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Focus on Regulation

A binding treaty on business and human rights? Still a way to go.

Last week (23-27 October 2017), the third round of negotiations on a binding international treaty on business and human rights concluded.  In this post we consider what (if any) progress has been made and what the sticking points are.

By way of background, the UN Guiding Principles on Business and Human Rights (the “UNGPs“) currently form the framework for action by States and companies in connection with business-related human rights impacts. However, the UNGPs are non-binding and do not create new legal obligations for either States or companies. A treaty would impose legally binding obligations on the States that sign it, and may also seek to bind corporations directly.

The current treaty process commenced in 2014, when the UN Human Rights Council mandated an intergovernmental working group to “elaborate an international legally binding instrument to regulate, in international human rights law, the activities of transnational corporations and other business enterprises” (Resolution 26/9).  Although the UN Human Rights Council had endorsed the UNGPs in 2011, many – including NGOs and several States – felt that their non-binding nature limited meaningful progress on corporate responsibility and accountability for human rights violations.

Talk of a binding treaty on business and human rights is nothing new.  The UN tried for twenty years to broker a Code of Conduct for Transnational Corporations before giving up in 1993.  The Draft Norms on the Responsibilities of Transnational Corporations (2003) fared little better, failing to achieve broad consensus, in part because of the ambiguous nature of the proposed obligations.

In accordance with its mandate, the intergovernmental working group conducted two initial sessions in July 2015 and October 2016, dedicated to constructive deliberations on the content, scope, nature and form of the future international instrument.  The third session was intended to allow substantive negotiations on the basis of “Elements” to be prepared by the chair of the working group taking into consideration the input received from stakeholders in the framework of the first two sessions.

Which companies should the treaty apply to?

The EU’s position is that a treaty should apply to all companies, both domestic and transnational, to avoid disadvantaging European companies operating abroad. This is consistent with the wide scope of the UNGPs and desirable in creating a level playing field.  However, the Human Rights Council, under pressure from Southern States including South Africa, limited the scope of the envisaged treaty to companies that “have a transnational character in their operational activities” (thus carving out companies with purely domestic activities).  The policy reasons for such a distinction are murky.  It is not clear why a domestic extractive company, for example, should not be required to comply with the same human rights standards as an international extractive company operating in the same environment.

Rather than answer this question, the Elements contain a diplomatic fudge, proposing that the treaty apply to transnational “activities” rather than companies. Unfortunately, the Elements do not suggest how to define such activities and no such definition has emerged from the negotiations.  Nor did the negotiations diffuse the tension between the EU and its southern interlocutors, all of whom restated their positions during last week’s sessions.

Direct application to companies

The Elements propose that the treaty applies directly to businesses but do not suggest how this will be achieved as a matter of law.  While it is a common feature of international treaties that states are required to take steps to prohibit certain conduct by natural or legal persons under their domestic law, the extent to which a treaty can be directly effective on non-state actors is, at best, uncertain. Would corporations be expected to sign the treaty? Or would the treaty (somehow) automatically bind corporations falling within its scope?  Either option would be legally unprecedented and highly controversial, yet last week’s negotiations didn’t really address this question.

Nature of corporate liability

The nature and extent of the corporate obligations proposed in the Elements did not receive much attention either, in part due to time-constraints.  Again, when the negotiators do get this far, there is likely to be controversy.  The obligations are vague and potentially onerous, stretching far beyond the UNGPs and existing domestic law in this area.  For example:

  • The UNGPs carefully calibrate the nature and extent of a business’ responsibilities with respect to its suppliers. They require that a business seeks to prevent or mitigate adverse human rights impacts in its value chain by adopting measures such as risk sensitive due diligence and, to the extent possible, exercising leverage over suppliers.  In contrast, the Elements bluntly propose that a business should “respect human rights throughout its supply chain”.  This is potentially very broad and leaves various questions unanswered.  Does it, for example, require a business to remediate a human rights impact which it neither causes nor contributes to?
  • The Elements propose that businesses “shall prevent” human rights impacts of their activities. This could suggest a form of strict liability for failing to prevent – an innovation which would go far beyond anything in the UNGPs and, absent some form of adequate procedures defence, obligations in domestic legislation such as the UK Bribery Act.
  • The Elements suggest that businesses “shall” use their influence in order to help promote and ensure respect for human rights. The UNGPs on the other hand carefully distinguish between a business’ responsibility to respect and voluntary efforts it may undertake to pro-actively promote human rights.  The Elements blur this boundary.  Furthermore, it is unclear how such a provision could be either drafted or enforced.  What is the point at which a business has legally done enough to promote human rights?

The invitation for States to adopt corporate criminal liability (for legal entities as well as natural persons responsible for decision-making in a business) proved a contentious topic on Day 3. This was not unexpected given the variety of approaches to this question in domestic legal systems around the world and a lack of consensus as to the existence of corporate liability for crimes under international law – proposals to extend the jurisdiction of the ICC to legal persons were considered and rejected at the Rome Conference and there has been little to change this position since.

