On 22 November 2022, the Contracting Parties were to vote on the long-awaited text of the modernised Energy Charter Treaty (ECT). Modernisation had several objectives, including to ensure the ECT reflects climate change and clean energy transition goals and contributes to, rather than hampers, the objectives of the Paris Agreement. We look at key changes and identify several missed opportunities in the modernised draft.
In this article, we analyse an important decision by the Community Court of Justice of the Economic Community of West African States (the Court or CCJ), which found that Nigeria’s seven-month suspension of Twitter violated the right to freedom of expression of the applicants and Twitter’s other users in Nigeria. We also showcase a handful of domestic proceedings from across the African continent in which telecommunications companies were sued alongside State agencies for their roles in implementing internet shutdowns or targeted service bans that adversely affected human rights.
In a ground-breaking decision, the Human Rights Committee (the Committee) has found that a State’s failure to adequately protect its nationals against the adverse impacts of climate change breached the International Covenant on Civil and Political Rights (the ICCPR). The State owed the affected indigenous people compensation for the breach. The Committee’s decision, in Daniel Billy and others v Australia (or the Torres Strait Islanders’ Case), heralds a new era for State responsibility and the role of human rights law in climate change disputes.
In a major development for human rights due diligence legislation globally, on 21 June 2022, the Uyghur Forced Labor Prevention Act (UFLPA) took effect and made it United States policy to assume that all goods manufactured in the China’s Xinjiang region are made with forced labour and therefore banned. The UFLPA continues the global trend of mandatory human rights due diligence legislation, a trend which began in France in 2017 and will soon spread across the European Union by way of a Corporate Sustainability Due Diligence Directive (CSDD). The UFLPA and proposed CSDD signal that, for companies providing goods and services in the North American and European markets, human rights due diligence is becoming a business imperative.
New legislation seeks to ensure that businesses are not involved in human rights abuse
Recent negative corporate impacts, ranging from environmental disasters and land grabbing to serious violations of labour and human rights in supply chains, have been blamed on corporate failures to exercise due diligence with respect to their impacts on human rights.
Statistics on human rights abuse and the involvement of business offer sobering snapshots of the extent and severity of the global problem. In 2021, more than 160 million children worldwide were engaged in child labour, 79 million of which were in hazardous labour; and more than 24 million people were in forced labour. More than 156 types of goods from 77 countries were produced by child or forced labour, while an estimated €50.08 billion in products produced by child labour were imported into the EU in 2019 alone. Child and forced labour are only some of many types of human rights abuse with which businesses may be involved.
Yet, until relatively recently there were no broad legal requirements with enforcement mechanisms to compel businesses to exercise human rights due diligence. Other types of pressure have been exerted on business to operate with respect for human rights and the environment, including:
- the adoption of international soft-law standards – namely, the United Nations Guiding Principles on Business and Human Rights (UNGP) and the OECD Guidelines for Multinational Enterprises (OECD Guidelines) (together International Standards);
- the litigation of claims involving human rights impacts in high-profile transnational and national tort lawsuits, securities and other “greenwashing” litigation, and in international arbitration claims and counterclaims;
- scrutiny by investors, financial institutions and regulators of companies’ claims and performance with respect to human rights, with dramatic disclosures and impacts increasingly punished by the markets;
- the conditioning of overseas support and procurement by governments on businesses’ human rights performance;
- the inclusion of human rights within the scope of illicit financing, sanctions and anti-money laundering laws; and
- a growing appreciation of the critical business risks associated with poor human rights performance, including the risk that access to capital or social or legal licenses to operate will be lost.
While these developments have driven some businesses to focus on human rights due diligence, they have not made human rights due diligence a business imperative for most companies. Moreover, voluntary corporate due diligence processes often focus on the materiality of the risks to the company, despite the international standards emphasizing that the relevant risks extend beyond risks to the company to focus on risks to affected rights-holders.
Momentum has been building in recent years to make human rights due diligence a mandatory legal requirement. Some countries in Europe have already adopted (France, Germany, Norway and Switzerland) or are planning to adopt (Austria, Belgium, Finland, the Netherlands, Luxembourg and Sweden) broad initiatives in this regard, while the Netherlands has already adopted a legislative measure focused specifically on child labour. Now the US has enacted the UFPLA and the EU is debating the proposed CSDD.
