The duty of care of multinationals
June 3, 2021
In recent years and particularly since the onset of the pandemic, there has been a wave of purpose-driven advocacy and strategic litigation led by claimants and NGOs. In one recent claim brought by four Nigerian farmers and Milieudefensie, a Dutch environmental organization, the Court of Appeals of The Hague held Shell liable for damage caused by oil spills, ordering it to pay compensation and install a leak detection system for its pipeline.
Notably, although the oil spills in question were likely caused by external interference or sabotage, the Court considered that it was nonetheless the responsibility of Shell to remediate the damage, taking an expansive approach to the duty of care owed to third parties affected by the company’s operations outside the company’s home jurisdiction. A similar line of reasoning was adopted by the English Supreme Court in the 2019 Vedanta case, whereby a duty of care was found to be owed to third parties based on the disclosure included in company’s corporate social responsibility disclosures.
There are several points that are striking about these decisions.
First, they are remarkably simple from a legal and philosophical perspective. In contrast to corporate law and disclosure regimes, which require complex data analytics, reporting and auditing frameworks and input of third-party advisors and experts, courts have chosen to look to the basics of tort law to define the duty of care.
In a nutshell, tort law provides that we all have a legal obligation to take reasonable steps not to cause foreseeable harm to another person or his or her property. Where this obligation is breached, and where a link of causation can be established, a claim in tort may exist.
Second, the cases arrive at the same conclusion even while considering fact patterns that took place in different industries and countries. That is likely a reflection of tort law—although these concepts necessarily vary from jurisdiction to jurisdiction, tort law is among the oldest legal theories in both common and civil law countries.
Third, the cases allow claimants to benefit from the principle of extra-territoriality in a much broader way. Historically, claimants pursuing multinationals for human rights abuses ran into jurisdiction issues—most notably the case in the United States with the Alien Tort Statute, which has been interpreted in a fairly narrow manner by U.S. courts. The Shell and Vedanta cases, however, demonstrate a willingness of courts to hear claims in Europe for facts that occurred elsewhere under the theory that the corporate maintained an office or domicile in Europe.
Last, the cases stand in direct opposition to the traditional “business judgment rule” approach. Courts in the United States (particularly Delaware) have traditionally taken the position that a corporation and its directors could be shielded from liability when making decisions that were in the reasonable interest of the company. The cases, however, spend little time analyzing whether the decisions were reasonable, focusing instead on what the outcomes of those decisions are.
While these cases appear to promote a greater sense of responsibility of the multinational to its stakeholders, they can nonetheless be probed from the perspective of stakeholders located outside of the company’s corporate and contractual ecosystem. Are legal remedies such as these sufficiently swift and meaningful for stakeholders? One concern is that procedural and financial hurdles to obtaining relief are too significant to be relied upon in a systematic way; the Milieudefensie case, initiated by Nigerian farmers in 2008, only reached a favorable judgement in 2021. While these cases can result in recoveries in certain circumstances, however, there is still a risk that companies will maintain a business-as-usual approach, only revising their operations on an ex post basis.
Another tool to complement these solutions would be to involve stakeholders in a more meaningful way ex ante—for example, in designing and approving infrastructure projects, troubleshooting safety and operational issues and continually ensuring that the impact of operations is suitable to local communities. This is very much echoed in the spirit of the European Parliament’s March 2021 Corporate due diligence and corporate accountability resolution, which reinforces the importance of consulting with trade unions, workers’ representatives and civil society organizations.
Indeed, greater collaborative and consultative solutions, coupled with contentious and data-driven approaches, may result in a winning formula that allows for appropriate preventive and risk management measures that illustrate a company’s true duty of “care.”
CPM
