When Is The Parent Company Liable?

liability

A recent ruling the by Supreme Court of Ontario, Canada, has held that lawsuits relating to alleged human rights abuses by security staff of a Canadian subsidiary in Guatemala may proceed to trial in Canada.

Prior to the historical ruling, any actions for harms caused (human rights, environmental abuses or the like) by subsidiaries of Canadian companies could not be heard in Canada (but rather in the territory of where the alleged abuses took place). Consequently corporate head offices in Canada have never been held responsible for the harms caused at their subsidiaries.

Whilst paving the way in the present case and any future lawsuits, it is still however yet to be determined whether the defendant in the case will be able to rely upon antiquated corporate law arguments which state that a corporate head office is not legally responsible for the harms caused by its wholly-owned and controlled subsidiary.

The ruling sets a ground breaking legal precedent and could have far-reaching implications for Canadian companies operating in locations throughout the world and their legal liability for abuses committed in those locations.

In the UK, where these type of cases have already been established there is the potential that they could be used by other Common Law jurisdictions as a basis for future decisions. From the 2009 white paper Duty of Care of Employers for Protecting International Assignees, their Dependents and International Business Travelers, the paper summarizes on page 17 a particular case as follows:

In the case of ¨Lubbe and Other appellants v Cape PLC [2000] 1 W.L.R 1545, which involved South African miners, working for a subsidiary of a U.K. company, brought an action in the U.K. alleging breach of Duty of Care because the company exposed them to asbestos. The issue decided in this case was whether the U.K. or South Africa was the appropriate jurisdiction for their claims. The employer argued successfully to stay the action due to his connections in South Africa. The miners appealed the decision to the House of Lords.

The House of Lords ruled that jurisdiction was appropriate in the U.K. against the parent company employer. With regard to jurisdiction, the court must apply the principle of choosing the forum most suitable for the interestsof all parties and for the ends of justice. Based on several factors, South Africa was not the appropriate or convenient forum and stay was not upheld. The damage issue was not determined.“

Particular attention should therefore be paid to cases where employees are working or employing contractors in other jurisdictions, and company policies and relevant agreements should be reviewed carefully as case law in this area evolves.

We shall keep you updated of any developments but we welcome you to contact us if you want to look closer at the issue.

For an American perspective and a more detailed look at the issue we have included a great article from the American Law Association.

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