Any of our business? Human Rights and the UK private sector - Human Rights Joint Committee Contents

Examination of Witnesses (Questions 60 - 79)



  Q60  Lord Lester of Herne Hill: It is very helpful to have a recitation of foreign laws, but I wonder whether Amnesty, as a global NGO, could provide us not only with the list of the names of countries with laws, but their own evaluation of the effectiveness of them. May I, therefore, take as just one example the reference to the US Alien Tort Claims Act. What is your evaluation, as an organisation, of the effectiveness of that Act in the context of our inquiry?

  Mr Frankental: As an organisation, we have not done a proper evaluation of the Alien Tort Claims Act, but we do have some views about this Act. It is significant because it gives foreign plaintiffs an avenue of redress which they would not otherwise have in their own countries. Its limitation is that it only refers to universal crimes, in other words, the most egregious of violations of human rights and, as a whole, companies tend not to be involved in these kinds of abuses, so 95 per cent of corporate impacts on human rights and most of the rights that companies do have impacts on are not reflected in the Alien Tort Claims Act, but nevertheless, it is a significant instrument. Whether the solution is for lots of states to develop their own Alien Tort Claims Act within their civil liability systems or whether it is actually a much better solution to have an overarching international framework, I think, is something which does need to be evaluated, and Professor Ruggie has taken an interest in that issue.

  Chairman: We had quite a lot of evidence from him about that last week, and we will come on to the extraterritorial issue after Lord Onslow's short supplementary.

  Q61  Earl of Onslow: I am looking into the Bribery Bill at the moment and we are having this problem of how you control UK companies when bribing foreign governments, whoever it may be, and the Americans have got an Act, the name of which I cannot remember, but it does make it a very serious criminal offence for American companies to indulge in that sort of skulduggery. Where we come up with immense difficulties is with subsidiaries, agencies, all these sorts of people and the point you were making earlier on about this UK company, which was presumably producing aluminium smelter or something like that, digging up sacred graves. What happens if we have an Act along the Alien Tort Claims Act line which says, "You must observe human rights", the indigenous Government then says, "We don't care about the sacred ground" and, if those people then produce a claim against the company in an English court for abuse of human rights, how do you get round that problem? I am looking at problems the whole time because I am not saying they should not be got round, but the sooner we recognise what the problems are, the easier possibly it will be to establish what problems we have to face and how to get round the difficulties.

  Mr Frankental: Perhaps we can refer this question to CORE's legal adviser.

  Ms Zerk: As regards public law requirements, and you mentioned the example of the Foreign Corrupt Practices Act in the US, yes, there are real difficulties with applying laws to subsidiaries of local companies. There are international law restrictions under international law relating to extraterritoriality which say that you cannot apply directly your own law to foreign subsidiaries. However, there is a great deal that you can do in relation to the parent company, and this is the basis of most extraterritorial regulation in the bribery area, that you apply your primary obligations to your parent company and then you make it their responsibility to ensure that those under their control do not breach UK law, which was the approach, and there is a very neat device in the Corruption Bill which deals with that exact problem, but, as far as the civil liability issues go, Richard?

  Mr Meeran: Yes, my area of work is bringing claims on behalf of people affected by the overseas operations of multinationals, so these are civil claims, and an example would be the South African asbestos miners' claim a few years ago against Cape plc, the South African asbestos miners against a British asbestos company. The common feature of all these cases is that they involve operations of subsidiaries of UK multinationals, so you have the typical set-up of a parent company based in the UK, a subsidiary operating locally, and the problem for the local victims is that they are invariably unable to bring claims in the local courts because of problems of access to justice, so they sought to bring claims in England against the parent company, and it is against the parent company because the English courts would not have jurisdiction over the overseas subsidiary. That gives rise to a problem of the so-called `corporate veil', the principle which is well-established in English law and the laws of most countries that the parent company, as a shareholder, would not be liable for the conduct of companies in which it invests, so the approach that we have taken in all of our cases is to focus on wrongdoing by the parent company itself, the decisions that it made and actions that it took which directly impacted on people overseas and gave rise to whatever the harm is that we are dealing with. You would look at things like the case we brought against a company, Thor Chemicals, which was a company which made mercury compounds in England and which then was subject to investigation by the Health & Safety Executive here, was on the verge of being shut down, but shipped all its operations, lock, stock and barrel, to South Africa where it carried on operating in the same way and people died and lots of people were injured. There, we were able to bring a claim against the parent company because it had been involved in the design of the defective technology, it had taken the decision to ship everything over to South Africa and it had been supervising, so the focus was on things that the parent company did. That is an approach which has been described by academics here as `foreign direct liability', so it is a way of getting round the problem of subsidiary and parent companies.