These two recent legislative initiatives may be the final step in driving human rights diligence to the fore as a business imperative alongside anti-corruption and anti-money laundering diligence for multinational businesses. It is, therefore, worth considering the obligations they impose and their enforcement mechanisms, including by way of comparison (as below), as a way to anticipate and prepare for the future.
The risk of fragmentation regarding the approach to due diligence
International Standards conceive of human rights due diligence as both a standard of care (i.e., the degree of prudence and caution required of a company that is under a duty of care) and a process that a reasonable company would undertake in order to demonstrate that it had met the requisite standard of care. The process should be continuous, circular and comprised of four stages:
- Identification and assessment of actual and potential impacts that company may cause or contribute to through its own activities, or which may be directly linked to its operations, products or services by its business relationships;
- Acting upon the findings of that assessment and integrating its findings about its impacts into decision making;
- Tracking the company’s efforts to address its impacts, to ensure they these actions effective
- Communicating how the company is addressing its impacts.
Mandatory due diligence legislation, such as the UFLPA and CSDD, elevates human rights due diligence to a core business concern. That concern may be quite fraught at present for some multinational companies, given that each of these pieces of legislation takes a different approach to mandatory due diligence and consequences for non-compliance, and deviates from International Standards in significant ways, including:
- Scope of companies covered: All companies are expected to adopt due diligence processes adapted to their size, operating context and risk profile under the international standards. However, the UFLPA applies to all importers equally, regardless of their size and the amount of in-scope material in their imported goods; while the CSDD applies only to very large companies and large companies in high-risk sectors.
- The financial sector: The international standards treat the financial sector as subject to the same, or even heightened (e.g., by way of the UN Principles for Responsible Investing and Equator Principles), expectations regarding due diligence as the corporate sector. While the UFLPA does not specifically address the financial sector, the CSDD treats the financial sector differently from the corporate sector. The CSDD requires the financial sector to conduct due diligence only at the pre-contractual stage and with respect to the activities of large corporate clients. It also exempts the sector from the blanket requirement to terminate relationships when adverse impacts are not remediated.
- Scope of due diligence duty: Under international standards, the recommended scope of due diligence extends beyond a business’ own activities to its entire value chain. By contrast, under the UFLPA, the due diligence obligation extends to a business’ entire supply chain; and, under the CSDD, it extends only to “established business relationships” in the value chain.
- Scope of civil liability: International standards do not support extending the scope of civil liability to the entire value chain without regard for a company’s involvement in the human rights harm. Nor does their expansive due diligence obligation displace national law and any limits it may place on civil liability for human rights harm. However, the proposed CSDD extends the scope of civil liability for a failure to prevent or stop harm to the entire value chain, limiting it only by reference to whether there is an “established business relationship” with the entity causing the harm. The CSDD’s expansive civil liability regime also displaces national law on civil liability for situations covered by the law, unless that law is stricter than the CSDD. The ULPFA does not create a new civil liability regime.
- Demonstrating compliance: According to international standards and the UFPLA Guidance, companies should take a range of appropriate and proportionate measures to address identified harms and demonstrate due diligence. By contrast, the CSDD indicates that auditable contractual assurances are sufficient on their own to demonstrate due diligence and avoid legal liability with respect to indirect business relationships.
- Affected stakeholders: International standards focus on engagement with affected stakeholders, including by way of grievance processes. The UFPLA Guidance includes engaging stakeholders, but not maintaining a grievance process, as among the core elements of effective due diligence; while the CSDD includes maintaining a grievance process as among the core elements of effective due diligence, but otherwise downplays the importance of engaging with stakeholders.
- Remediation: The international standards expect that human rights remedies (which include rehabilitation, restitution, financial or non-financial compensation, satisfaction and guarantees of non-repetition) should be provided for human rights harms. The UFPLA Guidance requires “full remediation” of adverse impacts without explaining what remediation should entail; while the CSDD gives only one example of a way to “neutralize” impacts, which is through the provision of financial compensation.
Legal mandates elevate human rights to a core business concern
This fragmentation of due diligence requirements creates legal uncertainty for businesses and stakeholders as regards expected behaviour and liability. Nonetheless, the behavioural and liability rules created by these legislative initiatives are likely to have significant effects on corporate behaviour.
For example, the UFPLA and the CSDD, if adopted as currently proposed, will change corporate behaviour with respect to higher-risk territories, entities and sectors. The UFPLA will prompt many US importers, fearing that their goods will be seized if any element was made in XUAR or by a company on the entity list, to distance themselves from the XUAR and designated entities. That is just as Congress intended in passing the UFPLA, knowing that it will be very difficult, if not impossible, for importers to demonstrate due diligence and show that in-scope goods are made without forced labour. With so many supply chains in scope, experts anticipate that the UFLPA will have an impact on trade patterns “measured in the many billions of dollars.”
