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Focus on Regulation

Strict Liability and Human Rights Due Diligence – too little too early?

It was a pleasure to speak in Geneva earlier this month at a consultation hosted by the United Nations Office of the High Commissioner for Human Rights (“OHCHR“) on the scope for making businesses strictly liable for human rights abuses, and the role, if any, for human rights due diligence in that context.

The consultations were requested by the UN Human Rights Council following the publication of the important first report of the OHCHR’s Accountability and Remedy Project (“ARP“).

The ARP was launched by the OHCHR in 2014 to enhance the third pillar of the UN Guiding Principles on Business and Human Rights (the “UNGPs“), access to remedy. Its first report – ARP I – was presented to the Human Rights Council in June 2016. Like the UNGPs, ARP I concluded that effective judicial mechanisms are at the heart of access to remedy. The project’s second phase – ARP II – is currently in progress and focuses on non-judicial mechanisms.

This first OHCHR consultation following ARP I, entitled “The Relevance of Human Rights Due Diligence to Determinations of Corporate Liability”, explored the relationship between human rights due diligence (as defined in the UNGPs) and determinations of corporate liability under national law for adverse human rights impacts arising from or connected with business activities.

The panel I participated in – together with my distinguished co-panellists, Humberto Cantu Rivera (Université Paris 2 Panthéon-Assas), Krishnendu Mukherjee (Doughty Street Chambers), Sandra Cossart (SHERPA), and Elsa Savourey, Herbert Smith Freehills – explored in particular the relationship between human rights due diligence and strict liability, drawing on the conclusions of ARP I.

In England, as in many national regimes, strict liability is already available against corporations in a number of contexts, both for civil liability (such as under the Consumer Protection Act 1987 for damage caused by a defective product) and criminal liability (such as the offence under the Bribery Act 2010 for failure to prevent bribery).

Justifications for imposing strict liability in such circumstances include the difficulty of attributing “fault” in large corporate structures, deterring risk-taking and, as a matter of fairness and policy, that the cost associated with the risks deriving from a company’s activities should be borne by the company, even if the company did nothing wrong.

Many of these arguments resonate in the context of considering whether to impose strict liability for human rights abuses. But such an imposition could lead to issues of due process if we do not proceed with caution and ensure a clear and foreseeable legal framework, enabling businesses to regulate their conduct with a reasonable level of certainty. Failure to do so could risk discouraging responsible investment, which could be counter-productive.

One critical issue is the scope of “violations” or “offences” to which strict liability can be attached. The UNGPs refer to “adverse human rights impacts”, which potentially extends to adverse impacts (of any degree) on any of the human rights contained in the International Bill of Human Rights.

Attaching strict liability to a failure to prevent (as per the UK Bribery and Corruption Act) “gross” human rights violations may be an option.  For example, in the UK, we already have the Criminal Finances Act 2017, which was passed in April this year, allows for the recovery in civil proceedings of property obtained through unlawful conduct that amounts, or is connected, to “gross human rights abuses”. However, such an approach assumes that the underlying offence (of committing a “gross” human rights violation) would not be subject to strict liability and can be proved.

Challenges in realising access to remedy will form the central theme of this year’s UN Forum on Business and Human Rights, at which Hogan Lovells will be co-hosting a session on regulation and litigation trends concerning access to remedy across the value chain.

The consultation was held on 6 October 2017 at the Palais des Nations at Geneva. The joint session at the 2017 UN Forum on Business and Human Rights will take place at the same location on 28 November 2017.

Draft EU List of Authorised Novel Foods Published

The European Commission has published a draft implementing Regulation setting out the proposed official EU list of authorised novel foods.

A ‘novel food’ is a food or ingredient that has not been consumed to a significant degree in the EU prior to 15 May 1997. These include products traditionally eaten outside the EU prior to this date, such as chia seeds, argan oil and noni fruit juice, as well as foods produced using innovative processes, such as UV-treated mushrooms.

Currently, food manufacturers looking to use a novel food or ingredient in their products have to obtain prior authorisation from the first country in the EU in which the food/ingredient will be marketed. That authorisation applies across the EU but is personal to the applicant, so other companies wishing to use the same food/ingredient have to apply for a separate authorisation.

