The conflicts issue in transnational business human rights claims, and a possible way forward under Rome II – Josephine Dooley

This article assesses the recent proposal by the European Parliament’s Committee on Legal Affairs to allow a plaintiff bringing a human rights claim against an EU company in an EU Member State, instead of their home State, to be able to select the law applicable to the claim. An international human rights law perspective is applied to the proposed solution to a growing private international law issue. 

In what forum can a victim of a human rights violation committed by a multinational enterprise most effectively seek reparations? A recent proposal for the European Union (EU) on this issue has caused quite a stir, and Switzerland has just voted against holding businesses liable for human rights and environmental claims in a referendum.

Despite the existence of international human rights law instruments addressing corporate misconduct and human rights, namely the United Nations (UN) Guiding Principles on Business and Human Rights (‘UN Guiding Principles’), under general international law multinational companies are subject to rights but not obligations. International instruments, therefore, cannot impose international human rights obligations on such actors. 

Accordingly, domestic law, including its rules of private international law, determine to what extent corporations may be held accountable for human rights violations. Human rights claims against multinational enterprises are typically actioned as a claim in tort against the subsidiary company as well as the parent company, which is ordinarily incorporated in another State. Normally, being able to claim against the parent company is fundamental in ensuring victims receive proper reparations, as the parent company is typically the defendant with sufficient assets. Accordingly, victims are increasingly commencing proceedings in the courts of the jurisdiction in which the parent company is incorporated – typically Western jurisdictions such as the United Kingdom (UK), the Netherlands and Australia.

The success of a claim heard by a court of the parent company’s domicile is greatly influenced by how that court determines two questions of private international law: (i) should the court exercise jurisdiction over the claim; and (ii) what law should be applied to determine the claim?

Exercising jurisdiction 

In relation to the first question, several domestic courts have demonstrated their willingness to exercise jurisdiction over a claim which has little connection to the jurisdiction apart from the fact that the parent company is incorporated in its territory. A leading example is the UK Supreme Court’s 2019 decision in Vedanta Resources PLC v Lungowe [2019] UKSC 20 (‘Vedanta’), which has greatly expanded the English courts’ jurisdiction over transnational business human rights claims. In Vedanta, Zambian farmers brought a claim against UK-based Vedanta Resources and its Zambian subsidiary for damage to their health and livelihoods as a result of water pollution from a copper plant operated by the Zambian subsidiary.

Similarly, the Court of the Appeal of The Hague in A.F. Akpan v Royal Dutch Shell plc (Court of Appeal of The Hague, 18 December 2015) concluded that the Dutch courts could exercise jurisdiction over Royal Dutch Shell and its Nigerian subsidiaries for claims by Nigerian farmers in relation to an oil leak. 

Australia has also been tipped as a third possibly favourable jurisdiction for business human rights claims, due to its unique formulation of forum non conveniens (FNC) (the doctrine pursuant to which common law courts refuse to exercise jurisdiction on the basis that there is another appropriate forum), that Australian courts must be the “clearly inappropriate forum”. Whilst the Australian take on FNC has been oft-criticised as parochial since it was first laid down in Oceanic Sun Line v Fay [1988] HCA 32, in the context of business human rights claims it is considered by some a “more globally responsible doctrine”

Which law applies?

It is at the second stage where the ‘conflicts issue’ in relation to business human rights claims arises, and at which point Australia no longer proves to be a claimant-friendly forum. Australian courts strictly apply the law of the place of the wrong (lex loci delicti) for tort claims. This is the conflicts issue: applying the law of the place where the actual violation has occurred is usually insufficient for claimants, because the law of their habitual residence often will not impose liability on the wealthy parent company, which is why they have chosen to litigate in a foreign jurisdiction.

A potential solution 

The EU may prove to be the first to rectify this foregoing conflicts issue for transnational business human rights claims. The European Parliament’s Committee on Legal Affairs (‘the Committee’) has published its draft report containing an extensive set of recommendations to the European Commission to enhance corporate due diligence and corporate accountability. In summary, the report contains three proposals: 

  1. a new directive on corporate due diligence and corporate accountability; 
  2. a new ground of jurisdiction in Regulation (EU) No 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast) (‘Brussels Ibis‘) for human rights claims by persons based in non-EU States; and
  3. a new applicable law rule in Regulation (EC) No 864/2007 on the law applicable to non-contractual obligations (‘Rome II‘) for business-related human rights claims.

