Tort Litigation Against Transnational Corporations in the Business and Human Rights Framework

This post has been written by Peter Muchlinski, Emeritus Professor of International Commercial Law, The School of Law, Gender and Media, SOAS, University of London. It is the second post in the EAPIL blog online symposium on Ekaterina Aristova, Tort Litigation against Transnational Corporations: The Challenge of Jurisdiction in English Courts (OUP 2024). The others contributions, by Ekaterina Aristova, Geert Van Calster, Mukarrum Ahmed, Dalia Palombo and Ekaterina Aristova can be found here, here, here, here and here respectively. Readers are encouraged to participate in the discussion by commenting on the posts.

Dr Ekaterina Aristova’s excellent book provides us with a definitive road map by which to navigate the complexities of civil liability claims against UK-based parent companies for alleged torts committed by their overseas subsidiaries, commonly referred to as foreign direct liability (FDL) claims. Her focus is specifically on parent/subsidiary liability and so does not engage with questions of network liability in global production chains organised around sub-contracting, a topic that deserves a book of its own. With this in mind, Dr Aristova shows how tort-based FDL litigation amounts to a very difficult process for holding multinational corporate group parents liable for the wrongs of their overseas subsidiaries. In particular, she highlights, first, the myriad jurisdictional issues that complicate, prolong and render costly the bringing of such claims and, secondly, the obstacles to a finding of substantive liability given the legal separation of the parent from the subsidiary which gives rise to the fiction that they operate as separate entities when in fact they constitute an integrated transnational enterprise.

Why tort litigation? Given the rise and fall of the very particular US Alien Tort Claims Act line of litigation in recent years (covered in paras 1.15-1.16), and the currently limited availability of pure human rights-based claims against parent companies (see e.g. Araya v. Nevsun Resources Ltd [2020] 1 SCR 166), tort may offer an obvious and readily available avenue for corporate accountability. Despite the obstacles pointed out by Dr Aristova, as Richard Meeran notes (in ‘Multinational Human Rights Litigation in the UK: A Retrospective’ (2021) 6(2) BHRJ 255 at 268-9), tort claims may provide claimants with the easiest route to success.

The key theme of the book is the need to develop remedies for corporate human rights violations (see para 1.04). Adapting the duty of care in negligence would appear to offer a good approach to remedying corporate human rights violations. The UN Guiding Principles on Business and Human Rights (UNGPs) introduced the concept of corporate human rights due diligence (HRDD) as a process for identifying, avoiding or mitigating adverse human rights impacts arising from the overseas operations of multinational enterprises (MNEs). HRDD provides, in essence, a guide to a developing corporate duty of care to avoid violating human rights in the course of business operations (see further Peter Muchlinski ‘Implementing the New UN Corporate Human Rights Framework: Implications for Corporate Law, Governance, and Regulation’ (2012) 22(1) Business Ethics Quarterly 145). This duty of care may be owed not only by the corporation but also its directors on the basis of their fiduciary duty to ensure the success of the company (for a detailed discussion see David Bilchitz, Fundamental Rights and the Legal Obligations of Business (CUP 2022) ch 9).

HRDD has four components: initial identification of human rights risks and impacts; assessment of their seriousness and of those most at risk; avoidance and mitigation of risks; and accounting for and remediation of human rights risks. Failure to address any one or more of these elements would count as a breach of the duty of care. Equally, corporate directors should be expected to consider both potential and actual human rights impacts and formulate a prevention or mitigation strategy for the former and respond to the latter through remediation. This should include the establishment of effective and continuing consultation frameworks with the local community in which the overseas subsidiary operates. HRDD needs to be carried out as early as possible in a project or decision to maximise the prevention of adverse impacts. Again, failure on these fronts would amount to a breach of the duty of care.

For now, such a duty of care based on corporate human rights obligations goes beyond what English law has accepted in the cases discussed by Dr Aristova in Chapter 3. Nonetheless, even the narrow personal injury-based focus of this FDL case law offers in Dr Aristova’s words ‘the only avenue for the individuals and local communities from the host states to an effective remedy’ (para 3.130). However, she also notes that these cases, ‘are unlikely on their own to close existing gaps in corporate accountability for human rights violations’ but that ‘their outcome has high-stake consequences and raise important considerations for the parent companies about the necessity to implement adequate human rights standards at all levels of corporate structure. In this context, FDL claims remain a vital piece of the business and human rights framework.’ (ibid).

