC issued a strong rule in 2012, requiring that the disclosures be public, disaggregated, and free from exemptions. The American Petroleum Institute successfully challenged the SEC’s rule, arguing that full public disclosure would render extractives companies uncompetitive and would violate contracts with countries that prohibit public disclosure. The U.S. District Court remanded the rule to the SEC to be rewritten, ruling that the SEC misread Dodd-Frank’s mandate regarding public disclosure and that its refusal to recognize exemptions was “arbitrary and capricious”. The SEC plans to release its second attempt at a rule by March 2015.

While the U.S. efforts have stalled, they have spurred similar endeavors in the EU, Norway, and Canada. In June 2013, Stephen Harper announced that Canada would adopt transparency rules requiring disclosure of payments by Canadian extractive companies to foreign and domestic governments. In March, Minister of Natural Resources Joe Oliver asked for provinces to adopt the measures through their own securities regulators. Otherwise, the plan is for federal legislation to be enacted by April 2015.

Considering that similar legislation will be implemented in Europe and the States, it is unlikely that these measures will be successfully attacked as anti-competitive. Hopefully, legislators won’t be deterred by the petroleum lobby’s challenge of Dodd-Frank and will draft strong laws requiring project-level and public payment disclosures without exceptions, as recommended by the Resource Revenue Transparency Working Group.

Although revenue transparency by itself is far from sufficient to tackle the resource curse, it is a laudable first step, and hopefully one that we can take without faltering. Eventually, however, if Canada truly seeks a reputation as an international leader in promoting human rights, I believe a closer examination of our extractive industry is called for, along with mechanisms to hold Canadian corporations accountable for any possible contributions to human rights violations.

Leave a Reply

Blog authors are solely responsible for the content of the blogs listed in the directory. Neither the content of these blogs, nor the links to other web sites, are screened, approved, reviewed or endorsed by McGill University. The text and other material on these blogs are the opinion of the specific author and are not statements of advice, opinion, or information of McGill.