Introduction

One of the most important pillars of investment protection under international law is the understanding that a foreign investor investing in a host state should be treated ‘fairly and equitably.’ The importance of this notion is supported by the inclusion of the fair and equitable treatment (FET) standard in most of the International Investment Agreements (IIAs), as well as its invocation in the vast majority of investment disputes. However, the concern has been expressed frequently that a broad interpretation of this usually openly formulated provision has an adverse impact on the host state’s ‘right to regulate’ in the public interest. These concerns have been voiced particularly as a result of FET claims in which investors have challenged a variety of state decisions in publicly sensitive areas, e.g. renewable energy, waste management, public health issues, and access to water. In this regard, tribunals have often been criticised for attaching insufficient weight in their assessment of the FET standard to a host state’s right to regulate and its duty to fulfil its obligations under other international treaties, such as human rights and environmental treaties.

In the last five years the balance has gradually shifted from an approach of a broad interpretation of investor protection under the FET standard to an approach in which the state’s right to regulate is also recognised, and in particular when this right is exercised to benefit the public interest and/or to fulfil obligations in the field of human rights, health, and environmental protection, derived from international treaties.[1]

However, there are still gaps in clarifying the scope of the FET standard in the IIAs, including the new generation of treaties.  The following proposals made in the context of the 2018 UN Forum on Business and Human Rights are aimed at harmonising treaty practice – both treaty drafting and treaty interpretation practice. In the proposals, a host state is allowed to maintain adequate policy space to exercise its right to regulate in the public interest and, on the other hand, is obliged to observe its obligations under FET standards in IIAs:

• Exhaustive list of the state’s obligations complemented by a provision on the state’s right to regulate

For example, in the IIAs concluded between the EU and Canada (CETA), the EU and Vietnam, and the EU and Singapore the obligation to provide fair and equitable treatment has been clarified through an exhaustive, but expandable, list of the state’s obligations in relation to foreign investors. Furthermore, these agreements include provisions on the state’s right to regulate in the public interest. What is important in reforming the FET standard in future treaties is to continue to include such a list. The exhaustive list of obligations provides some certainty and predictability to host states and investors about those types of state conduct that might lead to a breach of the FET standard.

Also important is the explicit codification of the host state’s right to regulate in some recent IIAs. See examples hereof in CETA, the EU-Singapore FTA and the Dutch Model BIT. Explicating the right to regulate in the body of an IIA constitutes a strong sign that, in the opinion of the contracting states, the role of tribunals is to balance the state’s public interests and the interests of the investor when interpreting and applying the FET standard.

• Direct obligations towards investors

Further, retaining adequate domestic policy space, while providing the FET standard to investors, can be attained by including a provision on Corporate Social Responsibility (CSR) in the IIA (see our article). Such a provision should be addressed directly to foreign investors rather than to the contracting states. Examples hereof are the 2016 Morocco-Nigeria Bilateral Investment Agreement (BIT), the 2016 Argentina-Qatar BIT, the 2016 Pan-African Investment Code, and the 2012 South African Development Community (SADC) Model Bilateral Investment Treaty Template.

Also, it is essential to specify in the CSR provisions to which CSR norms an investor should adhere while operating in a host state. It is not sufficient to merely refer to the ‘internationally recognized standards of corporate social responsibility’ that often can be traced in CSR provisions. In the absence of a definition of CSR norms, tribunals may face difficulty in interpreting these norms, as it will remain unclear as to what investor obligations flow from such CSR provisions. A concrete specification of the CSR norms that foreign investors are expected to comply with when investing in the host state provides more concrete guidance to such investors, as well as to arbitrators. For example, the Dutch Model BIT refers to the OECD Guidelines for Multinational Enterprises, the United Nations Guiding Principles on Business and Human Rights, and the Recommendation CM/REC(2016) of the Committee of Ministers to Member States on human rights and business. The Morocco-Nigeria BIT refers to the ILO Tripartite Declaration.

Such CSR obligations of investors - stipulated in an IIA - can be even more effective, if the same treaty also contains a provision that allows a tribunal to reduce the protection under the substantive investment protection clauses, e.g. the FET standard, in a situation where an investor has breached one or more of the CSR provisions contained in the IIA. For example, in Article 23 ‘Behavior of the investor’ of the Dutch Model BIT such a provision has been included. It provides that ‘a Tribunal may, in deciding on the amount of compensation, take into account non-compliance by the investor with its commitments under the UN Guiding Principles on Business and Human Rights, and the OECD Guidelines for Multinational Enterprises.’

• The investor’s due diligence efforts

The inclusion of the investor’s duty to conduct due diligence, is another aspect that can help to create a better balance between the rights and obligations of states and investors under the FET standard. For example, in Article 7 of Dutch Model BIT, the contracting parties are encouraged to reaffirm the importance of due diligence conducted by investors ‘to identify, prevent, mitigate and account for the environmental and social risks and impacts of its investment.’

The due diligence conducted by foreign investors in assessing the socio-political risks in a host state has been growing in importance in tribunals’ assessments of the FET standard. Some FET tribunals (see, for example: Charanne v. Spain, Isolux Netherlands, BV v. Kingdom of Spain, Mamidoil v. Albania) have underlined that an investor bears the responsibility of appraising the reality and the context of the state, in which the investment is/will be made, by performing a due diligence investigation and conducting risk assessments. The investor has to be aware and to take into account the relevant regulations, policies and decisions concerning its investment in order to anticipate the possible risks. This aspect played a role in cases in which the investor’s claim was based on a claim to protect his ‘legitimate expectations’ in the context of regulatory changes applied to a general regulatory framework. The extent of an investor’s due diligence investigation can operate as a yardstick in judging whether an investor could have predicted the contested changes. As was pointed out in Isolux Netherlands, BV v. Kingdom of Spain, if the changes were not foreseeable by a prudent investor, despite visible efforts to collect the information about the future of the regulatory framework, the legitimate expectations of the investor may be protected under the applicable IIA.

Therefore, it would be advisable to specify in a IIA that an investor has the duty to conduct adequate due diligence comprising an investigation of the environmental, human rights, and social risks, and that this constitutes a condition for receiving fair and equitable treatment. An explicit reference in IIAs to an investor’s duty to conduct due diligence also strengthens the importance of investors’ responsibilities under international investment law.

