Parent Company Liability Research Articles

Part II: Parent Company Liability and the Idea of Statutory Due Diligence

Recent case law in the UK courts has established the possibility for the parent companies of multi-national corporations to hold liability in tort negligence for harms caused by their foreign based subsidiaries. The UK’s approach – a general duty of care for cross-border torts – is noteworthy in that it has developed organically through the common law. One possible tension this duty raises, may be with established principles of company law, affirmed at common law. By comparison, European neighbours such as France, Switzerland and Germany, have addressed the same issue of corporate accountability by developing statutory regulatory regimes which utilize due diligence obligations reflective of the recent trend toward international accountability standards, such as the UN Guiding Principles for Business and Human Rights (UNGPs) of the late John Ruggie. This work serves as an in-depth investigation for scholars of tort law, company law, private international law, and human rights, who are interested in understanding this rapidly developing area of practice from an English perspective. This work is offered in two parts. This second part offers an overview of UK statutory and case law as it may relate to parent company liability. A critical analysis of recent case law, seeks to understand the characteristics of parent company liability, as developed by the Courts in securing fair remedy for corporate misfeasance. With reference to comparative regimes observed in the aforementioned neighbouring European countries, this work further considers what limitations the current law has, and what benefits could be realized through the introduction of reporting requirements. Parent Company, Corporate Groups, English Company Law, Human Rights Due Diligence, UNGPs, Okpabi, Vedanta, Mass Torts, Supply Chain Liability, Limited Liability

Parent company liability, forum non conveniens and substantial justice

This article examines the forum non conveniens doctrine in English parent company liability cases, focusing on the recent Vedanta, Unilever and Okpabi trilogy. It explains the dilemma that English courts, like other common law courts, have faced when confronted with arguments that foreign courts are unable to deliver ‘substantial justice’ to claimants. On the one hand, English courts do not wish to appear chauvinistic, but on the other they do not want to leave claimants without a remedy. This dilemma is even more pointed in the context of parent company liability cases which involve claims against English parent companies for harms caused by the operations of their subsidiaries in developing countries and, in particular, when the subsidiaries are of such economic importance (and are sometimes even partly owned or controlled by the developing country itself) that there is a real risk of corruption in the judicial process to protect those economic interests. The article shows that, in the recent trilogy, this dilemma has been sidestepped by allowing substantial justice arguments, but on less controversial procedural grounds, such as the absence of litigation funding in the foreign forum.

Parental Corporate Liability as Tort in the United Kingdom Part I: How the Past Informs the Challenge of Contemporary Regulation

Recent case law in the UK courts has established the possibility for the parent companies of multinational corporations (MNCs) to hold liability in tort negligence for harms caused by their foreign-based subsidiaries. The UK’s approach – a general duty of care for cross-border torts – is noteworthy in that it has developed organically through the common law despite conflicting with established principles of company law. By comparison, European neighbours such as France, Switzerland and Germany have developed statutory regulatory regimes which utilize due diligence obligations that appear more reflective of recent international accountability standards, such as the UN Guiding Principles for Business and Human Rights (UNGPs) of the late John Ruggie. This work serves as an in-depth investigation for scholars of tort law, company law, private international law and human rights, who are interested in understanding this rapidly developing area of practice from an English perspective. This work is offered in two parts. This first part contextualizes the current law within contemporary academic discourse and offers a historically informed explanation for the conceptual underpinnings of the unique approach currently taken within English jurisprudence and their coherence with the broader principles of domestic UK company law. The second part offers an analysis of UK law as it stands including the caselaw that builds the corpus of parent company liability in England and Wales. It analyses how effective the current liabilities identified by the Courts are in securing fair remedy for corporate misfeasance. It identifies and categorizes its key features and contrasts them with comparative elements of statutory due diligence approaches adopted by France and Germany or pursued as in the case of Switzerland. It will finally consider whether they offer any concepts worthy of consideration for the regulation of parent company liabilities in future. Parent Company, Corporate Groups, English Company Law, Human Rights Due Diligence, UNGPs, Okpabi, Vedanta, Mass Torts, Supply Chain Liability, Limited Liability

Breakthrough in Parent Company Liability

Two English and two Dutch cases have recently clarified the (potential) liability of parent companies vis-à-vis third parties in relation to damage caused by their subsidiaries. They concern the decisions of the UK Supreme Court in Vedanta v Lungowe and Okpabi v Shell, the Hague Court of Appeal in Oguru v Shell and the Hague District Court in Milieudefensie v Shell (climate change case).

