The big question mark on supply chain liability risk

What liability risk do Canadian corporate clients face if they have supply chains in countries where workers are vulnerable to abuse or unsafe working conditions?

It’s an open question right now, but brokers could get some guidance once the Supreme Court of Canada issues its decision in an appeal from Vancouver-based Nevsun Resources Ltd., lawyers suggest.

Some Eritrean refugees in Canada want to sue Nevsun in British Columbia. Plaintiffs allege they were threatened with physical punishment and imprisonment if they did not work at a mine in Eritrea. The case is still before the courts. Plaintiffs are not alleging that Nevsun itself forced people to work, but that the Eritrean military did and that Nevsun shares some liability. Allegations that Nevsun is liable have not been proven.

A Canadian company with a global supply chain should probably be taking a good hard look at working conditions even if the workers do not work for a direct subsidiary, regulatory lawyer Yusra Khan said in a recent interview.

For risk managers, the big question is, how do you do that in practice?

“It’s easy to check your factory if it’s in Brampton, Ontario,” she said. “You just walk the floor and take a look. It’s harder if it is in a developing country and they are a subcontractor.”

In Gize Yebeyo Araya, et al. v. Nevsun Resources Ltd., the issue before the Supreme Court of Canada – which heard Nevsun’s appeal this past January – is not on the merits of the case. Instead, the issue for the court to decide is whether a Canadian court has jurisdiction to hear the lawsuit.

The Supreme Court of Canada’s ruling in Nevsun has not been released yet, a spokesperson for the top court told Canadian Underwriter Tuesday.

Once it is released, the ruling could help clarify when clients could have liability risk, if they are seeking supply in the developing world in places where labour laws non-existent or unenforced, said Chris Burkett, Toronto-based partner with Baker McKenzie, in a recent interview.

In Nevsun, a key issue is the plaintiffs’ argument that alleged wrongdoings contravene customary international law. Nevsun argued that violations of customary international law do not give rise to a civil cause of action for damages in Canada.

A motion from Nevsun to have the case thrown out of court was denied in 2016 by the B.C. Supreme Court. That ruling was upheld the following year by the province’s appeal court, so Nevsun appealed to the Supreme Court of Canada.

In a separate case – Arati Rani Das, et al. v. George Weston Limited – the corporate owner of the Loblaws supermarket chain was sued in Ontario. George Weston and Loblaws won. The plaintiffs were victims of the 2013 Rana Plaza tragedy in Bangladesh, and their surviving family members. Thousands died when a building containing a garment factory collapsed. One firm in that factory was making clothing for Joe Fresh. Loblaws was alleged to be vicariously liable for negligence on the part of suppliers and sub-suppliers. The Court of Appeal for Ontario court disagreed, finding that the clothing manufacturer that was operating out of Rana Plaza was neither a subsidiary of Loblaws nor an independent contractor of the sort that could trigger vicarious liability. The Supreme Court of Canada recently dismissed the plaintiff’s application for leave to appeal.

“There is a real question mark in Canadian law about whether liability can extend to the end-user in the supply chain,” said Burkett, a lawyer who has conducted internal investigations of anti-corruption and human rights compliance issues for multinational corporations and their subsidiaries.
“Whether or not a company is ultimately found to be at fault, lawsuits like this are legally complex and require years of litigation,” said Khan, who co-wrote a University of British Columbia law school paper recommending that the Canadian government bring in a law that is similar in concept to the California Transparency in Supply Chains Act.