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Focus on Regulation

Update on the responsibility to respect human rights and parent company liability: what the Court of Appeal’s judgment in Okpabi and others v Royal Dutch Shell Plc and another means for UK multinationals

In the last four months, the Court of Appeal has handed down judgment in two important cases relating to parent company liability and jurisdiction over extra-territorial human rights impacts.  In October, we wrote that the first of these cases (Lungowe and others v. Vedanta and KCM [2017] EWCA (Civ) 1528) created a “Catch 22” for English domiciled multinationals – by fulfilling the responsibility to respect and implementing group human rights policies, they risked increasing the likelihood of a duty of care arising which could be used to establish jurisdiction.  The judgment handed down last week in Okpabi and others v Royal Dutch Shell Plc and another [2018] EWCA Civ 191 goes some way to resolving this Catch 22 and provides some useful guidance on how responsibly to manage human rights risk without inadvertently increasing the risk of litigation.

Factual and legal background

In January 2017, the High Court decided in favour of Shell and its Nigerian subsidiary, upholding challenges to the jurisdiction of the English courts over claims by victims of oil leaks from pipelines in the Niger Delta.  Fraser J found that the claimants had failed to present a properly arguable case that Shell directly owed them a duty of care.  Absent proceedings against a UK-domiciled anchor defendant, the court found that there was no connection between the claims against the Nigerian subsidiary and the English courts.  The claimants appealed on the basis that Fraser J had erred in his analysis and asked the court to reconsider whether Shell owed a duty of care to those affected by the oil leaks.

Outcome of appeal

The appeal was dismissed.  A majority of the Court (Sales J dissenting) held that Fraser J had been correct to conclude that the claimants could not demonstrate a properly arguable case that Shell owed a direct duty of care to the claimants (albeit that they reached this conclusion on different grounds to the trial judge).  In reaching their judgments, the Court cited the formulation for establishing parent company liability adopted by the same Court in Vedanta:

“(1) The starting point is the three-part test of foreseeability, proximity and reasonableness. (2) 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. (3) 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. (4) 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. (5) The first of the four indicia in Chandler v. Cape Plc [80], requires not simply that the businesses of the parent and the subsidiary are in the relevant respect the same, but that the parent is well placed, because of its knowledge and expertise to protect the employees of the subsidiary. If both parent and subsidiary have similar knowledge and expertise and they jointly take decisions about mine safety, which the subsidiary implements, both companies may (depending on the circumstances) owe a duty of care to those affected by those decisions. (6) 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. (7) The evidence sufficient to establish the duty may not be available at the early stages of the case. Much will depend on whether, in the words of Wright J (in Connelly v. RTZ Corporation Plc [1999] C.C.C 533), the pleading represents the actuality.”

Neither party contested this formulation and it was applied without question in the judgment of the majority and in Sales LJ’s dissent.  As such, it now seems to be settled and, at least from the perspective of creating legal certainty, this is a welcome development.  The precise contours and practical significance of each of these propositions will likely be the subject of further litigation and debate.

Does adopting a group human rights policy increase the likelihood of a parent owing a direct duty of care?

The third proposition (that a parent might owe a duty to a third party directly affected by the operations of a subsidiary in circumstances where the “parent company has taken direct responsibility for devising a material health and safety policy the adequacy of which is the subject of the claim or controls the operations which give rise to the claim”) had prompted concerns that English multinationals would be dissuaded from fulfilling their responsibility under the UN Guiding Principles on Business and Human Rights, including to devise, publish and implement group human rights policies.

Notably, the Court in Shell did not restrict the application of this proposition to “health and safety” policies, instead referring generally to “policies the adequacy of which is the subject of the claim” [88, 132] and considering evidence from Shell’s sustainability report (amongst other, non-health and safety specific, documents).  On this basis, there would be nothing to prevent an English court from considering a company’s human rights policy in determining whether a duty of care arises to prevent human rights violations which also give rise to a cause of action under the applicable law.