THE CORPORATE GROUP: SYSTEM, DESIGN AND RESPONSIBILITY

AbstractLungowe v Vedanta Resources plc presages more liberal criteria for determining when a parent company owes a duty of care to third parties injured by subsidiary activities. It invokes systems language and points to potential parent company liability for omissions in managing the group. This article develops these ideas. It portrays the corporate group in systems-managerial terms. The parent creates group-wide structures and deploys management strategies and integrating mechanisms that facilitate achievement of its purposes. It has a substantial causal influence upon subsidiary acts and omissions. Prima facie the parent cannot avoid extended liability claims by hiding behind the “pure omissions” rule.

Parent company liability in transnational human rights disputes: an interactional model to overcome the veil in home state courts

ABSTRACT Recent decisions by common law home state courts have interpreted corporate separateness in a way that actually or, otherwise, effectively bars host state victims from compensatory tort remedies from transnational corporation (TNC) parent companies. Taking into account other proposals, this article suggests an interactional model to pierce the veil to more routinely allow for parent company liability in claims that concern fundamental human rights violations. Under that model, home state courts would prioritise capital flows between a parent company and host state corporations by asking a single question: Does the parent company derive profits from operations in a host state? To substantiate the need for an interactional model in light of increasing transnationalisation and the primacy of fundamental human rights, this article utilises the analytical lens of the New Legal Realism as well as normative hierarchy principles recently put forward by the Supreme Court of Canada in Nevsun.

Okpabi v Shell and Four Nigerian Farmers v Shell: Parent Company Liability Back in Court

Foreign direct liability litigation against businesses is still a growing trend in European domestic courts, going on for over two decades.1 With absent effective remedies in host states, victims of human rights abuses committed by transnational corporations’ subsidiaries try to get access to remedy in the courts of the home states of the parent companies. A crucial factor for whether such cases can succeed, is the viability of the claims against the parent companies allegedly involved in the abuses. The principal legal route that victims have used to hold parent companies liable is through common law negligence claims.

Parent Company Liability in Transnational Human Rights Disputes: An Interactional Model to Overcome the Veil in Home State Courts

Parent Company Liability in Transnational Human Rights Disputes: An Interactional Model to Overcome the Veil in Home State Courts

Corporate Social Responsibility and Corporate Liability for Environmental Damage

This chapter analyses recent developments in tort law, namely in the English tort of negligence, which point towards increased liability of parent companies for damage caused by their subsidiaries. In particular, it discusses the relevance of CSR and environmental self-regulation and best practices for parent liability; which has been discussed controversially in English case law. The chapter shows that CSR instruments play an important role with regard to the assumption of responsibility in the individual case, resulting in a duty of care towards, for example, neighbours of a factory. Moreover, it demonstrates their influence on the determination of the required standard of care when it comes to more general corporation-wide (or supply chain-wide) duties of care.

Toward a Corporate Duty for Lead Companies to Respect Human Rights in Their Global Value Chains?

AbstractThe corporate responsibility to respect human rights was formally introduced in 2011 with the unanimous endorsement of the UN Guiding Principles on Business and Human Rights (UNGPs) by the UN Human Rights Council. It is grounded in social expectations and forms part of the companies' “social license to operate.” This paper argues that this responsibility is progressively turning into a legal duty for lead companies to respect human rights in those types of value chains which are characterized by a high level of control by a lead company over its business partners. Our argument rests on two recent legal developments. Firstly, the article analyzes the judicialization of the corporate responsibility to respect in the case law on parent company liability in various jurisdictions, which, we argue, is highly likely to have some implications in relation to certain types of value chains so as to trigger the liability of lead companies for the human rights harms arising out of the activities of entities over which they exercise sufficient control. Secondly, the article delves into the legislative developments which increasingly require lead companies to exercise due diligence so as to prevent and address adverse human rights impacts in their own activities and global value chains.

