Welcome to the second edition of BHR 360, our bi-annual Business and Human Rights newsletter. In the last edition, we looked at key BHR trends and what to watch out for in 2018. In this edition, we look back on a year full of major BHR developments and anticipate what companies need to do to get ahead of the curve:

• We analyse the US Supreme Court's landmark decision Jesner v Arab Bank - here
• We also look at recent decisions in the English courts on parent company liability, and the key takeaways for businesses - here
• We dissect the recently published UN-led 'draft zero' paving the way for a binding treaty on business and human rights - here
• We discuss how blockchain is transforming supply chain management, and its application in human rights due diligence - here
• We take a look at the French PACTE Bill, which is likely to have a significant impact on the BHR landscape in France - here

Jesner v Arab Bank: the end of the road for the Alien Tort Statute?

Earlier this year, the United States Supreme Court decided Jesner v. Arab Bank, PLC, 138 S.Ct. 1386 (2018), a case that will have a profound effect on human rights tort litigation in the United States.  In Jesner, the Supreme Court held that foreign corporations may not be sued under the Alien Tort Statute ("ATS"), and its reasoning suggested that domestic corporations may be similarly immune to suit.  Jesner should therefore diminish—but not halt—the tide of human rights suits against corporations in American courts.
 
The ATS is a federal law dating back to 1789 that allows non-U.S. nationals to bring civil claims in U.S. courts for torts committed against them in violation of international law. A series of cases since the 1980s tested, tried and expanded the scope of the ATS, but in the last decade the United States Supreme Court has pushed back against that effort.  In a series of cases, it has held that ATS liability is available only for a confined number of universally accepted international law violations, and that the presumption against extraterritoriality applies to the ATS.  Jesner is the latest case in this series, as it imposes clear limits on which parties may be defendants in ATS suits. 
 
The plaintiffs in Jesner were victims of terrorist acts who claimed that Arab Bank (headquartered in Jordan) violated customary international law via its New York branch by processing U.S. dollar-denominated transactions that financed these terrorist acts and so-called “martyrdom payments” to families of terrorists.  The Supreme Court did not consider the merits of this claim.  Instead, it held that Arab Bank—a foreign corporation—could not be sued under the ATS.  The Supreme Court explained that liability under the ATS should be carefully constrained, and that Congress should make the politically sensitive decision as to whether corporations should be exposed to suits under the ATS.  Further, relying on an amicus brief for the Republic of Jordan filed by Hogan Lovells, the Supreme Court pointed to the foreign relations problems that arise when the United States imposes liability on foreign companies. 
 
While the Supreme Court expressly limited its holding to foreign corporations, its focus on the need to construe ATS liability narrowly and on the sensitivities associated with corporate liability in general strongly suggests that domestic corporations, too, should be immune from ATS suits. 
 
At the same time, Jesner certainly does not spell the end of ATS suits.  The decision bars suits against foreign corporations, but individual foreign defendants may still face liability.  That may lead plaintiffs to bring suits against foreign corporate officers in place of the corporation itself.  Indeed, a recent decision in multi-district litigation against executives of the Chiquita corporation suggests that this may be the new avenue for ATS liability.  Moreover, while the Supreme Court’s reasoning may suggest that domestic corporations are no longer liable, its refusal to issue a holding on that question means plaintiffs will likely continue to push suits against domestic corporations and the American affiliates of foreign corporations.

Human rights and tort: English courts pave the way for actions against UK companies for human rights impacts in the operations of their overseas subsidiaries and suppliers

Following last year's decision in Vedanta, the Court of Appeal has handed down judgment in two more cases involving human rights impacts in the operations of overseas subsidiaries of UK multinationals.  The Court rejected jurisdiction in both Shell and Unilever on the basis that the claimants could not show a good arguable case that the parent company owed them a duty of care.  Nevertheless, there is now a clear consensus that such a duty will arise in certain circumstances and that it could extend to people affected by other entities in a business's value chain. 
 
