I. Introduction

Many NGOs are actively fighting human rights abuses around the world. One of their strategies is to create transparency around the impact of the behaviour of States and non-State actors on the enjoyment of human rights. In this context, businesses have been under increasing scrutiny. Although the availability of information on the negative impact of corporate activities now seems tremendous, the instances of businesses being held liable for human rights abuses, especially when taking place abroad, are rare.

The situation of Friends of the Earth and ING provides an interesting case study of how civil society could play a role in establishing liability through increase of transparency. Multiple divisions of Friends of the Earth filed a notification and request for mediation concerning an alleged violation of the OECD Guidelines for Multinational Enterprises (OECD Guidelines) by ING, a major Dutch banking company, and the Dutch National Contact Point for the OECD Guidelines for Multinational Enterprises (NCP) published its initial assessment of it on the 20th of January. The NCP concluded that the notification about ING merits further consideration, without expressing an opinion on the correctness of the statements, however.

In its complaint, Friends of the Earth argues that the responsibility of ING, by providing financing to Noble Group Ltd., Socfin Group S.A./Bolloré Group and the Wilmar International Ltd., has over time shifted from direct linkage to contributing to human rights abuses in the palm oil sector committed by the subsidiaries of these companies. The alleged abuses consist of, among other things, illegal deforestation, land rights abuses, and (child) labour rights violations. On its website, one of the spokespersons for Friends of the Earth Netherlands commented on the complaint by stating: For decades we’ve been alerting ING to concrete examples of abuses by the palm oil companies they finance. During this time abuses on the ground have continued unabated and ING continues financing these companies. So we have reached the point where it’s fair to say ING are complicit in the abuses.

Notwithstanding the detailed argumentation in the complaint, the statement by the spokesperson raises the question whether Friends of the Earth possibly caused a shift in (legal) responsibility by continuously providing information to ING regarding abuses linked to their business activities. More generally it raises the question: could there be a bigger role to play for civil society in establishing secondary liability by creating transparency about the consequences of business activities and their contribution to crimes and human rights violations?

II. Transition from direct-linkage to contribution

The complaint of Friends of the Earth explains that the OECD Guidelines distinguish different levels of responsibility for companies in relation to their human rights impact. Where a human rights impact is “directly linked” to the operations, products or services by a business relation of a company, that company should seek to prevent or mitigate the risks of any adverse impacts. In case a company “causes or contributes” to an adverse human rights impact, the scope of their responsibility is extended to actually remediate the impact.

Friends of the Earth argues that it is possible for companies to transition from direct-linkage to contributing to human rights violations. In their complaint against ING, they explain that the OECD due diligence guidance notes in question 29 that the relationship of a company to the adverse impact is not a static one and an enterprise’s ongoing failure to seek to identify and prevent its suppliers’ harmful impact could move the enterprise from being “directly linked” to a negative impact to “contributing to” all or some of the impact. Three factors are distinguished in the guidance, and adduced in the complaint, that may help to determine the responsibility of the company: 1) the degree to which the activity increased the risk of the adverse impact to materialize, 2) the degree of foreseeability of the adverse impact, meaning the extent to which the company could or should have known about the impact and the risk of an adverse impact, and 3) the extent to which the company actually mitigated the adverse impact or the risk once it learned of it. Friends of the Earth argues in its complaint that due to the long [repeated] notice of the impacts, together with the continuation of the services that were likely used by the companies to cause the impact and the lack of action to mitigate the risks, ING started to contribute to the adverse human rights impacts.

In their explanation of ING financing the different groups in the palm oil sector, Friends of the Earth puts emphasis on the information that was available to ING about the adverse human rights impacts. As such, Friends of the Earth, seems to put emphasis on the foreseeability of the impacts to trigger the shift in the responsibility of ING. The construction of the foreseeability in the complaint, focuses on ING’s own due diligence systems and how this should have enabled ING to establish that human rights violations in the palm oil projects were widespread. However, Friends of the Earth also focus on the fact that many of these actions have been in the public sphere and should have alerted ING to the harms at these plantations, and states that one chief consideration for the shift in INGs responsibility is the extensive notice that it got about the harms that were caused, not only from the public sphere but also by being notified directly.