Likewise, the CSDD as drafted will cause large companies operating in the European single market, fearing that they may be held liable for any human rights harm anywhere within their value chains, to distance themselves from high-risk markets or entities. This will be the likely result of the EC proposal to extend the scope of legal liability to the entire value chain of established business relationships regardless of a company’s involvement in the human rights harm. That result will be compounded by the proposal to make the CSDD’s expansive liability regime of overriding mandatory application regardless of the law that would otherwise be applicable to the claims. That change will have a dramatic impact on transnational tort litigation, in which the applicable law is usually that of the country where the harm occurred. It will also have a dramatic impact on global trade patterns, potentially even greater than the impact of the UFPLA.
Both pieces of legislation are likely to prompt in-scope companies to begin to see human rights due diligence as a business imperative. As a result, companies that have already begun integrating International Standards into their policies and practices are likely to continue on that path, while other in-scope companies will begin their journeys towards effective human rights due diligence. For many companies, designing and implementing appropriate due diligence systems and controls and embedding them into operations, could take several years. Making codes of conduct binding through cascading contractual clauses and establish credible auditing systems also could take time. Therefore, even while the CBP ramps up its enforcement capability and the CSDD winds its way through the legislative process, companies should begin focusing on human rights due diligence right now.
The United Nations General Assembly (the UNGA) has issued a resolution recognising the human right to a healthy environment. Whilst the General Assembly lacks the ability to make international law, it is capable of contributing to the creation of law and of declaring what is already existing law by way of its resolutions. Here we look at the General Assembly’s resolution and States’ reaction to it, with a view to considering what the future might hold for the human right to a healthy environment.
On 21 June 2022, the Uyghur Forced Labor Prevention Act (UFLPA) took effect and made it United States policy to assume that all goods manufactured in the China’s Xinjiang region are made with forced labour and therefore banned. In this short comment, we look at the background, key features and potential implications of the new region-specific ban for trade into the U.S.
The UFPLA is the latest in a line of U.S. executive and legislative efforts targeting forced labour in the supply chains of goods entering the US. Since 1930, goods have been banned in the United States under Section 307 of the Tariff Act (“Section 307”) if there is reasonable evidence of forced labour in their creation. The Act mandates CBP to issue Withhold Release Orders (“WROs”) excluding or seizing goods and requiring importers to “prove the absence of forced labour in their product’s supply chain” by demonstrating that “every reasonable effort” has been made to determine both the source and type of labour used to produce the merchandise and its components. CBP also may impose civil penalties.
Enforcement of Section 307 picked up after Congress removed the so-called “consumptive demand” provision in 2015, which had allowed the importation of goods made with forced labour if such goods were not made in the US in sufficient quantities to meet domestic demand. By 2021, there were 54 WROs in place, most against specific producers or facilities, primarily in China, and a few geographically bounded orders regarding certain products. That year, CBP detained 1,469 shipments that contained approximately $486 million of goods suspected of being made with forced labour. The CBP, which had not issued any “findings” of merchandise subject to an WRO being conclusively subject to Section 307 since 1996, issued one finding in 2020, one in 2021, and two to date in 2022, and fined at least one of the responsible importers.
Concerns about Xinjiang
The UFLPA passed both houses of the US Congress with broad bipartisan support and was signed into law by President Biden on 23 December 2021. It establishes a rebuttable presumption that all articles produced in whole or in part in the Xinjiang Uyghur Autonomous Region (“XUAR”) of the People’s Republic of China or by entities that source material from persons involved in a XUAR government labour scheme have been produced with forced labour and are thus automatically barred from entry into the U.S.
To rebut the presumption, an importer must demonstrate to the Customs and Border Protection’s (“CBP”) by “clear and convincing evidence” that the goods were not produced with forced labour.
