RESPONSIBILITY
comparative approaches to corporate responsibility under the law of torts
Stephen Tully
Introduction
This chapter examines corporate responsibility under the law of torts with particular reference to the prospective liability of parent corporations for national and international legal violations committed by their overseas subsidiaries. The next section reviews fundamental principles of tort law within the North American, European and Australian jurisdictions and illus- trates their application to corporations. The following section furthers this comparative approach by reference to the doctrine of forum non conveniens to demonstrate the importance of the choice of forum for corporate responsibil- ity. The subsequent section discusses the choice of applicable law in conduct- ing transnational litigation against corporations, including the implications of the recent Sosa decision of the US Supreme Court under the Alien Tort Claims Act. The purpose of reviewing these jurisprudential developments is to show how the operation of the burden of proof can disadvantage claimants and how the application of legal doctrines (such as act of state, sovereign immunity and forum non conveniens) can be manipulated to commercial advantage.
Together these arguments support the overall theme that corporate legal responsibility can be shielded by governmental responsibility, thus enabling corporations to evade true accountability. The final section concludes.
Tort law as a mechanism for corporate responsibility
Tort law allows injured parties to commence actions against wrongdoers (known as tortfeasors) claiming damages for injuries caused by the commis- sion of a civil wrong. There are several preconditions to initiating an action.
First, claimants must establish that they enjoy sufficient standing (jus standi) to bring the claim, either as an individual who suffered the injury or being representative of a particular class. Second, they must establish that the tort- feasor owed them a duty of care in the circumstances. Third, claimants must demonstrate that this duty has been breached, including the necessary element of causation (that the damage suffered resulted in fact from the disputed act).
Like criminal offences, responsibility in tort arises where the physical and 125
mental elements of the wrong have been established. Any classic treatise on tort law (for example, Fleming, 1998) will identify the actus reus and mens rea requirements for each tort. The former is the physical element (a specific act or omission) and the latter is the mental component (either a specific intention to commit the act or being negligent to varying degrees in that respect). The degree of actual or constructive knowledge – whether the individual knew or ought to have known of the consequences of their actions – will be relevant.
However, proof of fault by the tortfeasor is unnecessary for strict or absolute liability offences. Such offences increase prospective liability and lessen pros- ecutorial burdens but need not encourage corrective behaviour (Laufer, 1999:
1367).
Where a fault element is required for an offence, it will also be necessary to establish that the corporation and not just the individuals involved possessed the necessary intention. The problems of attributing individual actions to a corporate body (see, for example, Grantham, 2001) also arise in this context. Under Australian law, if it cannot be demonstrated that any indi- vidual employee, agent or officer was negligent, the fault element will be imputed to the body corporate if its conduct is negligent when viewed as a whole, that is, by aggregating the conduct of any number of employees, agents or officers. Evidence of negligence may exist if the conduct is substantially attributable to either inadequate corporate management, control or supervi- sion, or the failure to provide adequate systems for conveying information to relevant individuals within the organisation. This is consistent with the notion of organisational blameworthiness as the basis for corporate liability (Fisse, 1991: 374). However, the practice of Australian prosecutors for environmen- tal offences is to impose liability upon directors and other corporate officers rather than the corporation itself where they knew or were reckless or negli- gent as to whether a contravention of environmental legislation would occur, were in a position to influence corporate conduct and failed to adopt all reasonable measures to prevent that contravention (Howard, 2000).
Furthermore, litigation against directors typically accompanies high-profile corporate collapses (Moodie and Ramsey, 2002).
Corporations will be adjudged vicariously liable for the actions of employ- ees, servants and agents under their control for activities undertaken within the scope of their employment. For example, in Hollis v Vabu Pty Ltd (the Bicycle Couriers case) (2001), a courier company was held vicariously liable for the negligent acts of a courier when he seriously injured a pedestrian while riding on the footpath. Australian courts have held employers liable when employees perform authorised acts in an unauthorised manner (Hanley v Automotive, Food, Metals, Engineering, Printing & Kindred Industries Union, 2000) and where employees act contrary to explicit work instructions (Tiger Nominees Pty Ltd v State Pollution Control Commission, 1992). Any available defences
will be taken into consideration in determining liability. For example, a corpo- ration will not be held liable for the conduct of an agent where the body corpo- rate proves that it exercised all due diligence to prevent that conduct.
The policy rationale for vicarious liability is twofold. The first reason is to provide a practical remedy for harm suffered as a result of wrongs committed in the course of conducting commercial operations. It is therefore just and fair to require a body which introduces potential harm into a community to be held responsible should that harm eventuate (Bazley v Curry, 1999: 552). The notion of enterprise risk considers who is best able to provide direct and effec- tive compensation (which in practice means who has the ‘deep pocket’).
