Canadian Companies And The Effects Of Foreign Operations – Out Of Sight, Front Of Mind

As the domestic Canadian economy continues to mature, companies with a healthy appetite for risk can find themselves looking outside Canada to generate significant returns. Investments in foreign jurisdictions come with a myriad of challenges – uncertain legal structures and slow and cumbersome regulatory processes are just two of many, but the risk profile of these foreign adventures can be high for Canadian companies.

One issue Canadian companies often overlook in assessing the risk of an international venture is the effect Canadian domestic courts can have on the venture's success, notwithstanding the fact that the venture has little actual connection to Canada. Foreign litigants are increasingly using the Canadian court system to attempt to recover damages from Canadian parents or affiliates in cases where the claim arose from foreign operations entirely conducted by a foreign affiliate or subsidiary of the Canadian parent. A claim for negligence against the parent can give rise to damages under Canadian law, where such a claim might not be successful in the host country against the foreign affiliate actually undertaking the venture. Further, enforcement of foreign-obtained judgments against Canadian companies is relatively easy, in that Canadian courts are generally deferential to foreign courts' findings. Therefore, if a Canadian entity finds itself on the wrong end of a foreign judgment, it is relatively easy to enforce that judgment against the Canadian entity's assets in Canada. All this is to say that Canadian companies should include what Canadian courts might do when they are deciding whether to undertake foreign operations, and how to structure those operations.

There are two very recent high profile examples where lawsuits were brought in Canada against Canadian-domiciled companies but the matters actually being litigated had marginal connections to Canada. Because of of valuable Canadian-based assets, or because of the Canadian law of negligence, however, the plaintiffs asked Canadian courts to provide a remedy, as opposed to the court where the operations took place.

These cases highlight several key points:

if the court system in the foreign jurisdiction is shown to be corrupt or dishonest, a Canadian court may be chosen as the court to decide the lawsuit, irrespective of limited connection to Canada; foreign litigants may argue that they are protected by Canadian negligence law for actions taking place in a foreign jurisdiction; statements about corporate social responsibility made by a Canadian parent might serve as an avenue for establishing a claim against the Canadian parent in a Canadian court; it is vitally important to construct and maintain a separate structure for international affiliates, to avoid a scenario where the corporate veil can be pierced; and foreign litigants are often sympathetic (i.e. villagers who have been subject of environmental damage and poisoning, or protesters who have been shot by security personnel); therefore Canadian courts may wish to find a remedy for them out of a sense of doing what's right. A Word on Process

Foreign actions brought in Canada invariably start with a fight about jurisdiction, and a determination of the most appropriate court to hear the action. The Canadian test is "forum conveniens" – a Canadian court would be asked if the foreign court (likely where the operation is located, or where the damages occurred) is the most appropriate forum to decide the action, or whether there are reasons why a Canadian court should take jurisdiction and decide the case.

If the foreign court is the most appropriate forum, the question then arises about enforcement of a judgment issued by the foreign court. It is relatively easy to enforce a foreign-obtained judgment against a Canadian company and this has led some litigants to attempt to enforce judgments against Canadian assets, even where the Canadian company or Canadian assets had nothing to do with the claim itself.

Forum Conveniens and Corporate Social Responsibility – BC Court of Appeal Lifts the Stay in Garcia v Tahoe Resources Inc. ​​

The latest decision attempting to hold Canadian parent companies liable for the actions of foreign subsidiaries was released at the end of January by the BC Court of Appeal. Readers of the blog will be familiar with the case of Garcia v Tahoe Resources Inc. (2017 BCCA 39) (we have previously written about Garcia v Tahoe...