Holding Parent Companies Accountable for Misconducts in Host Countries - Coursework Example

Direct liability claims: Holding Parent Companies Accountable for Misconducts in Host Countries [Name] [Professor Name] [Course] [Date] Abstract: There is a global trend towards holding parent companies of multinational corporations (MNCs) legally accountable for damages to the environment as well as for violations of human rights or ethical principles in the host countries. Typically, globalization has interconnected the human, cultural civil, economic and political rights. The link has been principally triggered by cross-border activities of multinational corporations which have specific impacts to human rights. However, international legislations have been slow in adapting these changes even as increasing pressure currently exists to implement direct foreign liability of the companies, in cases where they violate international and national laws1. On a closer look, these cases of violations have called for the need for home countries to check the activities of their multinational corporations (MNCs) that operated overseas, particularly in the developing countries. This paper examines the extent in which the раrеnt соmраniеs are bеing held legally liable in their home соuntriеs for асtivitiеs thаt have nеgаtivе imрасts оn thе еnvirоnmеnt, humаn rights аs well as hеаlth аnd sаfеty in host соuntriеs. Keywords: foreign direct investments, foreign direct liability, foreign direct liability claims, international law Direct liability claims: Holding Parent Companies Accountable for Misconducts in Host Countries Introduction Studies of most industrialized economies such as the United, Canada, UK and Australia have shown that a great revolution in ‘corporate social responsibility’ and ‘corporate citizenship’ is fast emanating2. Although the two terms differ appreciably, experts argue that both terms cover consideration of approaches aimed at holding the multinational corporations accountable for their activities in host countries legally binding3. In the same line, they both advocate for minimization of the negative, environmental, social and human rights effects of the corporate activities. In the last two decades, several parent companies involved in extraction and chemical manufacture have found themselves in defense against foreign direct liability. Ward claims that foreign direct liability is the most significant testing ground for multinational corporate accountability4. Generally, foreign direct liabilities can be described as legal actions where citizens of the host countries have claimed for damages blamed on the activities of the multinational companies, due to their foreign direct investments5. Deficits in extraterritorial regulations The deficits in some of the major extraterritorial regulations are attributable to the inability of the home countries to hold the multinational companies accountable for their activities in the host countries. Otero and García-Castrillón (2006) argue that although there is extensive pressure from the home countries of the multinationals corporations, seeking the parent companies to be accountable for their actions -- uphold international human rights and environmental standards -- in the host countries, lack of legal standards of foreign liability claims has minimized the potential to generate clear signals for ensuring their accountability6. In addition, the political processes characterized with corporate citizenship have not been successful in delivering a contemporary understanding of the responsibilities of the host and home countries. This justifies the claims that the parent companies are not being totally held legally accountable on the negative impacts that their operations have on the people and the environment in host countries7. To explain this further, in the United States, which is one of the developed countries with most direct foreign investments globally, legal actions that concern foreign direct liability have tended to concentrate on the US Alien Tort Claims Act (ATCA). The Act grants US courts the authority to hear cases of violations of customary international law or human rights abuses that take place anywhere across the world on condition that the US courts have authority over the defendant8. This is in order to comply with the international law, such as in the case of Doe v. Unocal 9. a) Legal translation problems Although ATCA has been instrumental in providing the basis from which several US federal courts have attempted to hold the MNCs accountable for the damages caused to the people and environment in the host countries, or violation of public international law, they have predominantly been slow. Over the last two decades, only a handful of such cases of violations have appeared before the European courts10. Among the notable cases include the claims for personal injuries brought against Trafigura, a shipping company, before the London High Court for damages caused in Ivory Coast. Another case includes environmental damages claims caused in Nigeria by giant oil corporation Shell. The case was brought before a Dutch court. Although this indicated growth of interest in the potential of foreign direct liability before the European11 courts, the fact that ATCA – US Alien Tort Claims Act -- is brought before a court that is outside the United States, meant that some major challenges were imminent. Groussot (2003) points out that this lead to problems in legal translation and legal culture differences, which stand as barriers in successfully pursuing the foreign direct liability cases. Such cases like the Shell and Trafigura invoked the legal translation problems of the direct