In an implementation strategy released on 17 June 2022, the inter-agency Forced Labor Enforcement Task Force (“FLETF”) explains why goods from Xinjiang are at high risk of involving forced labour (“FLETF Strategy”). First, the FLETF Strategy describes forced labour in Xinjiang and the PRC government’s forced-labour schemes, including the so-called “pairing assistance”, “poverty alleviation”, “vocational training” and “cooperative” land schemes. It then explains how indicators of forced labour, as defined by ILO Conventions and the US Tariff Act, including intimidation and threats, abuse of vulnerability, restriction of movement, isolation, abusive working conditions and excessive overtime, are present in these schemes. Finally, the FLETF explains why supply chains that touch Xinjiang are susceptible to the use of forced labour, including because of lack of visibility, third country manufacturing processes, intentional trans-shipment and evasion practices, and PRC policies and practices designed to thwart U.S. forced labour enforcement efforts.
Approach to the due diligence requirement
The UFLPA requires any importer that seeks to import goods detained pursuant to the UFLPA to comply with all Customs and Border Protection (CBP) and Forced Labor Enforcement Task Force (FLETF) guidance regarding due diligence (UFLPA Guidance). According to the UFLPA Guidance, due diligence involves: (i) engaging stakeholders and partners; (ii) assessing risks and impacts; (iii) developing a code of conduct; (iv) communicating and training across supply chains; (v) monitoring compliance; (vi) remediating violations; (vii) conducing an independent review; and (viii) reporting on performance and engagement.
The FLETF Strategy also notes that effective corporate due diligence may not be possible on goods made in Xinjiang at this stage because, for example, importers may not be able to engage with stakeholders (i.e., workers) or monitor compliance by conducting “credible audits” (i.e., unannounced and unrestricted inspections). It also notes that full remediation of forced labour indicators may be impossible and, as a result, importers may have to terminate business relationships that touch Xinjiang. Importers should also conduct due diligence on their exit plans and seek to mitigate impacts on workers, according to the Strategy.
Approach to enforcement
The UFLPA authorises CBP to use its authority under section 307 of the Tariff Act of 1930 to detain, exclude or seize goods prohibited under the UFLPA and impose civil penalties against individuals and companies involved in the importation of prohibited goods. Although CBP is now authorised to enforce the UFLPA, it will need time to ramp up its capacity. Until then, CBP is likely to focus its efforts on the four high-priority enforcement sectors identified in the FLETF Strategy – cotton, tomatoes, silica-based products including polysilicon, and apparel – as well as goods imported directly from the XUAR and from entities on the UFLPA Entity List that are deemed to have connections to XUAR-sourced forced labour.
While there may be some lag in enforcement, companies in non-priority sectors should not delay their compliance with the UFLPA. The CBP may impose civil penalties on importers who are found have violated the UFLPA even after the goods have entered the U.S. market. Cases of knowing non-compliance also may be referred to Homeland Security Investigations (“HSI”) field offices for potential criminal investigation and prosecution. There may also be potential criminal enforcement under the U.S. Trafficking Victims Protection Reauthorization Act for importers who fail to terminate a relationship with a supplier or take other remedial action while benefiting from forced labour, while knowingly of or recklessly disregarding the forced labour.
In essence, the FLETF Strategy suggests that the US government has already assessed the risk generally of companies being involving in forced labour if they operate in or source from Xinjiang. The government has found the risk to be so high that it merits a blanket ban. A company would have to have a very robust due diligence process in place to stand any hope of countering the government’s general assessment. That hope is likely to be dim even for such a company, given the current situation in the region.
Even enforcement of only the high-priority sectors identified in the UFLPA will have a substantial effect on global supply chains. Half of the world’s polysilicon, a fifth of its cotton supplies and a quarter of its tomato paste originate in the XUAR. Given the breadth of the ban – with so many good created in whole or in part in Xinjiang — experts estimate that the UFLPA eventually will have an impact on the global economy “measured in the many billions of dollars.”
This month, the European Parliament and Council will take up the proposal for a Corporate Sustainability Due Diligence Directive (CSDD) that the Commission put forward in February. In this short comment, we look at the background, key features and potential implications of the current draft of the CSDD.
The European Commission (EC) published the long-awaited proposal for a CSDD on 23 February 2022 and is seeking to gain approval of the proposal from the European Union co-legislators before the end of 2022. Once the draft is approved, Member States will have two years after the entry into force of the directive to transpose the necessary rules into national law.
If adopted, the CSDD would establish obligations for companies regarding actual and potential human rights and environmental adverse impacts with respect to their own operations, the operations of their subsidiaries, and the value chain operations carried out by entities with whom they have “established business relationships”. It also establishes rules on liability for violations of the obligations it imposes. The Directive defines “human rights adverse impacts” and “environmental adverse impacts” broadly to include impacts resulting from violations of international human rights and environmental conventions listed in the Annex to the proposal.