General Conclusion

In this contribution, several proposals have been made in the context of the 2018 UN Forum on Business and Human Rights to further clarify the right of investors to receive the FET standard under an applicable IIA and to assure the adequate policy space for host states to regulate in the public interest. We have suggested to include (or to continue to include) an exhaustive list of the state’s obligations under the FET standard into the text of IIAs with the aim to provide a certain degree of predictability to foreign investors as well as host states regarding the types of state conduct that might lead to a violation of the FET standard. Also, the provision on the right to regulate should continue to be included in the operative part of IIAs. The function of the aforementioned provision is not to exempt the state from liability under the FET standard. Rather, it requires tribunals to balance the state’s public interests and the interests of the investor, while interpreting and applying the FET standard. Finally the proposal further argues that by incorporating the direct CSR obligations imposed on foreign investors, as well as the inclusion of the investor’s due diligence duty into the text of IIAs will further assure the balance of the rights of the investor under the FET standard and the state’s right to regulate.

[1] This is based on the study of Y. Levashova, ‘The Right of States to Regulate in the Public Interest and the Right of Investors to Receive Fair and Equitable Treatment,’ Kluwer International Arbitration Law Library, forthcoming in 2019. 

The National Human Rights Commission of India (NHRCI) was established on 12 October 1993 on the basis of the Protection of Human Rights Act (PHRA) as amended by the Protection of Human Rights (Amendment) Act No 43 of 2006. It is a quasi-judicial institution whose purpose is to protect and promote human rights, which are understood to be those rights relating to life, liberty, equality and dignity as enshrined in the Indian Constitution and in applicable international covenants (see s.2 (1)(d)). The duties of the Commission include inquiring into complaints ex officio or upon request, intervening in court proceedings relating to human rights, analysing legislative acts and making recommendations, studying international treaties and guiding their effective implementation, undertaking and promoting research, and raising awareness of human rights inter alia (see s.12 (a)-(j)). Section 21 of the PHRA further allows for the establishment of State Human Rights Commissions, which have largely the same mandate as the NHRCI with the exception of section 12 (f) regarding the study of international treaties (see also here). There are presently twenty-five state commissions. The National Human Rights Commission is headquartered in New Delhi.

This article analyses two types of actions in order to observe the extent to which the NHRCI has assumed its role in promoting access to remedy in business and human rights cases. According to the 2010 Edinburgh Declaration of the International Co-ordinating Committee of National Institutions for the Promotion and Protection of Human Rights (ICC), the participation of NHRIs in the remedial process may be either direct or indirect. As will be shown, the National Human Rights Commission of India has been quite shy in tackling issues of access to remedy whether directly or indirectly.

As to direct participation, the Commission is empowered to inquire into complaints alleging violations of human rights or negligence in the prevention of such violations by a public servant. It may do so either ex officio, on petition by a victim or following a court order (see s.12 (a)). While such an inquiry is ongoing, the NHRCI enjoys all the powers of a civil court trying a suit under the Code of Civil Procedure of 1908. Subsequent to reviewing the factors that inhibit the enjoyment of human rights, the Commission may recommend appropriate remedial measures (see s.12 (e)). The PHRA does not explicitly state whether the NHRCI may entertain complaints against companies. Yet the NHRCI’s 2012 Code of Ethics for the Indian Industry points out that there is no apparent reason not to extend the application of s.12 (a) to private persons (see here at page 28-29). This analysis nevertheless seems to be at odds with the practice of the Commission, which has been rather reluctant to exercise jurisdiction over companies. For instance, the NHRCI has carried out numerous investigations into allegations of child labour and bonded labour. These investigations were however carried out as a result of a Supreme Court order vesting the Commission with the power to oversee and monitor the implementation of the Bonded Labour System (Abolition) Act of 1976. The NHRCI has also intervened in cases relating to development-induced displacement, particularly in the cases of Special Economic Zones in India. It did not do so directly however. For example, upon receiving complaints about human rights violations concerning the POSCO project on Odisha, the Commission conducted a fact-finding mission and issued recommendations for the government on how to deal with the matter. Another way in which the Commission has tackled corporate human rights abuses is through its power as a civil court and through the intermediary of the State duty to protect. The NHRCI regularly directs local authorities to inspect businesses or enterprises against which complaints of human rights abuses have been made.[1] If the authorities’ report is unsatisfactory, the Commission may send its own inspectors to conduct a fact-finding mission. In some cases, the NHRCI directs the local authorities to pay relief. The Commission found that its sustained interventions in these cases usually leads to corrective action.[2] The NHRCI therefore seems to have rather opted for a back route to acting on business-related human rights complaints. It is nevertheless difficult to see why the Commission has shown this reluctance seeing as its mandate is rather permissive.  A more explicit mandate to deal with corporate human rights abuses would perhaps spur the NHRCI’s direct participation, which is overall quite lacking.

As to indirect participation, the National Human Rights Commission of India has had a visible presence in the sphere of business and human rights but less so in that of access to remedy. For instance, the NHRCI commissioned a study in April 2012 concerning the development of a Code of Ethics for the Indian Industry. The purpose of this study was to “[…] attempt to understand a range and quantity of ethical issues that reflect the interaction of profit-maximising behaviour with non-economic concerns […]”. Nevertheless, as far as access to remedy is concerned, this study contains nothing more than a reiteration of the UNGPs’ third pillar (see here at page 24). Nonetheless, the Commission has established a Core Group on Business, Environment and Human Rights, has convened no less than forty-three workshops on the elimination of bonded labour, and it has been nominated by the Commonwealth Forum of National Human Rights Institutions as the focal point for business and human rights matters. It also regularly convenes conferences on business and human rights (see for instance here and here). Most recently, following the conference on 2 July 2018, the NCHRI committed to engage with the Indian Ministry of Corporate Affairs in order to formulate a National Action Plan and to conduct a base line survey on business and human rights in the country.

In conclusion, the NHRCI has a wide mandate to protect and promote human rights but has yet to attain its full potential in ensuring access to effective remedy. It has not made full use of its complaint procedure, which could extend to cover human rights abuses by private parties. Furthermore, its role as a focal point for expertise on business and human rights seems to deal with access to remedy as a peripheral issue.

[1]           National Human Rights Commission, ‘Business and Human Rights: The Work of the National Human Rights Commission of India on the State’s Duty to Protect’

[2]           National Human Rights Commission, ‘Business and Human Rights: The Work of the National Human Rights Commission of India on the State’s Duty to Protect’

Editor's Note: Marie Wilmet is a research intern in Public International Law at the Asser Institute. She recently graduated from Leiden University’s LL.M. in Public International Law. Her main fields of interest include international criminal law, humanitarian law and human rights law as well as counterterrorism.

The Alliance for Torture-Free Trade was launched on 18 September 2017, at the 72^nd Session of the United Nations (UN) General Assembly, by a common initiative of Argentina, the European Union (EU) and Mongolia. It aims at ending the trade in goods used to carry out the death penalty and torture. Indeed, even though torture is unlawful under public international law, these goods are currently available on the open market across the globe. By banning such tools from global trade, the Alliance hopes to reduce the possible human rights violations by complicating the perpetrators’ acquisition of the means to execute and torture people.