The NCP still needs to decide on the case, but as explained in the introduction, it is an interesting question whether NGOs, by directly informing companies of adverse human rights impacts associated with their business activities, could contribute to establishing secondary liability (possibly in other (legal) contexts as well). Taking the OECD case as a starting point, the argument in favour could be summarized as follows: NGOs can append knowledge to companies by explicitly notifying companies about the causal link between business activities and an adverse human rights impact. Having acquired such knowledge, this triggers a duty for the companies to take action to at least mitigate the (possible) negative impact of their business activities. If such action is not taken, a company incurs upon itself (an increased scope of) liability for the adverse impact.

III. From proximity to foreseeability and the other way around?

Based on the case law analysis provided by Dalia Palombo in her article “The Duty of Care of the Parent Company: A Comparison between French Law, UK Precedents and the Swiss Proposals” (Business and Human Rights Journal, 4 (2019), pp. 265-286), the UK case law on parent-subsidiary liability is an interesting context to further explore the possible relevance of the abovementioned argument. The common law liability of a UK parent company for human rights violations by its subsidiaries is constructed in a very different manner from the OECD context, but the foreseeability of the impact appears to play a pivotal role as well.

Palombo notes that there is no UK case law yet that actually establishes a duty of care of a parent company over its foreign subsidiaries, but in the Lungowe v Vedanta case, the UK Supreme Court discussed the possibility of establishing such a duty of care in light of the jurisdictional question of whether the claimants had a real issue to be tried against Vedanta Resources plc (“Vedanta”). Vedanta, as the parent company of Konkola Copper Mines plc (“KCM”), is allegedly liable for the toxic mining waste that was dumped by KCM upon exploiting a copper mine in Zambia. Palombo cites the UK Supreme Court explaining that the critical question is whether Vedanta sufficiently intervened in the management of the mine owned by its subsidiary KCM to have incurred, itself (rather than by vicarious liability), a common law duty of care. The level of intervention necessary, is a legal question (in this case Zambian common law), but whether the intervention took place, is a purely factual question.

According to the UK Supreme Court, the answer to the legal question is based on the general principles for establishing a common law duty of care for any third party. The parent-subsidiary relationship is no distinct category and [e]verything depends on the extent to which, and the way in which, the parent availed itself of the opportunity to take over, intervene in, control, supervise or advise the management of the relevant operations (including land use) of the subsidiary. The parent-subsidiary relationship is by itself not enough and only shows that the parent company had an opportunity to intervene but does not entail a duty to do so. The UK Supreme Court seems hesitant in its judgment to make any classifications about the types of involvement that might be sufficient for the parent to incur responsibility. According to the Supreme Court, there is no limit on the models of management within corporate groups. The models range from parents only functioning as passive investors, to having full control over their subsidiaries. Deciding on the existence of a duty of care, also in cases of parent-subsidiary relationships, may therefore be traced back all the way to the 1970 Dorset Yacht Co Ltd. v Home Office decision according to the UK Supreme Court.

In this precedent, according to Palombo, two considerations for establishing a duty of care, resulting in parental liability, were identified: 1) proximity between the parties, e.g. the parent, subsidiary and victims, and 2) reasonable foreseeability of the damage (developed further in Caparo v Dickman into a tripartite test). After analysing the case law that followed Dorset Yacht Co Ltd. v Home Office and finally led to Lungowe v Vedanta, Palombo states that the different outcomes of the cases are mainly fact-based and that much will depend on the overall trilateral relationship between parent, subsidiary and claimant. She concludes that the future issue in parental liability cases will be whether the proximity is close enough for the parent to reasonably foresee that its subsidiary would damage a third party. Phrasing it like this most likely means that she understands the main issue in the case law as follows: if there is sufficient proximity then the impact was reasonably foreseeable. In that case, the parent company should have foreseen the adverse impacts of the conduct of its subsidiary and therefore had a duty to prevent it. This reading of the case law at least implies that in order for a duty of care to exist, the necessary knowledge of the parent company may be derived from the overall proximity of the parties.