The Cogeco Case: The First Preliminary Ruling on the Private Enforcement Directive

In March this year, the European Court of Justice (hereinafter “CJ”) answered the first preliminary question regarding the Private Enforcement Directive (“Directive”).1 One might expect this decision2 to remain relevant for the next few years, as it sheds some light on the rather intricate issue of the Directive’s temporal application. The CJ explains what rules are applicable to actions for damages regarding infringements which occurred prior either to the Directive’s adoption or to its implementation in the respective Member States. The case is also of major interest since it illustrates the role that the principle of effectiveness can play when applied alongside Articles 101 or 102 of the Treaty on the Functioning of the European Union (“TFEU”).3 Finally, albeit not expressly addressed, the case is also of interest regarding the controversial issue of parent company liability in private enforcement, where it represents a novelty in the Portuguese legal order.

Parent Company Liability and the European Convention on Human Rights – An Analysis from the Perspective of English Law

The difficulties faced by individuals who seek to hold parent companies liable for the conduct of their subsidiaries are well-known. Much less discussed is the question whether international human rights law might require a state to make available a compensatory remedy against a parent company in such circumstances. Drawing on principles of European Convention on Human Rights (ECHR) law, this paper argues that the obligations, first, to create an effective deterrent against activities by private actors which infringe upon human rights and, second, to provide an effective remedy for such activities requires that parent companies be made liable for the conduct of their subsidiaries in certain circumstances. Recent developments in English law on parent company liability are also examined. While these developments bring English law further into line with these ECHR obligations, it is argued that it may still fall short of what the ECHR requires in this context.’ Parent company liability – effective remedy – effective deterrence – duty of care

Nothing to See Here? The Extension of Parent Company Liability in James Hardie Industries plc v White

In James Hardie Industries plc v White, the New Zealand Court of Appeal considered circumstances where a parent company could be directly liable for defective products produced by its subsidiary while upholding the principles behind separate corporate personality. The Court passed off the case as an unexceptional development in the law, based on an application of ordinary tort law principles and supported by decisions from overseas jurisdictions. However, the Court neglected to consider the underlying policies of the cases it cited, ignored important distinctions between them and the present case and did not inquire into whether they were in fact relevantly applicable. In fact, the Court extended parent company liability for the acts and omissions of its subsidiary far beyond what courts in overseas jurisdictions have held. In doing so, the Court implicitly lifted the corporate veil and failed to acknowledge the impact such a finding of liability would have on the corporate form.

Toward a Corporate Duty for Lead Companies To Respect Human Rights in Their Global Value Chains?

The corporate responsibility to respect human rights was formally introduced in 2011 with the unanimous endorsement of the UN Guiding Principles on Business and Human Rights (UNGPs) by the UN Human Rights Council. It is grounded in expectations and forms part of the companies' social license to operate. This paper argues that this responsibility is progressively turning into a legal duty for lead companies to respect human rights in those types of value chains which are characterized by a high level of control by a lead company over its business partners. Our argument rests on two recent legal developments. Firstly, the article analyses the judicialization of the corporate responsibility to respect in the case law on parent company liability in various jurisdictions, which, we argue, is highly likely to have some implications in relation to certain types of value chains so as to trigger the liability of lead companies for the human rights harms arising out of the activities of entities over which they exercise sufficient control. Secondly, the article delves into the legislative developments which increasingly require lead companies to exercise due diligence so as to prevent and address adverse human rights impacts in their own activities and global value chains.