This initiative is part of a broader agenda both at the UN and EU level. It falls under the broader umbrella of UN projects such as the UN Guiding Principles for Business and Human Rights or the UN Global Compact. Moreover, the EU has tried in the recent years to strengthen the rule of law by conducting policies where trade and values are more interrelated. As the EU Trade Commissioner Cecilia Malmström stated, “human rights cannot be treated as an afterthought when it comes to trade”.

This blog will first retrace the origins of the Alliance by outlining the current factual and legal framework surrounding torture, the death penalty and related trade. Then, the Alliance and its ambitions will be analysed, along with the chances of its effective implementation.

Torture and capital punishment under international law, state of legality and reality?

The use of torture is prohibited by Article 5 of the Universal Declaration of Human Rights and by Article 7 of the International Covenant on Civil and Political Rights (ICCPR). The Convention against Torture and Other Cruel, Inhuman or Degrading Treatment, outlawing the practice of torture, has been ratified by 158 countries and most regional human rights treaties equally proscribe it. The prohibition of torture under international law is so established that it became a peremptory norm of international law, meaning that it is absolute and applies to all states, in all circumstances.

By contrast, the death penalty is not illegal under international law. Indeed, Article 6 of the ICCPR permits its use under certain circumstances. Capital punishment can be applied following a judgment rendered by a Court, for the most serious crimes and in accordance with the law. The provision nevertheless provides that –“nothing in this article shall be invoked to delay or to prevent the abolition of capital punishment”–. The Second Optional Protocol to the ICCPR, binding on its 85 state parties, prohibits capital punishment. There is a global trend to abolish the death penalty, as was recognised by the adoption of several UN General Assembly resolutions demanding a moratorium on executions. The resolutions urged states to respect the UN Economic and Social Council’s Safeguards guaranteeing the protection of the rights of those facing the death penalty, as well as to restrict the use of offences punishable by death.

Despite the complete prohibition of torture and the partial prohibition of the death penalty, the reality is alarming. According to Amnesty International, torture is still used in 140 states, either in isolated cases or systematically. In a 2014 report, the NGO found that 79 state parties to the Convention against Torture were still practising it. The death penalty is still applied in 25 countries and an estimate of 20,292 people are awaiting execution worldwide. This figure does not include the application of capital punishment in China, as the country does not publish official data. Available information nevertheless indicates that thousands of people are executed in the country every year. There is therefore a clear discrepancy between the legal framework surrounding the use of torture and death penalty and the reality in practice.

Why? A macabre but booming business, barely regulated…

According to Amnesty International and the Omega Research Foundation the discrepancy can be explained by the international trade in torture goods which is currently out of control. The goods of torture extend from mechanical restrain devices, to direct contact electric shock weapons, body worn electric shock devices, riot control agents, kinetic impact devices as well as pharmaceutical drugs used in lethal injections. They can be separated in two categories: the inherently inhumane equipment and the tools which, if used in conformity with human rights obligations, can have a legitimate use (such as in law enforcement).

The lack of trade regulations on such goods fuels a depressing reality where torture and execution tools are freely traded, transited and marketed around the globe. A report by the Institute for Security Studies (ISS) found for example that Force Products, a South African company was manufacturing a range of prohibited electric shock equipment. The company was then trading it with companies in Africa, America, Asia and Europe, who were subsequently in charge of distributing the equipment locally. Other companies such as Imperial Armour have exhibited the abusive equipment at international trade exhibitions in the Middle East and North Africa region and Europe. In light of those findings, the ISS and the Omega Research Foundation call for a prohibition on law-enforcement equipment that has no other purpose than torture or degrading treatment.

At present, no global binding legal instrument regulates the torture trade. The UN General Assembly has called for a ban on the production and trade of torture tools in resolutions 67/161 and 70/146, in respectively 2013 and 2016. The UN Special Rapporteur on Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment has repeatedly pushed for the introduction of controls in that trade area.

On the regional level, however, more initiatives have already been taken. The African Union agreed in 2002 to prescribe, in the Robben Island Guidelines, the –“use, production and trade of equipment or substance designed to inflict torture and the abuse of any other equipment or substance to these ends”–. The Guidelines, however, are not binding on the member states and have only a supporting role in the interpretation of the African Charter on Human and People’s Rights. The EU, on the other hand, has established a unique binding system of multilateral trade controls to outlaw the international trade in torture and capital punishment equipment.

The only example in the world of a binding system: the EU Council Regulation 1236/2005 and following amendments

The EU Council Regulation No. 1236/2005,  -and its evolution through the 2011 and 2014 amendments culminating into Regulation No. 2016/2134, forms the most comprehensive trade control regime on tools used for capital punishment and torture. Under EU law, regulations are directly applicable in, and legally binding on, all the member states of the Union. As such, it constitutes a unique example of a binding system regulating the torture trade.

The 2005 Regulation banned the import and export of two types of torture goods: the prohibited and the controlled goods. The first category of goods, subject to a complete ban, are those which can only be used for torture or applying the death penalty. The second category concerned goods that could be used for such purposes, but which have been designed for other reasons, such as law enforcement or medicinal use. Those goods were subject to trade control which required a specific authorisation by national authorities on a case-by-case basis. In 2011, the list of products covered by the Regulation was extended to include an export ban on drugs which could be used in lethal injections, such as the anaesthetic sodium thiopenthal. In 2014, the European Commission established the Commission Implementing Regulation No. 775/2014, which further expanded the list of goods falling within the scope of the regulation. Tools deemed unsuitable for use by law enforcement, for instance abusive restraint equipment, were also included in the trade ban.

Despite these changes, the 2005 regulation was highly criticised for the legal loopholes it contained and civil societies organisations highlighted several issues with the trade control system. First, even if the torture trade was forbidden in the EU, the equipment was nevertheless promoted in arms trade fairs and exhibitions in France, Germany or the UK. Second, companies in the Czech Republic, France, Germany, Poland and Slovenia were promoting new goods, completely unfit for use by law enforcement agencies, but which were not forbidden under the regulation. Third, there was a lack of control on brokering services regarding such goods and on the transit of goods within the Union. Indeed, the regulation did not expressly forbid the transit of goods coming from non-EU countries to a destination in a third country, leading to prohibited goods passing through EU ports and airports.

Consequently, in 2016 the EU Parliament adopted amendments to the 2005 regime in Regulation No. 2016/2134 in order to strengthen the existing system. The new legislation bans the transit of prohibited products within the EU, prohibits the display at EU fairs and forbids general promotion of torture and capital punishment equipment. It also outlaws the provision of brokering services, such as technical assistance for installation, repair and maintenance of the prohibited equipment. Finally, the 2016 amendments introduces a fast-track procedure to add new goods on the list, in order to face the technological evolution in the torture trade.

