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BHR 360: highlights from 2017, and what to watch out for in 2018 |
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Corporate liability for extra-territorial human rights impacts under the U.S. Alien Tort Statute: Jesner v Arab Bank
In October, the U.S. Supreme Court was asked – in the case of Jesner v Arab Bank – to decide whether the Alien Tort Statute ("ATS") extends to corporations as well as natural persons. The Court's decision, expected to be announced in the first half of 2018, will define the future (if any) of human rights tort litigation against businesses in the U.S..
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, until 2013, when the U.S. Supreme Court reaffirmed in Kiobel v Royal Dutch Shell that the ATS does not apply to conduct abroad unless the plaintiff’s claims “touch and concern” the U.S. with sufficient force. That was enough for the Supreme Court to dismiss the plaintiffs' claims in Kiobel, but the Court left open the question of whether, as a matter of principle, the ATS could apply to corporations as well as natural persons.
The plaintiffs in Jesner are victims of terrorist acts who claim 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 question before the Supreme Court is limited to whether the ATS allows claims to be brought against corporations. Either outcome will materially impact the future of human rights litigation against businesses in the U.S. – and potentially further afield in other jurisdictions grappling with the scope of corporate liability for human rights abuses.
If the Supreme Court allows the claims against Arab Bank to proceed, the case will go on to be an interesting test for the "touch and concern" standard established in Kiobel. Will the actions complained of – processing foreign transactions in dollars through a U.S. branch – be considered sufficiently connected to the U.S. to give rise to a cause of action under the ATS? The U.S. federal government's view is that, in isolation, they should not. Financial institutions worldwide will also be watching whether the type of routine banking activity at stake in Jesner could form the basis for human rights liability.
Parent company liability in England for human rights impacts abroad: Lungowe v Vedanta
Conventionally, a "corporate veil" and the doctrine of "forum non-conveniens" have isolated UK businesses from human rights related claims arising out of the operations of their foreign subsidiaries. In October, the Court of Appeal was asked to consider whether English courts had jurisdiction over claims brought by local farmers against a Zambian mining company and its UK parent in relation to pollution from a mine in Zambia (Lungowe and Ors. v. Vedanta Resources PLC). The landmark judgment increases the scope for parent company liability and has far-reaching consequences for human rights risk management throughout the value chain and around the world.
Vedanta confirms that the Recast Brussels Regulation requires an English court to accept jurisdiction over a UK domiciled defendant. So long as the UK remains a party to the Regulation and subject to the jurisdiction of the European Court of Justice, there is little scope to argue otherwise and arguments of forum non-conveniens against a UK parent company will fail. This will continue to allow relatively weak claims to be brought against a UK parent in order to anchor a stronger claim against a foreign subsidiary in the English courts.
1. Technically, the "corporate veil" remains intact – a parent company is not automatically liable for the acts or omissions of its subsidiary. A claimant must still prove that a separate, direct duty of care of the parent exists. However, Vedanta widens the circumstances in which such a duty may arise, confirming that it can extend to non-employees affected by a subsidiary's operations. It may now suffice to show that the parent controls the operations of the subsidiary or takes direct responsibility for a policy relevant to the claim (for example, in this case, by producing a global sustainability report).
2. The Court chose not to sanction the view that, where there is a real issue as to whether the UK parent owes a duty of care, this should "virtually decide" the issue of forum non-conveniens regarding the foreign subsidiary in favour of the English courts. In future, defendants will be free to argue that English courts are not the appropriate forum to hear claims against the foreign subsidiary, leaving the claimants with only the (often relatively weak) claim against the parent.
In effect, it will be easier for the foreign victim of an alleged human rights violation to bring a claim against a UK parent company and harder to defeat such a claim on jurisdictional grounds. See our blog post for further analysis of whether this creates a "Catch-22" for UK multinationals who seek to fulfil their responsibilities under the UNGPs.