Companies will be within the scope of the CSDD legislation if they: (a) are European and have more than 500 employees and worldwide turnover in excess EUR 150 million; or (b) are non-European with a European turnover in excess EUR 150 million. A lower turnover threshold of EUR 40 million applies to companies with at least 50% of their net turnover a “high-risk” sector, which includes textiles, clothing and footwear, agriculture, forestry, fisheries, food and extractives.
Approach to the due diligence requirement
The proposed CSDD would require Member States to ensure that companies conduct human rights and environmental due diligence by: (i) integrating due diligence into policies; (ii) identifying actual or potential adverse impacts; (iii) preventing potential adverse impacts; (iv) bringing actual adverse impacts to an end; (v) establishing and maintaining a complaints procedure; (vi) monitoring the effectiveness of their due diligence policy and measures; and (vii) publicly communicating on due diligence.
The CSDD also provides some detail regarding what each of these steps should entail. For example, as part of the duties to exercise due diligence to prevent potential adverse impacts and bring actual adverse impacts to an end, the CSDD provides that companies should be required to: (i) develop and implement an action plan in consultation with affected stakeholders; (ii) seek auditable contractual assurances from direct business partners and an action plan with respect to those partners’ own partners (including contractual cascading); (iii) make necessary investments; (iv) provide targeted and proportionate support for SMEs with which the company has an established business relationship; and (v) collaborate with other entities.
The CSDD also provides that, where impacts cannot be prevented or mitigated, or halted by these means, the company shall be required to suspend or terminate commercial relations with the partner in question. Financial services firms, however, do not need to terminate a relationship, if doing so would cause substantial prejudice to the entity receiving the services. As part of the duty to bring actual adverse impacts to an end, the CSDD provides that companies should be required to “neutralise the adverse impact”, including by the payment of proportionate damages and financial compensation.
The due diligence obligations established by the proposed CSDD relate not only to the corporate group, but also the “value chain”, which is defined to include the activities of both upstream and downstream established business relationships. However, obligations within the value chain extend only to “established business relationships”. “Established business relationship” is defined to as a “business relationship, whether direct or indirect, which is, or which is expected to be lasting, in view of its intensity or duration and which does not represent a negligible or merely ancillary part of the value chain.”
For financial services, “value chain” is defined more narrowly to include only the activities of companies who receive financial services directly and to exclude SMEs. Financial services companies are only required to conduct due diligence before they provide a financial service. The due diligence obligation is also narrower for companies that meet only the lower turnover threshold; they are only required to identify actual and potential severe adverse impacts relevant to the high-risk sectors in which they are involved.
Approach to enforcement
The proposed CSDD requires Member States to empower a regulatory authority to supervise compliance. The authority may investigate on its own motion or where a third party with a “legitimate interest” (e.g., an NGO) submits a “substantiated concern” that a company is breaching its obligations under the Directive. It shall have the power to request information and conduct an inspection without prior warning to the company (i.e., make a “dawn raid”). Supervisory authorities shall have the power to: (i) order the company to cease or abstain from repeating the relevant conduct and take remedial action; (ii) impose “effective, proportionate and dissuasive” pecuniary sanctions based on the company’s turnover; and (iii) adopt interim measures to avoid the risk of severe and irreparable harm.
Member States also shall ensure that companies are liable for damages if: (i) they fail to comply with the obligations to use due diligence to prevent adverse impacts or bring adverse impacts to an end; and (ii) as a result of this failure, an adverse impact occurs and leads to damage. The CSDD’s liability rules must be of overriding mandatory application in all cases relating to companies and situations covered by the directive, unless the law of a Member State provides for stricter liability. A company will not be liable for the activities of an indirect partner with whom it has an established business relationship, if it put in place auditable contractual assurances, and it was reasonable to expect that these would be adequate to prevent, mitigate or cease the adverse impact.
While some aspects of the CSDD may change and enforcement is some years away, in-scope companies should begin preparing for compliance with the CSDD’s due diligence obligation now. Designing and implementing appropriate due diligence systems and controls and embedding them into operations could take several years. Making codes of conduct binding through cascading contractual clauses and establish credible auditing systems, as contemplated in the CSDD, could also take time.
Given the significant consequences of non-compliance with the proposed directive, the CSDD is likely to prompt in-scope companies, as well as the companies they do business with, to treat human rights due diligence as a core business concern now. Companies could be held liable under the CSDD in the future for actual or potential adverse impacts that due diligence could identify, and companies could prevent or mitigate now. Moreover, companies could be required to suspend or terminate commercial relations with business partners with whom they could avoid contracting now.
