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Corporate responsibility

The chains that bind

Legal cases where western brands’ social responsibility statements are linked to establishing liability for harm to suppliers’ workers are on the increase.

OSH-supply-chains-Corporate-responsibility-The chains that bind
Image credit: ZUMA/REX/Shutterstock

Attempts to establish legal accountability among western corporations for health and safety standards in their international supply chains are growing. The developments stem largely from the law of tort – where harm caused unfairly to another can result in civil legal liability for the person or body causing it. Alleged failures to uphold duties of care have stimulated court claims. Some are in the early stages; others have failed due to jurisdictional issues and causative factors. But their emergence signals a willingness on the parts of the courts to consider the responsibilities of companies across global chains.

The corporate social responsibility (CSR) and governance statements that companies make are important to establishing a duty of care. In the cases discussed below, the link between these statements and the potential for liability is a factor. In the future, it may be that companies will need to be more careful with the content of those statements.

Though the current developments are interesting, the path to establishing liability is far from straightforward. The twin obstacles of jurisdiction and corporate structure remain to be navigated successfully.

No duty

A case in point is the aftermath of the Rana Plaza disaster in Bangladesh in 2013, in which 1,250 people died and hundreds more were injured following the collapse of an eight-storey illegally-built garment factory. A claim in the US against retailers JCPenney, The Children’s Place and Wal-Mart Stores for negligence and wrongful death in relation to unsafe working conditions failed but provided an opportunity to explore the issues (bit.ly/2l2BLAD).

Bangladeshi-families-observe-the-third-anniversary-of-the-Rana-Plaza-factory-collapse

Lawyers representing the family of Sharifa Belgum, a 30-year-old mother of four who died in the collapse, and Mahamudul Hasan Hridoy, a factory inspector who was injured, put forward arguments which included the fact that all three companies had CSR statements that committed them to ethical sourcing.

One issue that led to ultimate defeat of the claim was that it was filed outside Bangladesh’s one-year limitation period. Second, but more substantial, was that the judge ruled on the facts that there was no duty of care because the defendant companies did not employ the victims.

Soon after this judgment came a statement of claim filed in the Ontario Superior Court of Justice against Canadian retail giant Loblaw and inspection and certification agency Bureau Veritas (bit.ly/2lBh2H9). Lawyers at Rochon Geneva are aiming to establish a duty of care by Loblaw to victims and their families and are seeking punitive damages of C$150m (£91m).

Again the claim is for wrongful death and injury with the appalling safety failings at Rana Plaza stimulating the C$2 bn (£1.2bn) class action on behalf of the survivors, families and the estates of the victims. The core of the action is that Loblaw, in sourcing garments for its Joe Fresh brand, breached its duty of care to the victims.

The claim details the company’s close connection with the Bangladesh garment industry. There had been several disasters in earlier years when factories had collapsed or burned to the ground. The company sourced goods from numerous Bangladeshi factories and had done so for a long period. As a result, the claim alleges that Loblaw “knew or ought to have known” about the safety vacuum at Rana Plaza. It also alleges that Bureau Veritas, which carried out factory inspections on behalf of Loblaw, failed in its duty of care to carry out adequate checks.

The claim highlights Loblaw’s public statements about its CSR policies and links those statements to an alleged duty of care. It is not clear whether the claim will prosper in the Canadian courts.

Out of Africa

In the English courts, the Vedanta litigation (Lungowe v Vedanta Resources plc) permits some useful analysis of duty-of-care arguments, as well as questions of jurisdiction and parent/subsidiary liability (bit.ly/2kTShlo). The case concerned an action on behalf of 1,826 Zambian villagers – though it is likely there will be more claimants. The claim detailed personal injury, loss of income and loss of amenity and enjoyment of land from pollution and environmental damage caused by the operation of the Nchanga copper mine. As with the Loblaw claim, the claimants are not employees of Konkola Copper Mines – a Zambian subsidiary of UK-based Vedanta, which owned and operated the mine.

Justice Peter Coulson had to decide whether there was a “real issue” between the claimants and Vedanta, and whether to set aside applications that sought to declare either that the court did not have the jurisdiction or should not exercise it and there should be a stay of proceedings. It opened the way for the court to consider seminal ground; in essence, the three-stage test in Caparro Industries v Dickman: foreseeability, proximity and whether the claim was fair, just and reasonable.

