ESG Litigation: spotlight on human rights

In this litigation insight we look at recent developments in international human rights law. Could they lead to an increase in civil litigation against companies?

Our previous insight on claims inspired by environmental, social and governance considerations – ESG Litigation – Get Ready, Respond and Resolve can be found here.

Introduction

The impact of business activities on human rights is not a new concern. Study of the subject over decades culminated in 2011 in the United Nations Guiding Principles on Business and Human Rights. These provide a framework for corporate human rights responsibility, anchored around the three pillars of "protect", "respect" and "remedy" developed by the United Nations. Today, multinationals frequently refer to the Guiding Principles in their human rights policies and codes of conduct.

Human rights sanctions

International companies may be familiar with the United States' 2016 Global Magnitsky Act. This authorises the US President to impose sanctions on persons – anywhere in the world – responsible for serious violations of internationally recognised human rights (as well as corruption). The US has imposed sanctions on nearly 250 entities and individuals under the Act.

In July 2020 the United Kingdom introduced its own Global Human Rights sanctions regime, as the first post-Brexit standalone UK sanctions. Then, in December 2020, the European Union followed suit, legislating so that it had the power to impose sanctions on those involved in, or associated with, serious human rights violations and abuses, no matter where they occurred in the world.

This trend towards using sanctions to police and discourage breaches of human rights looks set to continue, as policy makers around the world respond to a political desire to see developed countries stand behind universal principles of human rights. 

In a sense, this development does not change the calculation for companies involved in countries, or with counterparties active in countries, with poor human rights records. Sanctions on human rights abusers formed part of previous country-specific sanctions regimes, such as those relating to Iran. But the new legislation provides the UK and the EU with greater freedom to impose sanctions for human rights abuses without the need to enact a new country-specific sanctions regime. 

What are the implications for companies? 

• First, the imposition of human rights sanctions on individuals or entities may have direct consequences for companies. The UK has designated Myanmar Economic Corporation and Myanmar Economic Holdings Public Company Limited – two major, military controlled, conglomerates in the Southeast Asian nation – as asset freeze targets under its Global Human Rights sanctions regime. Foreign investors with ties to those companies have had to reassess their investments in Myanmar so as to avoid sanctions breaches.
• Second, the imposition of human rights sanctions may indicate the existence of underlying circumstances which could give rise to civil claims. A company with suppliers or counterparties targeted by human rights sanctions may find that this inspires claims against the company, on the basis that the company owed a duty of care to protect claimants from human rights abuses.

Tortious liability before the English courts

The liability of multinational companies in tort for conduct overseas by their subsidiaries is a fast evolving area of English law. High profile judgments have been handed down by the UK Supreme Court in cases such as Lungowe and others -v- Vedanta Resources plc and another [2019] UKSC 20, [2019] 2 WLR 1051, permitting claimants to sue parent companies in England.

Beyond parent company liability for the acts of subsidiaries, other cases indicate the receptiveness of the English courts to tort claims arising from human rights issues. 

In Begum -v- Maran (UK) Limited [2021] EWCA Civ 326 the English Court of Appeal considered a claim brought by the widow of a man who had fallen to his death while working in a Bangladesh shipyard, decommissioning an oil tanker. The claim was brought against the English agent for the owner of the ship in relation to the end of life sale of the tanker. The basis for the claim was that the defendant was liable for damages based on the existence, and breach, of a tortious duty of care. This approach relied on the well-known line of cases concerning liability for negligence which followed Donoghue -v- Stevenson [1932] AC 562. The claimant argued that the duty of care required the defendant to take all reasonable steps to ensure that its negotiated and agreed end of life sale and the consequent disposal of the tanker for demolition would not and did not endanger human health, damage the environment and/or breach international regulations for the protection of human health and the environment. 

The Court of Appeal only considered whether the claim should be struck out, and not permitted to succeed, not the substantive merits. But while the Court acknowledged that this was an unusual basis for a damages claim, it concluded that it could not be said that the claim would certainly fail. 

The claim was also advanced on the alternative basis that it fell within a recognised exception to the general rule that a defendant is not liable in tort for harm caused by the acts of a third party (in this case, the Bangladesh shipyard). That exception arises where the defendant is responsible for creating a state of danger which results in the third party causing injury to the claimant. This is known as the "creation of danger" exception. Again, the Court thought that the claim could potentially succeed on the assumed facts presented to it. 

The significance of this case lies in a number of factors. 

• First, it illustrates the flexibility of English tort law to respond to harms suffered. The Court made clear that it was sceptical about the ways the tortious claims were advanced, but thought them arguable.
  
