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Recent decisions in the UK on parent company liability cases show the need for law reform

William Meade, CORE Coalition

The UK is home to some of the largest multinational corporations in the world operating through integrated networks of subsidiary companies and complex supply chains. Through their global activities, UK companies are often involved in human rights and environmental abuses.

There have been important developments towards improved access to remedy in the UK for victims of overseas corporate related harm over the last 25 years, culminating in the 2012 Court of Appeal ruling in Chandler v Cape which held that, under certain circumstances, a parent company could owe a legal duty of care to employees of its subsidiaries. At present, however, there is no statutory regime in the UK for dealing with alleged violations of human rights by corporate actors.

This gap has become particularly apparent in the past twelve months as several major multinationals have succeeded in persuading the courts that they are not responsible for serious human rights abuses connected to their subsidiaries’ operations.

In three parent company liability cases heard before the UK Court of Appeal – Lungowe v. Vedanta, Okpabi v. Shell, and AAA v. Unilever – companies have argued that their UK headquarters are a separate legal entity with insufficient control over their subsidiary to be held liable for the harm. In the latter two casesthe judges decided the Court did not have jurisdiction to hear the claims while in Lungowe v. Vedanta the claimants were successful.

Vedanta has challenged the ruling and the case will be heard in the Supreme Court in January 2019. Nonetheless, the courts have on the face of it given contradictory and confusing guidance. Parliament must respond by reforming the law to clarify parent companies’ responsibilities and liabilities for human rights abuses. Here are four reasons why:

1.     Victims face insurmountable barriers to justice in their home country.

The current case against UK-headquartered mining company Vedanta and its Zambian subsidiary Konkola Copper Mines (KCM) was brought by 1,826Zambian villagers, who contend that highly toxic discharge from KCM’s Nchanga copper mine is contaminating their water, causing illness, damaging crops and affecting fishing.

It would be virtually impossible for the villagers to obtain justice in Zambia, one of the world’s poorest countries. No legal aid is available and conditional fee arrangements are also illegal. As subsistence farmers, the victims do not have the means to pay for legal representation. Moreover, at present Zambia’s legal infrastructure is insufficient to handle such an unwieldy case. Previous similar cases have collapsed. KCM has also established a reputation for using every available means to delay cases and increase costs. Most worryingly, the judge in Nyansulu v KCM suggested that KCM – the largest private employer in Zambia – had previously been ‘shielded from criminal prosecution by political connections and financial influence’.

This final point gets to the root of the problem. Multinational companies often bring huge inward investment to extremely poor countries. While this has obvious potential benefits, it creates a significant power imbalance that irresponsible companies can easily abuse.

2.     Information vital to proving the claim is under lock and key with the companies.

The Court of Appeal dismissed the claims against Shell and Unilever due to an absence of evidence demonstrating that the parent companies had operational control over their subsidiaries.

The proceedings were still at an early stage and there was no requirement for the companies to disclose documents about the relationships in the corporate group. Instead, it was up to the victims to show that the parent companies were in control of their subsidiaries’ operations at the time the harm occurred. In both cases, the claimants’ evidence that centralised standards were set by the parent companies was deemed insufficient.

This places an unrealistic evidentiary burden on claimants, in a situation where there is already a huge inequality in access to information. Legislation on parent company liability could redress this imbalance by reversing the burden of proof to place a requirement on the parent company to show what steps it had taken to manage human rights standards in its operations and prevent the harm from occurring. 

3.     The UK government and UK multinationals have signed up to international standards on responsible business conduct.

In 2011 the UK government announced its commitment to implement the UNGPs. Two years later, it published the world’s first National Action Plan on business and human rights, which included the government’s expectation that UK businesses respect human rights throughout their operations.

Unilever is one of the few multinational companies that has committed to implementing the UNGPs. Shell states that its human rights approach is informed by the UNGPs ‘and applies to all of our employees and contractors’.

But Unilever is now attempting to hide behind its corporate structure to block access to remedy for workers on its tea plantation who suffered serious human rights abuses during post-election violence in 2007. In Okpabi v Shell, the Court of Appeal decided that ‘the importance of multi-national parent companies conducting themselves consistently with international standards’ was irrelevant to the matter at hand, and a ‘doubtful foundation for the imposition of a duty of care’.   

As Amnesty International has pointed out, it is contradictory for UK courts to dismiss as irrelevant international normative frameworks that governments and businesses themselves are using to, respectively, set up their expectations of businesses and inform their steps to prevent negative human rights impacts across their global operations.[1]

The introduction of a mandatory requirement for companies to conduct human rights due diligence in line with the UNGPs would remove any doubt about the corporate responsibility to respect human rights and the associated liability for failure to do so.

4.     There is a clear trend towards embedding the corporate responsibility to protect human rights into law

The 2017 French <devoir de vigilance> law requires large companies to implement “vigilance plans” to identify and prevent risks of human rights abuses in their business operations and supply chains. If a harm occurs the company can be held liable for failing to implement an adequate plan.

In Switzerland campaigners have gathered public support for a constitutional amendment to introduce mandatory human rights due diligence based on the UNGPs, with a provision to make Swiss based firms liable for human rights abuses and environmental violations caused abroad by companies under their control.

Discussions and campaigns about mandatory human rights due diligence are also taking place in Norway, Sweden, Spain, Italy, Germany, Luxembourg and The Netherlands.

Properly formulated, a mandatory requirement in the UK would benefit business as well as victims, by providing much-needed clarification of companies’ responsibilities. Parliament should pass legislation enshrining the developing international standards on business and human rights to shift the burden of proof for victims; create less focus on a need to prove ‘control’ thereby mitigating against risk of parent companies distancing themselves from subsidiaries; and enable victims of environmental and human rights abuse to access justice.