A new centralised authorisation procedure will replace the current system from 1 January 2018, under the new Novel Foods Regulation (EU) 2015/2283, making it easier and quicker for businesses to use innovative novel foods and ingredients in the EU. Applications will be submitted to the Commission and assessed by the European Food Safety Authority (EFSA) as to whether the food or ingredient presents a risk to public health, is not nutritionally disadvantageous compared to any food or ingredient it could be used to replace, and is not misleading to consumers. If authorised, the food or ingredient will be added to the official list and businesses can then use that novel food or ingredient in the EU without having to apply for their own authorisation. There will also be a simplified approval route for traditional foods from outside the EU.

The draft implementing Regulation includes all novel foods and ingredients that have previously been authorised for use by Member State competent authorities, their conditions for use, specifications, and any additional specific labelling or other requirements.

The Commission has until 1 January 2018, when the new Novel Foods Regulation comes into effect, to adopt the finalised implementing Regulation. Any application for authorisation under the current system that has not received final approval by the relevant Member State before the implementing Regulation is formally adopted will automatically be treated as an application under the new centralised procedure. Where a risk assessment has already been completed by a Member State and no objections have been raised by other Member States or the Commission, the EFSA will not carry out a second assessment.

The full text of the draft implementing Regulation is available here and the consultation closes on 2 November 2017.

Majority in favour of improving fairness in EU food supply chain

Initial responses to the European Commission’s public consultation on how to make the EU food supply chain fairer suggest that, bar retailers, the majority of significant stakeholders (including Member States, farmer groups, agricultural organisations and NGOs) are in favour of action at EU level to increase fairness and balance in the food supply chain.

The EU-wide consultation has so far received record numbers of contributions. It was prompted by concerns that differences in bargaining power between farmers and SMEs and their economically stronger commercial partners has resulted in unfairness and unequal distribution of value across the chain.

The consultation follows the Agricultural Markets Task Force, set up by Commissioner Hogan last January, and seeks input on the necessity and expediency of measures to address the current imbalance. Views are also sought on ways to improve market transparency across the food supply chain and the potential use of value sharing agreements, already used in sectors such as sugar, to ensure that bonuses and losses resulting from evolutions in market prices are shared.

The on-going consultation ends on 17 November 2017. The full consultation document is available here.

Jurisdiction and parent company liability – Court of Appeal keeps door ajar for extra-territorial human rights related claims

The Court of Appeal has handed down its judgment in a landmark case on jurisdiction and parent company liability (Lungowe and Ors. v Vedanta Resources Plc and Konkola Copper Mines Plc [2017] EWCA Civ 1528).  The judgment increases the likelihood that cases will be brought in the English courts against UK domiciled companies in relation to adverse human rights impacts associated with the operations of their overseas subsidiaries.  At the same time, it frees foreign domiciled subsidiaries to argue that, notwithstanding a claim against their parents, England is not the appropriate forum to hear claims against them.  This post summarises the facts and the judgment, comments on how it will affect future human rights related parent company liability cases and makes some practical recommendations on how businesses can reduce the risk of involvement in the underlying human rights impact.

The facts

Vedanta is a UK domiciled, London listed mining conglomerate.  It operates through a network of locally owned subsidiaries, including in Zambia where its subsidiary, Konkola Copper Mines (“KCM”), has a licence to extract copper from the Nchanga mine.  In 2015, claims were brought in the UK against Vedanta by a group of Zambian subsistence farmers alleging personal injury, damage to property and loss of income flowing from pollution from the Nchanga mine.  Using Vedanta to “anchor” the claims in the English courts, the claimants obtained permission to serve KCM through the “necessary and proper party gateway” (Paragraph 3.1 of Practice Direction 6B).  Vedanta and KCM challenged the jurisdiction of the English courts on various grounds but these challenges were dismissed at first instance by Coulson J.  Vedanta and KCM appealed and, on Friday 13 October, the Court handed down its judgment.

The judgment

The Court unanimously dismissed Vedanta and KCM’s appeals (see judgment).