Beyond Skanska. The Court of Appeal of Leeuwarden’s Latest Decision in TenneT

The Court of Justice’s decision in Skanska constituted a milestone in the development of the rules on private enforcement of EU competition law. The Court settled the widely disputed question as to whether or not the concept “undertaking” has the same scope under the rules relating to public and private enforcement of competition law. The Court answered this question positively and deduced that the theory of economic continuity developed in EU competition law also applies in cases for damages caused by the infringement of the EU competition rules. Shortly after the Skanska decision a Dutch Court of Appeal deduced from the Skanska decision that a subsidiary can be held liable for damages caused by an infringement of the competition rules by its parent company. The case note discusses whether this indeed follows from the Skanska decision in light of the Court of Justice’s earlier case law on the theory of parent company liability and it relationship to the concept “undertaking”.

Civil Law Liability of Parent Companies for Infringements of EU Competition Law by Their Subsidiaries

The article investigates the impact of the use of the concept ‘undertaking’ in the EU Antitrust Damages Directive on the civil law liability of parent companies for infringements of their subsidiaries and more general on other natural and legal persons forming part of the same undertaking. The research shows that the Directive and other rules of EU competition law leave room for an interpretation that allows Member States to maintain additional criteria for liability such as imputability, adequacy or culpability to prevent the transposition of the competition law theory of parent company liability into civil law. The way in which Member States have dealt with the issue of the civil law liability of parent companies when transposing the Antitrust Damages Directive differs. Some Member States explicitly introduced a system of parent company liability, others remain intentionally or unintentionally vague about the question. Ultimately, it will be up to the Court of Justice do decide whether the Antitrust damages directive read together with other rules of EU competition law requires Member States to transpose the competition law theory of parent company liability into civil law. To prevent parent companies from using subsidiaries to limit their competition law liability and to encourage them to ensure competition law compliance by their subsidiaries, the transposition into civil law of a slightly amended competition law theory of parent company liability appears desirable.

Nothing to See Here? The Extension of Parent Company Liability in James Hardie Industries Plc v White

In James Hardie Industries plc v White the New Zealand Court of Appeal looked to determine circumstances where a parent company could be directly liable for defective products produced by its subsidiary while upholding the principles behind separate corporate personality. The Court passed off the case as an unexceptional development in the law, based on an application of ordinary tort principles and supported by decisions from overseas jurisdictions. However, the Court neglected to consider the underlying policies of the cases it cited, ignored important distinctions between them and the present case and did not inquire into whether they were in fact relevantly applicable so that it in fact extended parent company liability for the acts and omissions of its subsidiary far beyond what overseas jurisdictions have held. In doing so, the Court implicitly lifted the corporate veil and failed to acknowledge the impact such a finding of liability would have on the corporate form.

From Separate Legal Entity to Economic Unity: The Criminal Liability of Parent Company

Corporate criminal liability has become an issue following the increase in corporate crimes. This study discusses the possibility of parent company to deny liability for crimes committed by its subsidiary companies. This normative legal research employed qualitative analysis. The results showed that the parent company denied criminal liability by hiding behind the separate legal entities and limited liability doctrine. Through both doctrines, the parent company treats itself as a separate legal entity apart from the subsidiary company so that the former holds no liability for any crime committed by latter. T h rough piercing the corporate veil doctrine, the parent company intentionally use s the subsidiary company as a tool to maximize profits and applies total control. Therefore, based on the vicarious liability principle, the subsidiary company functioned as the parent company’s agent. It works for or on behalf of the parent company in which every profit made is owned by the parent company.

Vedanta Resources PLC and Another v Lungowe and Others [2019] UKSC 20

As globalization has expanded in recent years, a number of novel issues have arisen on the international stage, regarding the relations and interaction between legal regimes – both from the perspective of states (in contexts such as human trafficking), and from that of multinational corporations. One such issue in this latter context concerns liability of parent companies for actions or omissions of their (overseas) subsidiaries or branches – especially considering the lack of transparency surrounding such relationships, and the very public face presented by a multinational. Given the potential for a claim to be brought in either of the two jurisdictions concerned, a number of cases have sought to bring some clarity to this decision. Vedanta Resources plc and another v Lungowe and others1 is the latest in a line of cases at the UK courts concerning liability of parent companies for actions of foreign-domiciled subsidiaries. AAA v Unilever plc2 and Okpabi and others v Royal Dutch Shell plc and another3 discussed, and were dismissed largely because of, lack of ‘sufficient proximity’ between the parent company and subsidiary to prompt a duty of care. As discussed below, this was one question of law on which the claimants succeeded in Vedanta: a common law duty of care was found. The implications of Vedanta for Okpabi upon its upcoming appeal (and similar future cases) in extending the applicability of a duty of care (in certain circumstances) to stakeholders other than employees or consumers, are wide-ranging. Given the less than optimistic outcome for victims in both AAA and (to date) Okpabi from a business and human rights perspective, it is hoped that Vedanta can contribute to a more victim-centered approach. Case note: Vedanta Resources plc and Another v Lungowe and Others [2019] UKSC 20

