Business and Human Rights Legislation and the Enforcement Question - A report by Kingsley Napley and Dr Rachel Chambers

Globally, a trend is taking shape towards legislation that asks more from businesses than the reporting obligations of the UK’s Modern Slavery Act, in the area of business and human rights. The EU is consulting currently around the contours of a proposed mandatory due diligence human rights law to be enacted this year. These proposals are similar to the kinds that were passed in France in 2017 and only very narrowly defeated in a 2020 Swiss referendum. Calls for the UK to follow suit are mounting, and will in due course be difficult to ignore, given the global direction of travel in business and human rights regulation.

How could a compulsory UK human rights due diligence law improve the enforcement and legal landscape for victims of cross-border human rights abuses? And what support and powers would a regulator need to be effective? These questions were asked by a group of inspirational UK civil society organisations – led by the Traidcraft Exchange – in 2020. They commissioned research on the topic, conducted during the summer 2020 by Dr Rachel Chambers, at the Human Rights Institute, University of Connecticut, and Katherine Tyler and Sophie Kemp, Partners at Kingsley Napley.

The full paper is available here. A lively seminar about the report held with the Bonavero Institute of Human Rights is also available here. In this blog, we summarise the key findings of the paper. 

A proposed UK human rights due diligence law

The UK human rights due diligence law could impose the following duties on subjected organisations (broadly):

1. To prevent adverse human rights and environmental impacts of their domestic and international operations, including in their supply and value chains.
2. To develop and implement appropriate due diligence procedures to prevent such impacts.
3. To publish a forward-looking plan on future procedures to be adopted, and an assessment of the effectiveness past procedures.

The report also proposes liability for organisations that fail to meet these duties to give the duties ‘teeth’ and a gamut of penalties. This would be a civil penalty if organisations fail to meet the due diligence duties. If organisations fail to prevent adverse human rights and environmental impacts from their operations, they would be liable for related harm and loss enforceable both through regulatory civil penalties and civil litigation. It would be a defence for organisations to prove that they acted with due care to prevent human rights and environmental impacts. Organisations and their senior managers would be criminally liable if they failed to prevent serious human rights or environmental impacts.

What are the issues with civil or criminal liability in corporate accountability cases currently?

There are serious obstacles for victims seeking redress through civil or criminal law in the English courts currently, for human rights violations committed abroad. The report focuses on the situation for extraterritorial, not domestic, human rights abuses.

In civil law, the issues are shown well by a string of international class action cases brought under tort law in the English courts. These are brought by affected citizens, mostly of developing countries, for the harmful actions or omissions of overseas subsidiaries that have a UK-based parent company. Two of such cases - Lungowe v Vedanta Resources plc and Okpabi v Royal Dutch Shell (Kingsley Napley acted in the latter for human rights interveners) – have been heard in the UK Supreme Court since 2019. The claimants in these cases are in Zambia and Nigeria respectively but their issues in taking the trial to the UK are shared. Companies take steps to distance themselves from the operations of their subsidiaries abroad to avoid liability; it is hard for claimants to prove that the UK parent company was sufficiently involved. To show that the trial should be heard in the UK, the claimants have to show sufficient involvement from the UK parent. But this is before they have the right to full disclosure, which leads to a Kafkaesque situation where the claimants plead their case without seeing all relevant evidence. The cost of gathering evidence overseas, and funding the litigation, is prohibitive for claimants and law firms. Civil liability through tort litigation is not well-suited to cases where the business in question contributes a small proportion to an extraordinary harm, e.g. companies contributing to climate change.

In criminal law, no company has been prosecuted in the UK courts for serious human rights impacts or environmental harm abroad. The issues with the ‘identification principle’ for prosecuting corporate conduct are well documented; this requires prosecutors to show that someone who was the ‘directing will and mind’ of the company had the necessary mens rea. The complex corporate structures of modern-day businesses make it difficult for prosecutors to establish a specific individual as the company’s ‘directing will and mind’. Where corporate decision-making is diluted across boards and committees, as it is routinely, the test is harder to make out. UK courts also have jurisdiction only for crimes committed in the UK save for very limited exceptions. Significant prosecutorial appetite is needed to find the political will to take on large corporates, fund a complex cross-border investigation and overcome risk of failure. This puts aside the very difficult practical issues with evidence-gathering in a large cross-border criminal investigation. Lastly, the criminal process is not designed to remedy the victims of complex harm or loss, but to punish the culpable conduct of wrongdoers.

Should we still look at options for criminal liability?

