Secondary liability of parent companies for actions conducted by their foreign subsidiaries is a highly contentious topic in civil litigation. Where some see it as an inevitable necessity to rebalance inequality in case of corporate human rights violations, others argue that it is an inappropriate, even abusive, means of using the law to file for damages away from the appropriate forum. Judges in Global North countries grapple with this issue in different ways and the cases are being litigated all the way up to the highest national courts. This blog offers a short overview and discussion of the possible impact of a number of landmark decisions in the UK and the Netherlands shedding more light on the parent-subsidiary relationship in the search of accountability for human rights violations committed by, or with the assistance of, businesses.
The first case to be addressed is the landmark judgement of the UK Supreme Court in Vedanta v Lungowe. In this judgment, the Court explains the broad parameters for the existence of a ‘duty of care’ of a parent company that is needed to establish secondary tort liability in (English rooted) common law systems.
Recent judgments in the Netherlands and the UK in cases against the corporate Shell group build on the Vedanta judgement, but also shed more light on the issue. Specifically, these judgments strongly emphasize the importance of (internal) documentary evidence for determining whether a duty of care of the parent company exists. Much has been said about both the Dutch and the English judgments already, but this more explicit acknowledgement of the role of information, and specifically the possible effects thereof on the way in which these cases are being litigated, deserves a greater amount of attention.
As a first of its kind, the Dutch Court of Appeal established the existence of a duty of care by the parent company Royal Dutch Shell plc (‘RDS’) over its subsidiary Shell Petroleum Development Company (‘SPDC’) for failing to apply a Leak Detection System (‘LDS’) to oil pipes near the village of Oruma, Nigeria to limit the effects of oil spills, impacting human rights of the communities living in surrounding areas. The duty of care from RDS for applying such LDS was established after a factual assessment of the interactions and relationships between the corporate entities, based on internal corporate documents obtained by disclosure. As explained in Vedanta and cited by the Court of Appeal: “‘[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 (…) of the subsidiary’” [7.2.b].
In the UK case, which also concerned oil spills in Nigeria, the Supreme Court also stressed that “The importance of internal corporate documents is well recognised in the context of cases concerning the negligence liability of a parent company for the acts of its subsidiary” [129]. Based on this, the Supreme Court determined that the assessment of whether there is “a real issue to be tried” for determining jurisdiction in these cases, should not include an actual assessment of the evidence and should therefore not amount to a mini-trial. The Supreme Court stressed the “danger of seeking summarily to determine issues which arise in parent/subsidiary cases such as this without disclosure.” [136]
So what could these judgements mean for the way in which these cases will be litigated in the future? On the one hand, the UK judgment may lessen the existence of mini-trials over preliminary issues such as jurisdiction. On the other hand, the legal fight is far from over. While the judgment of the Court of Appeal in the Netherlands establishes the existence of a duty of care, this is only based on one specific scenario. It is still unclear what other types of relations or interventions would suffice to establish a duty of care. The UK Supreme Court repeated that “As Vedanta makes clear, there is no special test applicable to the tortious responsibility of a parent company for the activities of its subsidiary (see paras 49 and 54), nor is it appropriate “to shoehorn all cases of the parent’s liability into specific categories” (para 51)” [27]. For these reasons, I believe that three possible issues can be explored.
First, the outcome of the recent judgments may result in greater emphasis on the phase of disclosure and, depending on the civil procedural rules, a shift of the mini-trials to this phase of the procedure may take place. Legal battles may shift to questions of whether the documents can be relevant, and whether they should be disclosed in their entirety and in what manner. That defendants are willing to resist disclosure as much and long as possible is not illusory, as shows the long process of disclosure after the Dutch Court had ordered Shell to disclose a limited amount of internal documents already in 2015. In the judgment related to the situation near Goi, the Court of Appeal even reprimands Shell for not cooperating sufficiently in sharing relevant information with the experts to determine the causes of the oil spills [5.26].
Second, the emphasis on the importance of internal documentary evidence is likely to further exacerbate a common problem in these cases that “the parties choose to swamp the court with evidence” [105], as was exclaimed by the UK Supreme Court in relation to the claims on jurisdiction. Claimants, as well as defendants may feel that they should bet on all horses.
And last, these judgments could also result in companies settling more easily once the way is paved for disclosure to take place (again depending on the way in which civil procedures are organised in domestic justice systems). An increase in out-of-court settlements has pros and cons. It is positive that redress might be obtained by the claimants. On the other hand, it is a pity that there will be less opportunity to have legal issues crystallized further because the terms of these settlements are often kept secret and are, of course, of far less precedential value than findings in a judgment. The continuation of legal, in court battles over parent liability remains necessary in order to shed light on patterns of abusive corporate behaviour and to contribute to the interpretation of (international) legal norms on secondary liability and the responsibilities of multinational corporations to respect human rights.
To conclude, it cannot be predicted how the legal fight over secondary liability of parent companies over corporate human rights violations by their subsidiaries will develop. However, it is undeniable that the means of fighting, e.g,. the procedural rules relating to access to information, are indispensable to a fair procedure and the outcome of a case. They should therefore be closely monitored.
This blog post has also been published on Human Rights Here.