Once the CSDD takes effect, companies will be required to report on their due diligence efforts annually, thereby providing information regarding their compliance to potential litigants. Risk to directors also will increase, as the proposed CSDD holds them responsible for due diligence systems and requires Member States to ensure that their laws provide for a breach of directors’ duties when directors fail to take into account the consequences of their decisions for human rights.
If it is adopted as drafted, the CSDD is likely to cause companies operating in the European single market to avoid sourcing from high-risk markets out of fear that they may be held liable for human rights harm occurring there. This will be the likely result of the EC proposal to extend the scope of legal liability to the entire value chain of established business relationships regardless of a company’s involvement in the human rights harm. This will have a dramatic impact on global trade patterns, potentially measured in the many billions of dollars.
A national human rights institution (NHRI), the Commission on Human Rights of the Philippines (CHR), has released a report finding that States’ human rights obligations in relation to climate change require them to regulate the fossil fuel industry. Specifically, States must compel fossil fuel companies to act with due diligence – and not obfuscate climate science or obstruct the energy transition – and provide remediation for the human rights impacts with which they have been involved. The CHR also found that, to the extent that renewable sources of energy are available, trading in fossil fuels amounts to human rights abuse and should be illegal. Here we examine how the CHR arrived at these bold conclusions.
In a major development for environmental litigation in the UK, the English Court of Appeal has revived the claims of over 200,000 individuals and businesses affected by the collapse of the Samarco dam in Brazil in 2015. Overturning the High Court, which had struck out the claims, the Court of Appeal in Municipio de Mariana v BHP Group plc and BHP Group Ltd  EWCA Civ 951 held that the difficulty of litigating the claims in the UK could not deny the litigants practical access to justice for a triable cause of action.
Proceedings concern devastation caused by dam collapse
Brazil experienced an environmental disaster in November 2015, when the Fundão tailings dam at an iron ore mine near Mariana, Brazil, gave way. The collapse killed 19 people, destroyed downstream villages, polluted the Rio Doce river and sent sludge into the Atlantic Ocean more than 600 kilometres away. The dam was owned and operated by Samarco Mineração SA (“Samarco”) a Brazilian company jointly owned by two other Brazilian companies, Vale SA (“Vale”) and BHP Billiton Brasil Ltda (“BHP Brazil”).
The claimants include more than 200,000 individuals, including members of the indigenous Krenak community who have particular community rights, and for whom the river plays a unique part in their spiritual traditions; 530 businesses; 15 churches and faith-based institutions; 25 municipalities; and five utility companies. The defendants in the UK court action are BHP England and BHP Australia, which sit atop the BHP Group.
Jurisdiction in the UK over BHP arises by virtue of its domicile in the UK under an EU regulation (the “Brussels Recast”) (which continues to apply in the UK under the transitional arrangements provided for under the Withdrawal Agreement), while jurisdiction over BHP Australia is established by it carrying on business at offices in the UK.
Three causes of action are pending against the defendants, all advanced under Brazilian law:
- The first claim is for strict liability as an indirect polluter. Brazil’s Environmental Law is said to impose liability for environmental damage by another (in this case Samarco) if the defendant (a) ultimately owns the polluter; (b) controls the polluter; (c) fails to supervise the activity which gives rise to the damage; (d) funds the activity of others which led to the damage; or (e) benefits from the activity of others which led to the damage. The claimants rely on each of these alternatives in relation to the defendants and Samarco.
- The claimants also assert fault-based liability under article 186 of Brazil’s Civil Code. In essence they allege that the defendants were aware of the risk of the collapse of the dam and repeatedly disregarded advice and warnings about it from a number of sources.
- The claimants also rely on fault-based liability under article 116 of Brazil’s Corporate law. This imposes a duty of protection on a controlling shareholder, including a duty not to permit activities involving a significant risk of substantial damage to the community.
The claimants have abandoned a fourth claim, which had relied on liability resulting from Samarco’s inability to pay, essentially pursuant to a right to “pierce the veil” under article 4 of the Environmental Law. The claims are all for monetary compensation, approximately £5 billion in total.