The current system with its established modifications has yielded positive results and has led to the decrease of the trade of goods used for torture and capital punishment within the EU. The EU ban on torture trade is part of its broader commitment to advocate the global end of torture and capital punishment in the framework of its Common Foreign and Security Policy. Given the success of the EU ban, the EU Trade Commissioner decided to take the initiative to the international fora.

The need for a global Alliance and the four step approach

The Alliance for Torture-Free Trade was initiated by Argentina, the EU and Mongolia. Argentina has ratified the ICCPR 2^nd Optional Protocol in 2008 and has, ever since, been very active internationally by mobilising support to abolish the death penalty worldwide. It has, among others, drafted the 6^th UN General Assembly resolution on a moratorium on the use of the death penalty with Mongolia. The latter abolished the death penalty in 2015 and is leading by example in a region where torture and executions are common practice. Together, they joined the EU around the idea that trade is positive but that it has to be based on values.

Drawing from the effectiveness of the EU ban, the three actors realised that such a global problem was calling for a global response. Indeed, those who produce and trade torture goods are constantly modifying their routes to circumvent domestic laws. The Alliance for Torture-Free Trade was thus created and opened to any state who has ratified the 2^nd Protocol to the ICCPR. On 18 September 2017, 58 states signed the political declaration and joined the Alliance.

By signing the declaration, states agree to follow a four-step approach in order to ban the torture trade. First, the states consent to taking measures to control and restrict the exports of these goods. Second, they commit themselves to provide the custom authorities with the appropriate tools to fight those perpetrating the trade. Third, the participating states agree to give assistance to countries in need of help to set up and implement the laws banning the trade. Finally, the states will exchange best practices for control and enforcement system. Additionally, a platform will be created in order to share information, monitor trade flows, and identify new objects appearing on the market.

The Alliance for Torture-Free Trade’s ambition is to first bring like-minded countries together by signing a political commitment to banning the trade in goods that can be used for torture or capital punishment. Then, it is aimed at fostering a global effort to help local customs identify and track the torture trade transit. Eventually, the ultimate goal of the Alliance is to see the creation of a legally binding treaty under the auspices of the UN. In the absence of such a legally binding commitment, however, one could wonder if the Alliance is currently more than merely a token exercise.

The Alliance on Torture-Free Trade: a token exercise or an ambitious promise?

The political character of the Alliance and of the declaration can cast doubts on its effective implementation and potential success. Indeed, its efficiency heavily relies on the goodwill of the participating states. Even though the commitments are not legally binding, several means have been identified to ensure that individuals, companies and governments align with the Alliance in the state concerned.

According to Member of the European Parliament Marietje Schaake, one of the crucial steps to ensure the success of the Alliance is to establish individual accountability mechanisms for breaches of the ban. Article 17 of the 2005 Regulation required member states to put in place –“effective, proportionate and dissuasive penalties”– for violations of its provisions. Similarly, states who have joined the Alliance should introduce such provisions in their domestic legal system in order to deter possible infringement and ensure the decrease of the torture trade within their borders. By adopting a legal deterrent for those who engage in the torture trade, individuals and companies are more likely to increase their cooperation with the Alliance.

These legal deterrents can, in turn, affect states which have not accepted the declaration by reducing their material capacity to use torture or capital punishment. There are signs, for example, that the EU 2011 export ban on sodium thiopenthal has been effective in diminishing the number of US executions. In the US, lethal injection is the prevailing method for the death penalty and requires the use of sodium thiopenthal. The EU ban on the drug has created a shortage in the US, leading to a clear decrease in the number of executions.

The UN Assistant Secretary General also believes that the financial and reputational risks can encourage states and corporations to comply with restrictions promoted by the Alliance. This claim seems to be corroborated by the actions of the pharmaceutical industry worldwide. Since the EU ban on sodium thiopenthal, the US main pharmaceutical companies have decided to stop producing the drug, because of the tarnished image it engendered. The Indian company Kayem Pharmaceuticals also refrained from selling the drug to the US because of its misuse in lethal injections, inconsistent with the firm’s Hinduist values.

Moreover, foreign ministries promoting national companies that do not respect the ban on torture and death penalty goods would also see their reputation damaged. If this reputational incentive holds, Members of the Alliance will be likely to apply the four guidelines, establish the relevant laws domestically and share information with other members. By expanding the geographical reach of the ban on torture and capital punishment tools, the Alliance could therefore reduce their trade on the global level. It is too early to say whether this soft implementation of the Alliance’s goals and proposals will lead to encouraging results. In light of the European success story, one can nevertheless be hopeful about the possibilities of reducing this despicable trade.

Concluding remarks: 

The Alliance for Torture-Free Trade offers a softer perspective on the fulfillment of  -international human rights law obligations, by directly- addressing the trade which enables abuses to be perpetrated. The creation of a global comprehensive trade control regime on tools used for capital punishment and torture, such as the currently effective EU one, could lead to the decrease of such abusive practices worldwide. The ultimate solution seems to be the creation of a binding treaty prohibiting the torture trade under the auspices of the UN, which would compel states and private actors to respect human rights while engaging in business relations. Until then, only time will reveal the success of the political Alliance and whether, as Cecilia Malmström put forward, political commitments can indeed “be a way to strengthen human rights around the globe.”

 Editor’s note: Maisie Biggs recently graduated with a MSc in Global Crime, Justice and Security from the University of Edinburgh and holds a LLB from University College London. She is currently an intern with the Doing Business Right project at the Asser Institute in The Hague. She previously worked for International Justice Mission in South Asia and the Centre for Research on Multinational Corporations (SOMO) in Amsterdam.

“No one who comes to these courts asking for justice should come in vain. The right to come here is not confined to Englishmen. It extends to any friendly foreigner. He can seek the aid of our courts if he desires to do so. You may call this ‘forum shopping’ if you please, but if the forum is England, it is a good place to shop in both for the quality of the goods and the speed of service.”

Lord Denning in The Atlantic Star [1973] 1 QB 364 (CA) 381–2

The United Kingdom Supreme Court today has handed down Vedanta Resources PLC and another (Appellants) v Lungowe and others (Respondents) [2019] UKSC 20, a significant judgement concerning parent company liability and the determination of jurisdiction for these claims. Practically, it now means for the first time a UK company will face trial and potentially accountability in their home jurisdiction for environmental harms associated with operations of foreign subsidiaries. 

