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Corporate Legal Accountability Quarterly Bulletin - Issue 28, September 2018


Welcome to our Corporate Legal Accountability Quarterly Bulletin -- highlighting a specific topic each quarter, as well as key developments in corporate legal accountability.  The Corporate Legal Accountability hub on our website provides objective, concise information about lawsuits against companies in which human rights abuses are alleged .
 
This bulletin and previous issues are available in English, ChineseFrench, GermanRussian and Spanish.
Quarterly highlight

Taking stock: Parent company liability for extraterritorial abuse


Multinational corporations (MNCs), comprised of a parent company (with controlling interest) based in one country (home state) and multiple subsidiaries operating across the world, play a dominant role in the global economy. Business activities of such corporations are known to cause a range of adverse human rights and environmental impacts, in particular in countries in which the subsidiaries operate (host states). The communities and individuals affected by these activities invariably struggle to hold MNCs accountable and to obtain redress for the harm suffered. However, as recent caselaw continues to show, doing so is no easy task, and plaintiffs face a series of legal and practical barriers when attempting to obtain remedy.

Each entity that makes up an MNC is usually established as a separate legal person, and therefore only subject to the laws of the jurisdiction in which that entity is incorporated. More often than not, the subsidiaries of a company headquartered in the Global North operate in developing countries that may have laxer legislation, lower labour and environmental standards, weak governance and/or suffer from widespread corruption. Lack of due process, judicial independence and weak law enforcement may significantly limit access to legal remedy for victims of business-related human rights abuse when they bring claims against the subsidiaries in the country where the harm occurred (host states).

In view of these limitations, victims often find themselves forced to seek justice in a foreign court, typically where the parent company is incorporated and supposedly carrying out global management of its subsidiaries' operations. Targeting the parent company along with its overseas subsidiaries can offer certain advantages to the victims of corporate abuse.

Compared to their subsidiaries, parent companies tend to have greater assets at their disposal to remedy the alleged harm and provide meaningful compensations to victims. On the other hand, courts are better equipped to enforce judgements against a parent company domiciled in their jurisdiction. However, convincing a foreign court to admit jurisdiction over a case alleging an abuse suffered abroad may be a challenging task for the plaintiffs.

The challenge of establishing jurisdiction

In common law countries, claims of extraterritorial abuse can often be prevented from moving forward on the grounds of forum non conveniens, if a court considers that another jurisdiction would be a more appropriate venue to hear the case. In May 2018 for example, a US federal court decided that a case brought by Peruvian farmers against Newmont and its local subsidiaries over alleged attempts to forcibly evict the claimants from their land, should be heard in Peru instead of the US, even though the plaintiffs argued that they were unable to obtain justice in Peru. In the lawsuit against Canadian company Tahoe Resources over the actions of mine security personnel at the Escobal mine in Guatemala, owned by a Tahoe Resources’ subsidiary, the Court of Appeal decided to allow the case to proceed in Canada in January 2017, arguing that there was a serious risk of unfair trial in Guatemala.  

In the European Union on the other hand, foreign plaintiffs can bring a claim against a parent company domiciled in an EU Member State in the court of the country where it has “statutory seat; central administration; or principal place of business”, irrespective of where the damage occurred. In 2015 for example, a Dutch appeals court allowed a case against Royal Dutch Shell over damage from oil pollution allegedly caused by its Nigerian subsidiary to proceed in the Netherlands. The court derived its jurisdiction to hear the case from the  Brussels I Regulation (recast). However, under the Rome II Regulation, the law applicable to the claim would normally be that of the State where the damage occurred, even when regulation of business activities and human rights standards are lower in that country.

Challenges of holding a parent company liable for the harm caused by its subsidiary

Once plaintiffs have overcome the challenge of establishing jurisdiction, they must present a “plausible” claim against the parent company. Parent companies typically rely on the principle of limited liability, which prevails in most legal systems, to evade any responsibility for harm caused by their subsidiaries abroad, thus using the corporate structure as a "shield" to evade responsibility for human rights abuses. Exceptionally, a parent company may be held liable on the basis of “piercing the corporate veil” or in case of breach of a duty of care.

