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2 Apr 2021

Oliver Holland & Rachel Bonner, Leigh Day

Recent UK Court of Appeal judgment may lead to greater accountability of companies hiding behind complex supply chains

People gather around the hull of a partially broken-down ship in Sitalpur, Bangladesh.

A recent judgment of the UK Court of Appeal in Hamida Begum (on behalf of MD Khalil Mollah) v Maran (UK) Limited [2021] EWCA Civ 326 may have far-reaching implications which could lead to greater accountability of companies who have historically used the complexity of their supply chains to evade responsibility and liability.

The case was brought by Hamida Begum, a Bangladeshi national, and the widow of a shipbreaking worker, MD Khalil Mollah, who suffered a fatal accident while dismantling a large tanker called the EKTA in Chattogram, Bangladesh, in 2018. Mrs Begum brought the claim against the UK company, Maran (UK) Limited, who she said was responsible for sending the EKTA to Bangladesh to be ‘beached’ where they knew it would cause environmental damage and be dismantled in extremely unsafe working conditions.

Sending vessels to South Asian beaches is a common practice in the shipping industry despite it resulting in hundreds of deaths and serious injuries to workers every year and causing very serious environmental damage – the industry has operated with almost total impunity for decades. Approximately 80% of large end-of-life vessels are sent to South Asian beaches each year despite there being viable ethical alternatives where worker and environmental safety is a priority. Of course the ethical alternatives lead to less profit for the shipping companies.

To avoid scrutiny, sales of end-of-life ships are not conducted directly between the shipowners and beach-yards in South Asia, but through demolition cash buyers who act as the middleman to create distance between shipowners and this unsavoury sector of the shipping industry. Shipping companies also create complex corporate structures involving multiple shell companies and change the names of and reflag vessels at the point of sale to circumvent EU Regulation and legal liability.

The Court of Appeal’s ruling found that a shipping company in England selling a vessel for dismantling in South Asia could owe a duty of care to shipbreaking workers even where there are multiple third parties involved in the transaction. The ruling stated that Maran (UK) Ltd could, and should, have insisted on the sale to a ‘green’ yard, where proper working practices were in place.

The Court’s findings increase international scrutiny of environmental and health and safety practices across the maritime sector. However, the implications could be much broader than this sector alone and could impact any company that seeks to distance itself from human rights and environmental abuses occurring in its supply chain.

The shipping industry is notoriously complex, but so too are other industries. The fashion supply chain, for example, is hugely complex and companies at the top of the chain are far removed from those individuals producing the textiles and garments - many of whom are victims of forced or child labour.

Historically companies have evaded liability for human rights violations by hiding behind these complex supply chains. They deploy defences of a lack of awareness of abuses and their inability to control the conditions at every stage.

However, as is evidenced by recent reports of the fashion industry’s complicity in Uighur forced labour; the “army” of children mining mica for the beauty, car and electronic industries; or Syrian refugees subjected to abuse, discrimination and child labour in Turkey’s garment industry, ongoing violations across supply chains can no longer be argued as invisible. They are reported by human rights organisations and the mainstream media. Even if companies fail to conduct their own due diligence, it is becoming increasingly more difficult for them to claim ignorance.

As with the shipping industry, complex supply chains enable companies to pursue the greatest profit – by benefiting from cheap labour, weak regulations or limited worker protections – at the same time as distancing them from liability. But the Court’s recent findings mean that companies choosing to source their products in circumstances where it is foreseeable that environmental, human rights and/or health and safety violations will occur may owe a duty of care to those exposed to these unsafe conditions. The involvement of a third party, or even the third party’s control over the unsafe conditions, does not negate that duty where the violations are entirely predictable.

Also see the Resource Centre's story "China: 83 major brands implicated in report on forced labour of ethnic minorities from Xinjiang assigned to factories across provinces; Includes company responses".