Given these developments (and parallel developments in Canada – as to which, see our blog), in 2018, we expect to see the increased use of transnational tort and parent company liability by victims of alleged human rights violations. Notwithstanding the Vedanta Catch-22, the best way to avoid these claims remains to prevent the human rights impact occurring in the first place. Accordingly, businesses should take steps to respect human rights throughout their value chain, including by operationalizing the UNGPs. In the meantime, watch this space for updates on appeal decisions expected in this area in England and Canada.
Arbitration: a new forum for business and human rights disputes?
In February 2017, a proposal for the "International Arbitration of Business and Human Rights Disputes" was published by the Working Group on International Business and Human Rights Arbitration (the "Working Group"). The proposal, which was based on a four-year consultation launched by Lawyers for Better Business, advocated for the use of arbitration to resolve disputes arising out of human rights abuses involving businesses ("BHR disputes").
Arbitration is already widely used to resolve (1) contractual disputes between commercial counterparties and (2) investor claims against nation-states pursuant to international investment treaties, and there is some emerging evidence of arbitration being used to resolve human rights claims: see our previous blog post on the first example of arbitration claims proceeding against two global fashion brands under the 2013 Accord on Fire and Building Safety in Bangladesh (a case which has since settled).
According to the Working Group's proposal, arbitration could be adapted for use in BHR disputes in two scenarios: (1) by victims of human rights violations wishing to bring claims against businesses, or (2) to resolve disputes between commercial parties involving human rights-related claims (for example where a supplier failed to comply with certain contractually-imposed human rights obligations). The authors argue that international arbitration "holds great promise" as a method of resolving BHR disputes which often occur in regions where national courts are "dysfunctional, corrupt, politically influenced or simply unqualified". For further details on the proposal see our previous blog post.
Building on the Working Group's proposal, in November 2017 the Hague Institute for Global Justice launched a project to devise a set of international arbitration rules which could be used by individuals who claim their rights have been violated and companies seeking to enforce BHR obligations against each other, including within the supply chain. The rules (to be called the Hague International Business and Human Rights Arbitration Rules) will be drafted by experts in human rights, international arbitration and business supply chains, in consultation with a various other stakeholders. Once drafted, the rules will be offered to the Permanent Court of Arbitration and other international arbitration institutions, for use in arbitration proceedings to be administered by these institutions, and could also voluntarily adopted by parties in ad hoc arbitration proceedings.
While no deadline has been set for the finalisation of the rules, 2018 looks set to be an important year in determining the future direction of arbitration as a forum for resolving BHR disputes. Indeed, the drafting process will require important questions to be tackled, including how businesses and victims will submit to arbitration in practice, what norms or laws will be applied by the arbitral tribunal and how numerous victims can be accommodated in a single proceeding.
A business and human rights treaty: still a way to go
October 2017 saw the third round of negotiations at the UN on a potential international treaty on business and human rights.
Talks of a treaty started in 2014 at the direction of the UN Human Rights Council. Following two initial sessions in July 2015 and October 2016, Ecuador (chair of the UN working group) published draft "Elements" of the treaty, for discussion at this latest round of negotiations.
The negotiations were attended by stakeholders from across the board, including the EU and certain business organisations – a welcome widening of participation compared to earlier rounds. However, despite widespread support from governments and business for the implementation of the UN Guiding Principles on Business and Human Rights, consensus on what a legally binding treaty would look like remains a long way off.
In summary, key sticking points are (see our blog post for further analysis):
• The current proposal contemplates the creation of legally binding obligations directly on corporations. This would be unprecedented in international law, which has traditionally only imposed obligations on states. Yet little consideration seems to have been given to how this would work in practice or as a matter of international law.
• Which companies would be subject to the treaty remains a source of disagreement between southern states – who want to limit the scope to transnational companies – and the EU and others – who argue this is unfair and the treaty should apply to all companies, whether domestic or transnational. The Elements limit the scope of application to "transnational activities", which carves out companies with purely domestic activities, but no consensus on the meaning of "transnational activities" has emerged from the latest discussions and stakeholders remain divided on that question.
