Editor's Note: Catherine Dunmore is an experienced international lawyer who practised international arbitration for multinational law firms in London and Paris. She recently received her LL.M. from the University of Toronto and her main fields of interest include international criminal law and human rights. Since October 2017, she is part of the team of the Doing Business Right project at the Asser Institute.

Introduction

The Court of Appeal in London recently handed down its judgment in Dominic Liswaniso Lungowe and Ors. v Vedanta Resources Plc and Konkola Copper Mines Plc [2017] EWCA Civ 1528 (Lungowe v Vedanta) addressing issues of jurisdiction and parent company liability. The judgment runs contrary to the historical legal doctrine that English domiciled parent companies are protected from liability for their foreign subsidiaries’ actions. This decision clarifies the duty of care standard a parent company owes when operating via a subsidiary and opens the gates to other English domiciled companies and their subsidiaries being held accountable for any human rights abuses.

Facts

In 2015, a claim was brought by 1,826 villagers from the Chingola region of Zambia against the London Stock Exchange listed metals and mining company Vedanta Resources Plc (Vedanta), which has a global asset base of almost US$40 billion. Vedanta’s subsidiary Konkola Copper Mines Plc (KCM), a Zambian public limited company which is the largest integrated copper producer in the country, was licenced to extract from the Nchanga copper mine near Chingola. The villagers claimed personal injury, damage to property and loss of income, amenity and enjoyment of land, due to alleged pollution and environmental damage caused by discharges from the Nchanga mine for over a decade. The claimants used Vedanta to anchor their claims in the English courts and received permission to serve KCM out of the jurisdiction. Both Vedanta and KCM applied for declarations that the Court had no jurisdiction to try the claims, or alternatively, that it should not exercise such jurisdiction. These challenges were dismissed at first instance by Mr Justice Coulson, and Vedanta and KCM appealed against his order.

Judgment

The Court of Appeal unanimously dismissed the appeals and confirmed jurisdiction against Vedanta and KCM. Led by Lord Justice Simon, the Court concluded that “there are no proper grounds for re-opening the Judge's decision. The appellants have not persuaded me that the Judge misdirected himself on the law, nor that he failed to take into account what mattered or that he took into account what did not matter. How the various matters weighed with him, either individually or together, was for him to decide, provided that he did not arrive at a conclusion that was plainly wrong. In my view, he did not reach a view that was wrong; he reached a conclusion that was in accordance with the law”.

In its determination of jurisdiction, the Court notably considered the following issues:

1. Whether the claimants' claim against KCM has a real prospect of success;

2. If so, whether there is a real issue between the claimants and Vedanta;

3. Whether it is reasonable for the court to try that issue;

4. Whether KCM is a necessary and proper party to the claim against Vedanta; and

5. Whether England is the proper place in which to bring that claim.

Of particular jurisprudential significance for future cases involving companies’ alleged human rights violations were the Court’s deliberations on issue two relating to parent companies and the duty of care.

Parent company liability and the duty of care

The Court of Appeal’s judgment sought to clarify the duty of care owed by a parent company through its subsidiary’s operations. The judges reviewed the benchmark cases for the imposition of such a duty of care and affirmed the following propositions:

1. “The starting point is the three-part test of foreseeability, proximity and reasonableness”, as enounced in Caparo Industries Plc v Dickman. The fact alone that Vedanta is KCM’s holding company would not make it arguable that Vedanta owed a duty of care, and additional circumstances were required to ground a properly arguable claim.

2. “A duty may be owed by a parent company to the employee of a subsidiary, or a party directly affected by the operations of that subsidiary, in certain circumstances”.

3. “Those circumstances may arise where the parent company (a) has taken direct responsibility for devising a material health and safety policy the adequacy of which is the subject of the claim, or (b) controls the operations which give rise to the claim”.

4. “Chandler v Cape Plc and Thompson v The Renwick Group Plc describe some of the circumstances in which the three-part test may, or may not, be satisfied so as to impose on a parent company responsibility for the health and safety of a subsidiary's employee”. If both parent company and subsidiary have similar knowledge and expertise and they jointly take decisions about mine safety, which the subsidiary implements, both companies may owe a duty of care to those affected by those decisions.

5. “The evidence sufficient to establish the duty may not be available at the early stages of the case”, and may be better judged after the pleadings in the case.

In its deliberations, the Court of Appeal considered certain factors as relevant to the existence of a duty of care between Vedanta and the villagers, namely:

• A Vedanta report which stressed that oversight of all its subsidiaries rests with the Board of Vedanta itself and expressly refers to problems with discharges into water at the mine in Zambia.

• A Management and Shareholders Agreement which contractually obliged Vedanta to provide KCM with, among others, geographical and mining services and employee training as well as to procure feasibility studies in accordance with “acceptable mining, metal treatment and environmental practices conducted in Southern Africa”.

• Vedanta's provision of environmental and technical information and Health Safety and Environmental training, as well as its public statements on its commitment to addressing environmental risks and technical shortcomings in KCM's mining infrastructure.

• Evidence from a former KCM employee about the extent of Vedanta's control of KCM’s operational affairs.