This is a closely-watched jurisdiction case concerning a UK parent company’s liability arising out of the actions of its foreign subsidiary. The claimants are 1826 Zambian citizens from the Chingola region of the Copperbelt Province. This group action is against UK-domiciled Vedanta Resources PLC and its subsidiary KCM, a second defendant which is incorporated in Zambia. The original claims concern discharges from the KCM-owned Nchanga mine since 2005 which have allegedly caused pollution and environmental damage leading to personal injury, damage to property and loss of income, amenity and enjoyment of land. 

Following the initiation of this claim, in 2015 Vedanta and KCM challenged the jurisdiction of the English courts, however Coulson J dismissed their applications. The Court of Appeal then upheld the dismissal of those applications, so the defendants appealed to the Supreme Court. (See our previous blog on the case here).

The Supreme Court today denied the appeal by Vedanta Resources and KCM, and allowed the claim to proceed to merits in England. The Court made it clear the real risk that the claimants would not obtain access to substantial justice in Zambia was the deciding factor in the case. The Court denied there was an abuse of EU law by the claimants using Vedanta as a jurisdictional hook to sue both the parent company and subsidiary in England, and the claimants succeeded in demonstrating there was a “real triable issue”, nonetheless Zambia was held to be the “proper place” for the case. However, because the Court supported the finding of the first instance judge regarding the risks faced by claimants in accessing substantial justice in Zambia, the appeal was denied, and the case can proceed in England. 

This is a significant judgement, as it now means for the first time a UK company will face trial and potentially accountability in their home jurisdiction for environmental harms associated with operations of foreign subsidiaries. Lord Briggs delivered the judgement on four major issues: the potential for abuse of EU law; whether there was a real triable issue against Vedanta; whether England is the proper place for these proceedings; and whether there was a real risk that substantial justice would not be obtainable in that foreign jurisdiction. 

Why is this significant? For those following this case, and the appeals of Okpabi & Ors v Royal Dutch Shell Plc & Anor (Rev 1) [2018] EWCA Civ 191 and AAA & Ors v Unilever Plc & Anor [2018] EWCA Civ 1532 in the English courts, there are two major findings in this judgement that will likely impact future cases concerning parent company liability. Firstly, the reasoning behind the finding of a “real triable issue” between a foreign claimant and UK parent company, and secondly the primacy the Supreme Court placed on the significance of access to justice as a jurisdictional hook for claims in England.

A. Finding of a “real triable issue” between a foreign claimant and UK parent company

Previous major cases decided in lower courts have fallen at this hurdle. The courts in Okpabi and AAA v Unilever both allowed jurisdictional appeals because they determined there was no real triable issue between the claimants and the UK parent company. In this case, Lord Briggs characterised the test as simply “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 to the claimants [44].”

Four major developments allowed this to happen; firstly, claimants can more heavily rely on the potential of future disclosure of internal defendant documents; secondly, the Chandler criteria ought not to be a ‘straitjacket’ for finding a parent company exercised control; thirdly, that the size of a company’s operation does not dilute a duty of care, and finally that group-wide policies and guidelines alleging group control are potentially sufficient as a basis to argue a triable case of parent company control. Interestingly, all of these points (without explicitly saying so) went against the Court of Appeal’s judgement in Okpabi. 

1. The potential for evidence to emerge upon disclosure

The finding of a “real triable issue” has been a challenge in past cases because particular facts must be determined before the disclosure of the defence’s documents, and there runs a risk of a ‘mini-trial’ ensuing based on limited evidence. This may be of interest to lawyers and courts in other jurisdictions which do not have the same disclosure requirements: the English courts have had to establish how to best ascertain the likelihood of a duty of care based on only publicly-available documents. 

In past, claimants were told they could not base their claim on merely the potential for more evidence to emerge upon disclosure. Lord Justice Simon previously found in Okpabi in the Court of Appeal that “[a]lthough, the claimants make a further point that [the presented evidence] is illustrative of what may emerge on disclosure, the difficulty is that jurisdiction is founded on a properly arguable cause of action and not on what may (or may not) become a properly arguable cause of action [122].” Sir Geoffrey Vos agreed, saying “I might mention in closing that I thought throughout the hearing of the appeal that the court had a responsibility in a case of this kind not to strive to find a reason to allow jurisdiction [208].”

Lord Briggs was very clear on this point: 

“[The question whether the] level of intervention in the management of the Mine [was] requisite to give rise to a duty of care upon Vedanta to persons living, farming and working in the vicinity… is a pure question of fact. I make no apology for having suggested during argument that it is blindingly obvious that the proof of that particular pudding would depend heavily upon the contents of documents internal to each of the defendant companies, and upon correspondence and other documents passing between them, currently unavailable to the claimants, but in due course disclosable [44].”

This confirms Lord Justice Simon’s (interestingly different from his stance in Okpabi) finding when considering this case in the Court of Appeal. He held that at the early stage of a case the unavailability of sufficient evidence ought not be a barrier, rather “much will depend on whether (…) the pleading represents the actuality [83].”

Defendants in these cases have been pushing for the evidentiary bar to be raised, while judges have bemoaned the rising piles of evidence for only preliminary hearings. This decision should lower both the bar and the piles. Section 3 (below) will address the alternative publicly available evidence the courts may now look to.

2. Rejection of a Chandler ‘straitjacket’

Lord Briggs did not take the view that this parent company liability is a novel category of common law negligence liability requiring specific criteria, rather “there is nothing special or conclusive about the bare parent/subsidiary relationship, it is apparent that the general principles which determine whether A owes a duty of care to C in respect of the harmful activities of B are not novel at all [54].” He positively cited Home Office v Dorset Yacht Co Ltd [1970] UKHL 2 as a circumstance in which it had previously been appropriate to find this duty of care. This is a reversal of previous English judgements that have pushed toward more stringent (and difficult to prove without private documentation) criteria for determining a duty of care in these types of cases. 

This case, and Okpabi, AAA v Unilever, and Thompson v The Renwick Group Plc [2014] EWCA Civ 635, all draw from the judgement of Lady Justice Arden in Chandler v Cape Plc [2012] EWCA Civ 525. In this case Arden concluded that there were “appropriate circumstances [80]” in which liability may be imposed on a parent company for a subsidiary's employees’ health and safety. Four of these that were relevant for this case included:

“(1) the businesses of the parent and subsidiary are in a relevant respect the same; (2) the parent has, or ought to have, superior knowledge on some relevant aspect of health and safety in the particular industry; (3) the subsidiary's system of work is unsafe as the parent company knew, or ought to have known; and (4) the parent knew or ought to have foreseen that the subsidiary or its employees would rely on its using that superior knowledge for the employees’ protection. For the purposes of (4) it is not necessary to show that the parent is in the practice of intervening in the health and safety policies of the subsidiary. The court will look at the relationship between the companies more widely. [80]”

She makes it clear however, that this is not a restrictive list. She positively quoted Lord Oliver in Caparo Industries Plc v. Dickman [1990] 2 AC 605:

"'Proximity' is, no doubt a convenient expression so long as it is realised that it is no more than a label which embraces not a definable concept but merely a description of circumstances in which, pragmatically, the courts conclude that a duty of care exists [page 633]."