The third proposal, which seeks to address the conflicts issue, has already garnered commentary by Rühl and von Hein. While the primary rule in Article 4(1) of Rome II would remain unchanged, being that the law of the place of damage governs the tort (the EU counterpart to lex loci delicti), proposed Article 6a would permit the plaintiff to alternatively select any of the following:

  • the law of the country where the event giving rise to the damage occurred; 
  • the law of the country in which the parent company has its domicile; or 
  • where it does not have a domicile in a Member State, the law of the country where the parent company operates.

The proposed rule is undeniably claimant-friendly, with all roads leading back to application of the law of an EU Member State for business-related human rights claim, if the plaintiff so chooses. As outlined in Recital 15, the Committee considers “that victims of human rights abuses committed by EU undertakings should be allowed to choose the law of a legal system with high human rights standards, which could be that of the place where the defendant undertaking is domiciled”. 

The new conflicts rule and international human rights law

So, what effect will introducing the applicable law rule proposed have in relation to the EU Member States’ international human rights law obligations? The Committee states that the new ground of jurisdiction (proposal 2) gives effects to the first pillar of the UN Protect, Respect and Remedy Framework, which underlies the UN Guiding Principles, but curiously stops short of addressing the applicable law rule in proposal 3. The first pillar encompasses the State’s duty to protect human rights, to which the new conflicts rule would also give effect; in particular, the second of the UN Guiding Principles, that “States should set out clearly the expectation that all business enterprises domiciled in their territory and/or jurisdiction respect human rights throughout their operations.” [emphasis added]

The commentary to this principle highlights that enforcing human rights standards of the jurisdiction in which a business is incorporated for acts occurring outside of that jurisdiction is an exercise of extraterritoriality. In a similar respect, applying the law of the forum to actions which are properly situated outside of the forum has long been recognised as an exercise in extraterritoriality in private international law.

Commentary on UN Guiding Principle 3, which also operationalises a State’s duty to protect human rights, states that “guidance to business enterprises on respecting human rights should indicate expected outcomes”. However, Rühl asserts that the proposed conflicts rule, in particular allowing human rights victims to choose the applicable law ex post, creates legal uncertainty for companies ex ante “because they have to adjust their behaviour to four – potentially – different laws to avoid liability”. This assessment, whilst technically correct, does not properly account the objectives of the UN Guiding Principles which are at the forefront of the Committee’s proposals; to deny corporations the ability to avoid the human rights protections imposed by the State of incorporation by organising their operations overseas, and therefore prevent a regulatory “race to the bottom”. 

Further, if the objective is effectively achieved, that corporations comply with the highest level of human rights protection imposed by one of the (up to) for possible applicable laws, then the degree of legal uncertainty is drastically reduced. 

What about the jurisdiction where the violation occurred?

While the suggested Rome II amendment would undoubtedly enhance a State’s ability to protect human rights vis-à-vis corporations, it does not entirely overcome the potentially negative impacts on the jurisdictions were the misconduct occurs. An interesting point by von Hein is that providing plaintiffs the ability to choose the law of their own habitual residence or the law of the EU Member States “avoids a paternalistic, neo-colonialist stance that rests on the implicit assumption that our Western laws are inherently better than those of developing countries”. 

However, at least in common law jurisdictions, where a question of law has not been settled in the law applicable to the dispute, courts have a tendency to refer back to UK law. In these situations, the neo-colonialist stance is not avoided. Since many legal systems where these human rights claims originate apply the common law or French Code Napoléon, this result is likely to occur because the question of a parent company’s liability for human rights violations by its subsidiary is an area of contestability across most jurisdictions. 

Further, the conflicts law rule does not overcome the more tangible effects of extraterritoriality on the jurisdiction in which the events occurred; to deny the lawyers, judges and the legal systems generally the opportunity to gain experience and expertise in these challenging class actions.

And what about Australia?

Australian multinational companies are likewise not immune to allegations of misconduct overseas. If the applicable law rule proposed is incorporated into Rome II, it will be interesting to see whether Australian courts adopt a more global citizenry approach.

Josephine Dooley is an Assistant Editor of the ILA Reporter. This article does not represent the views of her employer.