Supply-chain capitalism consists of commodity chains based on subcontracting, outsourcing, and contractual arrangements in which the autonomy of the constituent firms is legally established, even as the firms are regulated within the chain as a whole. These supply chains link seemingly independent entrepreneurs, enabling commodity processes to spread across the globe. Labor, nature, and capital are mobilized in fragmented yet interconnected economic niches; thus, supply-chain capitalism focuses our attention on issues of diversity within power structures.1
It could be argued that there is still no “global supply chain law.” Meanwhile, legal concepts relating to civil liability, contractual obligations—both internally and toward third parties—as well as the degrees of liability of corporate directors must be updated in this context. The boundaries between a carefully crafted claim regarding what a powerful company knew or could and should have known about the operations of its subsidiaries’ or contractual suppliers’ production facilities represent the new battleground for global supply chain law aimed at protecting workers’ rights in a highly fragmented and decentralized global economy.2
The Supreme Court of England has made a positive breakthrough in the area of civil liability claims against “holding companies” regarding the activities of their overseas subsidiaries. The main issue concerns when a lawsuit may be brought directly against the parent company. In the 2019 ruling,3 resulting from a complaint filed by 1,826 Zambian villagers against Vedanta Resources Ltd. —headquartered in the United Kingdom—and its subsidiary KCM, the case addressed pollution resulting from toxic emissions at a copper mine in Zambia owned by the subsidiary.4 The plaintiffs alleged that waste discharged from the Nchanga copper mine—owned and operated by KCM—polluted local waterways, causing harm to local residents, as well as property damage and loss of income.
Lord Briggs held that Vedanta’s involvement in KCM’s activities gave rise to a duty of care toward all persons affected by those activities. What is novel is that the “duty of care” arises from a sufficient level of supervision and control over the activities carried out at the mine, with sufficient knowledge of the likelihood that these activities would cause toxic substances to leak into the surrounding waterways. According to the UK Rules of Civil Procedure, if there were a triable issue, Vedanta could be treated as an “anchor defendant” and KCM could be joined as a necessary or appropriate party.
Decisive for “Lord Briggs” was the fact that there were promotional materials in which the Vedanta Holding Company stated that it assumed its own responsibility for maintaining appropriate standards of environmental control over the activities of its subsidiaries and, in particular, mine operations, having implemented these standards through training, monitoring, and enforcement. This demonstrates a sufficient level of involvement by Vedanta Holdings in the conduct of operations. In summary, the supervision of all “Vedanta” subsidiaries depended on guidance from the holding company itself. Moreover, even if the parent company did not in fact carry out these oversight activities, its very failure to do so constitutes an abdication of the responsibility it had publicly assumed. Consequently, there is no limit to the management and control models that can be implemented within a multinational corporate group. Thus, at one extreme, the parent company may be merely a passive investor in separate businesses conducted by its various direct and indirect subsidiaries. At the other extreme, the parent company may manage the group as if it were a single company, rendering the boundaries of legal personality within the group irrelevant.
The Supreme Court of England held that it was up to the plaintiffs to choose whether to sue both companies in Zambia, or Vedanta in England and KCM in Zambia. This conclusion was supported by Article 8 of the Recast Brussels Regulation, which gives plaintiffs in intra-EU disputes the choice (but not the obligation) to consolidate proceedings in order to avoid the risk of irreconcilable or contradictory decisions, concluding that the same principle must apply when plaintiffs are domiciled outside the EU (as in this case).5 Furthermore, in light of the principle of access to justice—substantive justice—the plaintiffs were living in poverty and could not obtain legal assistance, as they were prohibited from entering into contingency fee agreements under Zambian law, and would also be unable to secure the services of a legal team in Zambia with sufficient experience to effectively manage litigation of this scale and complexity.
It is noteworthy how closely this case resembles “Chandler v. Cape plc [2012] EWCA Civ 525.” In Chandler, the following reasoning prevailed: a parent company that controls a subsidiary may be liable for the subsidiary’s torts. There would be a “connection of liability” (more than a mere presumption) by law if the parent company interferes in the affairs of a subsidiary. This closely resembles the concept of being a “fiduciary to a child.” If the parent company interferes in a subsidiary’s affairs in one area (e.g., finance), but something goes wrong in another area (e.g., safety), this connection of liability still exists. In summary, the parent company takes over management, then issues guidance on how to handle risks and establishes group-wide policies to oversee subsidiaries (e.g., regarding safety or environmental damage), yet fails to ensure compliance with those instructions. What can be expected from this contradictory behavior?