In deciding that the Vedanta litigation could go forward, Justice Coulson also reviewed cases where it was held that parent companies owed a duty of care to employees of their subsidiaries. One case, Lubbe v Cape plc provides the possibility of non-employees successfully claiming for harm across a supply chain (bit.ly/2lHkPjB).

Again, the issue of statements Vedanta made in its Embedding Sustainability report appears to have been a factor in the factual matrix allowing the litigation to move forward. One of these said: “We recognise the level of control and sphere of influence the group has over these operations … our commitment to corporate sustainability requires constant monitoring and diligence.”

Eternal vigilance

In August 2016, in an important early-stage decision in Germany, the regional court in Dortmund accepted jurisdiction and agreed to provide legal aid to claimants against German discount clothing retailer Kik after a fatal fire at a garment factory in Pakistan in September 2012.

Ali Enterprises in Karachi was producing jeans for Kik when a fire broke out, killing 260 workers and injuring another 32. Many of the factory’s windows and exits were barred, leaving workers to suffocate or burn to death.

Kik was the factory’s major client and, though it did not employ the victims, it had agreed a code of conduct with the suppliers that covered workplace safety. Kik agreed voluntary support for the victims’ families, but they are seeking legally enforceable compensation. When the court deals with substantive points of law, it is likely that the company’s CSR statements will play an important part in establishing liability.

Meanwhile there have been attempts at statutory interventions that signal an increased drive toward implementing due diligence checks across supply chains. In France, the Devoir de Vigilance (duty of care) Bill aims to promote due diligence checks that will help to avoid human rights violations on the part of parent companies and their subsidiaries and subcontractors. The draft bill, adopted by the National Assembly – the French parliament’s lower house – in December, imposes a duty of care for firms with more than 5,000 employees in France or more than 10,000 in France and abroad.

These companies will have to publish “vigilance plans”, including measures to identify and prevent infringements to human rights, risks of serious injuries, or harm to health or the environment resulting directly or indirectly from their activities.

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So far the proposed law has received a mixed response, not surprisingly from those who fear it will inhibit the ability of French companies to compete in the international market. If adopted, however, the law may encourage other countries in the European Union to follow suit.

Ebb and flow

In the US, the Alien Torts Claims Act (ATCA) of 1789 allows federal courts jurisdiction in certain circumstances for civil actions by an alien for a tort committed in violation of the law of other nations or a treaty of the United States. In the 1990s, the 223-year-old law appeared to provide a pathway. That pathway has recently been curtailed in Kiobel v Royal Dutch Petroleum (bit.ly/2kUCo33). This decision makes it clear that the ATCA is subject to a “presumption against extraterritoriality” and usually will not apply to claims involving alleged human rights abuses or other violations of international law alleged to have occurred in foreign countries.

Kik was the Karachi factory’s major client and agreed a code of conduct with the suppliers that covered workplace safety

In the UK, the law is extending companies’ liability for actions overseas in their names. Both the Modern Slavery Act (MSA), and the Bribery Act have the capacity to regulate supply chain accountability. Although it is not concerned directly with issues of health and safety, s 54 of the MSA compels companies with a turnover of more than £36m to publish a slavery and trafficking statement each financial year. In this, the company must make clear the steps it has taken to ensure supply chain compliance.

The extra-territorial reach under s 7 of the UK Bribery Act means that companies can commit an offence of failure to prevent bribery if an employee, subsidiary, agent or service provider bribes another person anywhere in the world to obtain or retain a business advantage. Further, the parent company can be liable if a foreign subsidiary commits an act of bribery when performing services on its behalf.

The Vedanta and Kik litigation and the statement of claim from Rochon Geneva against Loblaw all have the potential for interesting legal arguments about the traditional scope of tortious liability with familiar arguments on foreseeability of the harm and proximity of the claimants.

At the same time they raise some novel issues, combining the orthodoxy of company law as a potential barrier and the influence of “soft law” in the shape of CSR helping confirm the existence of a duty. Forms of due diligence statutory intervention, such as that in France, may stimulate other countries to follow suit, while the advances in statutory criminal offences discussed above may also have their place in shaping the response to supply chain accountability more generally.

But for the present it is the law of tort, specifically actions alleging negligence, which appear to have the most potential resonance for health and safety law. 