Second, assigning liability to employers for the conduct of employees encour- ages the former to take steps to prevent future harm. This deterrence objective acknowledges that employers are in a position to reduce accidents and inten- tional wrongdoing through efficient organisation and supervision.
The compensatory and deterrence functions served by tort law make it an appealing legal system for corporate accountability. The remedies offered by tort law classically include damages, injunctions and declaratory relief.
Although it can be difficult to accurately quantify the extent of harm sustained, damages typically include the financial costs associated with personal injury, pure economic loss and remediation. Since the actual wrongdoer is compelled to financially remedy any damage caused they and others are deterred from conducting commercial operations in an inappropriate manner.
Civil liability is most evolved under the national law of industrialised states and is subject to ongoing refinement (Acquaah-Gaisie, 2000). For example, the Toxic Substances Control Act (15 USC ss. 2601–71 (1988)) may encom- pass corporations which have formerly owned or operated upon contaminated property, shareholders who have substantial ownership interests and employ- ees who actively participated within management. Under the Comprehensive Environmental Response Compensation and Liability Act (42 USC ss.
9601–75 (1988)) funds to finance environmental restoration may result from damage awards without the need to establish fault (United States v Bestfoods, 1998).
Particular problems arise in respect of tort litigation against transnational corporations. Subsidiaries operate in several jurisdictions and are therefore subject to different legal regimes. The ‘home’ state where the parent corpora- tion is based lacks the territorial jurisdiction to regulate the activities of subsidiaries and the ‘host’ state where subsidiaries are located lacks national jurisdiction over the parent responsible for decision-making. Home and host governments may disagree as to whether corporate nationality or effective territorial control is the appropriate basis for exercising jurisdiction. In this manner civil disputes between private litigants can affect inter-state relation- ships.
Attempts to regulate the overseas conduct of subsidiaries by extending the application of national law extraterritorially is undertaken on an uncertain legal footing (Kamminga, 1999: 565). The willingness of governments to undertake enforcement measures may be compromised by their dependency upon foreign direct investment, taxation revenue or national employment benefits. Furthermore, the threat of corporate migration, that is, relocating commercial operations to another state, may inspire a ‘race to the bottom’ of regulatory standards. Subsidiaries are unlikely to voluntarily comply with the legal standards of the home state if this entails abdicating sources of compet- itive advantage. Although corporations are nominally subject to the authority of national law, they are not truly accountable for their extraterritorial conduct.
The rules of private international law also apply in the context of transna- tional litigation. These rules ordinarily apply the law of the place where the wrong occurred (the lex loci delicti). Litigation within the host state against the subsidiary is therefore attractive since (a) this is where the evidence including witnesses is located; and (b) claims should be vindicated where damage occurs. The alternative is to apply the lex loci actus or the law of the place where the relevant action or decision was taken. Several considerations favour the latter choice. First, tortfeasors should be subject to a known and local legal framework since they cannot be expected to be familiar with changes to foreign law in every jurisdiction in which they conduct commercial opera- tions. Second, decisions made at company headquarters typically have ramifi- cations for every state where subsidiaries are located. Litigation within the home state against the parent company is moreover desirable since (a) the parent company rather than the subsidiary enjoys access to the assets of the corporate group necessary for proper compensation; (b) control of the group’s activities is invariably located within the parent company; and (c) subsidiaries should adhere to standards of care within other states to a level commensurate with that expected from parent companies at home.
Attempts to hold parent companies tortiously responsible for the opera- tional acts of overseas subsidiaries encounters two fundamental principles of corporations law: the doctrine of separate legal personality between parent and subsidiary firms and limited shareholder liability including that of parent companies (Blumberg, 1993, 2001). In respect of the former, the law ‘pays scant regard to the commercial reality that every holding company has the potential and, more often than not, in fact, does, exercise complete control over the subsidiary’ (Briggs v James Hardie & Co, 1989: 577). That said, courts have held holding companies liable where the corporate conglomera- tion is structured as a unity (the economic entity or enterprise approach) or where they exercise effective control (ICI Ltd v Commission of the EC (Dyestuffs Case), 1972: 661–3; The Amoco Cadiz, 1984: para. 43; Meterlogic Inc v Copier Solutions Inc, 2000: 1357).