The Elements give prominence to the “recognition of the primacy of human rights obligations over trade and investment agreements“.  Several states questioned the legal foundation and implications of this provision but no consensus was reached on this issue. It remains to be seen how this would operate in practice. Could, for example, it be argued that the right to health could be invoked to invalidate protection offered to pharmaceutical companies under investment agreements?

Extraterritorial obligations of States

There are well established rules under international law concerning the limits of a state’s jurisdiction.  Failure to adhere to these causes legal and diplomatic strife.  The Elements declare that “State Parties’ obligations regarding the protection of human rights do not stop at their territorial borders” without suggesting how such extra-territorial jurisdiction would be granted to states under the treaty or how this would interact with existing rules on jurisdiction.  It was unsurprising, therefore, to see this question cause division on Day 4 – unfortunately with no substantive resolution.

Where do we stand?

While some hoped that the widely drafted Elements would allow room for negotiations, the reality is that last week’s talks lacked focus, with sessions overrunning and arguments from previous rounds frequently being revisited.  It is also unfortunate that the discussions appear to have been dominated by questions and objections, rather than concrete proposals to take the negotiations forward, although participants did note greater engagement as the week progressed.  In the end, a time-pressured schedule left little room for a consensus to emerge or issues to be narrowed down.

But last week was not all doom and gloom:

  • One cause for celebration was the widening of the discussion to include active participation from the EU and some business organisations (such as the International Chamber of Commerce and the International Organisation of Employers), compared to the first two sessions which had been dominated by States from the “Global South” and NGOs. This gives hope that the treaty will be drafted in a way that is fair to businesses, and not simply designed to punish them.
  • There was also visible consensus on some significant issues, including for example the importance of prevention and the role of mandatory due diligence mechanisms (several references were made to France’s “duty of vigilance law”) and the need to remove current barriers to access to justice and achieve effective remedies for victims through judicial and non-judicial mechanisms (a current area of focus for the international business and human rights community).

In principle, a treaty has the potential to promote human rights and level the playing field for businesses, ensuring that businesses who respect human rights are not disadvantaged by doing so. However, any treaty should reflect the fact that businesses and their personnel have rights too.  A treaty must contain provisions which are sufficiently clear to allow businesses to regulate their conduct.  Last week suggests that this remains a long way off.

What next?

International treaties are not concluded overnight. The UN Convention on the Law of the Sea took nine years to negotiate and a further eight years to come into force.  Nevertheless, Ecuador (as chair of the working group) is expected to present a concrete proposal for a draft treaty ahead of the fourth round of discussions next year.

Meanwhile, many businesses and other actors remain committed to implementing the “Protect, Respect and Remedy” framework of the UNGPs, which benefits from widespread support. And let us not forget the treaty process is not the only game in town: recent years have seen a proliferation of domestic and international initiatives to drive forward the implementation and enforcement of the principles enshrined in the UNGPs.  We look forward to seeing these debated and developed at the upcoming UN Business and Human Rights Forum at the end of November.

FDA to Rely on Drug Inspections Performed by Certain European Regulatory Authorities Beginning November 1, 2017

Earlier today, FDA announced that it has determined that the regulatory authorities of Austria, Croatia, France, Italy, Malta, Spain, Sweden, and the United Kingdom are “capable of conducting inspections of [pharmaceutical] manufacturing facilities that meet FDA requirements,” and that the Agency will begin relying “on the inspectional data obtained by these eight regulatory agencies” immediately.  This is a significant step towards FDA’s stated goal of streamlining global pharmaceutical manufacturing inspections, and in line with the mutual recognition agreement between the FDA and its European counterparts.  According to the announcement, FDA is “on track to meet [its] goal of completing all 28 capability assessments in the EU by July 2019 ”

As we have previously noted, see here, here, and here, this mutual recognition agreement covers the sharing of confidential commercial information, trade secret information, and other non-public information relating to drug inspections and investigations, and frees up FDA resources to focus on higher risk countries, such as India, China, and Asia more broadly.

Textile factory safety claims proceed to arbitration under the Bangladesh Accord

In a landmark ruling by an arbitration tribunal last month, claims against two global fashion brands under the 2013 Accord on Fire and Building Safety in Bangladesh (the “Bangladesh Accord“) were declared admissible and allowed to proceed to arbitration under the auspices of the Permanent Court of Arbitration in The Hague (the “PCA“).

The Bangladesh Accord was signed by global brands/retailers and trade unions in 2013 to improve fire and building safety for workers in the Bangladesh textile industry in the aftermath of the Rana Plaza disaster.  The disaster saw more than 1,000 people killed and 2,000 people injured as a result of the collapse of a building in Dhaka that contained five garment factories supplying major global brands/retailers.

The Bangladesh Accord is a unique example of private companies voluntarily submitting to legally binding obligations and enforcement mechanisms.  Indeed, it commits signatory companies to requiring suppliers to accept safety inspections and implement remediation measures in their factories and to resolving disputes by arbitration.  Click here for more information about the Bangladesh Accord.