liability cases12. b) Irrelevance of ATCA in some countries Ironically, many countries across the globe now rely on ATCA, which basically offers legal redress for violation of international human rights by multinational corporations. However, since it was enacted in 1789, no multinational corporation has been held accountable under ATCA13. The extensive reliance on ATCA by most countries, even after its very obvious deficits, have also been instrumental in the failure of the home countries to pursue cases brought against the parent companies of the multinational corporations. Indeed, in the 2004 Sosa case, the United States Supreme Court was forced to resolve several controversies based on whether the statute offers a cause of action or whether it actually grants US federal courts jurisdiction over foreign direct liability claims. In Braithwaite and Drahos’s argument, Sosa case had a double outcome. First, that ATCA grants US federal courts jurisdiction over civil claims brought by non-US citizens for breach of international law14. Secondly, another outcome was that ATCA creates a particular course of action for claims of tort based on specific norms of international law. However, the question as to which international law norms can form the basis of claims under ATCA and the extent to which these norms can be applied still remain unanswered15. A major feature of civil suits with regard to ATCA is that courts have jurisdictional powers over the foreign and domestic corporate-defendants. Discrepancies in the foreign direct liabilities claims Several of the foreign direct liabilities claims tend to be contradictory to conventional human rights lawsuits making it difficult to hold the multinational corporations accountable for their activities overseas. A case in point is the historic decision in the in Fil´ artiga v. Pe ˜ na-Irala16 case, where the defendant corporation was assumed to have indirectly participated in the violations in question. The foreign liability claims are also carried out on theories of indirect liability, often referred as abetting or aiding unlawful acts of the host government. In some instances, the link between the government misconduct and that of the corporate-defendant is much attenuated. Such cases that test this theory now stand at crucial moments in the US courts, and judges have often generated a set of conflicting verdicts to them. In countries such as Australia, Canada and UK, the same standards of care are applied in parent companies operating abroad as at home. Two major case in the UK includes the Thor Chemicals and Cape17. The UK-based Thor Chemicals was sued by 28 workers in operating in its South African Plant after suffering mercury poisoning. In the case of the UK-based Cape plc, 2,000 victims of asbestos poisoning in the company’s South African subsidiary filed for damages18. Smith notes that efforts to hold both companies accountable to the damages showed the drawbacks of a greatly fragmented legal framework for MNC corporate responsibility. Further, each actor is susceptible within this form of fragmented system19. The South African government to trade-off imply the victims may be compensated at the expense of damages with regard to the environmental remediation costs, while the former employees of Cape’s trade-off is understood within the context of South African worker compensation regulations. In brief, The Cape and Thor Chemicals cases indicate failure of public governance, thus there is risk that foreign direct liabilities is significant in holding the MNCs liable for the impacts of their activities in host countries20. It raises a lot of questions whether the Thor Chemicals and Cape litigations heralded the means to further cases brought against UK-based multinational corporations. One of the areas that has not been tested is the capacity of foreign direct liability claims brought by the host country governments. Indeed, it suggests that bringing foreign direct liability claims in the parent company’s home countries does not create the framework or the potential to bring actions on the same scale within the host countries themselves – in case the defendant corporations are available to be sued there. Nevertheless, such actions can offer motivations to host country lawyers. In fact, much South African litigation against the mining industry with regard to occupational health and safety violations may be impending. Overall, these suggest that litigation is a blunt tool. Besides, the Thor Chemicals and the Cape cases show drawbacks in the foreign liability claims that are common with most of such litigations21. Lack of consensus on global regulations A broader examination of the international practices indicates that no significant consensus on the requirements for indirect liability have been reached, even within frameworks that are separate from foreign investment. In fact, national regulations on foreign direct liability have been seen to contradict the international law. This can be argued to inhibit home countries from holding parent companies of their multinationals accountable. More importantly, the extent of international law is generally argued to be based on the common practices of nations and cannot rely on contestable analogies. The perspective that nations accept a principle of responsibility in one factual area is not a guarantee that they accept the same principle in the specific factual areas where the balance of normative and practical considerations is dissimilar. In any case, it is only when the normative and factual considerations are similar that they can be said to considerably show the practices the nations should adopt in other areas. If this is not the