An additional complication is that the act of state doctrine may preclude national courts from inquiring into the validity of public acts performed by recognised foreign governments within their own territory (Banco Nacional de Cuba v Sabbatino, 1964: 428). By way of illustration, proceedings were commenced against an Australian mining company following the collapse of a tailings dam from a copper mine in Papua New Guinea. The Australian court was reluctant to adjudge several preliminary points such as possessory title over foreign territory and the validity of mining legislation (Dagi & Ors v BHP Minerals Pty Ltd and Ok Tedi Mining Ltd (No. 2), 1997). However, Judge Byrne observed that ‘[t]o my mind, it is not at all improbable to suppose that the law imposes a duty of care in favour of persons who may use the water downstream as a food source or for a livelihood’ (ibid.: 456–7), possibly prompting the out-of-court settlement which ultimately concluded that case.
Further considerations include the limited ability of national courts to compel subsequent compliance with their judgments overseas, the desirability of the executive and judiciary espousing a coherent voice and, perhaps most perti- nently, the most convenient forum for adjudging the matter.
The doctrine of forum non conveniens
The classic question which arises when plaintiffs and defendants are situated within different jurisdictions is identifying the proper forum for the suit. In short, which national court is the most appropriate one for conducting proceedings. Courts generally hesitate before impugning the competence or impartiality of another state’s judicial system. However, ubiquitous to such proceedings is that governments may either promote or question the adjudica- tory competence of national courts and defend national policies. Generally courts will respect the claimant’s choice of forum. However, they will addi- tionally consider relevant public interest factors such as court congestion, the desirability of conducting local cases locally and familiarity with another national law. Moreover pertinent is whether national legal systems offer the opportunity for class claims and the role if any of public interest or contin- gency-fee lawyers.
The dominant European approach pursued by most civil law systems (see, for example, Betlem, 1993) is to locate the proper forum for resolving disputes where defendants are domiciled. Thus defendants ‘shall’ be sued within their state of domicile even when plaintiffs originate from non-member states (Art.
2, 1968 Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters; Group Josi Reinsurance Co SA v Universal General Insurance Co (UGIC), 2000; EC Regulation 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, 2001). Thus the doctrine of forum non conveniens (where courts decline to exercise jurisdiction on the basis that another is more appropriate)
may no longer be unavailable within the EC as a result of deliberations at the 2001 Special Commission of the Hague Conference on Private International Law (see also the Special Commission of the Hague Conference on Private International Law, Preliminary Draft Convention on Jurisdiction and Foreign Judgments in Civil and Commercial Matters, 1999), and recent rulings of the European Court of Justice (Owusu v Jackson & Ors, 2005: paragraph 46).
However, member states still retain the option of hearing tort claims for damage arising in third states against transnational corporations registered or having their headquarters located within the EU (European Parliament Resolution A5-0159 (2002) on the social responsibility of companies, para.
50). Alternatively, states may declare that their national courts are incompe- tent to adjudicate disputes covered by exclusive choice of court agreements in circumstances where, aside from the location of the chosen court, there is no connection between those states and the parties or the dispute (Special Commission on Jurisdiction, Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters, 2004: Article 7; see also the exceptions listed in Article 18).
Although the domicile approach carries the advantages of predictability and removing judicial discretion, it also presumes parent company liability, conflates jurisdictional questions with substantive liability and increases the risk that companies will be sued for activities conducted elsewhere (Muchlinski, 2001: 11–14). The domicile approach could also deter incorpo- ration in so far as liability questions are influenced by mere presence.
However, jurisdictional exceptions apply and the requisite elements of an offence must be established.
The second (and generally preferred) approach is to permit actions to proceed in the place where harmful events occur (the forum delicti). For exam- ple, Malaysian residents unsuccessfully initiated civil litigation before Malaysian courts against the Rare Earth Corporation, a joint venture part- owned by Mitsubishi, alleging physical injury from exposure to radioactive tailings (Woon Tan Kan v Asian Rare Earth, 1992). Plaintiffs may be able to bring claims for transborder injuries within the national courts of either adjoin- ing state (Case 21/76 Handelskwekerij GJ Bier BV v Mines de potasse d’Alsace SA, 1976).
The third approach observed by most common law jurisdictions is to give effect to the choice of forum selected by the plaintiff. However, defendants may invoke the forum non conveniens doctrine to stay proceedings. This can prove to be a potent tool for ultimately dismissing complaints against corpo- rations. For example, in a suit brought against a Canadian mining company following a cyanide-polluted water leak at a mining operation in Guyana, Canadian courts adjudged Guyana to be the more appropriate forum (Recherches Internationales Quebec v Cambior Inc, 1998).