“Piercing the corporate veil”
Courts tend to be rather reluctant to “pierce the corporate veil”, in other words to disregard the separate legal personality of the corporate entities for the purpose of imposing liability. They do so under exceptional conditions only, for example when a corporate structure is knowingly being used in a fraudulent or improper manner, to avoid existing legal obligations or engage in other illicit practices. In the case against Hudbay Minerals and its subsidiaries over their alleged complicity in gang rapes in Guatemala, a Canadian court decided that the corporate veil could be pierced if the plaintiffs were able to demonstrate that the subsidiaries had been acting as the parent company´s agents. The court later ordered the company to disclose internal documentation to assess whether it exercised control over its subsidiaries. In November 2017, 11 Guatemalan women travelled to Canada to give testimony as part of the ongoing discovery procedure.

However, in a recent decision regarding an attempt to enforce an Ecuadorean judgement against Chevron using the assets of its Canadian subsidiary in an oil pollution case, the Ontario Court of Appeal reiterated the principle of corporate legal separateness, arguing that there was no allegation of wrongdoing against Chevron Canada.    

Duty of care of the parent company
In three cases recently brought in UK courts, the plaintiffs relied on the tort law principle of duty of care, rather than trying to “pierce the corporate veil”. The plaintiffs attempted to demonstrate that the harm caused by the subsidiary arose from the acts or omission of the parent company, and that the latter had therefore breached its duty of care.

To establish the parent company’s duty of care towards third parties, plaintiffs must satisfy three requirements: 1) a sufficient degree of proximity in the relationship between the parties to the lawsuit; 2) foreseeability of the harm; and 3) reasonableness of imposition of liability on the parent company. The first two elements require the claimants to demonstrate that a parent company exercised a certain degree of control over its subsidiary, in order to establish a link between its acts or omissions and the harm sustained.

In Lungowe v Vedanta, a lawsuit brought by Zambian residents over pollution from a copper mine operated by a Vedanta subsidiary, the  Court of Appeal allowed the case to proceed in the UK, acknowledging that a duty of care test could be arguable based on the fact that the parent company provided safety and environmental training to its affiliates, and financially supported and exercised control over its subsidiary in Zambia. Therefore, the proximity requirement was deemed to be satisfied. 

In contrast, in Okpabi v Shell, a case brought by the Ogale and Bille communities in Nigeria over oil pollution, the plaintiffs failed to satisfy the duty of care test.  Although the UK appeals court agreed that the risk of harm was foreseeable, it found that the parent company owed no duty of care to the plaintiffs, because it did not exercise a sufficient degree of control over the operations of its Nigerian subsidiary. The court reiterated the difference between instances in which a parent company exercises control over the material operations of its subsidiary and those in which it merely issues mandatory policies and standards to be applied within the corporate structure, and ruled that the arguments presented by the plaintiffs related to the latter category.

In AAA v Unilever, a case brought by survivors of the 2007 post-election attacks at a tea plantation in Kenya operated by a Unilever subsidiary, the UK Court of Appeal ruled that the parent company owed no duty of care to the plaintiffs. The judge argued that the risk of violence was not foreseeable and that there was no sufficient proximity between the claimants and Unilever to justify the imposition of a duty of care on the latter.
 
Concluding remarks     

Recent UK jurisprudence confirms that a parent company may in principle be held liable for the harm caused by its overseas subsidiaries without a need to "pierce the corporate veil", if the plaintiffs can make a plausible claim that the company owed and breached its duty of care towards the victims of business-related activities. However, this approach requires claimants to demonstrate a strong relationship of direct responsibility or control between the parent company and its subsidiary, going beyond policies, standards or recommendations issued by the head firm. This so-called burden of proof has proven a significant obstacle for plaintiffs.

One way of ensuring the accountability of parent companies is by introducing mandatory due diligence requirements in national legislation around the globe. It could increase the chances for victims of business-related human rights abuse to obtain a favourable judgement when a reasonably foreseeable harm has been caused by a company’s failure to exercise due diligence. Currently, the French duty of vigilance law establishes parent companies’ obligation to identify and prevent human rights violations resulting from the operations of all entities under their control, including subsidiaries and subcontractors. The Swiss National Council has similarly been negotiating a bill looking to introduce mandatory human rights due diligence for parent companies.