However, for the purpose of the current blogpost, it is assumed that NGOs could append sufficient knowledge to a parent company to reasonably foresee the adverse impacts of the conduct of its subsidiaries. NGOs would do so by explicitly notifying the parent company about the causal link between their business activities and an adverse human rights impact by its subsidiaries. The relevant issue would therefore be reversed: if there is sufficient knowledge to reasonably foresee the adverse impacts of the conduct of a subsidiary, what would be the necessary level of proximity in order for a duty of care to exist for the parent company? In Lungowe v Vedanta the Supreme Court stated that a parent company has the possibility to intervene, but does not necessarily have a duty to do so. The facts of the case even seem to show a high level of necessary conduct (such as oversight over its subsidiaries, management and shareholders agreement with its subsidiaries and public statements over its involvement in the activities of its subsidiaries), in order to create the proximity to establish a duty of care that would oblige the parent company to prevent human rights abuses. However, if sufficient knowledge is actually available to the parent company, is it still allowed to look away simply by not intervening in the management of its subsidiaries?

More concretely, we could look at a parent company that is only a passive investor in its subsidiaries. Based on the case law, it does not seem likely that sufficient proximity for the parent to foresee any adverse impacts of the conduct of its subsidiaries, will easily be established. To do so, the parent would have to intervene in the activities of the subsidiaries. But what if the parent company is being made aware of the causal link between their investments in the subsidiary and the adverse human rights impacts of the business activities of the subsidiary. To what extent would proximity still be relevant? Or would it be possible to argue that being in possession of the relevant information (the parent company actually knew about e.g. could foresee the adverse impacts), created the necessary proximity for a duty of care to exist? And what would the duty of care of the parent company entail in this case? Analogous to the OECD case: could having knowledge of adverse human rights impacts, trigger a duty for the parent company to take action to at least mitigate the (possible) negative impact of its own business activities (e.g. perform due diligence or withdraw its financing)? And if such action is not taken, could the company, over time, incur upon itself (an increased scope of) liability for the adverse impact?

IV. Conclusion

The questions raised in this blogpost are difficult to answer and exceed its scope. The argument that NGOs can effectively apprehend knowledge on companies to trigger liability entails many more points to consider. First, legal liability consists of different elements, only one of them being the availability of knowledge of the adverse impacts. These elements include for example an actus reus (or the contribution itself), the causal link of the actus reus to the damages, and the possibility to influence the behaviour of the other party that directly conducts the human rights abuses. Second, ING argues in its initial response to the NCP complaint that it did perform sufficient due diligence and that it did use its leverage where needed and possible. As such, in the case of ING, the question is less about the availability of knowledge, and more about the right course of action in light of the available knowledge. A similar argument could be made about how to apply the duty of care. Does a parent company have a duty to prevent the conduct of its subsidiaries or only a less extensive duty not to contribute to the conduct itself? Third, in the context of the UK case law, an explicit duty to perform due diligence does not even exist. The line of reasoning, that a duty to act arises because of available knowledge, might be easier made in case of a statutory duty to perform due diligence.

One conclusion seems apparent however: NGOs will need to be very specific about the information that they communicate to trigger a duty of care. The information would need to encompass the detrimental acts of the company that is approached, as well as the causal link between the acts and the adverse impacts. Also, the course of action taken by the company would have to be scrutinized, in order to make any claim about whether the course of action taken by the company sufficiently mitigated any adverse impacts. This might mean that triggering liability through ‘imposing’ knowledge is only possible after a certain period of time. Even then, a company could lack influence over the other party, which could be considered as a defence to any liability. However, a lack of such a possibility to influence the conduct of another party needs to be critically scrutinized and should not be accepted too easily. It can be argued that a bank or parent company is always in a position to at least stop its own behaviour, and thereby exert some influence; in case of ING this would mean to stop its financing services. The argument that such financing can easily be found elsewhere and that therefore one single bank cannot exert any influence, is in my view unacceptable.

The questions raised in this blogpost are difficult to answer, but all the more relevant. Many will agree that it does not seem (morally) right that a bank or parent company can look away without intervening, if the information on the adverse impacts is readily available (in public space and even directly communicated to them).