  Q62  Lord Dubs: But the difficulty with that is that you have to be quite lucky that you establish the link between the head office and the company where the incident happened and you may not always be able to do that.

  Mr Meeran: Exactly. It makes a case enormously complicated and it would be much easier if it were possible to bring a case against the local subsidiary employer or the local subsidiary that had been responsible for the missions. To have to investigate the precise relationship between the parent and the subsidiary company and who was taking what decisions is the real challenge in these types of cases and makes it very complicated.

  Q63  Lord Dubs: Which brings me clearly to my question, and it is this: if there is no clear international legal obligation on the UK to deal with the human rights impacts of UK companies' activities outside the UK, what incentive is there for the Government to act? Where do we stand?

  Ms Zerk: There are differing views about whether there is an international law obligation on states to regulate human rights abuses by companies in other countries. My own view is yes, I would agree with Professor Ruggie's assessment of that, that there is not enough state practice at the moment to support the idea that states are obliged to regulate companies' human rights impacts overseas, so I would agree with that assessment, but, insofar as the incentives for doing so are concerned in the absence of a legal obligation, I would say that there are three main reasons for doing this. The first is because it is the morally right thing to do because we, as citizens in the UK, shareholders and consumers of products in the UK, benefit enormously from the activities of companies abroad and the activities of their subsidiaries and suppliers, but there are costs in other countries. Other people in other countries bear substantial costs in relation to the benefits that we enjoy, so there is, therefore, a moral case to do something about it. A second incentive would be because it could actually enhance the competitiveness of UK companies, and I say that because there is a pretty clear correlation between corporate social responsibility performance, which includes human rights performance, and financial performance. John Ruggie has repeatedly made the comment that the failure of governments to provide leadership on issues as to what corporate human right obligations are and the failure of governments to provide guidance on this is actually not really in companies' best interests. I am told by businesspeople that deciding what is and is not an appropriate use of management resources in relation to the human rights problems that they encounter every day takes up a lot of management time and resources. There is also the lack of clarity about companies' responsibilities for human rights which also creates significant litigation and reputational risk, especially in developing countries and conflict zones, so there is a possible competitiveness case that needs to be looked at. Finally, it would show leadership by the UK Government. The human rights performance of companies is an enormously important political issue at the moment and, given that the UK is a significant home state for multinationals, it is right that they should show some leadership on this. I would also suggest that, if there is good human rights performance of companies, it reflects well on their home states and, if it is poor, it reflects badly, so there are political issues there as well.

  Q64  Lord Morris of Handsworth: Could I pick up the point about the division of responsibility, and my question is directed primarily to you, Jennifer and to Emily. You have all said that the current division of responsibility across the UK Government is incoherent and unworkable. What changes would you make?