What had happened however, is that these criteria have hardened throughout Thompson, AAA v Unilever and Okpabi as courts determine how to find evidence of parent company control. Briggs found that one of the few mistakes of the trial judge was “imposing a straitjacket derived from the Chandler case. [60]” Rather, since there is “no limit to the models of management and control which may be put in place within a multinational group of companies… I would be reluctant to seek to shoehorn all cases of the parent’s liability into specific categories of that kind, helpful though they will no doubt often be for the purposes of analysis. [51]” 

As acknowledged by Briggs, analysis and consistency will probably lead to the Chandler criteria (and subsequent iterations) continue to be used as a stepping-off point, however future first-instance judges should no longer view themselves bound to accept these as the only means of determining the likelihood of a duty of care arising. 

3. The size of a company’s operations does not dilute a duty of care

Briggs‘s judgement reflects Sale’s dissent in Okpabi, in which he disagreed that the scale of a company’s operations should necessarily be a factor precluding the finding of control or proximity. Looking by analogy at the Chandler case, Briggs said it was “difficult to see” why making a bad practice part of group-wide policy would diminish the responsibility of a parent “if the unsafe system of work, namely the manufacture of asbestos in open-sided factories, had formed part of a group-wide policy and had been applied by asbestos manufacturing subsidiaries around the world. [52]”

In Okpabi, while dismissing the claimant’s appeal, Lord Justice Simon endorsed the warning of Justice Cardozo in Ultramares Corpn v Touche (1932) 174 NE 441 against the danger of exposing defendants to “a liability in an indeterminate amount for an indeterminate time to an indeterminate class (p. 44).” According to the first instance judge in the Okpabi case, applying Cardozo’s reasoning meant that the sheer size of Royal Dutch Shell mitigated against finding liability: “In my judgment, that is the antithesis to proximity or neighbourhood. There are 1,366 other companies in the Shell Group, and the service and operating companies amongst that number perform activities in 101 different countries [114].” However, Lord Justice Sales dissented on this point: 

“I do not think that the simple matter of the sheer size of the Shell group can be an answer to the present claim: why should the parent of a large group escape liability just because of the size of the group, if the criteria for imposing a duty of care are satisfied for a number of companies in the group, while the parent of a smaller group (e.g. with one subsidiary) has a duty of care imposed on it when precisely the same criteria are satisfied in relation to its subsidiary? [172]”

This point links with the next concerning how much stock should be placed in publicly accessible group-wide policies and guidelines. 

4. Public-facing group-wide policies and guidelines alleging group control are potentially sufficient as a basis to argue a case of parent company control 

At paragraph [61], Briggs pointed to Vedanta’s published documents concerning their standards of environmental control over the actions of subsidiaries, and how they implemented these standards, as sufficient evidence that a duty of care may be demonstrable at trial.  There has been dissent in past cases regarding the evidentiary importance of public-facing group-wide policies and guidelines, including policies making CSR-style promises of environmental and human rights compliance. 

Lord Briggs firmly rejected the suggestion that there was a general principle that group-wide policies and guidelines would never cause a parent to incur a duty of care in respect of the activities of a particular subsidiary [52]. He gave the example of group guidelines that may contain systemic errors, which in turn cause subsidiaries to cause environmental damage when implemented.

Perhaps the most interesting part of this judgment is the potential Briggs explicitly pointed out of parent companies being held to their public commitments of social and environmental responsibility: 

 “Similarly, it seems to me that the parent may incur the relevant responsibility to third parties if, in published materials, it holds itself out as exercising that degree of supervision and control of its subsidiaries, even if it does not in fact do so. In such circumstances its very omission may constitute the abdication of a responsibility which it has publicly undertaken. [53].”

This is a strong turn away from Lord Justice Simon’s finding in Okpabi, which relegated evidence from this style of public-facing document as only “published for the purpose of informing shareholders and regulators about the Shell Group businesses. Such statements must be read in their proper context [120]… All this is as one might expect of best practices which are shared across a business operating internationally [121],” and so dismissing their evidential value as to finding a duty of care. 

Briggs now has re-defined that ‘proper context’. The implications of this passage for future litigation is potentially massive. Parent companies in many jurisdictions have made soft, PR-friendly commitments to environmental and social standards. On the face of this passage, communities impacted by the subsidiary of a UN Global Compact signatory could potentially sue them for failing to honour the public commitments made to undertake effective due diligence. 

B. Access to justice as the jurisdictional hook

The Court made it clear that the issue of access to justice for the claimants was not due to any deficiencies with the Zambian courts, which the Court considered completely capable of ensuring a just trial and handling a large group claim. Rather, the Court still found that access to justice in Zambia was jeopardised for a group tort claim for two reasons: the claimants had no prospect of funding the claims in Zambia because Zambian law does not permit conditional fee agreements, and (according to the evidence available to the first instance judge) no law firms in that jurisdiction have the requisite resources or experience to properly represent the group claim. 

The Supreme Court differed from the lower courts concerning the importance of Article 4.1 of the Recast Brussels Regulation (which confers a right on any claimant to sue an English domiciled defendant in English courts) when it comes to settling the jurisdictional question.[1] In these cases, to avoid the risk of conflicting judgements England will usually be a proper place to bring a claim for both the parent and the non-domiciled subsidiary. 

The lower courts, including the first instance judge, considered this mandatory provision a ‘trump card’ to which all other considerations regarding forum should cede, however the Supreme Court found this was not the case, rather it is one consideration among others to be considered [82].  Claimants have a choice when contemplating which jurisdiction they ought to bring a claim: whether to run the risk of irreconcilable judgements by having parallel proceedings in England and Zambia, or avoiding that risk by suing both defendants in the same proceedings and jurisdiction [83]. 

In this case, Vedanta agreed to submit to the jurisdiction of the Zambian courts, and all the other connecting factors (the location of the harm, nationality of claimants, location of documents and other evidence, competency of the courts and their knowledge of the applicable Zambian law) point to Zambia being “overwhelmingly the proper place for a claim to be tried” [85]. If this were the whole story then Article 4 would not be a trump card to anchor the case in England, and the weight would fall to Zambia being the most appropriate forum. If this were the whole story, the Court would have granted the appeal and declined jurisdiction to the claimants. However, because of the fore-mentioned overriding issues of access to justice, in this case England was determined to be the appropriate forum. This stance is consistent with previous positions of the court and English common law: the same exception to the forum non conveniens principle was demonstrated in The Vishva Ajay [1989] 2 Lloyd’s Rep 558 (QB) [560] in which the court denied to stay proceedings in England because of the possibility of substantial injustice in the natural forum (India). 