In July and October 2016, two Swiss-based non-governmental labour groups (IndustriALL Global Union and UNI Global Union, both signatories to the Bangladesh Accord) filed arbitration claims against two global brands pursuant to the Bangladesh Accord. The parties later agreed, for efficiency, to have their claims heard together. The claims include that the respondent brands failed to (1) compel suppliers to remediate facilities within the deadlines imposed by the Bangladesh Accord and (2) negotiate commercial terms to make it financially feasible for their suppliers to cover the costs of remediation. The claimants seek a declaration that the brands violated their obligations under the Bangladesh Accord and an order that they contribute to remediation costs.

The respondent brands challenged the admissibility of the claims, on the basis that the pre-conditions to claims being referred to arbitration under Article 5 the Bangladesh Accord had not been met.  Interestingly, one of the respondents also alluded to “significant deficiencies” in Article 5 “that potential render it unworkable as a valid mechanism to arbitrate“, but did not go so far as to challenge the arbitrability of the dispute on that basis (a question that is therefore likely to remain open).  Instead, recalling its “firm support” for the objectives of the Bangladesh Accord, the respondent declared that it was prepared to agree to arbitrate this particular dispute (only).

In an order issued on 4 September 2017, the arbitration tribunal empowered (by the parties) to determine this dispute ruled that the claims were admissible.  The case will therefore proceed to a determination of the merits of the dispute, for which a hearing is scheduled for March 2018.

The tribunal was also required to rule on whether the proceedings should be kept confidential or made public, which the applicable arbitration rules and the provisions of the Bangladesh Accord left the tribunal wide latitude to decide. Noting the particularity of the case, as neither a classic “public law” arbitration against a State nor a commercial arbitration between private parties, the tribunal decided to balance both sides’ interests by ordering that certain basic information about the existence and progress of the arbitration proceedings be disclosed but that the identity of the Respondents be kept confidential.  Redacted copies of orders, decisions and awards are therefore available on the PCA website here.

This case will be watched closely by the business and human rights community as an example of an alternative way to resolve human rights claims.  It should also offer a useful case study for proponents of arbitration as a mechanism for resolving human rights disputes – see our recent blog post on “Arbitration: a new forum for business and human rights disputes?“.

U.S. Department of Education Announces Further Delays to Borrower Defense to Repayment Regulations

On October 24, the U.S. Department of Education (“ED”) published an interim final rule to delay until July 1, 2018 the effective date of selected provisions of what have become known as the borrower defense to repayment regulations, which were published November 1, 2016. In the interim final rule, ED explained that it believes delay of the regulations’ effective date to July 1, 2018 (or July 1 of a later year) is necessary to provide adequate notice in accordance with the Higher Education Act’s master calendar requirement for changes to regulations affecting the Title IV federal student financial aid programs. Under the master calendar requirement, a regulatory change that has been published in final form on or before November 1 may take effect only at the beginning of the next federal financial aid award year (i.e., July 1 of the following calendar year).

ED had previously announced on June 16, 2017 that in light of pending litigation, it had decided to delay indefinitely the implementation of a majority of the borrower defense to repayment regulations, which would have established new standards and processes for determining whether a borrower has a defense to repayment of a Federal Direct Loan based on an institution’s act or omission. The regulations also would have added new requirements related to discharge of federal education loans from closed schools, pre-dispute resolution agreements, and financial responsibility. ED has not postponed the effective date of certain aspects of the final rule, including provisions that expand the types of documentation that may be used for the granting of a discharge based on the death of a borrower; amend the regulations related to consolidation of certain Nursing Student Loans and Nurse Faculty Loans; and make limited technical corrections.

In addition, on October 24, ED published a notice of proposed rulemaking to delay until July 1, 2019, the effective date of the borrower defense to repayment regulations that the interim rule delays until July 1, 2018. In announcing the proposed rule, ED explained that it is proposing a further delay “to ensure that there is adequate time to conduct negotiated rulemaking and, as necessary, develop revised regulations.” ED had previously announced that it plans to convene a negotiated rulemaking committee to develop proposed regulations to revise the borrower defense to repayment regulations described above and the authority of guarantee agencies in the Federal Family Educational Loan Program to charge collection costs to a defaulted borrower who enters into a repayment agreement with the guaranty agency. ED also previously announced that it plans to form a financial responsibility subcommittee to focus on modifications to ED’s financial responsibility regulations.

ED is accepting public comments on each of the delays until November 24, 2017.

 

EMA senior officer: pharmaceutical companies encouraged to prepare for Brexit

Agnès Saint-Raymond, MD, Head of International Affairs at the European Medicines Agency (“EMA”), recently urged pharmaceutical companies to be “proactive” in preparing for Brexit, as there is still uncertainty around a potential Brexit transition period.

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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.

Conclusion                                                       

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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