Fashion Roundtable’s Policy Paper on Access To The Justice System
Corporations operate across national borders with few or no obstacles. Speed to market is essential for a business that runs to just in time schedules. Complex corporate structures and supply chains make it difficult, frequently impossible, to attribute responsibility to parent companies for Human Rights violations in their global operations. This has severe consequences for victims of corporate harm. Corporate harm refers to the actions corporations perform that can inflict harm with different levels of intensity to both companies’ internal and external stakeholders. Unfortunately, victims of corporate harm often experience difficulties in accessing judicial systems to get compensation. This is why the victims’ right to access an effective remedy where their human rights are harmed is one of the main pillars of the UN Guiding Principles on Business and Human Rights (UNGPs).
The absence of legal standards that ensure access to justice for victims of corporate harm allows companies to profit from operating in countries where laws guaranteeing human rights or environmental standards do not exist or are not adequately enforced. As a result of this absence of legal standards, there is a lack of legal cases where victims have been able to access judicial systems. A 2015 comparative study revealed that approximately a mere 40 foreign direct liability cases were brought before European courts between 1990 and 2015. Out of these cases only three resulted in a final judicial decision finding the defendant company liable. These extremely low numbers are very worrying and ask for more regulation to diminish the barriers on legal access for victims of corporate harm.
In order to guarantee the right, as recognized by the UNGPs, it is important that judicial systems have the capacity to address business-related human rights abuses by providing adequate remedy for actual or potential victims. Currently, there are many barriers preventing victims from accessing judicial systems. Fashion Roundtable, therefore, recommends that we address these barriers by strengthening human rights due diligence requirements and modifying the Rome II Regulation.
One issue that arises when seeking remedy for victims of corporate harm is that corporations are often registered in other countries than where human rights abuses actually occur. This raises the question of which law is applicable. The issue of applicable law is governed, in European private international law, by Regulation 864/2007 (Rome II). Article 4 of the Rome II Regulation lays down a general rule according to which the applicable law for torts is the law of the country in which the damage occurs. This is also known as the principle of lex loci deliciti. Consequently, in most corporate harm cases the applicable law is that of a developing country and not of the country where a corporation is registered. Article 4, however, also includes two exceptions to this rule:
- Where the person claimed to be liable and the person sustaining the damage both have their habitual residence in the same country at the time when the damage occurs, the law of that country shall apply;
- Where it is clear from all the circumstances of the case that the tort/delict is manifestly more closely connected with a country other than indicated in paragraphs 1 or 2, the law of that other country shall apply.
In addition, Article 14 of the Rome II Regulation makes it possible for the parties to agree upon the applicable law after the dispute has arisen.
In most cases when victims try to take the case to the court where the corporation is registered the case gets dismissed on the principle of forum non conveniens. This principle allows for the ability for the Court to acknowledge that another forum or Court is more appropriate. It is therefore hard for victims of corporate harm to access judicial systems in Europe. With Brexit the UK will not automatically be part of the Rome II regulation anymore. The UK government, however, intends that Rome II will be incorporated into UK domestic legislation after Brexit. So there is a high likelihood that Brexit will not change the current legislation on applicable law.
The UK has a range of judicial mechanisms that help to support access to remedy for human rights abuses by business enterprises both at home and overseas. These include:
- Employment Tribunals, which provide access to remedy for abuses of labour rights in the UK.
- Avenues to pursue civil law claims in relation to human rights abuses by business enterprises in the UK and overseas.
- Specific criminal law provisions, including under the Bribery Act 2010 (applies in the UK and overseas) and Modern Slavery Act 2015 (applies in the UK and overseas).
In addition to these judicial mechanisms, English case-law has established that parent companies may, in certain circumstances, owe a duty of care to those affected by the operations of a subsidiary. In 2012, in a ground-breaking judgment, Chandler v Cape plc, the Court of appeal held that, in appropriate circumstances, the law may impose on a parent company responsibility for the health and safety of its subsidiary’s employees. The Court listed four circumstances that should apply:
(1) The businesses of the parent and subsidiary are in a relevant respect the same;
(2) The parent has, or ought to have, superior knowledge of some relevant aspect of health and safety in the particular industry;
(3) The subsidiary’s system of work is unsafe as the parent company knew, or ought to have known and;
(4) The parent knew or ought to have foreseen that the subsidiary or its employees would rely on it using that superior knowledge for employees’ protection.
