Finding a silver lining in the Swiss rejection of the Responsible Business Initiative: a hope of legal accountability in the parliamentary counterproposal (Part 2)

By Laura Knöpfel (Senior Research Fellow Transnational Law Institute, Dickson Poon School of Law, King’s College London) and Carlos López (Senior Legal Adviser, International Commission of Jurists)

With the rejection of the popular Business Responsible Initiative (RBI) in Switzerland, the parliamentary counterproposal is due to enter into force soon. The counterproposal introduces a new article 964 in the Swiss Code of Obligations to require large public-interest companies which in two consecutive financial years, together with the domestic and foreign corporations under their control, exceed the average number of 500 employees and have either a turnover of 40 million Swiss Francs or total assets of 20 million Swiss Francs to submit an annual report with non-financial information on social and environmental matters, including of controlled corporations.

The report shall describe risks and the actions taken to reduce these risks regarding CO2 emission targets, labour conditions and corruption. The relevant risks are those which had arisen from the company’s own business activities and, if appropriate, from its business relations, products or services. In addition, the report shall include information on the business model of the company.

Reporting provisions and duty of care under common law

The first likely impact of the new reporting obligations is that there will be more reports on the human rights and environmental policies, programmes and practices of Swiss companies and companies under their control. According to the counterproposal, this information must be public for at least 10 years. The increased availability of information will likely enable more knowledge about the business models and associated social and environmental risks. However, the actual content of the information will depend on the decisions of corporate managers, and most likely the careful perusal of the reports by in-house legal counsels.

Yet, despite legitimate and necessary doubts about the information content of the reports, the existence of these reports may indirectly enable greater chances to access justice and reparation for those affected by corporate human rights abuse. One obvious field to appreciate the potential impact of adequate reporting is the field of civil remedies for harm.

In English common law, tort liability for negligence is premised on the breach of a duty of care. A duty of care is owed to persons when a harm was reasonably foreseeable, there was a relationship of proximity between the defendant and the plaintiff, and it is fair, just and reasonable to impose liability (Caparo Industries Plc v Dickman [1990]). In the recent cases regarding corporate liability for harm linked to environmental pollution, the English courts drew on corporate reports on nonfinancial information in order to establish the element of foreseeability and proximity. In the most recent case of Vedanta v Lungowe, in order to ascertain the duty of care element of proximity, the Supreme Court referred to a sustainability report, the provision of health, safety and environmental training across the corporate group as well as various public statements emphasising the company’s commitment to address environmental risks of the extraction sites. The judgment regarded published material in which Vedanta asserted assumption of responsibility for the maintenance of proper standards of environmental control over activities of its subsidiaries.  The Court said that this was “sufficient on their own to show that it is well arguable that a sufficient level of intervention by Vedanta in the conduct of operations at the Mine may be demonstrable at trial” (para 61).

The parliamentary counterproposal gives companies the option to state that it had not particularly pursued the nonfinancial matters mentioned in the law. However, under the law of civil remedies for negligence, ignorance does not serve as a defence against liability when a person was in a position to know. The standard of care is based upon what a corporation in its position and circumstances ought to have known. With the introduction of the Swiss law on reporting of nonfinancial information, the bar of what you ought to have known has been raised, even if the corporation chooses not to actively pursue environmental and social matters in the course of its business.

Other obstacles to justice subsist

Having more elements at hand to demonstrate the existence of a duty to act and the breach of such duty is important but it is not the sole element in determining access to justice. There are still a number of procedural obstacles that hinder access to justice and reparations in a Swiss court for foreign citizens negatively impacted by operations of Swiss multinational corporations. Swiss procedural law poses some hurdles that might be difficult to overcome. For instance, because Swiss law explicitly prohibits contingency fees agreements, litigation against corporations in this context represents a major financial risk for potential plaintiffs. Under Swiss procedural law, the claimants might be entitled for legal aid if she or he does not have sufficient financial resources and the case does not seem devoid of any chance of success. However, the grant of legal aid does not relieve the losing party from paying the legal costs of the opposing winning party.

Since the new Swiss law is targeted at companies that operate globally, the duty of care jurisprudence in regard to corporate groups, as established in English common law (i.e. the Vedanta case), may well become relevant in a Swiss civil court. Courts in many different countries still look to the common law case law of the UK Supreme Court. Furthermore, the reports required under the parliamentary counterproposal may well appear in statements of claims and decisions of courts in foreign jurisdictions. Whilst companies can control the content of the reports the documents, once they are published they assume a (legal) life on their own.