The recently released Zero Draft of the UN legally binding instrument on human rights and business activities also affirms States’ obligation to establish mandatory due diligence requirements for transnational corporations. This includes monitoring human rights impacts, risk identification and prevention of human rights violations resulting from business activities, and liability for failure to comply with these requirements. Furthermore, the draft contemplates civil liability of parent companies for harm caused by their subsidiaries to the extent that the parent company “exercises control over the operations, or […] exhibits a sufficiently close relation with its subsidiary...and where there is strong and direct connection between its conduct and the wrong suffered by the victim...”. Including such provisions in an internationally binding instrument could harmonise parent companies’ legal obligations towards their subsidiaries across jurisdictions, hopefully paving the way for wider access to remedy for victims of corporate abuses.

Efforts to hold parent companies accountable in home states continue to be a tremendous challenge for victims of corporate abuse. In the absence of clear rules, establishing liability of the parent company for the human rights abuses committed by their subsidiaries will continue to depend on the circumstances of the case. As Judge Sales LJ noted in Unilever v AAA, “...[a] parent company will only be found to be subject to a duty of care in relation to an activity of its subsidiary if ordinary, general principles of the law of tort regarding the imposition of a duty of care on the part of the parent in favour of a claimant are satisfied in the particular case."

So far, practically none of the above mentioned cases claiming parent company liability have been tried on the merits. Even though the court admitted jurisdiction over Lungowe v Vedanta, it remains to be seen if the plaintiffs will succeed in later stages of the trial. This case may set an important precedent on the issue of parent company liability, showing courts‘ willingness to take more expansive approach regarding parent companies’ duty of care.
Legal developments

New case profiles

Lawsuit against Metal Refinery (EPZ) (re lead pollution in Kenya)
On 20 February 2016, residents of the Owino Uhuru village in Kenya filed a lawsuit against government authorities and two Kenyan companies, Metal Refinery (EPZ) and Penguin Paper and Book Company. In 2007, Metal Refinery (EPZ) set up a battery recycling factory on land rented from Penguin Paper and Book Company. The lawsuit alleged that lead pollution from the factory affected the air, water and soil, causing illnesses and deaths among village residents. Plaintiffs demanded adequate compensation and clean-up of contaminated water and soil, as well as provision of health services to affected residents. The case is ongoing, and hearings will continue on 28 and 29 November 2018. Ten witnesses in the lawsuit have been placed under protection due to reported death threats. In May 2018, three of them testified before the Environment and Land Court of Mombasa and another five took a witness stand in July.

Lawsuit against Shell (re oil spills Ogale & Bille communities in Nigeria, Okpabi v Shell)
On 14 October and 22 December 2015 respectively, members of the Ogale and Bille communities in Nigeria filed two separate lawsuits in the UK against Royal Dutch Shell (RDS) and its Nigerian subsidiary Shell Petroleum Development Company of Nigeria (SPDC). Both lawsuits alleged that oil spills from the SPDC-operated pipelines caused water and land pollution in the Niger Delta, affecting the livelihoods of over 42,000 people. The company filed an application challenging the UK courts’ jurisdiction to hear the lawsuits. On 26 January 2017, the UK High Court of Justice declined jurisdiction over both lawsuits, ruling that the plaintiffs failed to demonstrate that RDS had sufficient control over its Nigerian subsidiary. On 14 February 2018, the UK Court of Appeal upheld the High Court’s judgement.  On 27 April 2018, more than 40 NGOs urged the UK Supreme Court to allow the Ogale and Bille communities to appeal this ruling. On 9 July 2018, the UK Supreme Court announced its decision to defer consideration of the permission to appeal until judgment is rendered in a similar pending case against Vedanta Resources.

Lawsuit against Unilever (re ethnic violence in Kenya)
In January 2016, employees and residents of a Unilever tea plantation in Kenya filed a lawsuit in the UK against Unilever and its subsidiary Unilever Tea Kenya. The lawsuit referred to the 2007 post-election ethnic violence carried out by armed mobs at Kericho tea plantation, owned and operated by Unilever Tea Kenya. Allegedly, 218 employees and people living on the plantation were victims of attacks. The lawsuit claimed that the risk of such violence was foreseeable by the companies and that they had therefore breached their duty of care by failing to protect the claimants from such risks. On 27 February 2017, the UK High Court of Justice dismissed the lawsuit, ruling that the risk of post-election violence was not foreseeable. On 4 July 2018, the UK Court of Appeal upheld the High Court´s judgement, ruling that Unilever could not be held responsible for the attacks against its tea plantation employees.   
 