I believe what is surprising about the “Chandler” case is that the Supreme Court of England held that the “Holding” company itself committed a tort, assuming liability for relevant aspects concerning the subsidiary’s employees and breaching its own duty by failing to exercise due care toward them. In other words, it is no longer a matter of piercing the corporate veil by disregarding the legal personality of the subsidiary. This is now irrelevant, insofar as the parent company has a duty of care toward the subsidiary’s employees and will be held liable for its own unlawful conduct, not for the subsidiary’s tort. The 2019 “Vedanta” case is entirely consistent with this “leading case.”
In a book co-authored with Fabrício de Souza Oliveira,6 we noted that in the contemporary context of “tort law,” marked by the externalization of risks from corporate groups onto society at large, “The involuntary creditor first comes into contact with the tortfeasor at the moment they suffer property damage or harm to their physical or mental well-being—whether individual or meta-individual—arising from environmental, consumer-related, or other offenses against collective assets. The “victim” creditor will litigate against a subsidiary without having had the opportunity to previously assess its financial capacity or to know that it has resorted to limited liability to externalize losses from damages, being just one among several small companies that shield the impregnable holding company, which, for that very purpose, is endowed with minimal capitalization and a financial structure openly designed to minimize liability. Therefore, rather than resorting to corporate liability—which governs the relationships between companies and their contractual creditors—it is legitimate for involuntary creditors to rely on tort liability so that they may directly and without limitation assert their claims for damages.”
My view—likely shared by a majority of scholars of human rights and corporate law—is that this is one of the most important cases in modern history, namely, whether multinational corporations can be held liable for their own wrongful acts, particularly given the impact of this new legal reasoning on courts around the world. The message is clear: the combination of knowledge and influence entails liability toward victims of conduct by “holding companies” regarding fundamental rights. In “Vedanta,” the Supreme Court suggests that previous case law failed to apply the ordinary rules of civil liability to human rights issues involving multinational corporations. Under this new and correct interpretation, several cases would not have succeeded in which a parent company in London was not held liable for injuries caused by asbestos to an employee of an insolvent subsidiary, simply because the judges did not consider the parent company to be “present” at the scene of the wrongdoing through its subsidiaries.
In fact, this is not a matter of vicarious liability. It is more than that. A systematic violation by parent companies of their duties to monitor the conduct of their subsidiaries, as well as to provide safety and information, is something different. If the parent company reaps the benefits of its subsidiaries’ activities, why should it not bear the burdens? If parent companies create a company’s risk, why should they not be liable for everything within the scope of the risks they create?
The UKSC’s Vedanta decision is the first unanimous ruling by a high court in the Commonwealth to directly consider the possibility of a parent company’s direct liability to third parties affected by the activities of a foreign operating subsidiary. In fact, this is an opportunity to emphasize the regulatory and educational role of transnational corporations, reaffirming enforcement, simplifying the law, and preventing such companies from externalizing social costs while internalizing profits. Focusing on people rather than the parent company’s board—this is a huge step forward!
Although the Vedanta decision is not binding in other common law jurisdictions, the precedents set by the UK Supreme Court continue to be well received and respected. In this vein, in 2020, the Supreme Court of Canada, in the case of Nevsun Resources Ltd. v. Araya,7 ruled that a Canadian mining company that is the majority owner of a mine in Eritrea can be sued for abuses committed in that country that violate international law, and that the state doctrine—which prevents national courts from assessing the sovereign acts of a foreign government—does not preclude the lawsuit. In other words, the Canadian precedent demonstrates that international common law—customary international law or jus cogens—brings serious violations committed by non-state actors in other countries into the domestic legal framework. Hence, there may be a private cause of action against a company that violates human rights. In Brazilian legal terms, this represents the horizontal applicability of fundamental rights to transnational torts, establishing an obligation to compensate victims who have been unjustly treated by corporations.