• The Elements include very broad notions of corporate liability, in contrast to the more nuanced position in the UNGPs. For example, the Elements contain a provision that businesses "shall prevent" human rights impacts of their activities, which potentially implies a strict liability for failing to prevent an impact and goes far beyond the UNGPs.
• The Elements specify that states' obligations under the treaty will not stop at their territorial borders without explaining how this will be compatible with existing – and well-established – international laws on state jurisdiction.
What next? The fourth round of discussions will take place later this year, before which Ecuador is expected to present a concrete proposal for a draft treaty. Negotiations to date suggest a rocky road ahead before the consensus required to conclude a treaty is attained. However, the lack of consensus in the context of treaty negotiations does not appear to be dampening support across states, businesses and civil society for other efforts to drive forward the implementation of the UNGPs (as we explore in the next section).
A global move from soft law to hard law?
2017 saw a general move towards the "hardening" of human rights obligations for businesses.
In France, a new 'duty of vigilance' law was enacted that requires companies of a certain size (at least 5,000 employees domestically or 10,000 employees worldwide) to create and implement (public) annual vigilance plans in order to assess and address the risks of serious human rights and environmental violations resulting from their activities. This new law empowers interested parties (including affected people and communities) to hold companies accountable by requiring judicial authorities to order a company to develop, publish and/or implement a vigilance plan, or justify the absence of one. It also provides the basis for civil claims by rights holders against the business. The law imposes far-reaching duties that go beyond disclosure obligations such as the ones in the UK Modern Slavery Act or the California Transparency in Supply Chains Act.
In the UK, two developments indicate that tougher requirements might be on their way too. First, in October the UK government released updated guidance on the UK Modern Slavery Act, in which it encourages enhanced disclosure going beyond the Act as currently drafted. Secondly, a bill was introduced in the House of Lords, which would amend the Modern Slavery Act to require: i) companies to include in their statements the categories of information specified in the Act (which the Act currently only encourages them to do); ii) a company that has not taken any steps to address slavery and human trafficking risks to explain why; and iii) the government to publish a list of all organisations subject to the disclosure requirements. Read more about this on our blog here. Further, the Joint Parliamentary Committee considered proposals on the introduction of further binding obligations on companies, perhaps in the form of a "duty to prevent" offence modelled on section 7 of the UK Anti-Bribery Act, although there are no signs yet of such proposals being adopted.
This trend towards hard law looks set to continue into 2018, with three developments to watch out for in particular: the Swiss Responsible Business Initiative, the Australian Modern Slavery Act and the Hong Kong Modern Slavery Act.
In Switzerland, proposals are being considered to amend the Swiss constitution to require mandatory human rights due diligence for Swiss-based companies. The Responsible Business Initiative (RBI), as the proposal is called, would impose an obligation on Swiss-based companies to carry out "appropriate due diligence" to identify and mitigate adverse human rights impacts. It also provides for parent company liability for serious human rights violations committed by their subsidiaries or companies under their control. Read more about the RBI on our blog here.
In Australia, a parliamentary inquiry led to a report (published in December) recommending the establishment of an Australian Modern Slavery Act based on the UK Act. The report recommends the introduction of mandatory supply chain reporting requirement for entities above a certain revenue threshold, including penalties for non-reporting entities.
In Hong Kong, a draft Modern Slavery Bill is currently being considered which, if passed into law, would impose annual reporting requirements on legal entities whose turnover exceeds a threshold amount. In addition to reporting requirements similar to the ones in the UK Act, the Hong Kong Bill also creates new offences and provides for a civil cause of action against persons or entities that have committed, or benefited from, those offences.
Around the world, the direction of travel is clearly towards the hardening of legal responsibility throughout the value chain, creating increased accountability for businesses. Given the fast pace of development in this area, and provided that new legislation consolidates rather than undermines consensus built by the UNGPs, businesses that voluntarily fulfil their responsibility to respect human rights will be ahead of the curve if (or when) soft law "hardens".