 

Alexandra Dobson is reader in law at the University of Wales, Newport

Comments

  • A huge article that raises

    Permalink Submitted by Chris Treloar on 24 March 2017 - 11:46 am

    A huge article that raises within each case, many legal failings. To take an overview. When these countries took these contracts for supply into the Western markets, had there been any consideration by the companies that were involved to the interest commercially or of the safety of their employees? Or, of the country's politicians of the health and safety of their nationals?
    I put it to all that the money makers knew and were fully aware of the failings and yet? It is the companies who source their product from these poorly paid exploitative economies fault? No! Some of these countries have nuclear weapons and space programs. So it is not the lack of money. The reason why the number of claims are on the increase is easy money. Will those funds go to building safety places of work?
    By solution, when we source our wanted products that the Health and safety is already in place.
    No safety no contract. After all there are lots of factories in the United Kingdom and elsewhere who treat their employees ethically.

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  • The article certainly is an

    Permalink Submitted by Gordon Matthews on 30 March 2017 - 03:13 pm

    The article certainly is an interesting one...
    We are living in a less than equal world, in some of the regimes that have exploitative economies, the “exploited” don’t necessarily have the means or access to expedite positive a change when it comes to their situation, it is naive to think otherwise. Most civilised countries have laws of tort to address wrongful acts or the infringement of rights of others (e.g. a safe place of work) this shouldn’t matter where it is on the planet.
    The laws of Tort provide a vehicle to influence positively many major global organisations and corporations doing business in any part of the world.
    The threat of litigation, boycott of business, loss of reputation is certainly motivation to ensure that by doing business, they are not culpable by actively influencing the organisations they are trading with to provide a safe and healthy working environment for their employees.

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    • Most civilised countries DO

      Permalink Submitted by Peter Tanczos on 17 October 2017 - 03:54 pm

      Most civilised countries DO NOT have laws of Tort. That is a Common Law concept that is restricted only to countries that were part of the British Empire for significant periods of time. There are roughly 150 countries in the world that have what can be described as primarily civil law systems, whereas there are about 80 common law countries.Malta has a complicated hybrid system of Common Law/Civil Code and Tort there, only applies to pecuniary damages, moral damages aren't covered at all by tort. This article does a fantastic job at glossing over one of the root causes behind the UK's main "problem" with EU legislation, the incompatibility of Common Law based systems with Civl Code based systems used everywhere else (apart from Eire) in the EU and beyond that was not part of the British Empire. Whilst it is true that in some cases, the exploitative economy and regime may be to blame, in many others, the laws protecting citizens & workers might exist in a completely different form (civil codes). Unfortunately, the vast majority of global corporations are headquartered in the USA, largely 'protected' in their day to day activities from federal law, international law and EU regulation. The 'founding fathers' adequately protected their citizens by limiting the ability of federal goverment to oppress its own people, but did not foresee the acquisition of power that corporations could gather through the exploitation of intrinsic loopholes in Common Law. The loophhole created by Vicarious Liability combined with the lack of an individual directing mind (mens rea) within the corporate structure means an amoral corporation avoids the harshest penalties common law would hand down to an individual or an individually run company. In extremis, capital punishment or imprisonment is not available in sentencing a corporation and gross negligent manslaughter is an unweildy tool to prosecute actions of "officers" of the body corporate who were simply following company orders. Kiobel v Royal Dutch Petroleum (Shell) is potentially the most significant ruling on global corporate morality since Dodge vs Ford Motor Co. 1919, given the ruling that the (US) Alien Tort Claims Act (ATS) presumptively does not apply extraterritorially and that the ATS requires courts to apply norms of international law—and not domestic law—to the scope of defendants' liabilities. Such norms must be "specific, universal and obligatory"; and under international law, "corporate liability is not a discernible—much less a universally recognized—norm of customary international law. It also reasoned that customary international law did not define aiding and abetting property destruction; forced exile; extrajudicial killing; and violation of the rights to life, liberty, security, and association with sufficient particularity to constitute a "tort" in Common Law. In simple terms it means a corporation is not bound by the same duty of care that applies to it domestically and international law isn't sufficiently precise enough for the above acts commissioned by a corporation to constitute crimes against humanity.

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  • The case against Loblaws was

    Permalink Submitted by Bridget Leathley on 14 May 2018 - 04:07 pm

    The case against Loblaws was dismissed. There is a useful summary of the case at http://lawofwork.ca/?p=8992 with a link to the full judgement

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