By the time the claims were filed in 2018, the disaster had already given rise to a vast number of claims against other defendants in the Brazilian courts, including one for 155 billion Brazilian reals (£21.3 billion); and to a compensation and remediation programme by the Renova Foundation (“Renova”), a Brazilian private foundation established by Samarco, Vale and BHP Brazil. About three quarters of the claimants had been involved in such litigation and/or the Renova programme.
In 2020, the High Court (Mr Justice Turner (“the Judge”), struck out the claims as an abuse of process. The Judge cited problems of irreconcilable judgments and cross-contamination arising from parallel proceedings in Brazil and found that the claims would be “irredeemably unmanageable” in England. He also considered that the claimants could not expect to receive any more advantageous redress through pursuing the claims in the UK than could be obtained through litigation and/or the Renova initiatives in Brazil. The UK proceedings, therefore, were “futile and wasteful”, according to the Judge.
English proceedings not an abuse of process
On appeal, the Court of Appeal found that the High Court had been wrong to strike out the claims as an abuse of process. It noted that the Judge was influenced by what he considered to be the complications arising out of the existence of parallel proceedings in Brazil, and what he described to be an “acute” risk of “unremitting cross-contamination” of proceedings. Undertaking the sort of “scrupulous analysis” that it considered the Judge should have undertaken, the Court of Appeal found that the facts, as far as the current evidence shows, did not support the Judge’s findings:
- None of the claimants and neither of the defendants is a party to the only pending mass action in Brazil (the one for 155 billion Brazilian reals).
- The degree of overlap with the Brazilian proceedings is limited or non-existent.
- None of the claimants is seeking “identical remedies” in Brazil to those sought in England.
- The 155bn mass action had been stayed since March 2017 and the stay was unlikely to be lifted for a further two years.
- Any trial thereafter would be a minimum of two to four years away (and possibly up to a decade or more away), and it was unclear whether any sentence would involve a determination of the liability of the Brazilian Companies, and address causation, quantum and in-kind relief.
- The majority of the claimants are not seeking any remedy in any proceedings in Brazil, and none of them is seeking any remedy against the defendants in Brazil.
- The vast majority of claimants who have recovered damages have only received very modest sums in respect of moral damages for interruption to their water supply. They will give credit for those sums.
- Compensation under the (optional) Renova scheme is not the product of any judicial decision but rather an extra-judicial settlement. Redress under another judge-created (optional) Novel System does not involve any adjudication of legal rights under Brazilian law.
Based on this analysis, according to the Court of Appeal, the risk of unmanageability, or as the Judge put it “utter chaos”, due to the existence of proceedings in Brazil is not clear and obvious. While it may be that “down the line” some individual claims may need to be reviewed, that does not make them, individually or collectively, unmanageable. The Court found that there was no proper basis for the Judge’s finding that the proceedings were abusive on the basis of irredeemable manageability.
The Court also found that the Judge was wrong to rely on forum non conveniens factors in considering the unmanageability and abusiveness of the claims. The risk of inconsistent judgments, “the challenge of language”, translation costs, the need to apply Brazilian law, the unlikelihood of claimants or witnesses being permitted to give evidence remotely from Brazil (as a matter of Brazilian law) and the burden these would place on the English courts were not grounds on which to establish an abuse of court. Under Brussels Recast the courts of a member state have no power to decline jurisdiction over a defendant domiciled and sued in that member state by reference to foreign proceedings or these other difficulties. Moreover, the Court of Appeal had “considerable doubts as to whether proceedings can ever truly be said to be ‘unmanageable’” and noted that the claimants had provided the Court with “clear illustrations of case management options,” which could be explored in due course.
In addition to considering that they were unmanageable, the Judge had characterised the claims as abusive for being pointless and wasteful. The Court of Appeal rejected this characterisation, noting that it was not clear on the evidence that the claimants could benefit from the proceedings in Brazil or otherwise obtain full redress there. The Court did not wish to discourage claimants from engaging with whatever opportunities properly exist for them in Brazil. However, it did not consider the remedies in Brazil so obviously adequate that it would be pointless and wasteful to pursue proceedings in the UK. The Court held that, as there is a realistic prospect of success, the claims in the UK are not pointless and wasteful and are not to be struck out.
Stays of the cases against the two defendants were not necessary
The Court of Appeal also found that the High Court had been wrong to find that the cases against the two defendants, if not struck out, should instead be stayed.
