Who is Benefiting from the ‘Neutrality’ of Private International Law?

This post has been written by Dalia Palombo, Assistant Professor of Human Rights Law, Department of Public Law and Governance, Tilburg University. It is the fifth post in the EAPIL blog on-line symposium on Ekaterina Aristova, Tort Litigation against Transnational Corporations: The Challenge of Jurisdiction in English Courts (OUP 2024). The others contributions, by Ekaterina Aristova, Peter Muchlinski, Geert Van Calster, Mukarrum Ahmed 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 wrote an insightful book that is a must-read not only for private international law scholars but for anyone interested in the business and human rights field or in English tort law. It is a privilege to comment on Chapter 6 of the book ‘Private and State Interests in Foreign Direct Liability Claims’. However, I will start my brief analysis from an argument introduced in Chapter 5 and further developed in Chapters 6-7-8: private international law is a neutral and apolitical body of law that needs to catch up with globalization and address complex jurisdictional conflicts in the twenty-first century-world dominated by transnational companies.

I do not agree with the assumption that private international law is neutral and apolitical. If one zooms out of the private law realm, it becomes clear that such a ‘neutral’ system is actually determining the difference between winners and losers in a multitude of lawsuits.

Indeed, the picture of the private international law field that appears from Dr Aristova’s careful analysis is far from neutral, as demonstrated by a helpful example provided in Chapter 6 of the book. On the one hand, it was not possible for indigenous people from Ecuador to assert jurisdiction against Chevron/Texaco in US courts to claim environmental damages caused by massive oil pollution. The US District Court for the Southern District of New York ruled that the case belonged to Ecuador, a country that was found to have a functioning judicial system. On the other hand, once, after over ten years of litigation, the indigenous people were able to hold Chevron/Texaco to account in Ecuadorian courts (this included a judgment delivered by the Ecuadorian Constitutional Court), Chevron/Texaco filed an ISDS (investor-state dispute settlement) claim against Ecuador, alleging that Ecuadorian courts were not independent and unjustly (through corruption, bribery and fraud) ruled against them. Chevron/Texaco received the award. It ordered Ecuador to cease enforcing the judgment. Although Ecuador challenged the arbitral decision, and continued to consider its judgment enforceable, Chevron/Texaco no longer had substantial assets in Ecuador. Thus, the indigenous people attempted to enforce the Ecuadorian judgement against Chevron/Texaco in several jurisdictions where the multinational held its assets (including the US). However, they were always unsuccessful. In Dr Aristova’s words ‘[..t]he claimants were prevented from commencing proceedings in the US because Ecuador had an independent judiciary but were also prevented from enforcing a judgment because it did not’ (pp. 200-201 of the book).

Notwithstanding the merit of this particular case (which is not for this post to analyse), this is a remarkable example of a glaring double standard in terms of procedural rights. Multinationals benefit from a public international law system at their disposal to sue foreign host states when they violate their property rights. This includes not only clear-cut cases of expropriation but also situations when a host state court holds an investor responsible for environmental damage or when a host state enacts environmental laws that reduce the investor’s profit (even if potential). However, when a foreign investor violates the human rights of people in a host state, victims have to engage in complex transnational litigation to convince a foreign home state court that it has jurisdiction over their case. They could sue the investor in the host state, but as convincingly argued by Dr Aristova, this is often not possible because of a variety of legal hurdles, including the limited liability of parent companies, the difficulty of enforcing host state judgements in the home state and the possible denial of justice in host state courts.