Following the above principles relating to the duty of care and in light of the evidence displayed by the claimants, it was concluded that Mr Justice Coulson was entitled to reach his conclusions. Whilst the claim against Vedanta may or may not succeed at trial, it could not be dismissed as not properly arguable. In other words, the Court accepted “that there is a serious question to be tried which should not be disposed of summarily, notwithstanding the question goes to the court's jurisdiction”.

The Court affirmed the long-established principle that a parent company does not automatically owe a duty of care to someone affected by its subsidiary’s actions. Yet, as Lord Justice Simon observed, the defendant's assertion that “there had been no reported case in which a parent company had been held to owe a duty of care to a person affected by the operation of a subsidiary” does not at all “render such a claim unarguable”.

Rather, the claimant must prove that such a duty of care arises; more particularly that the parent company has taken direct responsibility for material health and safety policies or controls its subsidiary’s operations. It follows that the more integration and supervision that can be demonstrated between a parent company and subsidiary, the greater the chance of a duty of care being found, and accordingly the parent company being accountable for any human rights abuses. Moreover, the Court’s hesitancy to conclude at an early stage in proceedings that no duty of care exists, and consequently that there is no real issue to be tried, will likely allow more cases to be determined during the hearing rather than at an interlocutory stage.

Lungowe v Vedanta’s duty of care in light of France’s new duty of vigilance law

Earlier in 2017, the French National Assembly adopted the loi relative au devoir de vigilance des sociétés mères et des entreprises donneuses d'ordre which established a new duty of care for large multinational companies operating in France. The law imposes an obligation of vigilance on companies incorporated or registered in France during two consecutive fiscal years that have either at least 5,000 employees themselves and through French subsidiaries, or have at least 10,000 employees themselves and through subsidiaries located in France or abroad.

The law requires such a parent company to establish and implement a publically available vigilance plan relating to its activities and those of its subsidiaries. The plan includes due diligence measures to identify risks and to prevent serious violations of human rights and fundamental freedoms, health and safety and the environment, resulting from the activities of the company and its subsidiaries, as well as the relevant activities of its subcontractors and suppliers under their commercial relationship. The law lists five such due diligence measures:

1. A risk mapping that identifies, analyses and ranks risks

2. Procedures for regular evaluation of subsidiaries, subcontractors or suppliers with whom an established commercial relationship is maintained

3. Adapted actions to mitigate risks or prevent serious harm

4. An alert mechanism and the collection of reports relating to the existence or realisation of risks, drawn up in consultation with the representative trade union organisations

5. A monitoring mechanism to follow-up on the plan’s implementation and evaluating its effectiveness.

Any company put on formal notice to comply with these vigilance obligations can face penalties if they fail to do so within three months.

    The French law is widely viewed as a major step forward, although by no means a panacea, to improving corporate respect for human rights and the environment. Although only applicable to an estimated 100-150 large companies, in passing the law the French National Assembly acknowledged the need for corporations to be held accountable for their worldwide activities, rather than hiding behind the corporate veil. The new French law requirements are markedly different from those found in the Modern Slavery Act 2015 of the United Kingdom and the California Transparency in Supply Chains Act of 2010, which only require companies to report on any efforts to identify certain forms of human rights related risk. In comparison, companies caught by the French law are actually required to implement a vigilance plan.

However, under the French law the legal emphasis is on a company evidencing it has done everything in its power to establish and implement this vigilance plan, rather than focusing on guaranteeing results in terms of human rights compliance. French corporations can therefore effectively reduce their duty of care liability by creating and executing a plan with accompanying due diligence measures. In contrast, following the jurisprudence of Lungowe v Vedanta, a parent company’s liability may actually increase if it takes responsibility for such material health and safety policies. Accordingly, in order to reduce its liability and the imposition of a duty of care, a parent company might seek to demonstrate a very low level of integration and supervision between itself and its subsidiaries.

This leads to the unsatisfactory position that parent companies in both nations might be able to avoid liability for the actual damage arising from their subsidiaries’ human rights violations. A parent company in France might avoid accountability for its subsidiary’s actions through demonstrating vigilant control and surveillance, whilst a parent company in England might similarly benefit from demonstrating distance and separation. In either case, there remains a legal lacuna whereby parent companies may evade responsibility for grave rights breaches.

Conclusions

Whilst the English courts retain a significant discretion when exercising their judgement in jurisdictional challenges, the judgment in Lungowe v Vedanta may lead to an increase in claims before the courts for alleged human rights abuses by foreign subsidiaries of English domiciled parent companies. The decision might prompt vulnerable English corporations to reassess their compliance with the United Nation’s Guiding Principles on Business and Human Rights, and to demonstrate both their own and their subsidiaries’ respect for and adherence to human rights standards throughout their training, policies and operations. Yet, the significant converse risk is run that parent companies will distance themselves from their subsidiaries’ actions. Ensuring that the responsibility for compliance with human rights obligations remains with a subsidiary may reduce the likelihood of a duty of care being found at a parent company level for any extraterritorial human rights abuses. Ultimately, only time will tell whether Lungowe v Vedanta prompts English domiciled companies to account for, or instead avoid, their subsidiaries’ human rights abuses.

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.”