The “Zero Draft”: Access to judicial remedy for victims of multinationals’ (“MNCs”) abuse
This blog is part of the Reflections on the Zero Draft blog series on the proposed binding treaty on business and human rights. We present this series as part of our work to highlight key developments and opportunities for change, with the aim of empowering advocates in civil society, governments and businesses with the evidence and guidance to help define their position and engagement in the treaty process. We believe this initiative is complementary to the implementation of the UN Guiding Principles, and that an inclusive and open debate is crucial to ensure these initiatives deliver for everyone, and that the business & human rights movement continues its 'unity in diversity'.
The 2018 “Zero Draft” of the proposed binding treaty on business and human rights seeks to build on the 2011 UN Guiding Principles on Business and Human Rights (UNGPs). Whereas the UNGPs are not legally binding on business, the Zero Draft includes provisions designed to increase victims’ access to effective judicial remedies in their national courts. It applies to businesses with “activities of a “transnational character”, which means it covers MNCs but not businesses whose activities are exclusively national. The question considered briefly here is whether, if implemented, a treaty reflecting the Zero Draft would significantly improve access to justice in practice?
Practically effective national judicial remedies are important first, to provide redress for harm suffered by individuals whose rights have been violated, and secondly, as a deterrent. But cases involving harm arising from MNC operations are beset by negative factors, namely: the power imbalance between individuals and MNCs; the variable quality and accessibility of national legal systems in MNC home and local courts; the legal and factual complexity and novelty of these cases. The last of these factors will be readily appreciated by considering cases involving large scale environmental pollution or corporate complicity in human rights violations around mining operations by public or private security bodies. Victims require specialist legal representation and technical experts to pursue such cases, which are invariably very costly and resource-intensive and have uncertain prospects of success.
At a national level, key specific, interrelated, barriers to victims’ access to an effective remedy include the following:
- Virtually insurmountable difficulties in obtaining justice in most MNC host state courts
- The lack of jurisdiction of MNC home state courts over claims against MNC local subsidiaries even when local justice is unachievable
- The forum non conveniens doctrine, applied in the US, Canada and Australia (but not in the European Union) resulting in the court declining to deal with a case against a MNC parent company that is domiciled in its jurisdiction
- The “corporate veil”, which protects an MNC parent company from legal liability as a shareholder in circumstances where the only realistic means of accessing justice is likely to be by suing the MNC parent in its home court. The principle of a tort law parent company duty of care, which circumvents the corporate veil, has been developed in the UK but not yet elsewhere
- Difficulties obtaining disclosure of internal corporate documents to establish parent company control over and/or involvement in functions connected with the alleged harm. There is a striking variance between the more generous procedures in US/UK/Australia/Canada and South Africa and the very limited access allowed, for example, in the Netherlands and Germany
- The absence, in most jurisdictions, of opt-out class action legislation and procedures which reduce costs by allowing representatives to sue on behalf of a class and also avoid the need for every member of a class to institute legal action to protect their limitation rights
- Inequality of arms. Whereas MNCs can afford the best legal representation and expert assistance, victims cannot afford lawyers. Public legal aid funding for cases of this magnitude is unrealistic. The only option is for victims’ lawyers to act on a contingency basis (in countries where this is lawful), however in general only the largest law firms (who will be conflicted by the interests of corporate clients) would have the financial ability to take on the risk and cash flow burden that these cases entail
- The inability to fully recover legal costs when a case is successful further dis-incentivises lawyers from acting for victims
- Damages awards based on local levels reduce the financial viability of cases. In this regard, if third party litigation funding can be obtained, lawyers’ cash flow risk and risk of not getting paid if a case fails, can be eliminated thereby enabling them to act. However, litigation funders demand a percentage of damages recovered which must be a multiple of their investment. Consequently, litigation funding is only available when overall damages are likely to be high.
States responses to Pillar 3
Most of these barriers are specifically identified in Pillar III of the UNGPs. However, no steps appear to have been taken (in any country) to address them in response to the UNGPs. Indeed, after endorsing the UNGPs the UK government passed legislation, the Legal Aid Sentencing and Punishment of Offenders Act 2012 (“LASPO”). This contained legal costs provisions that reduced the financial viability of such cases, especially those involving smaller numbers of claimants (which often comprise the most grave human rights violations). Whether the Monterrico Metals case (for 32 Peruvian environmental protesters who were allegedly subjected to torture and other mistreatment by mine security and the police), or the Thor Chemicals case (for 21 South African workers poisoned by mercury) would have been viable post LASPO is doubtful.
The Zero Draft
The following is based on the gist of the draft rather than a precise analysis of its wording.
With respect to the current barriers identified above, the most significant impositions on states in the Zero Draft are contained in Articles 9, 10.6, 8.4 and 10.4.
Articles 9 and 10.6 signal the prospect of civil liability for foreseeable harm arising from due diligence failures by an MNC in respect of operations over which the MNC had control or was sufficiently closely related. As they are intended to be legally binding they represent a natural but critical progression from the human rights due diligence principles in Pillar II of the UNGPs. They potentially extend and globalise the parent company duty of care principles that to-date only apply under UK law and in states that follow English law. On the other hand, Article 9.5 allows states to exempt “small and medium-sized businesses from the purview of selected obligations” of Article 9.
Although on the face of it, a victim is relieved of the responsibility of establishing that an MNC owed a legal due diligence obligation, proving control or a sufficiently close relationship - the requirement for “proximity” under a tort law duty of care - is still required. However, Article 8.4 requires states to ensure that national laws do not unduly limit access to information, which should enhance the ability of victims to obtain evidence of control. Moreover, Article 10.4 purports to permit courts to reverse the burden of proof to fulfil a victim’s access to justice. But any excitement over this latter provision is dampened by its vague and discretionary wording and that it is made expressly “[s]ubject to domestic law”.
Article 8.2 refers to the right to pursue claims as a group and Article 5.3 indicates that if it can be justified, an individual can pursue a claim on behalf of a group. There is however no requirement that states should specifically allow opt-out class actions.
Article 8.5.d stipulates that victims should be exempt from liability for the costs of their opponents. This is a bonus but is of less importance to victims who are impoverished.
Article 8.7 requires the establishment of an International Fund to provide legal and financial aid to victims, but this is too vaguely worded to translate into a legal fund that would be sufficient to run protracted complex litigation against well-resourced and determined multinational opposition.
Article 13.1 requires states to act consistently with principles of sovereignty and “non-intervention in the domestic affairs of other states”. It probably was not intended to encourage the principle of forum non conveniens but it might be interpreted as doing so, which would be a very retrograde step for victims.
If effectively translated into national laws, the provisions of the Zero Draft would lower the legal and procedural barriers to MNC parent company liability.
This would in turn increase the willingness of lawyers to represent victims as this would reduce costs and increase the prospects of success. The overall effect the Zero Draft would be to significantly enhance victims’ access to an effective judicial remedy.
The legal, procedural and practical barriers to justice are interrelated and additive in terms of risk. The more barriers are removed, the more likely it is that victims will secure legal representation. The position could be further improved by provisions prohibiting forum non conveniens, stipulating that damages should be assessed at levels of the MNC home state, and requiring states to provide for opt-out class actions.
The due diligence provision should not be confined to large businesses as this would potentially mean letting the likes of Monterrico and Thor Chemicals, and other smaller MNCs that have perpetrated serious abuses, “off the hook”.