On 23 February 2022, the proposal for a directive of the European Parliament and of the Council on Corporate Sustainability Due Diligence was released.
In recent years, many experts have expressed their views on the Union’s ambition to regulate corporate due diligence comprehensively and in a binding manner at the EU level. The private international law (PIL) aspects have received particular attention (e.g. here and more globally here), including on our blog (e.g. here, here and here) and others (here and here).
Indeed, a first central issue is the spatial applicability of the (forthcoming) EU instrument so that it effectively covers transnational (harmful) conduct of multinational companies, incorporated in the Union or active in the EU market (see Article 2, §1 and §2). Another major issue concerns remedies for the damage caused by companies through their supply chain, to victims and to the environment. The Directive proposal provides for rules on liability for violation of the due diligence requirements laid down by the text.
In this context, what are the main solutions of the Directive proposal on the PIL aspects? Here are some brief elements of the response that experts on the matter will analyse in more detail during the negotiations of the text (see already Geert Van Calster thoughts)
Private Enforcement Scheme
One of the main objectives of the Directive proposal is to “improve access to remedies for those affected by adverse human rights and environmental impacts of corporate behaviour” (p. 3). Remedies and more globally enforcement rules are indeed a key-factor for normative effectiveness. Private parties should be empowered to report concerning behaviours of multinational companies or misconducts (see Articles 9 and 19 of the Directive proposal). As a crucial step, victims should be able to sue the company liable for any damage caused within the Union’s territory or, most frequently, outside the Union through its value chain. The Directive proposal provides for a common civil liability regime (although incomplete). This is a great improvement, in particular for foreign victims who could seek remedies within the EU (Article 22).
Against this background, the private enforcement regime remains dependent on the jurisdiction of a “European forum” (i.e. among national courts of EU Member States) and, then, on the application of EU law.
No Specific Provision on Jurisdiction in the Union
The Directive proposal provides for a private enforcement scheme but without mentioning any specific rules on jurisdiction. Hence, Brussels I bis Regulation will remain the applicable legal framework within the EU judicial area.
The jurisdictional rules of the Regulation are, in principle, applicable once the defendant is domiciled in the Union, regardless of whether there is any other connection with the EU legal order (Article 4). When the defendant is a legal person, it lays down a flexible concept of domicile; it may be the statutory seat of the company, its central administration or its principal place of business (Article 63). In the present case, it means that the mother or ordering company located in the Union may be sued by any victims before a “European forum” for compensation of losses suffered in a third country. In that respect, the solution follows the rationale of the home country control.
However, the situation would be less effective if the victims also decide to sue, as co-defendant, other companies of the value chain of the European undertaking (e.g. subsidiaries or business partners), when the former are not established in the Union. In such a case, the Brussels I bis Regulation is not applicable pursuant to its Article 8,(1). It will be for the national laws of Member States to determine the jurisdiction of their courts. This is regrettable; the discrepancies between national rules may weaken the EU provisions on remedies. Some courts will be competent, others not, in equivalent disputes.
Nonetheless, the lack of legal approximation here is not inconsistent with the European enforcement regime, since the latter is limited for now – under Article 22 of the Directive proposal – to civil liability claims against the company in charge of the due diligence requirements pursuant to Article 7 and 8 of the text. Hence, national law remains applicable to the civil liability of “subsidiaries or of any direct and indirect business partners in the value chain” (Article 22, §3 of the directive proposal). The lack of a uniform substantive liability regime in the forthcoming EU instrument, directly applicable to these potential co-defendants, mitigates or, at least, may explain, the absence of a ground jurisdiction based on EU law in such circumstances.
A much more problematic situation concerns foreign companies – i.e. domiciled outside the Union – that are economically active in the internal market and, in that respect, covered by an EU due diligence obligation. The jurisdictional rules of the Brussels I bis Regulation are in principle not applicable, even if the losses were suffered on the Union’s territory. Private enforcement will depend on the national laws of EU Member States on the jurisdiction issue. European remedies are therefore likely to remain totally ineffective before certain domestic courts of the Union where no specific ground for jurisdiction, such as a forum necessitatis, exists. Victims will be treated differently in the European judicial area; some of them will not be able to benefit from remedies. It also creates a severe discrepancy between European and foreign companies. The latter may avoid private enforcement as a result of this lacuna in the European legal system.
A solution may be found in the obligation of foreign companies to have a representative in the Union pursuant to Article 16 of the Directive proposal. It could be argued that the European domicile of this representative, set up for the public enforcement of the EU due diligence regime should also apply for private enforcement, based on the civil liability regime of Article 22 (see Article 16, §4 on public enforcement, mentioning the cooperation with supervisory authorities). In that regard, the preliminary explanation of the Directive proposal describes quite broadly the role of those mandated authorised representatives; they may be addressed by a competent authority of a Member State on all issues necessary inter alia for “[the] enforcement of legal acts issued in relation to this Directive” (page 25).
In a more effective way, a specific ground of jurisdiction could be introduced. It could be the forum of the Member States “in which the company generated most of its net turnover in the Union in the financial year preceding the last financial year” (Article 16, §3). This is the criterion laid down by the Directive proposal for the designation of the authorised representative in the Union. Therefore, it could be easily transposed to international competence, linking public and private enforcement schemes, as already suggested above.
No Specific Choice of Law Rules (either)
The extraterritoriality of the forthcoming EU substantive rules on due diligence is not enough (legally speaking) to guarantee their application before “European fora” when damage was suffered in third countries. In that respect, the Directive proposal opts for the mandatory nature of the civil liability regime laid down in Article 22: it is “of overriding mandatory application in cases where the law applicable to claims to that effect is not the law of a Member State” (Article 22, 5).
From a PIL perspective, this formulation may be seen as ambiguous. First, the mandatory nature under EU law of all the text on corporate due diligence should be made explicit (even if it may be seen as obvious). Second, regarding the civil liability regime it is about its overriding mandatory dimension, whatever law is applicable, since this technique applies ex ante, before any conflict-of-laws reasoning. At the same time, it will still be necessary for the national courts (in EU Member States) to determine the law applicable to the case. Indeed, the Directive proposal does not lay down a complete and fully uniform regime of liability. More protective regimes under national law could prevail (recital 59) and some questions are referred to national law (for instance, the burden of proof of the absence of misconduct of the company, see recital 58).
Against this background, the Rome II Regulation will remain applicable for cross-border disputes concerning non-contractual obligations. The Regulation lays down a provision on overriding mandatory provisions (Article 16). It could therefore provide for the unilateral application of the national law of the competent court (its lex fori), which contains the EU due diligence duty and its attached civil liability regime (as already proposed by Giesela Rühl). However, it remains to be expressly clarified in the proposal whether the European provisions concerned – including (where appropriate) their implementation in the national laws of the Member States – have such an international mandatory nature.
In any case, PIL issues are crucial and condition the effectiveness (and therefore the success) of EU law (including EU values) beyond the Union’s borders in this area.