case, then it might be the case that once the nations are faced with the question, is when they are likely to adopt a different rule for the second area compared to the first. Foreign direct liability shows this difficulty. In addition, trying the conceptual and doctrinal problems jointly in foreign direct liability cases against defendants raises the question as to whether the conducts of the multinational corporations violated the sub-set of international laws that forms the basis of the universal jurisdiction and not whether the multinational corporations violated the international law. Since this specific question cannot be answered by the practices of international courts, it has complicated the process of holding parent companies legally liable in home соuntries for асtivities that have negative imрасts on the еnvirоnmеnt, human rights аs well as hеаlth and sаfеty in hоst соuntriеs. Olufemi argues that it is an issue of concern to common practices at the national courts, specifically where the issue of universal jurisdiction emanates22. Further, it depends on initiating a practice where nations claim universal jurisdiction with regard to indirect investor liability. In this way, it can be argued that investor liability is difficult to uphold against foreign defendants in national courts, except for instances when the investor openly directed the misconduct or violation in such a way that makes the defendant directly liable. The arguments for the validity of direct liability are based on principles arising from cases whose normative and factual considerations are distinct. For instance, this does not make it illegitimate but makes it to be improperly applied by the US courts based on non-specific U.S. statues. Opposition from host countries Several of the foreign direct liability claims that are contentious in the English and American courts have triggered opposition by governments of the host countries, which allege that these particular cases entail considerable violations of their sovereignty as well as their rights to regulate activities, corporations and persons within their own territories. This has been a factor that has inhibited home countries of the multinational corporations from holding the parent companies accountable for activities in their operations overseas. However, more comprehensive initiatives may be impending. In such countries as Australia, UK and US, efforts have been made to introduce laws that stipulate minimum standards for global activities of the multinational corporations that operate from these countries23. This raises the issue on whether both ways of governing the transnational activities of the multinational corporations in the host countries -- through private law and through public law – can be sustained under the international law. This brings the argument that public international law involves a handful of restrictions that control a nation’s discretion to practice extraterritorial jurisdiction. In practice, implementing extraterritorial jurisdiction by one nation will merely contradict the extraterritorial or territorial ambitions of other states, and in that way, could cause international political differences. Political influences In addition, the legal acceptability of the extraterritorial jurisdictions does not imply their legal acceptance. In fact, there is a strong opposition in the host countries, specifically in the developing nations, against the tendency by the MNCs to be governed extraterritorially by the home countries, mostly from the developed countries. This is because such measures are seen as potentially capable of taking away the comparative advantage of the host countries resulting from their low regulatory standards. Similarly, the developed countries, which are specifically the MNCs home countries, argue that the responsibility to operate in a manner that is socially responsible ends at the border, and that every country has the potential to makes its own regulations on such matters pertaining the standards in which the MNCs operate. This skeptical approach is however offset by a progressively informed public opinion in the developed countries that are opposed to the negative effects that the activities of the MNCs have on the foreign countries. In such cases, the host country government will often be involved in the multinational company’s activities as a beneficiary or as a partner. These governments are likely to tolerate the activities of the corporations even if they are seen to violate some regulations. Such cases are often difficult for the home country of the parent company to hold them accountable24. Lack of sufficient regulations Although globalization has resulted in a dramatic increase in the number of transnational activities, specifically by multinationals, the increase has however failed to correspond to any developments of sufficient regulations that control the activities of these multinational corporations. According to Jiatao L. & Guisinger, even as several attempts have been formulated both at corporate level and internationally to provide some policies and voluntary codes of conduct, they have failed to bring the multinational corporations accountable for their activities due to their non-binding nature. However, the role that they can play is currently limited25. Jiatao and Guisinger argue that the failure of these self-regulatory schemes is aggravated when it concerns the running of multinational corporations in third world countries, which are often undertaken by locally incorporated subsidiaries26. In addition, given the regulatory inconsistency in the developing host countries as they look to attract the much-needed foreign direct investments, the