However, all three judges agreed that the mere existence of such policies does not create a duty of care.  Simon LJ held that:

“The issuing of mandatory policies plainly cannot mean that a parent has taken control of the operations of a subsidiary (and, necessarily, every subsidiary) such as to give rise to a duty of care in favour of any person or class of persons affected by the policies.” [89]

The Court distinguished between a parent company which takes steps to ensure that there are proper controls in place by establishing an overall system of mandatory policies, processes and uniform practices on the one hand and a parent company which actually seeks to exercise control on the other [125, 140].  Only in the case of the latter might a duty of care arise.

Agreeing with Simon LJ, the Chancellor held that:

“The detailed policies and practices do not seem to have been tailored specifically for SPDC. Rather, they all apply across the board to all RDS subsidiaries and joint ventures, without distinction. It has already been said that it would be surprising if an international parent were to owe duties to those affected by the operations of all its subsidiaries and that there needs to be something more specific for the necessary proximity to exist.” 

By way of example, he suggests that proximity between a parent and a third party affected by the operations of a subsidiary might exist where the third party is injured by a food product which is manufactured by a subsidiary according to a prescriptive recipe provided by its parent.  This raises two further, important points: first, any attempt to suggest that the existence of a group human rights policy which requires subsidiaries to respect human rights creates the necessary proximity to found a duty of care would strain this analogy; second, a policy may be more likely to evidence a duty of care where it is devised for a particular subsidiary as opposed to the corporate group as a whole [121, 195].

So, the short answer to the question posed above is “no”.  UK multinationals should not be deterred by these cases from adopting global human rights policies and frameworks.  However, in practice, they should ensure that:

  1. the policy is applicable to all group companies rather than specific subsidiaries; and that
  2. the responsibility for implementing these policies (including by carrying out due diligence) is at subsidiary level. As we have written previously, not only will this reduce the risk of a duty of care arising, it will likely be more effective in reducing the risk of an adverse human rights impact in the first place as operating companies will often understand the human rights risk in a particular context better than someone at HQ and be better placed to identify it and effectively mitigate against it.  This may require that resources are allocated to ensure that in country personnel are properly trained in human rights due diligence to ensure that they can effectively discharge this function.

Passage of Federal Right-to-Try law poses risks and opportunities for patients and the biopharmaceutical industry

Right-to-try laws and the future of access to investigational treatments

The treatment of patients with unapproved therapies is often referred to as “compassionate use” or “expanded access”. Under right-to-try laws, state-level legislation has paved the way for a new law at the federal level to expand access to these investigational medicines.

Expanding access to unapproved treatments through right-to-try

State-level right-to-try laws have given patients and their families hope that they might gain access to breakthrough investigational treatments. But traditionally, the FDA and pharmaceutical industry have been cautious about providing access to these treatments, at least without robust clinical study data providing preliminary evidence that the unapproved drug is effective. Continue Reading

European Commission Publishes Guidance on Brexit and UK Food Exports

On 1 February 2018, the European Commission issued a notice on the impact of Brexit for food products originating from the UK. The Commission confirmed that, in the absence of a transitional agreement, the UK will become a ‘third country’ from the date of its withdrawal from the EU. This will impact a number of key areas of EU food regulation, including:

  • Food labelling: changes will need to be made to labels of food products originating from the UK. An EU-based importer must be named on the product, and mandatory references to the origin of products will need to be changed from “EU” to “UK” or “non-EU”.
  • Food composition, contaminant levels and food contact materials: UK-produced food sold in the EU will remain subject to EU rules including requirements for certain ingredients to be authorised by the Commission (e.g. additives and flavourings and novel foods), maximum permitted levels of contaminants and residues in foodstuffs, and rules on food contract materials. These apply to all foods placed on the EU market, irrespective of the place of production.
  • EU establishment requirements and submission of EU authorisations: some products such as genetically modified food must have a food business operator, authorisation holder or a representative that is established in the EU. Establishments in the UK will no longer comply with this requirement. The Food Standards Agency, the UK’s competent authority, will also no longer be able to accept applications for EU authorisations such as for the cultivation and placing on the market of genetically modified materials, and for use of new materials in food contact materials.
  • Food of animal origin: the import of food of animal origin from the UK into the EU will be prohibited, unless certain requirements are met. These include:
    • the UK must be listed by the Commission as an approved third country for the export of each category of food of animal origin. The Commission has not addressed whether the UK will automatically be approved post-Brexit or whether the UK will need to apply for authorisation as a third country;
    • the establishment from which the food is dispatched and obtained or prepared must further be approved for the export of the specific category of food of animal origin;
    • the imported food satisfies all EU food hygiene requirements; and
    • the product will be subject to mandatory border checks and must enter the EU through approved border inspection posts of a remaining Member State.
  • Organic products: UK-originating organic foods will be subject to the same regulation as organic foods entering the EU from other third countries. In particular, all consignments of organic products must be accompanied by a certificate of inspection on import to the EU. These certificates can be issued by an authorised EU organic control body or authority or a non-EU control body or authority recognised as having equivalent standards as the EU. Certificates issued by UK bodies will no longer be valid.