In February 2021, in Okpabi et al. v. Royal Dutch Shell Plc and Shell Petroleum Development Company of Nigeria Ltd., the UK Supreme Court reaffirmed its decision in the leading case of Vedanta, confirming that a parent company in the United Kingdom has a direct duty of care toward third parties affected by the operations of a subsidiary abroad. However, the Supreme Court refuses to establish an exhaustive list of factors and circumstances under which a duty of care may arise, emphasizing that it is a question of fact to be determined on a case-by-case basis. The recent Okpabi decision maintains pressure on multinational corporations to effectively manage risks within their corporate groups and supply chains.8
A “major lesson” from recent decisions in Canada and the United Kingdom is that the Supreme Courts demonstrate a genuine willingness to take human rights seriously. Recent legislation is following suit.9 Although this is new to the intersection of corporate law and civil liability, it is, in fact, what has already occurred in competition law and tax law: all of these fields depend crucially on the recognition of corporate group liability. Similarly, labor laws in many countries (for example, by ensuring that workers have the right to vote for the parent company’s board of directors or by allowing them to file joint lawsuits).
In short, as shareholders and stakeholders have already realized, acting diligently is no longer a matter of altruism on the part of “holding companies,” but rather a matter of survival in markets where consumers are no longer willing to support companies that are not committed to transindividual interests, and where credibility is no longer merely part of a corporation’s intangible assets but has become its very “ratio essendi.” One of the best ways to avoid liability for the holding company is to ensure that risks are effectively mitigated through due diligence and complaint mechanisms at the parent company level. Failure to mitigate these risks can create liability for multinational parent companies, result in litigation, and cause significant damage to the reputation and brand of the entire corporate group. This is of particular importance in the current landscape, where ESG policies and standards are defined, implemented, and managed from the top down across the entire group.
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- Anna Tsing, Supply Chains and the Human Condition, 21:2 Rethinking Marxism: A Journal of Economics, Culture & Society 148-176 (2009), 148-9.
- Benedikt Reinke & Peer C. Zumbansen Transnational Liability Regimes in Contract, Tort and Corporate Law: Comparative Observations on 'Global Supply Chain Liability', King's College London Dickson Poon School of Law Legal Studies Research Paper Series: Paper No. 2019-18.
- Vedanta Resources Plc and Konkola Copper Mines Plc (Appellants) v Lungowe and Ors. (Respondents) [2019] UKSC 20.
- Nchanga’s stake is held through Vedanta’s operating subsidiary, Konkola Copper Mines plc (“KCM”). KCM is not a wholly-owned subsidiary of Vedanta. The Government of Zambia holds a significant minority stake in it. Nevertheless, Vedanta published documents effectively asserting that Vedanta’s ultimate control over KCM was complete.
- REGULATION (EU) No. 1215/2012 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of December 12, 2012, on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters. Article 8 “A person domiciled in a Member State may also be sued: (1) where he is one of a number of defendants, in the courts for the place where any one of them is domiciled, provided the claims are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings.”
- Nelson Rosenvald and Fabrício de Souza Oliveira, "O ilícito na Governança dos Grupos de Sociedades". Salvador, Juspodivm, 2019, p. 175.
- Nevsun Resources Ltd. v. Araya, Supreme Court Judgments, February 28, 2020, 2020 SCC 5, Case No. 37919. Three Eritrean refugees filed a lawsuit against Nevsun Resources Ltd., a publicly traded company based in British Columbia. They alleged that, through a chain of subsidiaries, Nevsun entered into a business venture with Eritrea to develop a gold, copper, and zinc mine, and that they were recruited to work at the mine under Eritrea’s National Service Program. The workers allege that they were forced to work at the Bisha mine—in which Nevsun holds a majority stake—12 hours a day, six days a week, in temperatures approaching 50 degrees Celsius and without shelter. They sought compensation from Nevsun for forced labor, slavery, cruel, inhuman, or degrading treatment, and crimes against humanity.
- In the Okpabi case, the communities of Ogale and Bille sought compensation for oil spills from pipelines operated by SPDC. The plaintiffs argued that RDS had a duty of care toward the plaintiffs arising from the control it allegedly exercised over SPDC’s operations, such that RDS was a necessary and appropriate party to the claims. The Supreme Court stated that “[i]n considering that question, control is just a starting point. The issue is the extent to which the parent did take over or share with the subsidiary the management of the relevant activity... That may or may not be demonstrated by the parent controlling the subsidiary. In a sense, all parents control their subsidiaries. That control gives the parent the opportunity to get involved in management. But control of a company and de facto management of part of its activities are two different things. A subsidiary may maintain de jure control of its activities, but nonetheless delegate de facto management of part of them to emissaries of its parent.”
- California, the United Kingdom, Australia, and European countries such as France, the Netherlands, and Norway have already passed specific legislation requiring companies to confirm that they have not encountered forced labor, child labor, or human trafficking in their global supply chains.