If FDL litigation helps but cannot fully resolve the issue of corporate liability for human rights violations, what more is needed? Dr Aristova follows through by discussing a key obstacle in FDL litigation, namely, establishing a solid normative grounding for the exercise of jurisdiction in Chapters 5 and 6. She calls for a stronger understanding of the characteristics of FDL claims and claimants which require a reconsideration of the formal neutrality of private international law to policy choices. In addition, the question of whether FDL in the MNE home state is a means of limiting the sovereignty of the host state, possibly to the extent that it amounts to an exercise in legal imperialism over that state, has to be addressed. For Dr Aristova this requires a more nuanced approach based on the needs of claimants. It is for the claimants to decide where they have the best chance of success and as Dr Aristova points out there are no instances of objections to jurisdiction being raised by the host state to the FDL claims covered in the book (para 6.90), and it should be remembered that India did intervene in the initial US claims against Union Carbide arising from the Bhopal disaster arguing that the US was the more appropriate forum for the litigation.

That said, the need to develop effective local remedies in host states remains a major goal and home state FDL should be seen as a remedy of last – not first – resort. The main priority should be the development of local capacity to hear and resolve claims. However, when the legal entrepreneurship of home country-based lawyers specialising in business and human rights litigation and the campaigning objectives of human rights NGOs to highlight cases of corporate abuse of human rights are taken into account, the impetus for prioritising home state litigation is strong especially where the host state legal system is not able to provide adequate procedures, expertise or redress.

Equally, as Dr Aristova points out, there is a growing consensus that home states have a duty to regulate the human rights impacts of home-based MNEs through the regulation of their parent companies (para 6.52-6.54). This includes establishing rights of action against parent companies for the human rights violations of their overseas subsidiaries.

A further consideration is whether a new connecting factor test based on enterprise analysis could be introduced (see Chapter 7). Enterprise analysis represents an advance over the separate entity approach to corporate group liability as it replaces deference to separate incorporation and looks to the underlying economic integration of the parent and its subsidiaries. Accordingly, if the claimant has an arguable claim against the English parent and the parent and subsidiary are an integrated enterprise jurisdiction would be granted.

While this offers a more accurate analysis of the reality of corporate group structures, Dr Aristova ultimately warns that its practical application may make it too difficult to apply. Indeed, trying to understand the complexities of MNE organisation is a huge task in an adversarial system. It falls on the claimants to prove that the parent does have the power and ability to direct the subsidiary while the defendant corporation holds all the relevant evidence. Delay and prevarication over discovery will follow. It is hard to see how that can help claimants in the absence of a formal public investigative agency which can amass such evidence by order. New ways of dealing with evidence gathering would appear necessary. At this point new obstacles of cost and administrative efficiency could arise as does the question of whether the courts have adequate commercial understanding to take an informed view on the evidence of corporate organisation and management.

Ultimately, FDL is best seen as a sticking plaster remedy which is used once the defendant corporation has failed to avoid the occurrence of human rights violations in its overseas subsidiary operations. It must be remembered that a key element in the UNGPs is the avoidance of corporate harm through the effective use of HRDD leading to improved observance of human rights as an aspect of responsible business practice. Also, the UNGPs stress that access to remedy involves the interaction of both judicial and non-judicial and of state and non-state remedies as the preferred approach. Accordingly, it is necessary to read Dr Aristova’s book in that context. It offers a thorough and valuable analysis of the opportunities and limitations of FDL as a remedy for human rights claims against MNEs but it has to be seen against a wider debate on how best to avoid corporate human rights harm.

Finally, and in response to these concerns, it is hard to see how parent company liability for human rights violations committed by overseas subsidiaries can ever be placed on a sound legal footing without effective legislation. At the normative level a statutory clarification of corporate human rights responsibilities for their global operations would provide guidance for businesses, allowing them to determine more accurately when an action might incur legal liability. A possible way forward is to use HRDD in the UNGPs as a benchmark for a statutory duty of care remedied by the award of damages.

At the level of remedies, a statutory scheme could establish that a human rights violation by a corporation domiciled in the UK, or its overseas affiliates and sub-contractors that are covered by the due diligence obligation, will incur liability to pay damages and, where reasonably practicable, to make other reparations to ensure the restitution of the victim to as close a situation as they were in before suffering the damage.

In 2017, the UK Parliamentary Joint Committee on Human Rights proposed that new legislation be adopted, ‘to impose a duty on all companies to prevent human rights abuses, as well as an offence of failure to prevent human rights abuses for all companies, including parent companies, along the lines of the relevant provisions of the Bribery Act 2010’. In its response, the then Conservative UK Government reiterated its commitment to voluntary approaches to due diligence reporting stating that it had no immediate plans to legislate in this area. The Labour Party’s National Policy Forum programme announced in October 2023 includes assessing ‘the best way to prevent environmental harms, modern slavery and human and labour rights abuses in … supply chains including effective due diligence rules’. To date, the new Labour Government has yet to make any formal announcements on business and human rights developments. However, a private members bill entitled the Commercial Organisations and Public Authorities Duty (Human Rights and Environment) Bill was introduced before the House of Lords in April 2024 by Baronness Young of Hornsey (House of Lords Library Briefing is available here). At the time of writing, it has not proceeded beyond a second reading in the House of Lords.