The forum non conveniens doctrine may enable corporations to effectively choose the forum in which they may be held accountable (‘reverse forum shopping’). Furthermore, in a survey of 180 cases dismissed on the basis of that doctrine by US federal courts between 1947 and 1987, only three cases were eventually decided in foreign forums and the plaintiff lost in all instances (Robertson, 1987: 418–20). The forum non conveniens doctrine has accord- ingly received judicial criticism for being overly protective of corporate inter- ests (Dow Chemical Co v Castro Alfaro, 1990: 680–81). Additionally noteworthy is that the burden of proof shifts: where defendants demonstrate that another forum is more convenient, claimants may then be expected to establish that the interests of justice will not be served within the alternative forum. However, corporations can also obtain anti-suit injunctions restraining claimants from initiating proceedings within other states where those states are not the ‘natural’ fora for resolving disputes (Airbus Industries GIE v Patel et al., 1998).
Differences in applying the doctrine are discernible within American, English and Australian courts. Most notoriously, Indian litigants were compelled to pursue their tort claims against Union Carbide Corporation before Indian courts following the Bhopal gas leak (Westbrook, 1985;
Muchlinski 1987). US courts deferred to Indian legislation nominating the Indian government as custodian of its citizen’s legal rights (parens patriae).
Judge Keenan remarked that ‘to deprive the Indian judiciary of this opportu- nity to stand tall before the world and to pass judgment on behalf of its own people would be to revive a history of subservience and subjugation from which India has emerged’ (In re Union Carbide Corporation Gas Plant Disaster at Bhopal, India, 1986, 1987). This was notwithstanding the opinion of the Indian government as well as its Supreme Court that such litigation should be pursued within the US (Union Carbide Corporation v Union of India, 1989; Charan Lal Sahu & Ors v Union of India, 1990; Bi v Union Carbide Chemicals & Plastics Co, 1993; Keshub Mahindra v State of Madhya Pradesh, 1996). Claimants have also sought to challenge as inadequate the settlement agreement concluded between Union Carbide and the Indian government. However, the act of state doctrine precluded judicial scrutiny by US courts.
By way of an alternative to evaluating the conduct of overseas subsidiaries, English courts are willing to consider whether negligent acts or omissions have been committed by parent companies within the UK. However, there must be evidence of a real and substantial connection between the circum- stances giving rise to such claims and asserting English jurisdiction. Relevant considerations include party convenience, expenses incurred, access to witnesses and evidence, governing law, place of residence, location of busi- ness operations and the interests of justice (Spilada Maritime Corporation v
Cansulex Ltd, 1987: 476–8). The last-mentioned factor includes where claimants do not have sufficient funding to obtain legal or expert representa- tion within the national courts of home States (Connelly v RTZ Corp plc, 1997). For example, South Africans recently won the right to sue Cape Industries in the UK for asbestosis resulting from exposure in South Africa (Adams v Cape Industries plc, 1990; Lubbe & Ors v Cape plc, 1998, 2000;
Meeran, 1999). The South African government argued that it had no public interest in requiring its courts to adjudicate disputes arising from the alleged acts of English companies under the laws of the old South Africa. Proceedings (ultimately settled out of court) were also commenced against a UK company by former workers of a mercury recycling plant which had relocated to South Africa following criticism from UK occupational health and safety inspectors (Sithole & Ors v Thor Chemical Holdings Ltd, 1999).
The Australian standard for assessing inconvenience to the defendant is whether plaintiffs have chosen particular national legal systems merely to vex, harass or oppress them. It may therefore constitute an abuse of process to permit proceedings to continue. Prince (1998: 595) proposes that this stricter test is preferable since it is more difficult for Australian companies to escape local jurisdiction. Australian courts would only dismiss litigation where they were ‘clearly inappropriate’ (Voth v Manildra Flour Mills, 1990). As illus- trated by Regie National des Usines Renault SA v Zhang (2002), the burden lies upon applicants to demonstrate that local trials would produce injustice because it would be oppressive (in the sense of seriously and unfairly burden- some), prejudicial, damaging or vexatious (in the sense of producing serious and unjustified trouble or harassment).
In the light of these points it may be considered that international adjudi- catory mechanisms are more favourably positioned to resolve transboundary questions by overcoming the limitations applicable to national courts.
However objectionable they may be, commercial practices escape formal censure within international fora since state responsibility is typically the singular conclusion. For example, the jurisdiction of the International Court of Justice is limited to disputes between states notwithstanding that the adverse environmental and economic impacts of corporate nationals is the subject of judicial scrutiny (Certain Phosphate Lands in Nauru (Nauru v Australia), 1989: para. 21). Similarly when confronted with human rights violations jointly committed by governments and corporations during development projects, the mandate of the UN Human Rights Committee is limited to deter- mining governmental responsibility (Hopu and Bessert v France, 1993).
The question of compliance with labour standards usefully illustrates how the limitations of international fora affirm the primacy of national courts. That topic also illustrates the relationship between state and corporate responsibil- ity and the regulatory role of governments. For example, state compliance