UN Binding Treaty for Transnational Corporations on Human Rights

24 | International Union Rights | 26/4 ANALYSIS | UN BINDING TREATY DRAFT The Draft Treaty is taking clear shape and this is a key time for trade unionists to continue to engage with technical legal aspects of the drafting In July 2019, the ‘Revised Draft of the Legally Binding Instrument’ was released from the UN Human Rights Council’s Working Group on Business and Human Rights, updating the so-called ‘Zero Draft’ of July 2018. Many welcomed the new draft as a step forward, but others were quick to seize upon a number of ambiguities and puzzling choices that seem to depart from the broad consensus of the UN Guiding Principles on Business and Human Rights (UNGPs). The document now has a coherent shape and focus, but fails to produce clarity on a number of technical legal points. These must be addressed if the Draft is to create a meaningful international standard. The following represent my own views (broadly starting with the highest priority points, moving towards those that are either less urgent or viable) on which changes trade unionists should consider pushing for in the Draft. Due diligence and stakeholder issues The continuing move towards a legally mandated form of binding due diligence can be welcomed by unions. It promises opportunities for participation and engagement, and is the only mechanism that seeks to avoid and prevent harm, rather than merely compensate for harm that has occurred. It is built upon the idea of voluntary due diligence that was central to the UNGPs. It is understood by and – more or less – supported by significant sections of the business community, at least to a degree. Properly mapped out, binding due diligence holds the potential to improve corporate planning so as to identify and avoid risks, improve communication with stakeholders, and to establish better participation for all affected by corporate activities (notably, of course, those working in their supply chains). It also backs this up with real accountability for failures to identify and avoid risks. Crucial to effective due diligence, however, are requirements for stakeholder involvement in corporate planning. Trade unionists should consider calling for the following improvements: • Groups identified as ‘at risk’ should include trade unions (Articles 5(3)b and 14(4)). • Groups identified as ‘to be consulted’ should include trade unions (Article 5(3)b). • The form that Article 5(3)b consultation takes should be better defined so as to give stakeholders a genuine opportunity to influence decision-making. • The outcomes of consultation do not have a mechanism requiring that they be integrated into due diligence planning. This is in contrast to the outcomes of impact assessments, which are specifically integrated into due diligence planning under Article 5(3)a. An equivalent link placing consultation outcomes at least on a par with impact assessment outcomes should be established. • There should be an explicit link between Article 5 due diligence for parent companies and Article 6 legal liability concerning harm arising as a result of due diligence failures (discussed further below). • There should be a clear statement under Article 5 (and therefore linked also to Article 6(6)) to the effect that parent companies should not be able to divest themselves of due diligence obligations by simply outsourcing that responsibility to a third party monitor or by paying little or no attention to their supply chains. Liability, jurisdiction, and applicable law Victims of harm need access to courts and judicial processes, and effective remedies must be available that are appropriate and commensurate to the harm suffered. The latest Draft does give a useful framework around which to discuss what liability might look like under the Treaty, but there are surprising gaps and a lack of clarity concerning how and in what circumstances parent company liability towards victims overseas might arise. Changes in the following areas ought to be investigated: • Article 6(6) outlines a civil liability track for victims. It covers situations where one company is controlled or supervised by another, and (in the alternative) also situations where a company should foresee or should have foreseen harm caused by a company with which it has a ‘contractual relationship’. This second strand of liability seems to arise where the parent company...