What are the legal tools for holding corporations to account globally?

27/05/19 - Maria Khan, advocate at Raja Mohammad Akram & Co

On 11th September, 2012, a fire broke out at the Ali Enterprises textile factory in Pakistan. As a result, 262 workers died, and many more were injured.

The large number of casualties were due to inadequate safety measures at the factory premises, which had led to the flames spreading within minutes, resulting in one of the most catastrophic tragedies in the textile industry worldwide.

Ali Enterprises had been producing most of its products for the German retailer KiK, headquartered in Bönen, Germany. It could be argued that the responsibility of maintaining adequate health and safety standards at the factory fell upon KiK.

However, KiK was found to have never conducted any thorough or authentic due diligence review of the working conditions and safety measures at Ali Enterprises, or any of its supply chains in Pakistan. Moreover, the Italian social auditors of the factory RINA produced fake safety compliance certificates just a few weeks before the tragedy.

Nearly seven years later, survivors and relatives of the deceased are still demanding justice for the loss of their families’ incomes. On 10th January, 2019, the Regional Court of Dortmund in Germany dismissed the legal claim filed against KiK on behalf of the victims.

The Court ruled that the claim was time-barred, since it had been filed with a delay of two-and-a-half years. The dismissal of this claim shows the limitations of pursuing strategic litigation against transnational corporations with respect to violations of human rights.

The issue of limitation in this case could have been overcome by interpreting the Pakistani law of limitation liberally. It could have been argued, citing Pakistani case law precedents, that the statute of limitation is a mere technicality, and limitation can be condoned in light of the peculiar circumstances of this case.

However, it is disappointing that the German court was unwilling to hear the case on merits, and this has led to an unfair precedent on the strict interpretation of limitation law.

Obstacles to justice

In addition to the problem of limitation, there are various procedural hurdles in bringing legal action against a transnational corporation at its principal place of business with respect to corporate abuse. For example, many civil law jurisdictions, including Germany, do not allow group claims.

In the case of KiK, only four individuals filed their claims before the court in Germany. Moreover, the applicable law for the purpose of deciding a suit is that of the country where corporate abuse has occurred (in this case, Pakistani law), while judges applying the law (in this case, German judges) are usually unfamiliar with the municipal law of that country.

Further, the underdevelopment of tort law and criminal corporate liability, and the non-obligatory nature of public international law are factors that combine to drastically reduce the success of strategic litigation against transnational business enterprises. This allows transnational corporations to escape liability for repeated human rights violations.

What can be done?

The steps that can be taken to overcome the limitations of strategic litigation against transnational corporations at their principal places of business need to be determined.

- First, group claims should be allowed in civil law jurisdictions to enable victims of corporate abuse to bring collective actions. In 2017, the European Commission announced plans for EU-wide legislation for collective redress sought by consumers. However, such collective redress mechanisms for victims of corporate harm, i.e. employees, and the community in general, are yet to be developed in the European Union legal framework.

- Second, as already noted, the limitation period for tort actions should be increased to allow victims of corporate abuse to gather evidence and resources in order to file a claim at the principal place of a corporation’s business. Any court may refuse to apply a foreign limitation period on the grounds of public policy. However, having no well-established jurisprudence / case law / literature on this issue aggravates the problem.

- Third, a corporation should be encouraged to provide access to information and evidence to its employees and workers. For example, social audit reports should be made public and accessible. In many situations, workers of a factory are not even aware of the existence of any audit reports, let alone the identity of the corporations that performed social audits of their workplaces.

Similarly, workers are also not aware of the true owners of the factories in which they are employed, as well as the corporations governing their employment matters.

- Most importantly, domestic legal frameworks with respect to corporate liability should be updated. Considering the Pakistani legal framework, there is no single legislation on corporate liability in Pakistan.On the contrary, protections against corporate abuses are scattered over various labour, consumer protection, and environment protection laws.

Additionally, tort law in relation to the liability of corporations has not been codified in Pakistan. In such a situation, the absence of a single, all-encompassing legislation on tort doctrines such as vicarious liability, respondent superior, strict liability, and third-party beneficiaries is a legal obstacle in terms of establishing liability against transnational corporations.

As far as the international legal framework is concerned, the responsibility to protect human rights falls upon states. These states and governments, by virtue of their international obligations, are duty-bound to push corporations to protect human rights.

This ultimately includes enacting legislation for corporate accountability, ensuring introduction of corporate social responsibility in the codes of conduct of every corporation operating within their territory, and undertaking due diligence of such corporations.

This further requires the promulgation of effective municipal laws on matters such as occupational health and safety standards, environmental protection, and consumer protection.

Maria Khan is an advocate at Raja Mohammad Akram & Co

Read more on Corporate Legal Accountability here