  Mr Frankental: A good starting point would be for the UK to have an overarching strategy on business and human rights which does not exist at the moment. If it is left to individual government departments to try to address these issues, the human rights impacts of business will always be subsumed within other departmental goals, so you have the situation at the moment where the Foreign Office leads on certain initiatives, such as the Human Rights Council, Ruggie's mandate, the voluntary principles of security, human rights and, I think, on the global impact as well, DFID leads on the Ethical Trading Initiative and BERR leads on the OECD guidelines, so you have a fragmentation of strategies and approaches and you do not have an overarching business and human rights strategy for the UK, so I think that would be a good starting point to increase coherence. I think another important step that would need to be taken is that at the moment the UK conflates human rights with corporate social responsibility. Initiatives that advance corporate social responsibility are deemed by the Government to have positive impacts on human rights and, in our view, corporate social responsibility is a very nebulous concept whereas human rights entitlements are very clear, embedded in international law and, therefore, frameworks to improve business impacts on human rights should relate to international standards. There is nothing wrong with the UK promoting corporate social responsibility, providing that it takes steps to ascertain whether the voluntary initiatives and codes of conduct that it promotes have the effect of protecting human rights on the ground and, if not, why not, so we feel that the UK should initiate an independent review of all its mechanisms across government departments with regard to assessing their effectiveness in preventing and ending abuses by UK companies and particularly abroad. There are several other aspects of coherence, particularly coherence with regard to investment support agencies. Does the UK Export Credit Guarantee Department embody the UK's human rights obligations? Should it screen companies and transactions for impacts on human rights overseas? We believe it should, and likewise with the Stock Exchange listing requirements. We know, for example, that a number of small and speculative mining and exploration companies are listed on the alternative investment market and some of these companies are known to have a poor track record on human rights. One of them was the subject of a recent action by Amnesty International for their activities in Peru, yet there is no screening of such companies as a listing requirement, and we believe that such screening should be considered. Coherence of government policy should also be reflected in the activities of UK missions abroad. UK missions abroad have as a key objective to promote UK business interests, but do they also have as an objective to address business impacts on human rights. We believe that business impacts on human rights should be integrated not just into training of UK missions, but also into their objectives with regard to promoting business interests. There are also other aspects of governmental coherence, for example, with regard to company law. The recently enacted Company Law Reform Bill enhanced the duties of directors and reporting requirements, but without any specific requirements regarding human rights, except insofar as the particular issue to be addressed has consequences that are material to shareholders. Essentially, coherence is about taking all governmental instruments that relate to business impacts on human rights and integrating them into one overarching strategy with clear objectives that are independently assessed and evaluated.

  Q65  Lord Morris of Handsworth: You obviously make a very strong linkage between leadership and responsibility, but, when we saw Professor Ruggie a few days ago, he told us that it did not really matter who leads, whether it is human rights experts or indeed business experts, but what mattered for him was a coherent and indeed a consistent policy. Do you agree with that?

  Mr Frankental: Yes, I agree that coherence and consistency should be the two primary benchmarks for developing effective business and human rights policies and that it does not matter who is leading these, but I think there does need to be a body at arm's length from Government that can assess their effectiveness and that can provide policy guidance to Government that is removed from the immediate interests of individual government departments, so that is why we believe that a UK commission, which would reflect inputs from business, from non-governmental organisations and expert advice, would be in a position to assess the performance of different instruments with regard to improving business impacts on human rights and to providing some policy guidance to Government. That would reassure all stakeholders, whether it is Parliament, consumers, international NGOs or business, that the considerable resources that the Government are putting into its corporate social responsibility initiatives actually have the effect of improving impacts on the ground.

  Q66  Mr Sharma: Emily, Action Aid appears to agree with John Ruggie, that there is a difference between actions which companies are required to take in order to respect human rights and worthy endeavours that may contribute to the enjoyment of human rights, but which do not go very far. How should a business identify what steps are required rather than merely desirable?

  Ms Armistead: Where I think we do absolutely agree with John Ruggie is where we have had some experience of that in some of the fieldwork that we have been doing, for example, in India where the company that I mentioned earlier, Vedanta, is funding community programmes which it puts at the heart of its corporate social responsibility strategy and meanwhile, at the same time, is involved in activities which appear to be violating the human rights of those same communities. What Action Aid would say is that certainly we need to have, on the one hand, those baseline standards that companies can refer to to ensure that they are not infringing on human rights and also that companies are ensuring that they are, if they are going into activities, in proper consultation with local communities and taking into account the wishes of those communities, that there are transparent and open processes that allow that kind of engagement and that their wishes are being followed. I think the case of Vedanta in the Niyamgiri Hills is an absolute case in point where the wishes of the local communities are absolutely being overlooked.

