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Barnali Choudhury is a professor of law at University College London

Should Canadian companies be held liable in Canada for acts in their overseas operations? Certainly, that is the thinking behind a recent Supreme Court of Canada judgment.

In Nevsun Resources Ltd. v. Araya, the court concluded that companies could be held liable for violations of customary international law, or international obligations that arise from general practices. The case involves claims brought by Eritrean refugees alleging they were conscripted into forced labour in a mine in Eritrea, partly owned by Vancouver-based Nevsun at the time. None of the claims against Nevsun, which was acquired by China’s Zijin Mining Group Co. Ltd. in 2018, have been proven in court.

The Supreme Court decision has shifted the legal landscape significantly, both in Canada and, potentially, internationally. The court’s conclusion that customary international law applies to companies is novel.

Generally, customary international law is thought only to apply to state actors, not to private actors such as corporations, and the court’s finding in this area may work toward helping establish norms of corporate liability for human rights at the international level. Moreover, its conclusion that customary international law forms part of Canadian common law also represents a departure from previous treatment of the issue in the Canadian courts, a departure duly noted by the dissenting judges.

As the court was not tasked with determining the substance of the claim, the decision in the Nevsun case does not establish corporate liability for human rights for Canadian companies, per se, although it undoubtedly opens the door to doing so.

The court, however, has left a number of unanswered questions that may both inhibit further progress of the Eritreans’ claims as well as leave Canadian companies with a high degree of uncertainty in managing their overseas operations.

For example, it did not offer guidance as to how to assess liability under customary international law, what remedies might flow from such liability or how to take into account the separate legal personality between parent companies such as Nevsun and the company actually operating the mine. There is also a question of expertise as Canadian judges would suddenly find themselves having to interpret international law.

The uncertainty arising from the Nevsun decision, however, creates an opportunity for the government to act. The government has already publicly committed to advancing corporate social responsibility in the extractive sector through its 2014 strategy, partly titled Doing Business the Canadian Way.

Indeed, the strategy was used by the Supreme Court to strengthen its conclusion that Canadian law supports the application of customary international law to companies. However, the strategy has mainly resulted in the creation of an ombudsperson for responsible enterprise, which given its relative lack of powers, has been branded by critics as toothless.

A better approach would be for the government to develop due diligence legislation that creates specific standards of conduct expected of Canadian companies. Due diligence legislation is a common practice in a number of different countries. Already, Britain, Australia, France and the Netherlands have adopted some form of due diligence legislation, with the European Union expected to enact similar legislation throughout the EU shortly.

While due diligence legislation can take different forms, generally it requires companies to engage in human rights or environmental due diligence, address the issues identified by the due diligence and work to minimize future related issues. Failure to comply with due diligence obligations can result in penalties or fines.

Some forms of due diligence legislation can also create private actions for victims of corporate abuse, although the general aim of such legislation is about preventing or minimizing corporate abuses before they occur.

Enacting due diligence legislation in Canada would offer the advantages of reducing the uncertainty created by the Nevsun case for Canadian companies, providing answers to the unanswered questions left by the Supreme Court and restoring Parliament as the arbiter of Canadian corporate conduct, which is better placed than courts to make such determinations.

More importantly though, if the government is truly committed to ensuring that advancing corporate social responsibility is synonymous with the Canadian way of doing business, enacting legally binding obligations for companies in this area would be a long overdue first step.