This was a landmark judgment as it is the first legal precedent for holding parent companies accountable in the context of corporate groups’ activities. In a later case, Thompson v The Renwick Group plc, another circumstance has been added:
- When the parent company is better placed, because of its superior knowledge or expertise, than the subsidiary in respect of the harm and;
(a) Because of that feature, it is fair to infer that the subsidiary will rely upon the parent deploying its superior knowledge in order to avoid harm and’
(b) Because of that feature, it is fair to infer that the subsidiary will rely upon the parent deploying its superior knowledge in order to avoid the harm.
Despite these judicial mechanisms and the possible circumstances in which victims of corporate harm can seek justice in the UK, there are numerous barriers for victims of corporate harm to actually access justice in the UK/EU. There are typically three phases in the process of seeking justice. In all three phases different barriers can occur.
1. The phase of getting started.
This phase can be inhibited by lack of funding and lack of access to information and to legal counsel. Seeking remedy in Europe can be very costly in and of itself. And in addition, many European States require the losing party to pay the costs of the other party, including the lawyers’ fees, which can have a dissuasive effect when the prospects of success are low. Also, because of its complexity and low chance of winning, there are very few lawyers who are willing to take on such a case. These are all factors that make it difficult for victims to start seeking justice.
2. Surviving motions of dismissal.
Usually victims of corporate harm prefer to take the case to the court in which the corporation is registered. This is particularly the case when the host State is a developing country and faces one or several of the following challenges: underdeveloped justice system, lack of respect for the rule of law, weak enforcement mechanisms, lack of judicial independence, issues of corruption among state officials, or lack of measures to ensure protection of victims and human rights defenders from intimidation and threats or reprisals. However, according to the Rome II Regulation the applicable law is that of the State in which the damage has occurred. As a result, many cases in Europe get dismissed on the principle of forum non conveniens. Thus, surviving such motions of dismissal are a big barrier to many victims and makes it difficult to access EU judicial systems.
3. Applicable tests for corporate liability.
Negligence claims often require the claimants to show first, the existence of a duty of care owed to them by the defendant company; second, that such duty of care was breached by the defendant; and third that the breach of duty caused the claimants a damage. This means that the burden of proof lies with the claimants, which frequently poses a significant hurdle in accessing effective remedies.
This is especially difficult because of the complex corporate structures. Lifting the corporate veil can be a very challenging process. The corporate veil is a legal concept that separates the personality of a corporation from the personalities of its shareholders, and protects them from being personally liable for the company’s obligations. This concept forms a big barrier when it comes to proving corporate liability for abuses committed by its subsidiaries. The obstacle of the corporate veil can sometimes be circumvented by establishing the liability of the parent company on the basis of its own negligence in the way the subsidiary was managed. However, this also requires the claimants to gather evidence on the corporate structures which the claimants often struggle to get access to in practice.
As a result of these barriers, states are failing to meet their obligation to protect Human Rights and ensure effective access to judicial remedies to victims of businesses operating outside their territories. Therefore, Fashion Roundtable recommends the UK government to do the following.
- Ask for a modification of the Rome II regulation to include a specific choice of applicable law before incorporating the regulation into UK domestic legislation after Brexit. Such a choice already exists in environmental damage cases. Article 7 of the Rome I Regulation grants the claimant to choose between the law of the place where the damage occurred (lex loci damni) and the law of the place where the event giving rise to the damage occurred (lex loci deliciti commissi). We suggest to include this option also with regards to human rights abuses. Such a modification would address all the barriers discussed at the stage of ‘surviving motions of dismissal’, as it would be easier for a victim to take the case to Court in the State where the corporation is registered.
- Bring forward legislation to impose a duty on all companies to prevent human rights abuses. At a minimum this should include the reversal of the burden of proof. The UK Bribery Act is an example of such a reversed burden of proof. It requires a commercial organization to prevent payments of bribes by employees or others working on its behalf. This creates a new, strict liability offence of failure by a commercial organization. Ideally, the UK would put forward a general piece of legislation that introduces a stringent corporate liability. As we have explained in our policy piece on the living wage and modern day slavery, the French Duty of Vigilance act can serve as an example to create such a duty. This should then include a reversed burden of proof in line with The UK Bribery Act. Such a legislation would make it much easier for victims to establish corporate accountability. In addition, it would also address the barriers of the first phase, that of high costs and lack of information, because the responsibility then lies with the corporations to prevent human rights abuses.
Considering the fact that many UK corporations are registered in multiple EU countries, we would recommend the UK to work together with the EU to bring forward a region wide legislation on corporate responsibility. Such a piece of legislation would be more effective in diminishing the barriers faced by victims of corporate harm. Nonetheless, the UK could set an example by starting to implement the above recommendations on a national level.
By Johanna Ramaer