  Q67  Mr Timpson: Richard, you told us earlier a little about the more imaginative ways that you have had to go about trying to bring a case against a UK parent company for an overseas litigant. In your written evidence, you have told us about some of the barriers, both procedural and substantive, in UK civil law which prevent these cases coming to court and being successful, and you talk about cost, lack of protection for group actions, complexity of the facts of the case and so on. In some of the cases that you have been involved with, would it, or could it, have been better for that action if it had taken place as overseas litigation as opposed to in the UK?

  Mr Meeran: If it were possible, in short yes, and in fact at the moment we are involved in a case which is being litigated in South Africa against Anglo American on behalf of gold-miners who contracted silicosis, and we are working on that case in conjunction with local public interest lawyers and local counsel. That case has been partially funded by the South African Legal Aid Board, but that is quite an unusual case, quite an unusual situation. It is invariably impossible in practical terms to bring these cases locally, which is why we have been asked to try and pursue them here, but, as has previously been noted, there are very difficult problems that we have to deal with in bringing a case against the parent, in investigating the relationship between the parent and subsidiary companies to identify the manner in which the parent company was involved. That is an expensive exercise and we are usually faced on the other side with well-resourced lawyers and multinationals who drag us up and down the legal system. In previous times, we had the benefit of legal aid which made seeing those cases financially less risky for the law firms involved and nowadays you have to run these cases on a `no win, no fee' basis and, as far as I can tell, we are probably the only firm that has shown any enthusiasm for doing these types of cases because of the financial risk involved, not because there are not other lawyers who would be interested in doing these cases if they were able to do so, but the `no win, no fee' system is one which enables these cases to be pursued, but with great difficulty. The kind of burden that a law firm has to carry can often be prohibitive and you have then got problems with `after the event' insurance which you need to get to protect claimants against the risk of having to pay the other side's costs and also to pay for your expenses as you go along. Those can be prohibitively expensive and the insurers are often unwilling to back cases where the value of the cases is not sufficiently high, and that means quite often that, where you have got very significant human rights cases, but on behalf of people who are very poor, the value may be too low for insurers to want to back the case. The other problem is again a cost problem which is that, unlike in the US and Australia, for instance, it is not possible to bring class actions in this country. You can bring group actions, but there is no class action legislation. If there were class action legislation, it would be possible to bring one representative case and it would be possible, because of the legislation provided for it, to ensure that the limitation period of the rest of the members of the class was protected. Often in cases, people are worried about their safety if they bring claims and in a class action only one person needs to be identified, the rest are not named, so that would be an important advantage as well.

  Q68  Mr Timpson: You have mentioned a number of countries, South Africa, the States and Australia, where there seems to be better protection or the system is less complex for these types of actions. Are there any countries that you have come across where the barriers that exist in the UK do not exist or do not exist to the same degree?

  Mr Meeran: Yes, South Africa is not one of them. The case that I mentioned is just a unique case that we have been able to pursue, but I would not say that it was easy to bring cases there at all. Australia has a class action procedure which is an opt-out class, which means that everyone is in the class, unless they opt out of it. That enables lawyers to focus on the generic issues in a case which will apply to all members of the class rather than having to take instructions from vast numbers of people and investigate their individual cases. In the US, obviously they have class actions, but, more importantly, they do not have a rule that costs follow the event. In other words, a claimant who brings a case does not have to worry about having to bear the risk of paying the defendant's costs if they lose, but both sides bear their own costs in the US, so that is another important advantage.

  Q69  Chairman: Have you got some examples of cases where you have been asked to take it up, but you have declined because of funding issues, where you thought there might be merit in the case, but the funding issues were just prohibitive?

  Mr Meeran: Yes, there are certainly examples of that. Those would be cases where perhaps we did not have sufficient evidence of the role that might have been played by the parent company. I can think of a case, though perhaps I should not discuss specific cases, but certainly there have been cases where we did not have sufficient evidence and it would have been very expensive to try and accumulate that evidence.