We look at some of the key points for businesses to bear in mind when managing risk of such claims:
 

Circumstances in which a duty of care might be owed – beyond the corporate veil

A duty of care will arise where there is sufficient foreseeability, proximity and where the court determines that it is fair, just and reasonable.  Beyond this, the courts are reluctant to lay down strict rules determining the circumstances in which a duty of care might arise.  In Vedanta and Shell, it was held that such circumstances might include where a company takes direct responsibility for devising a material policy, the adequacy of which is the subject of the claim or controls the operations which give rise to the claim.  In Unilever, the court suggested that a duty of care might arise where a company has in substance taken over the management of the relevant activities of another company or has given it relevant advice about a particular risk.  What was clear from both judgments is that the equity which a parent owns in a subsidiary is immaterial.  What matters is the nature of that relationship with respect to a particular risk.  Applying the same principles, a duty of care might arise in relation to persons affected by a supplier or another third party.
 

Adopt robust policies and equip your subsidiaries and suppliers to implement them

UK businesses should not be deterred from maintaining human rights policies and supplier codes of conducts.  In Shell, the Court distinguished between a company which takes steps to ensure that there are proper controls in place by establishing an overall system of mandatory policies, processes and uniform practices on the one hand and a company which actually seeks to exercise control on the other.  Only in the case of the latter might a duty of care arise.  In light of this, multinationals should maintain their policies and codes of conduct but ensure that their subsidiaries and suppliers are properly equipped to independently understand and manage their human rights risk.  This will reduce the likelihood of a human rights impact occurring in the first place and reduce the likelihood of duty of care arising so as to found a claim in the English courts.

Towards a binding international treaty on business and human rights

In July, the UN working group responsible for developing a binding international instrument on transnational business and human rights published "Draft Zero" of its treaty.  Although it is unlikely that any treaty will come into force for several years, this represents a significant step towards an international "hard law" regime on business and human rights.  Transnational businesses can get ahead of the curve by taking note of its requirements and planning accordingly. 
 
Some of the instrument's key features include:
 
1. Mandatory human rights due diligence

States would be required to ensure that domestic legislation requires transnational companies within its jurisdiction to undertake due diligence.  This is consistent with the UN Guiding Principles and domestic law introduced in some states, such as France.  The instrument prescribes certain features of due diligence as well as a requirement that due diligence is reflected in their contractual relationships.  This would precipitate private law claims between entities in a value chain about the adequacy and implementation of human rights due diligence.  
 
2. Corporate criminal liability

States would be required to provide measures under domestic law to establish corporate liability for human rights violations which amount to crimes under international law.  Participation in such crimes would be determined in accordance with domestic law.  This is legally novel and, in some states, would set a low threshold for participation in a criminal offence.  What's more the treaty requires that states disregard any statute of limitations which might apply to such crimes.
 
3. Civil liability – lifting the corporate veil

Civil liability would arise where a business causes a human rights impact in its value chain.  This would include circumstances where it: exercises control over the operations of a foreign subsidiary; exhibits a sufficiently close relationship with a supplier and where there is a strong and direct connection with a human rights impact; and where it should have foreseen the risk of a human rights impact within its chain of economic activity.
 
4. A network of mutual legal assistance, recognition and enforcement

States would be required to offer specific mutual legal assistance to other state parties in implementing the treaty.  This would extend to a self-standing regime of reciprocal recognition and enforcement of judgments in accordance with the treaty, not dissimilar from the New York Convention on arbitral awards.  This would allow claimants to bring a claim in the local courts and seek enforcement in a different jurisdiction where a business holds its assets.

Blockchain: A new frontier in supply chain management

For many businesses, particularly those with global operations or supply chains involving a multitude of "business relationships", conducting adequate human rights due diligence can be very challenging. Blockchain technology can help businesses to meet this challenge. 
 
What is blockchain?
 
Blockchain is a digital ledger that can be used to record transactions. It is decentralised, immutable and cryptographically secured. Information, once encrypted, cannot be modified.
Because it is a shared rather than a copied database, everyone in the blockchain network can see and update its contents, providing potential benefits for supply chain management by increasing transparency. By using blockchain, it is possible for all participants in the supply chain to record information such as price, date, location, quality and certification, which can then be seen and monitored by other actors further down the chain.
 
How can blockchain be used for due diligence?
 
Due diligence is only as good as the information it is based on. Blockchain offers the prospect of instantaneous and reliable recording of quality information throughout the life of a business' supply chain, creating a transparent and immutably accurate trail of information that can then be easily audited.
 
