Traditionally, parent companies have been considered legally distinct entities and thus immune from the actions of their subsidiaries, a concept described as the “corporate veil”. Courts have been reluctant to allow claimants to pierce the corporate veil unless a company is incorporated for an illegal, fraudulent or improper purpose, or when the parent uses it for improper activity. In such rare instances, a court may disregard a company’s distinct legal personality and hold the parent liable for the acts or omissions of its affiliates.

This position is now being challenged in lawsuits which assert as-yet-unproven claims of environmental and human rights violations against parent companies for actions of their foreign subsidiaries and subsidiaries’ contractors within the resource sector.

Global developments

Courts in Europe and North America are being asked to make judgments regarding the activities of parent companies’ related entities abroad. For example, Nigerian plaintiffs sought relief in the Netherlands from both Shell Petroleum Development Company of Nigeria Ltd. (“Shell Nigeria”), and its Dutch parent company Royal Dutch Shell plc, for two oil spills which occurred as a result of sabotage to Shell Nigeria’s underground pipelines in Nigeria. In 2013, the Dutch court held Shell Nigeria liable for failing to take sufficient steps to prevent the sabotage but did not hold Royal Dutch Shell plc liable under Nigerian law.

In 2013, the United States Supreme Court narrowed the scope in which it will accept jurisdiction for foreign tort claims violating international norms under the Alien Tort Statute (“ATS”). In Kiobel v. Royal Dutch Petroleum Co., the US Supreme Court held that the presumption against extraterritoriality applies to all cases filed pursuant to the ATS to sue a corporation in the United States for wrongs allegedly committed abroad. Plaintiffs can rebut the presumption when “claims touch and concern the territory of the United States” with “sufficient force.” Importantly, however, the Supreme Court held that a plaintiff must prove that a defendant has more than a “mere corporate presence” in the United States. Despite this narrowing, plaintiffs attempting to rebut the presumption against extraterritoriality continue to bring claims under the ATS. Since Kiobel, lower courts have rejected cases where the connection to the US was limited to the existence of US subsidiaries, office locations, or bank accounts situated in the US.

Canadian developments

More recently, foreign plaintiffs have turned to Canadian courts to seek relief from Canadian companies for the actions of their related foreign affiliates outside Canada.

Source: Fasken Martineau - see full article