Updates to existing case profiles

Abu Ghraib prisoners’ lawsuits against CACI, Titan (now L-3)
On 25 June 2018, the Eastern Virginia District Court ruled that the lawsuit alleging CACI’s conspiracy to abuse detainees at Abu Ghraib prison in Iraq could proceed under the Alien Tort Statute. 

Lawsuit against BHP Billiton & Vale (re dam collapse in Brazil)
In August 2018, BHP Billiton settled a US shareholder lawsuit related to the Samarco dam collapse, agreeing to pay USD 67 million in compensation but without admitting liability for failure to prevent the disaster despite alleged knowledge of the safety risks.

Lawsuits against Chiquita (re Colombia)
On 31 August 2018, the Office of the Colombian Prosecutor General announced that it would prosecute 13 former Chiquita executives on the charges of financing paramilitary groups in the north-western Uraba region between 1990 and 2004.

Lawsuit against Consórcio Norte Energia (re Belo Monte dam in Brazil)
In May 2018, the environmental NGO AIDA submitted their final arguments before the Inter-American Commission on Human Rights over alleged human rights violations caused by the Belo Monte dam construction. The Commission will determine whether the alleged human rights violations occurred and may issue recommendations. If recommendations are not fulfilled, the case may be referred to the Inter-American Court on Human Rights.

Lawsuit by Energy Transfer (re Dakota Access Pipeline, USA)
On 24 July and 3 Aug 2018, the North Dakota District Court dismissed Energy Transfer's lawsuit respectively against BankTrack and Earth First! over their campaigns opposing construction of the Dakota Access Pipeline. On 6 August 2018, the company amended the lawsuit, limiting defamation and business interference claims to Greenpeace, adding criminal trespass allegations against all defendants, and including five more individuals as defendants. On 4 September 2018, Greenpeace filed a motion to dismiss the lawsuit against them, arguing that Energy Transfer's revised allegations are "generalized and implausible".

Lawsuit against Grupo México (re toxic spill in Mexico)
On 5 September 2018, the Supreme Court of Justice of Mexico ruled in favour of the members of the Bacánuchi rural community in a lawsuit challenging the construction of a new tailings dam in the Sonora river basin by Grupo México's subsidiary Buenavista del Cobre, recognising the right of the community members to be consulted on environmental matters of public interest.

Lawsuit against Intl. Finance Corp. (re financing of coal-fired plant in India)
On 31 July 2018, the US Government filed a brief to the US Supreme Court opposing international organizations’ absolute immunity from lawsuits, in support of Indian communities’ claim against the International Finance Corporation over its funding of the Tata Mundra coal plant which caused environmental damage in India.

Lawsuits by Natural Fruit Company (re defamation suits against Andy Hall, Thailand)
In July 2018, the Thai Appeals Court for Corruption and Misconduct Cases dismissed Andy Hall's counterclaim against state prosecutors and a police official in relation to their conduct during the investigation of a defamation case against the human rights defender. On 6 September 2018, Andy Hall’s lawyers submitted an appeal against the Phra Khanong Provincial Court ruling that ordered him to pay TBH 10 mln. (USD 321,000) in damages to Natural Fruit Company over a civil defamation lawsuit.

Lawsuit against Nevsun (re Bisha mine, Eritrea)
On 14 June 2018, the Canadian Supreme Court granted Nevsun permission to appeal a lower court’s November 2017 decision which allowed a lawsuit alleging forced labour at the Bisha mine in Eritrea to proceed in Canada.

Lawsuit against Texaco/Chevron (re environmental pollution in Ecuador)
On 10 July 2018, the Constitutional Court of Ecuador upheld the $9.5 billion judgement against Chevron in an oil pollution case. The decision came a week after an appeals court in Buenos Aires dismissed an attempt to enforce the judgement using the assets of Chevron’s subsidiary in Argentina. On 30 August 2018, the Permanent Court of Arbitration in the Hague held Ecuador liable for “denying justice” to Chevron and violating the company's fundamental procedural rights by allowing its courts to issue a $9.5 billion judgement against Chevron. The arbitration tribunal ruled that no part of the said judgement should be recognised or enforced by any State.