  As well as alleging direct duties of care between a UK company and a claimant, claimants often rely on other legal theories such as vicarious liability and non-delegable duty. The principle underpinning vicarious liability is that a company can be liable for acts committed by its employee, or a person in a relationship with a company akin to that of employee or employer. The concept of non-delegable duty is that a company may be liable for the acts of somebody who is not an employee (or akin to an employee), but instead an "independent contractor" carrying out activities which the company may not delegate. English law implies a non-delegable duty where it would be fair, just and reasonable to impose a positive duty on a person to protect a claimant from harm, and not just to refrain from activity which harms the claimant.
• Second, it may seem odd that the English Court of Appeal was applying English law to determine issues of duty of care, when the relevant events occurred in Bangladesh. In fact, the English court applied the law of Bangladesh, but it appears to have been common ground that the test for whether a tortious duty of care existed did not differ between English and Bangladesh law.
  
  This emphasises a characteristic of overseas tort claims brought in the English court. Often the claimants will rely on local law, but allege that it does not differ significantly from English law, thus permitting the English court to apply, and develop, English tort law. This is largely the case where the jurisdiction where the harm was suffered – here, Bangladesh – applies common law, and so is heavily influenced by English jurisprudence.
  
  Bangladeshi and English tort law may be substantively similar, but the law of limitation may differ significantly. An issue faced by the claimant in Begum is the existence of a strict one year limitation period under Bangladeshi law for claims of this nature. Ultimately, this point may defeat the claim, given that proceedings were commenced after the expiry of the period. A further court hearing will determine this issue.

Tortious liability in other courts 

The similarities between English tort law and that of other common law jurisdictions may lead to the surprising outcome that essentially English tort law claims are heard in non-English courts. For instance, take a scenario where Pakistani nationals bring claims against a German company in Germany, alleging breach of a tortious duty of care. As Pakistani tort law is derived from English tort law, the arguments before the German court will be based on English law principles.

This occurred in the Jabir -v- Kik litigation brought in Dortmund, Germany. The claimants brought claims against a German retailer which was the major buyer of clothing produced by a Pakistani factory. A serious fire engulfed the factory, and the claimants sought compensation arising from injuries and fatalities. They based their claims on Pakistani law, being the law of the jurisdiction where the harm occurred for the purposes of the Rome II Regulation. (The Rome II Regulation regulates the law to be applied by EU courts determining tortious claims.) The court in Dortmund initially accepted jurisdiction, but the lawsuit was eventually dismissed, due to the expiry of the relevant limitation period under Pakistani law. The Hague Court of Appeal has also recently considered an environmental claim against a multinational oil company, applying Nigerian law, which closely follows English tort law (Oguru -v- Shell).

The continuing evolution of English tort law may inspire further litigation against companies both in England, and in the courts of other countries, applying English tort law principles.  

Towards mandatory human rights due diligence

Developments in the courts have coincided with political plans to legislate in the area of human rights due diligence. The EU has said that it will develop a proposal for regulations requiring businesses to carry out due diligence in relation to the potential human rights, environmental, and governance (e.g. bribery and corruption) impact of their activities. This is expected later in 2021. 

Authorities in EU member states will have the power to investigate and fine non-compliant companies. Affected individuals are also likely to be able to bring civil claims against companies in the courts of EU member states, where companies fail to carry out adequate due diligence. If enacted, this is likely to lead to further litigation against companies.    

Final thoughts

Drawing together the themes explored above:

1. Respect for human rights is squarely on the agenda of policy makers and politicians. Human rights sanctions regimes and proposed human rights due diligence legislation reflects a willingness to force companies to take account of human rights considerations when investing and conducting commercial activities. Failure to do so may result in criminal liability and/or civil claims.
2. English law on tortious liability continues to evolve. This emphasises the importance of proportionate and risk-based supplier due diligence.
3. A relevant consideration when determining whether a tortious duty of care is owed by a company to a victim of human rights abuses is the extent to which the company could be said to have assumed responsibility for the treatment of victims. Multinational companies understandably wish to reassure investors and customers that they take human rights seriously, and make statements to this effect in their sustainability reports or company policies. Claimants often look to rely on these documents to argue that a defendant company voluntarily accepted a duty of care to victims.
4. The influence of English common law in jurisdictions around the world (principally those in the Commonwealth) means that companies which otherwise have no connection to England may find themselves facing claims, essentially based on English tort law principles. For such companies, it is sensible to keep an eye on developments in English tort law.
5. As with any ESG-related issue, the risk of litigation is only one consideration. Companies will wish to take account of human rights issues because it is right to do so, and because of the reputational harm of not doing so. This harm may also manifest itself in lack of access to funds or shareholder capital, loss of business, and difficulties retaining and recruiting employees.