Business and Human Rights Symposium: Mandatory Human Rights Due Diligence and Civil Liability

[Gabrielle Holly is a Senior Adviser in the Human Rights and Business Department at the Danish Institute for Human Rights and an experienced commercial disputes practitioner. You can find her on twitter at @Gabriellellell.]

 In recent years we have seen tremendous momentum behind moves to introduce mandatory human rights due diligence obligations in law, both at the national level and at the international level via a proposed treaty. A small but growing number of states, as well as European Union institutions, have enacted or are considering new laws to require businesses to undertake due diligence, not only with respect to human rights impacts but also environmental, climate change and social and governance impacts.

A critical component of the design of such laws is the availability of a mechanism by which those who have suffered human rights harms as a result of the acts or omissions of a business can pursue a civil claim against that business, supported by other enforcement mechanisms such as administrative or even criminal sanctions.

As research has shown, liability exposure is an important driver for businesses to conduct themselves responsibly and with respect for human rights. As well as providing a much-needed avenue to remedy for affected rightsholders, setting clear parameters in mandatory human rights due diligence measures for when a company may be liable for harms caused by a failure to conduct human rights due diligence, could provide welcome clarification for businesses as part of a wider architecture of monitoring, enforcement and remediation and encourage meaningful compliance with human rights due diligence obligations.

Implementing the UNGPs – translating HRDD into the law of civil remedies

Although the UNGPs recite international law obligations that are binding on states, the responsibility of businesses to conduct human rights due diligence under the UNGPs was designed to be largely normative, rather than legal. As the UNGPs indicate, “The responsibility of business enterprises to respect human rights is distinct from issues of legal liability and enforcement, which remain defined largely by national law provisions in relevant jurisdictions”. This presents a challenge for lawmakers seeking to translate the principles of the UNGPs into law, as these principles are predicated on a different logic to that used by national legal systems.

Defining the extent to which involvement in an adverse human rights impact, whether resulting from human rights due diligence failures or otherwise, should lead to legal responsibility is a particular challenge. All legal traditions, whether civil or common law, have developed their own set of parameters which define the circumstances in which legal responsibility should flow from an act or omission. Although the categories of involvement in an adverse human rights impact contemplated by the UNGPs – causation, contribution and direct linkage – do find analogies in legal doctrine, these analogies are not precise.

In the case of direct linkage to an adverse impact, the UNGPs mandate that businesses exercise leverage, however they do not foresee legal responsibility or liability where businesses “were not a causal agent, direct or indirect, of the harm in question”. On the other hand, it has been acknowledged that there is a “continuum between contribution and linkage” in the UNGPs, making responsibility both more difficult to avoid, and its extent ultimately less clear under the UNGPs. The lack of clear line between the categories of involvement envisaged in the UNGPs means that a company’s involvement in an adverse human rights impact via a business relationship (ie, direct linkage under the UNGPs) can become contribution if no action is taken to address an impact to which a business is linked. Accordingly, simply seeking to create distance between a company and the relationship giving rise to the linkage will not necessarily fulfil a company’s responsibility under the UNGPs, nor remove the possibility of tortious liability. While the lack of a clear line between contribution and linkage may provide an incentive to businesses to undertake extensive and meaningful human rights due diligence in order to mitigate any threat of legal exposure, all actors would benefit from the certainty that a well-designed liability mechanism would provide.

While the UNGPs have sketched out these categories of involvement, defining when a company’s involvement in an adverse human rights impact should give rise to legal liability will be a matter for a particular legislature. Consequently, there can be no one-size-fits-all model of human rights due diligence legislation, nor any single approach to civil liability for due diligence failures, guaranteed to “fit” with all national legal systems. Nonetheless, the basic building blocks of civil liability are generally common across jurisdictions, and the UNGPs provide a basis on which all mandatory human rights due diligence laws should be founded. The standard of human rights due diligence required under the UNGPs, of meaningful engagement to identify and address adverse impacts, should be the benchmark against which company efforts are assessed in the course of a civil claim, mitigating the risk that mere cosmetic compliance will be sufficient to allow businesses to invoke human rights due diligence as a defence. From that starting point, the question of whether businesses are held in fact liable will depend on a range of factors including the extent of the human rights due diligence obligation; causation, foreseeability and remoteness; the extent to which a parent company may be liable for acts of a subsidiary by virtue of control or assumption of liability; whether liability may attach across the value chain; allocation of the burden of proof; and the availability of any defences to liability. The design of any prospective civil liability mechanism associated with a mandatory human rights due diligence obligation must balance these factors, mindful of the features of the national legal system and the need to avoid eroding the consensus around the principles in the UNGPs.

Civil liability and incentives to engage in meaningful due diligence

Civil liability exposure is not the whole solution to the problem of corporate accountability, nor is it alone capable of providing sufficient incentives to businesses to engage in meaningful human rights due diligence. Not every claim, even if meritorious, is able to be pursued in the courts. Significant barriers such as cost, delay or technical rules of procedure present challenges to civil liability being used to provide effective remedy. Further, all liability regimes, in line with principles of legal certainty and predictability, amongst others, set limits on liability. This is true across common and civil law systems, and also for statutory liability mechanisms, even those which impose strict liability without a finding of fault. Such limitations include requirements concerning causation, remoteness and foreseeability; available defences; or a narrowly defined category in the case of strict liability. This creates the potential for accountability gaps that cannot be filled by legal liability alone. Because of these limitations, any civil liability mechanism that accompanies a mandatory human rights due diligence law must not only provide a pathway to remedy, but also support and provide incentives for meaningful compliance with the due diligence obligation.

A civil liability mechanism is nonetheless a critical design feature. In addition to providing remedy, a pathway to civil liability can add force to other softer mechanisms forming part of the smart mix. The design of any such liability mechanism must be done with care to ensure that giving rise to liability via ordinary legal principles, such as causation, remoteness, foreseeability and concepts of control or assumption of responsibility, does not discourage businesses from discharging the aspects of their responsibility to respect under the UNGPs that may not be legally mandated or actionable.

A civil liability mechanism included in a mandatory due diligence law can also contribute to the avoidance perverse incentives. In the  recent cases of Vedanta Resources Plc and anor Plc v Lungowe and others and Okpabi and others v Royal Dutch Shell Plc and another the UK Supreme Court found that a parent company could potentially owe a duty of care: where it has set down group guidelines which contain systemic errors that cause harm to third parties; where it has taken active steps to implement those guidelines in the operations of its subsidiary; and where it has represented that it has a relevant degree of supervision and control (even where it does not in fact have such supervision and control).

As I have argued elsewhere, on the current state of the law, these findings may have an unintended chilling effect on businesses’ willingness to set or implement policies centrally, report that they have done so, or engage with suppliers to address human rights issues, for fear of exposing themselves to liability. An obligation to undertake mandatory human rights due diligence designed with the current risk of legal exposure in mind could address this potential chilling effect by obliging businesses to take positive steps to engage with their human rights impacts. A positive human rights due diligence obligation may encourage businesses to resist the temptation to create distance between a parent company and the activities of other entities within a corporate group, or others within its value chain, in order to shield against liability.

Conclusion

There remains a great deal of uncertainty surrounding the link between a company undertaking and reporting on human rights due diligence and the risk of exposure to liability. This confusion is detrimental both to businesses and to victims of corporate human rights abuses and would benefit greatly from clear regulation. In addition to providing a much-needed avenue to remedy, a mandatory human rights due diligence regulation with a carefully crafted liability mechanism could help provide this much needed clarity.