The full notice published by the Commission is available here.

FDA Issues Draft Guidance on Requirements for Public Warnings for Recalled Products

FDA recently released a draft guidance clarifying the regulatory requirements for public warnings in the event of a recall under the agency’s recall guideline at 21 CFR Part 7. The agency is turning to public warnings to alert the public that a recalled product presents a serious health hazard, where other means of preventing use of a recalled product appear inadequate. Although the guidance provides manufacturers some flexibility in communicating product recalls to the public, FDA articulates stringent standards for public notice, particularly with respect to how promptly they must issue public warnings. Continue Reading

FCC Avoids Shutdown For Now, But Continued Threat Looms Over TMT Sector

The federal government is open.  But less than three weeks remain under the current reprieve and another shutdown seems possible.  Although the Federal Communications Commission tapped on-hand fees to support uninterrupted operations earlier this week, the FCC will start to run out of time – and money – if the stalemate over the budget continues and another shutdown occurs.

How would a protracted shutdown affect the technology, media and telecom industries and the billions of dollars of investment that depend on regulatory action by the FCC?  How soon before Samsung and Apple face launch delays for products that need FCC approval to enter the market?  When will GoPro, Nintendo, Tile, Roku and other consumer electronics makers start to see product delays?  Will wireless emergency alerts continue to be available?  And will a shutdown affect the nation’s bid in the global race for leadership in the deployment of advanced, fifth-generation wireless networks?  These are just some of the questions as the technology, media and telecom sectors confront the possibility of an extended period of time without a functioning regulator.

Continue Reading

Freedom of Information Code of Practice Consultation

The Government is consulting (link below) on various revisions to the Code of Practice for public authorities on their obligations under the Freedom of Information Act 2000 (the “Act“). The revisions, which are intended to reflect developments in good practice, include the following:

  • additional guidance on fundamental principles, such as how to define “information” and “held” under the Act;
  • a requirement for greater transparency about public authorities’ compliance with the Act,  which will compel public authorities to publish quarterly and annual compliance statistics;
  • a requirement for the publication of senior officials’ pay and benefits to increase the information about senior executive remuneration that is accessible to the public;
  • greater clarity on when and how vexatious and repeated requests for information can be refused; and
  • the merging of all Act guidance into a single Code of Practice.

All responses to the consultation should be submitted by no later than 5pm on 2 February 2017.

Please speak to a member of the Hogan Lovells Public Law and Policy team if you would like any more information, or if you would like to discuss submitting a response to the consultation.

Revised Draft Code of Practice: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/659606/FOI_Code_of_Practice_-_Draft.pdf
Consultation Paper: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/659607/FOI_Code_of_Practice_Consultation_Document.pdf

Connected Vehicles in Focus at 2018 CES

In addition to displaying a wide array of next-generation connected vehicle technologies, the 2018 Consumer Electronics Show (“CES”) hosted lively discussion of the new possibilities that will be created as vehicles become capable of seamlessly communicating with other vehicles, infrastructure, and pedestrians.  In one panel, Connected Vehicles in Connected Ecosystems, participants from across industries explored what the shift means for data collection, business models, and ecosystems.

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Canada steps up human rights oversight of companies operating abroad

Last week, Canada announced the creation of the Canadian Ombudsperson for Responsible Enterprise (CORE), an independent officer who will be tasked with investigating allegations of human rights abuses linked to Canadian corporations operating abroad.