With respect to BHP Group Plc, the English entity, the Judge had decided that the claims should be stayed under Article 34 of the Brussels Recast Regulation. Article 34 gives the court jurisdiction to stay proceedings brought against a defendant in the jurisdiction of its domicile where there arises a risk of irreconcilable judgments between the courts of a member and non-member state of the EU (in this case Brazil). Contrary to the Judge’s conclusion, the Court of Appeal found that the proceedings in Brazil did not give rise to the risk of irreconcilable judgments. For the reasons explained above, no such risk existed, with respect to the 155bn mass claim or otherwise, such that the court would have been obliged to stay the English proceedings under Article 34.
In the case of BHP Group Ltd, the Australian entity, the Judge was wrong to stay the case on the basis of the doctrine of forum non conveniens. The test for forum non conveniens is as set out in Spiliada Maritime Corp v Cansulex Ltd  AC 460. First, the defendant must satisfy the court that there is another available jurisdiction that is clearly or distinctly more appropriate for the trial of the dispute. If the defendant satisfies the burden, the claimant must satisfy the court that there are circumstances by reason of which justice requires that a stay should nevertheless be granted.
On the first stage, the Court of Appeal found that there was a real risk that there was no available route in Brazil for the claimants to pursue a claim against the defendants, for the reasons summarised above. On the second stage, the court found that, even if a process was available, there was a real risk that the claimants could not obtain substantial justice in Brazil. The Court noted that the Judge had erred in taking into account the redress potentially available to other parties in Brazil, in discounting the evidence that there were insuperable obstacles to the claimants pursuing a claim against BHP Australia in Brazil, and in suggesting that the claimants were required to “test the water” in Brazil first before bringing their claims in the UK.
In conclusion, the Court held that the claims against the English entity should not be stayed on the grounds of irreconcilable judgments and the claims against the Australian entity should not be stayed under the doctrine of forum non conveniens.
The decision in the Samarco dam case should sound a warning bell for UK based parent companies with overseas operations. There are several important lessons to be learned from the case.
Increase in the risk of transnational claims in the UK
The Samarco decision continues the trend of UK courts opening their doors to cross-border ESG litigation. In that regard, it follows on two other, relatively recent major jurisdictional rulings by the UK Supreme Court – Jalla v Royal Dutch Shell Plc  EWHC 459 and Vedanta Resources PLC and another v Lungowe and others  UKSC 20. A key factor all three rulings was that the claimants would not be able to obtain substantial justice against the multinational corporations and their local subsidiaries in the foreign countries. This was the case even though BHP had established a voluntary compensation scheme in Brazil and some of the claimants had obtained compensation through the scheme; and even though Vedanta had agreed to submit to the jurisdiction of the Zambian courts. Thus, one message of these cases is that is not enough for defendants to appear willing to provide remedies; substantial justice requires that adequate and effective remedies are actually available to the claimants.
Increase in the risk of liability for subsidiaries’ conduct
The decision in the Samarco dam case, like the jurisdictional decisions in the Vedanta and Shell cases, also increases the risk to UK based companies of liability for the conduct of their foreign subsidiaries. The parent companies themselves were not directly involved in causing the environmental damage in these cases. Instead, the English parent companies are said to have exercised a level of managerial control sufficient to give rise to direct liability in tort for the conduct of foreign subsidiaries. In the Vedanta case, the parent was said to have assumed responsibility for the subsidiary’s environmental performance in a sustainability report; while, in the Samarco case, the foreign companies were said to control Samarco, a joint venture, because they were able to appoint some of its directors through their local subsidiary and were involved in its management. Therefore, another message from these cases is that it is not enough to issue sustainability reports and claim to engage in sustainability due diligence; the objective of these efforts must be to actually prevent or mitigate human rights and environmental harms.
Increase in the risks associated with lax environmental standards and enforcement
The Samarco dam decision also illustrates the risk to UK based companies associated with the application of foreign law in cross-border disputes. Brazil’s Environmental Law is said to impose liability for environmental damage by another in circumstances beyond those in which the defendant controls the polluter (as under English tort law) or is the operator of the polluter (as under the UK’s Environmental Damage Regulations). Ultimate owners, supervisors, funders and beneficiaries of business activities also could be held liable for environmental harm under Brazilian law. While Brazil’s law may be more stringent in that respect than English law, other weaknesses in Brazilian law are said to have contributed to the Samarco disaster, as well as another, more recent and even more devastating, dam collapse. From this, a third message emerges from the Samarco case, which is that lax environmental regulation and enforcement is not a location advantage. Instead, it poses litigation, reputation and financial risks to multinational companies who fail to adhere to the standards of conduct that would be expected of them at home or internationally.