So, it is clear that both civil and criminal liability pose issues in corporate accountability cases. However, the report finds that criminal prosecutions for a new criminal offence could be an important tool. This new offence would be ‘failing to prevent serious human rights violations’ – following the model of the offences of failure to prevent bribery (the Bribery Act 2010) and failure to prevent tax evasion (the Criminal Finances Act 2017). The attraction of the ‘failure to prevent’ model is that it dispenses with the problems of the ‘directing will and mind’ test. It puts strict liability on companies, save for a defence of ‘taking due care to prevent human rights abuses’.

There would be important aspects to consider when developing the new criminal offence. A necessary limitation would be that the underlying conduct itself (the serious human rights abuses) must be criminal (following the bribery and tax evasion models). The level of nexus with the UK needed for the prosecutor to take jurisdiction would also be important. Under the Bribery Act defendant corporates need only “carry on” business in the UK to be caught by the statute, but that is not without its issues. Care would also be needed around the new offence’s interaction with the complex legal regime on corporate environmental harm in the UK, currently involving a number of regulators and prosecutors.

What would the key features of the business and human rights regulator look like?

The key focus of the report, which caused lively questioning in the Bonavero Institute seminar, considers what an ambitious and innovative regulator would look like, that properly policed corporates for extraterritorial human rights and environmental abuses.

Like the Health and Safety Executive, Environment Agency and Equality and Human Rights Commission, the regulator would reach across sectors. It would range from regulating businesses with high levels of corporate responsibility to those who turn to bad practice neglectfully or wilfully. It should have a high level of independence from the executive to be as free as possible from political interference. It should work closely with regulated entities in order to build their capacity – including by issuing guidance and best practice guides.

Enforcement

The enforcement mechanism would be fundamental to the regulator’s proper working. A key criticism of the Modern Slavery Act is the lack of ‘teeth’; as such, business and human rights regulation has not yet got off the ground in the UK.

As a first step, it is crucial that the new regulator is empowered to act upon information from any source, including members of the public, victims, civil society organisations, the police or other regulators, corporates and their employees. This would empower those who are afraid to speak up or do not know how to. If the regulator then considers there is a ‘case to answer’, it should investigate. It should have the broad range of investigatory powers available, including powers of seizure and to issue production orders, seeking help from foreign investigators through mutual legal assistance where necessary.

A bold consideration for the new regulator would be a ‘market investigation’ power. The CMA in the UK possesses this power which enables it to conduct an in-depth investigation of an entire market sector which does not appear to it to work satisfactorily. Such investigations focus on industry-wide behaviours and practices, rather than the workings of individual companies. Significant remedies are available to the CMA, including structural remedies (eg the forced sale of certain parts of companies), behavioural remedies (eg price controls), or measures to improve customer information, as well as the power to make recommendations to government. The effectiveness of this tool in competition law has led the European Commission to consider very recently an EU version of the mechanism.

This could be an essential tool for the new regulator. Human rights abuses often become endemic in particular sectors, with a myriad of practices by ranging actors contributing to widespread abuse. The equivalent of a market investigation tool has the potential to gain an in-depth understanding of how human rights abuses are perpetuated in sectors and opens the door to targeted remedies. A benefit of the CMA’s model for market investigation is that it does not cut across the right of claimants to seek compensation in civil law. Rather, it complements this and empowers claimants. Following a ‘market investigation’, legislation could allow the new regulator to make infringement findings which are admissible in civil claims, facilitating ‘follow on damages’ claims like in competition law; this would substantially reduce the fact-finding burden on claimants. For example, the regulator could initiate ‘market investigations’ into the mining/extractive, oil and garment industries after credible complaints. Deep and careful investigation from regulators could lead to regulatory action, but also findings that help claimants to gain compensation for human rights and environmental abuse.

Conclusion

The report explores the vital but under-researched question of enforcement of mandatory HRDD laws, focusing on the UK. It demonstrates that although UK companies are rarely held accountable for cross-border human rights abuses, the situation need not be this way. An ambitious and dedicated regulator with strong powers could add real value to the enforcement of the proposed human rights due diligence law. Borrowing from the competition law regime – by empowering the regulator with ‘market investigation’ powers which facilitate civil follow-on damages claims – could be a significant consideration. Through heightened awareness and campaigning from civil society, the public and responsible corporates, the system of corporate accountability for extraterritorial environmental and human rights harms could be much improved in due course.

Further information

For further information on any issues raised in this blog post, please contact a member of our Business and Human Rights team.