In order to determine jurisdiction over the UK domiciled parent company, the starting point is Article 4 of the Recast Brussels Regulation (the “Regulation”) as applied in the ECJ case of Owusu v Jackson.  This precludes the court from declining mandatory jurisdiction where the defendant is domiciled in the UK.  It was held that, in principle it may be possible to argue that the proceedings amount to an abuse of EU law.  However, the threshold is high and requires evidence that the party has conducted itself in such a way as “to distort the true purpose of that rule of jurisdiction“.

For as long as the UK remains bound by the Regulation and subject to the jurisdiction of the ECJ (and, for that matter, until the Supreme Court overturns domestic authority to the same effect), it will generally not be open for parties to argue that Article 4 leaves any discretion to the English courts to reject jurisdiction over a UK domiciled company.  (If, however, the case against the parent is weak, it will of course be open to them to apply to have it struck out on the merits).

In order to determine jurisdiction over the foreign subsidiary under the necessary and proper party gateway, the Court considered the following issues: (1)    whether the claimants’ claim against KCM has a real prospect of success; (2) if so, whether there is a real issue between the claimants and Vedanta; (3) whether it is reasonable for the court to try that issue; (4)   whether KCM is a necessary and proper party to the claim against Vedanta; and (5) whether England is the proper place in which to bring that claim.

On the basis that his conclusions were not “plainly wrong”, that the court had not misdirected itself as to the law, failed to take into account what mattered nor taken into account what did not, the Court was cautious not to substitute its evaluative judgments for those made by Coulson J and adopted a self-consciously “diffident” approach.

However, elements of the judgment in relation to issues (2) (whether there is a real issue between the claimants and Vedanta) and (5) (whether England is the proper place in which to bring the claim) which are novel and will have a bearing on how similar cases are decided in the future.

Parent company liability

Jurisdictional questions of this nature will often hinge on whether there is a real issue to be tried between the claimants and the “anchor”, UK domiciled parent company.  This involves a preliminary assessment of the merits of the case against the parent.  After reviewing the cases on parent company liability, the court held that certain propositions can be derived from these cases which may be material to the question of whether a duty is owed by a parent company to those affected by the operations of a subsidiary:

  • The starting point is the three-part test of foreseeability, proximity and reasonableness (Caparo v Dickman). The fact that Vedanta is KCM’s holding company was not sufficient to satisfy this requirement, so it was necessary to identify additional factors before a properly arguable case could be made out.
  • A duty may be owed by a parent company to the employee of a subsidiary, or a party directly affected by the operations of that subsidiary, in certain circumstances. At first instance, Coulson J held that while it was possible for a parent to owe a duty of care to a non-employee third party, it was more likely that a duty would arise with respect to an employee.  It is significant that the Court chose not to make such a distinction in the appeal judgment – this will give confidence to non-employee third parties to commence claims against both parent and subsidiary.
  • Those circumstances may arise where the parent company (a) has taken direct responsibility for devising a material health and safety policy the adequacy of which is the subject of the claim, or (b) controls the operations which give rise to the claim.
  • Chandler v. Cape Plc and Thompson v. The Renwick Group Plc describe some of the circumstances in which the three-part test may, or may not, be satisfied so as to impose on a parent company responsibility for the health and safety of a subsidiary’s employee.
  • Such a duty may be owed in analogous situations, not only to employees of the subsidiary but to those affected by the operations of the subsidiary.
  • The evidence sufficient to establish the duty may not be available at the early stages of the case. This final point is also significant.  In future cases, courts will likely be hesitant to conclude that there is no real issue to be tried between claimant and parent at an interlocutory stage and rather defer it to be determined at the hearing.  By that stage, the claimants will already have succeeded in anchoring jurisdiction over the parent and subsidiary in the English courts.  If the claim against the parent then fails, the claim against the foreign subsidiary may still subsist even though it has little, if any, residual connection to the jurisdiction.