This is significant, because it shows the cognisance of the Court to the importance of material access to justice. This is a fundamental hurdle to claims by communities without the resources necessary to launch expensive, prolonged suits. Without appropriate fee-arrangements, these claims would not be brought, and accountability for harms perpetrated against the poorest communities would continue to be denied.

Conclusion

Today the UK’s highest court drew a bright red line between (ostensibly) soft CSR commitments and a company’s duty of care to abide by those commitments.  Whether courts take full advantage of the opportunity provided by the Supreme Court in this case remains to be seen, however on a number of fronts, there is now more reason for optimism for those seeking to hold parent companies accountable for extraterritorial harms. 

The previous restrictive approach taken by the courts regarding finding a ‘triable’ case during initial jurisdiction proceedings appears to have been broadened. The Court has however made it clear that the EU regulations regarding jurisdiction are not the catch-all previously envisioned, but rather the courts must weigh all the relevant issues before determining jurisdiction. This is not necessarily a bad thing for potential claimants: group tort claims are being brought to the UK not because of its sunny weather, but often rather because of the availability of fee arrangements that would allow for high-magnitude group claims (such as conditional fee agreements, as discussed in Lungowe and Ors. v Vedanta Resources Plc and Konkola Copper Mines Plc [2017] EWCA Civ 1528 at [125], [179]) against defendants capable of meeting the financial penalty. The Court has made it clear that even if the natural forum is capable of handling a claim in every other way, claimants may seek the service of English courts for the appropriate fee arrangements alone. 

Next is the real test, as for the first time a UK company will face trial and potentially accountability in the UK for the environmental harms associated with operations of its foreign subsidiary.  

[1] Article 4.1: “Subject to this Regulation, persons domiciled in a Member State shall, whatever their nationality, be sued in the courts of that Member State”

The headline of the New York Times on 24 April summed it up: ‘Supreme Court Bars Human Rights Suits Against Foreign Corporations’. The Jesner decision, released earlier that day by the U.S. Supreme Court, triggered a tremor of indignation in the human rights movement given the immunity it conferred to foreign corporations violating human rights against suits under the Alien Tort Statute, and led to a flood of legal and academic commentaries online. This panel discussion, organised with the support of the Netherlands Network of Human Rights Research, will address various aspects of the judgment. Its aim is to better understand the road travelled by American courts leading up to the decision with regard to the application of the Alien Tort Statute to corporations, to compare the decision with the position taken in other jurisdictions, and to discuss the ruling's potential broader impact on the direction taken by the business and human rights movement.

Where: T.M.C. Asser Instituut in The Hague

When: Thursday 24 May at 2:30 pm

Speakers:

• Phillip Paiement (Tilburg University) - The Jesner case and the ATS: An American perspective

• Lucas Roorda (Utrecht University) - A comparative perspective on Jesner and corporate liability for human rights violations

• Nadia Bernaz (Wageningen University) - Lessons for the business and human rights movement after Jesner

• Antoine Duval (Asser Institute) - Moderator

Register here!

Editor’s note: Mercedes is a recent graduate of the LL.B. dual-degree programme English and German Law, which is taught jointly by University College London (UCL) and the University of Cologne. She will sit the German state exam in early 2022. In September 2020 she joined the Asser Institute as a research intern for the Doing Business Right project.

My previous blog post depicted how economic asymmetry of power translates into imbalanced contractual relationships. At the moment, supply chain contracts ensure that value is extracted while precarity is outsourced. In other words, supply chains can be described as ‘global poverty chains’. In this blog post, I will present and assess four potential way to alleviate this asymmetry and to better protect the right of the poorest garment workers in the context of the Covid-19 the pandemic.

Solution 1: Voluntary commitments

The first option is a well-travelled one, brands could voluntarily decide not to use their unilateral contractual powers. This approach was adopted by the UK Government in May 2020, when it urged British companies to sit still and employ ‘fair and reasonable’ business behaviour. In s. 14 of the Government’s Guidance paper it says:

“Responsible and fair behaviour is strongly encouraged in performing and enforcing contracts where there has been a material impact from Covid-19. This includes being reasonable and proportionate in responding to performance issues and enforcing contracts (including dealing with any disputes), acting in a spirit of co-operation and aiming to achieve practical, just and equitable contractual outcomes having regard to the impact on the other party (or parties), the availability of financial resources, the protection of public health and the national interest. […] In particular, responsible and fair behaviour is strongly encouraged in relation to the following: […] (c) making, and responding to, force majeure, frustration, change in law, relief event, delay event, compensation event and excusing cause claims; […]”

Many brands, such as Adidas, H&M, Nike, PVH, Inditex and the VF Corporation promised to honour their contractual obligations and to refrain from modifying the payment terms.

H&M stands out, as it took action to mitigate the workers’ plight and promised to accept delivery of already produced garments, to pay for goods in production, and to do so in accordance with previously negotiated payment terms – without taking discounts, and without prolonging payment date. It is not only goodwill that incentivizes brands to act like this. By deciding not to interfere with the contract, brands strengthen their business relationship and ensure the financial stability of a trustworthy business partner. Moreover, brands buttress their reputation and count on the fact that consumers will reward them for supporting their suppliers during times of hardship.

However, there are also many examples showing that these considerations might often not outweigh the economic interest the brand has in terminating the contract. Brands such as Kohl’s Inc. and C&A still decided (see here and here) to trigger force majeure clauses.

This is even more problematic considering the fact that C&A is a member of the UK-based Ethical Trading Initiative and the German Textilbündnis. Thus, by triggering force majeure clauses without prior consultation, the company seem to contravene the guidelines issued by these stakeholders initiatives. Months into the pandemic, the Workers’ Rights Consortium and Penn State Center for Global Workers' Rights exposed such behaviour. C&A responded by promising to honour their obligations – but only with a delay of one year. It is only after immense public pressure in the form of the “#PayUp”-campaign that C&A gave in and decided to pay their suppliers in full and on time.

Other companies, such as Kohl’s, Urban Outfitters, The Children’s Place and many others are still refusing to honour their pre-pandemic obligations. As the new wave of lockdowns rises, Hema, a Dutch company effectively cancelled all orders on 11 January. For goods already delivered to Hema, it promised to pay – but only with a delay of 30 days.  In this context, as in others, voluntary demand-based incentive models have shown to be of limited impact.[1] For example, Urban Outfitters stated:  “Unfortunately, like any business, we are doing our best to navigate these unprecedented circumstances. With our stores closed, we simply don’t have the capacity to accommodate all the stock on order.”