Any subsequent mutations or additions to that product's properties as it works its way through the supply chain can then be tracked, recorded and permanently saved on the blockchain. That product sourcing information could be shared with the ultimate consumer by simply scanning a code on the final product. 
 
Beyond the theory: some practical examples
 
Several industries have already begun to develop the use of blockchain technology to improve their supply chain management.  Facing significant pressure for increased traceability, the minerals extraction industry has been at the forefront of such initiatives. 
 
* Diamonds     
Everledger, a start-up which uses emerging technology to eliminate fraud and other corporate risks, has been using blockchain to track the provenance of diamonds since 2015. In January 2018, De Beers, the world's biggest diamond producer, unveiled Tracr, an industry-wide blockchain to track each time a diamond changes hands. By using blockchain, any conflict diamonds can be identified and inform the purchasing decisions of jewellers or consumers.
 
* Cobalt 
A pilot scheme is expected to launch later this year, under which each sealed bag of cobalt produced by a vetted artisanal mine will be given a digital tag, which is then entered onto a blockchain using a smartphone, along with details of the weight, date and time. The idea is that downstream buyers will be able to track exactly where their cobalt has originated and (providing the mines are monitored and vetted) ensure that it is not the product of child labour. This increased transparency will enable companies to avoid human rights abuses in their supply chains and expand their human rights investigative practices.
 
The verdict?
 
It is still too early to herald blockchain as the cure to all due diligence headaches. For all the talk of its inviolability and resilience, the technology remains to be tested on a meaningful scale.  However, it is exciting to see technology develop which helps businesses discharge their responsibility to respect human rights – the first, and perhaps most important, step of which is to identify adverse human rights impacts.

The French "Pacte" Bill: Towards increased room for social and environmental topics in corporate management of French companies?

On 19 June 2018, the French Government submitted the bill on Business Growth and Transformation to the French Parliament ("the PACTE Bill"), one of the most significant bills for the French Parliament to vote on in autumn 2018.  Provisions of the PACTE Bill will be of particular interest for those who follow business and human rights developments.  Indeed, the Bill provides for (i) "social and environmental issues" to be taken into account in companies' management alongside the corporate interests, and (ii) the possibility of enshrining the company's "purpose" (raison d'être) in the company's bylaws.
 
The PACTE Bill was the result a two-phase consultation process, with one phase conducted by six working groups made up of members of Parliament and business managers, and the other opened to all citizens and stakeholders. The Bill follows recommendations of the report "Businesses, object of collective interests", published on 1 March 2018 by Jean-Dominique Sénard (CEO of Michelin) and Nicole Notat (CEO of Vigeo Eiris and former leader of one of the major French unions), and proposes to "think over the place of corporations in society".  It was presented to the French Government on 18 June 2018. 
 
More specifically, Article 61 of the PACTE Bill proposes the following amendments:

• a second paragraph could be added to Article 1833 of the French Civil Code stating that corporations must be managed in their own "corporate interests" by taking into consideration the "social and environmental issues" related to their operations;
• Article 1835 of the French Civil Code could be amended to allow corporations to specify in their bylaws a "purpose" for the corporate operations; this means that companies could incorporate social objectives to their corporate purpose as part of their bylaws;
• Articles L. 225-35 and L. 225-64 of the French Commercial Code could be adjusted so that corporate and management boards take into account "social and environmental issues" as part of their respective managerial assignments. 
  If the PACTE Bill will not directly change the nature and objectives of corporations, it explicitly intends to give them the possibility to go beyond the objective of being profitable.  Moreover, while the PACTE Bill does not attach any specific sanction in case of non-compliance with the principle of taking into account "social and environmental issues", the company's civil liability could potentially be sought if the PACTE Bill is enacted as it currently stands (subject to civil liability's conditions being met). Under some circumstances, managers' liability might also be incurred for making decisions in breach of the new principles.
   

The PACTE Bill is currently being examined and debated before the French Parliament.  It is expected that it will eventually be adopted during the autumn as a result of an expedited process.  One should therefore know during the last quarter of 2018 if and when, and to what extent, these proposals will be adopted and enter into force.

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