The CORE’s predecessor, the Extractive Sector Corporate Social Responsibility Counsellor, required the permission of a company to investigate a complaint and came under fire from NGOs for being ineffective.  Indeed, none of the six complaints it received since the role’s inception in 2009 were investigated or otherwise resolved.  The CORE will have the power to initiate investigations, and, if warranted, recommend remedies and monitor their implementation.  The CORE may also assist the resolution of disputes or conflicts between impacted communities and Canadian companies.

Although the CORE will not have the power to impose sanctions or penalties, its investigations and any findings or recommendations, will be made public. In his announcement on 17 January, the Canadian Minister for International Trade, Francois-Philippe Champagne, added that the government would also consider withdrawing trade advocacy support (or funding or political risk insurance from Export and Development Canada) if the CORE recommends it.

This is an unprecedented step, and one that will be of particular interest to the world’s mining industry – 60% of which is based in Canada. The initiative has already been welcomed by several Canadian mining companies.  Although the creation of the CORE was supported by advocates for mining-affected people, and the CORE will initially focus on the mining, oil and gas and textile industries, its mandate is expected to expand (within a year) to all other sectors in which Canadian companies operate abroad.

The CORE will report to Parliament, but will be independent from the Canadian government – in fact, its recommendations may include policy and legislative recommendations to the government itself.  A multi-stakeholder advisory body, including representatives of civil society and industry, has also been set up to advise the CORE and the government on the effective development and implementation of laws, policies and practices to encourage socially responsible conduct by Canadian companies operating abroad.

We will have to wait to see how effective the CORE is.  It is certainly to be hoped that the broad-ranging support for the creation of the CORE translates into constructive cooperation between government, business and nongovernmental organisations to achieve greater respect for human rights.

European Commission released GMP Guidelines for Investigational Medicinal Products

On 8 December 2017, detailed EU guidelines on good manufacturing practices (“GMP”) for investigational medicinal products for human use were adopted by the European Commission under the EU Clinical Trials Regulation. The document supplements the EU Delegated Regulation adopted in 2017 setting out GMP obligations for investigational medicinal products. The Delegated Regulation establishes a  pharmaceutical quality system for manufacturing operations.

The guidelines govern manufacture and import into the EU of investigational medicinal products for human use. The purpose of the GMP guidelines is to provide appropriate yet flexible tools to address specific issues related to good manufacturing practice requirements for investigational products. The document includes instructions concerning:

  • Pharmaceutical quality systems, in particular, product specification file which should include all of the essential reference documents to demonstrate compliance of investigational drug’s manufacturing with GMP and clinical trial authorisation requirements;
  • Personnel;
  • Premises and equipment;
  • Generation, control and retention of documentation, including specifications and instructions, ordering, manufacturing formulae and processing instructions, packaging and batch records;
  • Production, including packaging materials, manufacturing operations and modification of comparator products as well as blinding operations, packaging and labelling;
  • Quality control;
  • Release of batches;
  • Outsourced operations;
  • Procedures for complaints;
  • Recalls, returns and destruction of investigational drugs.

The guide also recognises a need for co-operation between manufacturers and sponsors of clinical trials under a technical agreement.

The guidelines will become applicable once the Clinical Trials Regulation enters into force, which is expected in 2019.

U.S. Department of Education Publishes List of Schools Under Civil Rights Investigation

This week, the U.S. Department of Education (“ED”) published on its website a list of “pending cases currently under investigation” by its Office for Civil Rights (“OCR”). Previously, OCR had released a list of higher education institutions under investigation for possible violations of law related to the handling of sexual violence and sexual harassment under Title IX. The new list is broader: it encompasses complaints bought under other civil rights laws enforced by ED, and it includes complaints against K-12 schools as well as higher education institutions.

The list is sorted by category of civil rights law enforced by ED (i.e., age discrimination, race and national origin discrimination, sex discrimination, disability discrimination, Boy Scouts of America Equal Access Act). The list is sortable by state, institution name, institution type, type of discrimination, and the date the investigation was opened. The list is also searchable.

OCR describes the list as a “snapshot of data” that reflects its enforcement efforts as of a particular point in time (i.e., the last Friday of each month). ED has said it will update the list on the first Wednesday of each month. According to OCR, inclusion on the list “means that a complaint was filed with OCR and the agency determined that a complaint should be opened for investigation.” An institution will remain on the list for as long as OCR “is still investigating” or “is otherwise working to resolve” the complaint.