The financial health of a business remains more often than not the only concern of any corporate decision-maker. Yet, because European governments provide millions of euros worth of support to their businesses, European companies are not at particular risk. Thus, NGOs were quick to criticise Kohl’s Inc.’s decision to pay their shareholders an USD 109 million dividend in April.

Solution 2: State initiatives

(Foreign) state initiatives, through the releasing of specific development funding, might help to improve the workers’ welfare. Germany and the UK, for example, have set up an US-$ 6.5 million fund in collaboration with the Ethiopian government. The money is intended to support Ethiopian businesses and workers, which suffered as a result of large-scale order cancellation. Relying on such initiatives seems problematic for a number of reasons. In times were most European economies are facing difficulties, and the European Union struggles to raise enough fund to support the local economy, helping far away business partners is not a political priority. Hence, such foreign aid remains relatively limited in scope and insufficient to cover the cost of the pandemic. US-$6.5 million is merely a drop in the bucket bearing in mind the extent to which Ethipoian factories are affected and that the US-American Children’s Palace cancelled millions of dollars worth of clothing orders alone.

Furthermore, by relying on the support of foreign governments, the external costs of doing business are being socialized. The brands are effectively shifting their economic risk to the German or British taxpayers instead of the Ethiopian workers, while shielding their profits and shareholders.

Solution 3: Due diligence instruments

Human rights due diligence regulation could also provide an avenue to prevent parties from unilaterally exercising contractual rights. The UNGPs and OECD guidelines both stipulate that companies must consult with stakeholders and take into account human rights impacts when exercising their contractual rights. Even though they are not legally binding, these guidelines have been internationally acknowledged and endorsed by states and international organisations. Many companies adopted principles similar or with reference to these guidelines in their internal codes of conduct. As long as they are not legally binding, however, brands can simply choose to ignore these standards.

Compliance on the business side is far behind what the UNGPs and OECD guidelines envisage. This is why recently, European-wide debate on binding due diligence instruments broke out. France has already adopted the loi de vigilance in 2017. Switzerland has just voted against adopting a binding due diligence law. The debate in Germany is still ongoing. In parallel, the European Commission has also begun the process of drafting EU-wide mandatory due diligence legislation. If mandatory human rights due diligence instruments are adopted at the EU level, this will have a number of consequences for businesses. For example, companies will have to take into account adverse human rights impacts of their decisions before abruptly terminating a contract. Businesses will be pushed to engage with relevant stakeholders – and held accountable if they fail to do so. This could lead to a situation in which the interests of the supplier, the workers and the apparel brand are better balanced. 

Solution 4: Towards a relational interpretation of force majeure

Finally, courts could move towards a ‘relational’ interpretation of contractual obligations and force majeure. Orthodox contract law, with party autonomy at its heart, could be re-interpreted in light of the political economy in which global supply chain contracts are embedded. The emphasis on contractual autonomy, especially when it enables such one-sided clauses, is fuelling the economic domination of brands from the Global North in the apparel sector to the detriment of the companies (and workers) of the Global South that produce their clothes. It does not, however, account for the real power relationships and responsibilities in global supply chains.[2]

The consequence would be to move away from a blind deference to force majeure clauses and unilateral cancelling powers. Instead, the parties to the contract should be constrained to bear a fair share of the losses caused by the pandemic, based on their resources and with the objective of mitigating the human rights risks triggered by the cancellation of orders.

In order to achieve such a ‘relational’ interpretation of contractual obligations, party autonomy would have to be interpreted in a way that reflects the imbalance of economic power between the parties to supply chain contracts. While it is true in principle that these cases concern B2B transactions, in practice contracts between global brands and suppliers in the Global South are much more similar to other contractual situations in which the power imbalance calls for special treatment of one of the parties (such as in labour or consumer contracts).

Effectively, the courts could apply a proportionality analysis: Does the economic interest of the apparel brand outweigh the consequences which triggering a force majeure clause could have?

Such a ‘proportionality’ analysis is not alien to the interpretation of force majeure clauses. According to Berger and Behn, where events are so exceptional and extraneous to the contract that, absent a specific risk assumption in the contract, neither party shall bear the full risk emanating from such crisis; instead, the risk should be shared by the parties. Berger and Behn argue that while under “normal circumstances”, a strict application of force majeure reflects the parties’ autonomy, this notion of self-determination loses its justification in the context of a global pandemic.      

Such a re-interpretation of force majeure clauses would serve to ensure that the rights of thousands of garment workers in Bangladesh or elsewhere are duly considered in the economic decision-making of brands. This would go some way to publicizing supply chain contracts by disconnecting them from a simple economic calculus to embed them in their diverse social contexts.[3] Accordingly, a relational, co-operative approach to supply chain contracts would better reflects the collective impact of the pandemic on all interests involved.

Conclusion

The large-scale cancellation of orders has had a devastating effect on suppliers and their workers. Instead of bearing a fair share of the cost of the pandemic, brands managed to shift most of the economic risk to the bottom of the supply chain by invoking discretionary clauses enshrined in unilaterally negotiated contracts.

While some companies have voluntarily committed to supporting their suppliers by refraining from exercising their contractual rights. Many others did not – despite public outcry and government guidance. Thus, voluntary commitments seem insufficient, be it in the form of internal codes of conduct, or in the form of internationally approved non-binding guidelines. Two other options would be available to shift risks onto the brands inside garment supply chains. On the one hand, mandatory human rights due diligence, with the threat of civil liability in case of failure to comply, would force companies to show greater care for the negative impacts of their decisions on their business partners (and their workers). On the other hand, courts could decide to interpret contract law in such a way that would reflect the imbalance of power between parties in supply chain contracts. Thus, moving away from pure party autonomy to a ‘relational’ interpretation of contractual clauses. Consequently, a business would not be allowed to exercise a contractual right at all cost for the weaker party to the supply chain contract.

[1] Locke, Richard and Amengual, Matthew and Mangla, Akshay, Virtue Out of Necessity?: Compliance, Commitment and the Improvement of Labor Conditions in Global Supply Chains (October 3, 2008). MIT Sloan Research Paper No. 4719-08, Available at SSRN: https://ssrn.com/abstract=1286142 or http://dx.doi.org/10.2139/ssrn.1286142.

[2] Cf. A. Claire Cutler and Thomas Dietz, The Politics of Private Transnational Governance by Contract: Introduction and Analytical Framework, in: A. Claire Cutler & Thomas Dietz (eds.), ‘The politics of private transnational governance by contract’, p. 80.

[3] A. Claire Cutler and Thomas Dietz, The Politics of Private Transnational Governance by Contract: Introduction and Analytical Framework, in: A. Claire Cutler & Thomas Dietz (eds.), ‘The politics of private transnational governance by contract’, p. 5.