Furthermore, this unequal system enables multinationals to use their corporate structure to either enhance or shield themselves from the jurisdiction of a tribunal, depending on whether they want to claim their rights or limit their liability. In most bilateral investment treaties, the term ‘investment’ includes shares in a company. This makes, under investment law, any parent company incorporated in a home state (such as the UK) a foreign investor towards the host state (such as Nigeria) where its subsidiary is located. Thus, owing a subsidiary in Nigeria opens up the possibility for a UK parent company to file a request for arbitration against Nigeria. In essence, parent companies can use their corporate structure as a jurisdictional basis to initiate proceedings against a host state for the violation of their property rights under public international law. However, under private international law, as exhaustively analysed in the book, the same corporate structure represents a jurisdictional shield for parent companies to avoid liability in respect of the harm inflicted by their subsidiaries on people and the planet. Owing a foreign subsidiary in Nigeria limits a UK parent company’s prospective liability not only because most subsidiaries are limited liability companies but also because incorporating a subsidiary in a foreign jurisdiction makes it particularly difficult for potential victims to file a transnational claim against the parent company.

Furthermore, since its inception, ISDS has been developed and used to circumvent host state judicial systems, often considered weak, corrupted or biased. In order to avoid host state domestic justice, under most investment treaties, investors can simply file an arbitral claim without the need to exhaust local judicial remedies. However, as explained in Chapter 6 of the book, when victims harmed by multinationals claim that host state courts cannot ensure access to justice, this is perceived as an attack on the host state’s sovereignty. Indeed, as the book explains, post-Brexit, without the benefit of the Brussels I Regulation, litigation in the UK will often depend on the application of the forum non convenience doctrine. A pivotal element of the forum non convenience analysis in this context is whether or not foreign tort victims can demonstrate a lack of substantial justice in the host state. The burden of proof is on the victims. Instead, investors do not even have to start an argument concerning the fairness of host state domestic courts because ISDS typically enables them to avoid dealing with the host state judicial system.

Despite these apparent inequalities of arms, we lawyers keep saying to each other that the law is neutral. It is just having difficulty adapting to an increasingly complex world. If it is neutral, then why are multinationals benefiting from the legal system whilst stakeholders harmed by corporate abuses are not?

Maybe the answer could be found in history. Indeed, as demonstrated by a number of scholars, such as Erika George and Doreen Lustig, multinationals are not a new phenomenon of the XX and XXI centuries. They are, at least, as old as the British colonial Empire. Transnational companies such as the East Indian and Hudson’s Bay companies were creatures of the British empire, conflating both the power of dominium and imperium (which could be translated as the precursors of property and sovereignty) in their hands. In different decades, they were regulated by a mix of public and private, national and international law designed to further the interest of the Crown in British colonies. Analogous arrangements were made by other colonial states that also had their commercial interests secured by transnational companies.

A lot has changed since that time, as we are in a postcolonial world. Increasingly, the public and private divide has captured the discourse, and most legal scholars now believe that a private company cannot be regulated by public international law, let alone human rights. Of course, investment law represents the exception confirming the rule. Against this background, Dr. Aristova’s book investigating the business and human rights implications of private international law was very much needed. Nevertheless, it should be acknowledged that multinational corporations are still benefiting from an international legal system that is far from neutral because it shields them from liability (through private international law), by making it extremely difficult for any victim to assert jurisdiction on a fragmented enterprise, but at the same time, enables that same fragmented enterprise to easily reclaim its rights through ISDS.

In sum, Chapter 6 of the book very well addresses the complex questions related to the perceived imperialism of home-state laws in host-state countries. But it does so in isolation from the bigger picture of the benefits that multinationals have historically enjoyed and still enjoy today when conducting transnational trade. Dr Aristova nicely identifies the shortcomings of transnational litigation, such as the growing number of transnational cases that could overwhelm home state courts, or the fact that an English court accepting jurisdiction over the Zambian subsidiary of a UK corporate group could be perceived as an imperialistic imposition of home state laws on the host state. However, I am afraid that these shortcomings are not the result of an increasingly complex system emerging from globalization, but of an historically biased system that benefits multinationals at the expense of people and the planet. Globalization made this inequality of arms just more visible to our eyes. Recognising this reality could trigger new and interesting normative questions as to how the system could change in order to achieve this so-called neutrality.