Lawsuit by Thammakaset (re criminal defamation case over labour exploitation in Thailand)
On 11 July 2018, the Don Muang court in Thailand dismissed a criminal defamation case against 14 Thammakaset workers, filed by the company in response to allegations of labour abuses at its poultry farm. In September 2018, the Lopburi court in Thailand dismissed criminal charges against two former Thammakaset workers, accused of theft of the workers' time cards by the company.
New blog posts
Inaccessible Remedies: The Unrealistic Expectations of Proof in AAA v. Unilever, Lisa Kadel, Tara Van Ho and Anil Yilmaz Vastardis, 13 Sep 2018

Two Critical Issues in the UK Business and Human Rights Litigation, Dalia Palombo, London School of Economics, 11 Sep 2018

Recent decisions in the UK on parent company liability cases show the need for law reform, William Meade, CORE Coalition, 7 Sep 2018

Okpabi v Royal Dutch Shell: an opportunity to honour international standards or another instance of corporate impunity?, Gabriela Quijano, Amnesty International, 4 Sep 2018

Can the Lafarge case be a game changer? French Multinational Company Indicted for International Crimes in Syria, Claire Tixeire, European Center for Constitutional and Human Rights (ECCHR), 31 Aug 2018

Who Really Pulls the Strings - Where Does the Buck Stop?, Simon Taylor, Global Witness, 21 Aug 2018
 
If you are interested in contributing to a guest post on corporate legal accountability, please contact us. 
Other news

From Business & Human Rights Resource Centre

For more information about this series and to submit proposals for a blog piece, please contact Maysa Zorob at zorob [at] business-humanrights.org


Reports, articles & guidance by leading experts & organizations


El «ángulo muerto» del Derecho Internacional: las empresas transnacionales y sus cadenas de suministro (The “Dead Angle of International Law: Transnational Corporations and their Supply Chains), Lorena Sales Pallarés and Maria Chiara Marullo, Persona y Derecho, May 2018 

Midcourse Manoeuvres: Community Strategies and Remedies for Natural Resource Conflicts in India, Indonesia and Myanmar, Centre for Policy Research (CPR) and Namati, June 2018 

Special Issue on Accountability of Multinational Corporations for Human Rights Abuses, Cedric Ryngaert (ed.), Utrecht Law Review, Vol. 14, Issue 2 (2018) 

Blog:  Shell in Nigeria: The Case for New Legal Strategies for Corporate Accountability, Charity Ryerson, Corporate Accountability Lab, 5 Jul 2018 

Blog: Holding companies criminally liable for human rights abuses, Andrew Smith, Alice Lepeuple, Corker Binning (UK), 17 Jul 2018  

Seeing through transparency: making corporate accountability work for workers, FLEX, July 2018 

Blog: Parent Company Liability for Human Rights Abuses in the UK? We Need Clarity, Dalia Palombo, OxHRH Blog, 24 Jul 2018 

A Business and Human Rights Treaty: The Risks of Human Rights Counter-Diplomacy, Luis Yanes, Opinion Juris, 9 Aug 2018 

From CSR codes of conduct to binding rules on corporate behavior, Rene E. Ofreneo, Business Mirror, 8 Aug 2018 

A watered down treaty on business and human rights?, Sudden Chakravarti, LiveMint, 8 Aug 2018 

At Last: A Draft UN Treaty on Business and Human Rights, Doug Cassel, Emeritus Professor of Law at Notre Dame Law School, Letters Blogatory, 2 Aug 2018 

UN treaty on business and human rights: Working Group publishes draft instrument, Alison Berthet, Peter Hood, and Julianne Hughes-Jennett, Hogan Lovells, 26 July 2018 

UN Working Group takes key step towards binding international treaty on Business and Human Rights, Public Services International, 24 July 2018 

Towards an International Convention on Business and Human Rights (Part I & II), Carlos Lopez, International Commission of Jurists via Opinio Juris, 23 July 2018
Events
Rethinking limited liability in light of the universality of human rights, Annual Conference of the European Society of International Law, University of Manchester, 13 Sep 2018

Webinar on Human Rights & Business: The Challenge of Access to Remedy, the Case of the Ogoniland, Corporate Accountability Lab and Ankawa International, 3 Jul 2018 (recording available here)
If you would like to submit an entry for consideration in the next bulletin, give us feedback, know someone who would like to receive the bulletin, or wish to unsubscribe, please contact Elodie Aba, Legal Researcher, at aba [at] business-humanrights.org.
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