The court considered the following evidence relevant to the existence of a duty of care as between Vedanta and the claimants: a global sustainability report which stressed that oversight of its subsidiaries ultimately rests with the Vedanta board; a management agreement pursuant to which Vedanta agrees to provide training and other services to KCM, including in relation to the environment and health and safety; public statements by Vedanta about managing environmental risk; and witness evidence from a KCM employee about the degree of oversight and control exercised by Vedanta personnel.  On balance, the more integrated a parent company and its subsidiaries are and the more attention the parent pays to the relevant practice of its subsidiaries, the more likely it is that a duty of care will arise.

Forum non-conveniens

With respect to Issue 5 (whether England is the proper place in which to bring the claim), the Court followed Coulson J in determining the issue in accordance with CPR 6.37(3) (“The court will not give permission [to serve the claim form out of the jurisdiction] unless satisfied that England and Wales is the proper place in which to bring the claim”) and Lord Goff’s formulation in Spiliada (“the task of the court is to identify the forum in which the case can be suitably tried in the interests of all the parties and for the ends of justice”). 

At first instance, Coulson J determined that the existence of an arguable case against the parent in the jurisdiction “virtually concludes” the issue of appropriate forum.  The prospect of parallel proceedings (against the parent in the UK and the subsidiary in Zambia) was “unthinkable” and therefore, notwithstanding the fact that the claimants were all Zambian, the damage occurred in Zambia and the applicable law was primarily Zambian, England was the proper place to bring the claim.  This line of reasoning was subsequently endorsed by a different division of the High Court in AAA and Ors. v Unilever and Unilever Tea Kenya.  On appeal, it was held only that Coulson J was “entitled to this view”.  However, the court does not endorse his reasoning and cites without criticism the defendants’ submissions to the opposite effect.  As such, it remains open to defendants in future cases to argue that, notwithstanding the existence of a real issue as between the claimants and the parent which is within the jurisdiction of the English courts, England is not the appropriate forum to hear the claims against the subsidiary.

Finally, the Court made an interesting (and apparently unprompted) policy point about “exporting” cases from countries where access to justice is a problem: “There must come a time when access to justice in this type of case will not be achieved by exporting cases, but by the availability of local lawyers, experts, and sufficient funding to enable the cases to be tried locally.”  In light of this statement, it will be open to parties in the future to argue that it is not in the “ends of justice” to export cases to the UK; rather, in the long term, that the legal infrastructure in the territory where the wrong takes place should be allowed to develop so that claims can be heard there.


The judgment clarifies and, arguably, expands the scope of parent company liability and makes it more difficult for a court to determine at an interlocutory stage that there is no real issue to be tried between a claimant and a parent company.  This will likely see an upswing in claims in the English courts against the UK domiciled parents of overseas operating companies.  At the same time, it can be read to breathe some life into the doctrine of forum non-conveniens, increasing the likelihood of the court accepting jurisdiction over claims against the UK parent but not the foreign subsidiary.  At first instance, courts continue to enjoy a significant amount of discretion as to how they apply the rules and exercise their judgment.  In order to mitigate against such uncertainty and the prospect of human rights related claims in the English courts and elsewhere, companies should operationalize the UNGPs, taking steps to “know and show” that they respect human rights and, to the extent possible, this process should be carried out at an operating subsidiary level, where there is a greater likelihood that any adverse impact will take place and greater scope for successful preventative action.

Swissmedic updates requirements concerning the Fast-Track Authorisation Procedure

On 1 October 2017, the Swiss Agency for therapeutic products (“Swissmedic”) updated its guidance document concerning the Fast-Track authorisation procedure (“FTP”). The modified guidance document replaced the formerly Information sheet on the FTP.

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Much-Needed TCPA Reform Would Support Small Businesses and Spur Economic Benefits

Growing evidence suggests that existing Telephone Consumer Protection Act (“TCPA”) compliance challenges, and the current TCPA litigation landscape, are increasingly a threat to many U.S. companies – particularly small businesses that have fewer resources and could face financial ruin if targeted by a class action lawsuit.  To help address this issue and support the U.S. economy, Congress and the Federal Communications Commission (“FCC”) should revise the current TCPA framework and facilitate reasonable, practical compliance approaches for companies attempting in good faith to communicate with customers.