policymakers in these countries often lack enough motivation to formulate and implement sufficient standards and instruments that regulate the operations of the multinational companies that operate within their territories. This results in scenario where substandard regulations, or where double-standards where the multinational companies make huge profits, as they leverage on lack of clear-cut regulations, as opposed to the characteristically stringent regulations in their home countries. As a result, the general activities of these multinational corporations within the countries of hosting often remain beyond the grasp of the national regulators in the host countries27. In return, these activities have the potential to go unchecked as a result causing extensive damage to the environment or violation of human rights. A case in point is the Bhopal disaster. The Bhopal gas disaster – which was a gas leak accident that occurred in India in 1984, becoming the world’s worst industrial disaster. The incident that took place at a pesticide plant in Bhopal -- the Union Carbide India Limited (UCIL), a subsidiary or US-based firm called UCC – had long-term health and environment. Litigation involved the United States government, the UCC, Indian government and local Bhopal authorities. According to Varma & Varma, it was highly perceived that the Indian government’s failure to enact strict regulations and standards of operation of multinational corporations, was largely blamed for causing the disaster. In fact, the Indian government later passed the Bhopal Gas Leak Act28. In all, each established judicial system offers a mechanism for testing the legitimacy of measures adopted by its respective institutions. In the judicial system of the multinational corporation’s country, given the democratic deficit as well as the restricted supervisory functions of the guidelines that the multinational company may have, it is of essence that a system be created to control the actions, decisions or privileges enjoyed by such companies in the foreign countries of operation. Conclusion In conclusion, the home countries of the multinational corporations have failed to effectively hold the parent company legally accountable for асtivitiеs that have nеgаtivе imрасts оn thе еnvirоnmеnt, humаn rights аs well as hеаlth аnd sаfеty in the host соuntriеs. This can be blamed on many factors. For instance, experts have argued that lack of legal standards of foreign liability claims has minimized the potential to generate clear signals for improving multinational accountability. In addition, the political processes characterized with corporate citizenship have not been successful in delivering a contemporary understanding of the responsibilities of the host and home countries29. The foreign direct liability claims have failed to ensure corporate accountability, as they have failed to ensure that any new liability statutes consider human rights, health and safety as well as environmental and safety issues without perpetuating trade-offs showed by most of the cases brought against MNCs by the home country, such as the Thor and the Cape case. Reference List Cases: Connelly v R.T.Z. Corp. Plc (1998) A.C. 854 (H.L.) (appeal taken from Eng.) Lubbe v Cape Plc. (2000) 1 W.L.R. 1545 (H.L.) (appeal taken from Eng.) Ngcobo v Thor Chem. Holdings (1995), T.L.R. 579 (Eng. C.A.) Sithole v Thor Chem. Holdings, (1999) T.L.R. 110 (Eng. C.A.). Books: André , F Business Regulations and Public Policy: The Cost Benefits of Compliance (New York, Springer, 2009). Braithwaite, J & Drahos, P Global Business Regulation, London (Cambridge University Press, 2000). Dimitrieva, N The Accountability Of Multinational Corporations For Human Rights Violations, Gothenberg (University of Gothenberg, 2009). Zerk J, Multinationals and Corporate Social Responsibility: Limitations and Opportunities in International Law London(Cambridge University Press, 2006). Ward, H, Legal Issues in Corporate Citizenship Prepared for the Swedish Partnership for Global Responsibility( IIED, London, 2003). Journals: Jiatao L & Guisinger, S, “Comparativeb Usiness Failureso Foreign-Controlledf Firms In The United States,” Journal Of International Business Studies, Second Quarter (1991) 209-220. Liesbeth F.H, “Crossing The Atlantic? The Political And Legal Feasibility Of European Foreign Direct Liability Cases,” The Geo. Wash. Int’l L. Rev.,(2009), Vol 40 901-910 Olufemi, A, “Trade Sanctions, Human Rights and Multinational Corporations,” Hastings Int'l & Comp. L. Rev. 379, (2009). Otero, C & García-Castrillón, International Litigation Trends In Environmental Liability: A European Union–United States Comparative Perspective, Journal of Private International Law, (2009) Vol. 7 No. 3 Ramsey, MD, “International Law Limits on Investor Liability in Human Rights Litigation,” Harvard International Law Journal, (2009) 50 (2 ) Smith, J.” Global Governance: International law on human rights and the liability of transnational corporations, Report of the international seminar, organised by IRENE, the Netherlands, EAD/ Evangelic Academy, Bad Boll, Germany, (2001) Retrieved 17 April 2013 [ http://www.irene-network.nl/download/g_governance.pdf ] Ward, H, "Foreign Direct Liability’: A New Weapon in the Performance Armoury?" AccountAbility Quarterly, vol. 14, No. 3, IMF, Foreign Direct Liability’ Foreign Direct Investment In Emerging Market Countries, Report of the Working Group of theCapital Markets Consultative Group,( 2003), Retrieved 17 April 2013 [http://www.imf.org/external/np/cmcg/2003/eng/091803.pdf] Varma, R & Varma, D. R., "The Bhopal Disaster of 1984, Bulletin of Science Technology & Society, (2005) Vol 25, No. 37 . Read More