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Jesner v Arab Bank: corporate liability under the Alien Tort Statute?

All eyes are once again on the Supreme Court of the United States (SCOTUS) as it turns its attention to the application of the Alien Tort Statute (ATS) to companies accused of complicity in human rights violations committed abroad.

The ATS, a federal law enacted in 1789, gives U.S. federal courts jurisdiction over “any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States” (28 U.S.C. § 1350). More simply put, the ATS enables foreign / non-U.S. nationals to bring civil claims in U.S. courts for torts committed against them in violation of customary international law, although since SCOTUS’ decision in Kiobel v Royal Dutch Shell Co, the extraterritorial reach of the ATS has been severely curtailed. Continue Reading

Change comes to the Defense Security Service: The Transition from e-FCL and ISFD to NISS on October 30, 2017

On October 30, 2017, the U.S. Department of Defense (DoD) Defense Security Service (DSS) will complete its transition to the National Industrial Security System (NISS). The NISS will replace two predecessor systems: the Industrial Security Facilities Database (ISFD), and the Electronic Facility Clearance System (e-FCL). This Alert describes some aspects of the change that are important for cleared contractors. Continue Reading

McDowell v. CGI Federal Inc.: A Stark Reminder to Government Contractors of their Cybersecurity Obligations

On June 1, 2017, the United States District Court for the District of Columbia issued a decision in a class action lawsuit, McDowell v. CGI Federal Inc., Civ. Action No. 15-1157 (GK) (D.D.C. 2017)1, which could have significant repercussions for government contractors operating information systems that house government information.  The case arose after employees of CGI Federal Inc. (“CGI”) allegedly stole personally identifiable information (“PII”) CGI obtained pursuant to a contract with the U.S. Department of State.  Under this contract, CGI processed passport applications, which contained a significant amount of PII.  The plaintiffs allege that, as part of its activities under the contract, CGI processed information on CGI-owned systems and assisted with maintaining Department of State systems.  According to the filings, the contract provided that all information submitted through passport applications was U.S. Government property and required CGI to safeguard all such information. Continue Reading

FDA Simplifies and Clarifies Expanded Access Program

Last week, FDA announced via a blog post simplifications and clarifications to its expanded access program.  Under FDA’s expanded access program, physicians may request that patients with a serious condition receive treatment with an investigational product when there is no therapeutic alternative.  In particular, FDA made three announcements:

  • FDA has decided that physicians requesting individual patient expanded access will no longer need review and approval at a convened IRB meeting where a majority of the members are present. Instead, FDA intends to allow for a waiver of this requirement if physicians obtain approval from the IRB chairperson or another designated IRB member.  FDA says this change is intended to address delays that may result from the full IRB board not meeting routinely.  In accordance with this change, FDA has updated its guidance documents on Individual Patient Expanded Access Applications: Form FDA 3926 and Expanded Access to Investigational Drugs for Treatment Use – Questions and Answers.
  • FDA clarified that sponsors of expanded access INDs are required to report an adverse event as a suspected adverse reaction only if there is evidence to suggest a causal relationship between the drug and the adverse event. FDA says this clarification is intended to address reluctance by companies to provide investigational drugs for expanded access due to potential uncertainty about how FDA will handle adverse event data.  In making this clarification, FDA stated it recognized that it may be more difficult to determine the cause of an adverse reaction with patients receiving expanded access, because they are being treated outside of a controlled clinical setting.  As a result, they may have more advanced disease than clinical trial participants, be receiving other drugs at the same time, and have other diseases.  FDA updated its guidance on Expanded Access to Investigational Drugs for Treatment Use – Questions and Answers in accordance with this clarification.
  • Finally, FDA announced that the Expanded Access Navigator – a directory for companies to submit links to their expanded access policies and contact information – would now include information from FDA’s Rare Diseases Program. FDA said this change was intended to help promote expanded access to treatments for rare disorders.

FDA promises that “[m]ore simplifications and clarifications” to its expanded access program will be forthcoming.

If you have any questions about FDA’s expanded access regulations, please contact one of the authors of this alert or the Hogan Lovells attorney with whom you regularly work.