  Q70  Lord Lester of Herne Hill: A couple of the issues that you have raised are of course under scrutiny by the Ministry of Justice at the moment. The issue about class actions or representative proceedings is, I think, being looked at as a topic by the MoJ at the moment across the whole civil justice system. The issue of conditional fee agreements and their abuse has been tackled by the Justice Secretary and his Department where lawyers have been abusing conditional fee agreements, and I am thinking particularly of, for example, equal pay cases in this country where I have some experience. In other words, those issues are difficult and controversial, quite apart from the subject matter of this inquiry. You have not talked about protective costs orders in what you have just said, that is to say, going to the judge before you litigate and saying, "We are an NGO in a public interest case seeking to bring the case. Will you please make an order before we go any further that, even if we lose, we will not have to pay the other side's costs?" I should declare an interest because I did the Corner House case originally. Now, am I not right in saying that, since the Corner House case, the courts have been much more liberal in their approach to protective costs orders for the reasons you have been giving already and that we are moving towards a South African position of no costs order in public interest cases fashioned by the courts if governments cannot produce a similar solution? In other words, although I understand what you are saying and share many of your concerns about access to justice, the protective costs order, if it is rationalised, either procedural or otherwise, offers some way, does it not, of taking away the great risk that, if you bring litigation, you are going to have to pay the other side's costs, even if you can find public-spirited lawyers, like yourself, willing to take the case pro bono or on a conditional fee agreement basis?

  Mr Meeran: I think that is absolutely right. As far as I know, the vast majority of cases in which protective costs orders have been made are public law cases. There has only been one example that I know of where a protective costs order has been made in private civil litigation, but, in principle, there does not seem any reason why, if it were extended to cases generally which raise human rights issues, whether those are public or private cases, that would not be an important benefit, I agree.

  Q71  Lord Lester of Herne Hill: I guess what is implicit in my question is that on the other two aspects, class actions in particular, there need to be safeguards against abuse of the system, as also with conditional fee agreements, where a greedy or unscrupulous hypothetical lawyer might, in a conditional fee agreement, if you take the libel area at the moment which is well-known, a claimant's lawyer, knowing that there is no defence, clocks up £200,000 worth of legal costs and the newspaper then has to pay £10,000 damages, but £200,000 or £300,000 legal costs completely unnecessarily because of the unscrupulous conduct of the claimant's lawyer using a CFA. That is one example and I could give others. That is why, is it not, that the MoJ is so concerned about abuses of the CFAs?

  Mr Meeran: Well, I agree, these are valid concerns. The idea of a protective costs order—

  Q72  Lord Lester of Herne Hill: I did not mean a protective costs order, but a CFA.

  Mr Meeran: I understand that, but the protective costs order only solves one of the dilemmas that I mentioned and that is the adverse costs risk faced by the claimant. What it does not assist with is the enormous financial burden that lawyers will have to take on when running these cases on a conditional fee basis, cases which may utilise a vast amount of the law firm's resources for a period which was uncertain, and it is in relation to that aspect that a class action mechanism would assist.

  Q73  Chairman: How would that solve your CFA problem? The whole point about a CFA is that you get an uplift on your costs, there is an excess premium, and that, in order to offset the cases where you lose, you do not get anything paid at all because effectively the law firm runs the risk of losing the case and not getting paid, so how would the class action resolve that issue?

  Mr Meeran: Well, it would mean that you did not have to spend so much money pursuing a case because you could run one case on behalf of a whole class and you could focus your resources then on the generic aspects of the case and not on having to take instructions from vast numbers of people to particularise their cases in order to protect their limitation position.

  Q74  Mr Sharma: John Ruggie has suggested that states consider ways of strengthening the national contact point mechanism through possible linkage to government support, for example, through export credit guarantees. What do you think of this suggestion? Does this go far enough?

  Mr Meeran: First of all, I think the national contact point system and the OECD guidelines are an important tool because there are only so many cases you can litigate, for a start. The problem with the system is that it involves voluntary, non-legally binding guidelines, there is no guidance given to companies about the standards that they are expected to meet in order to comply with the guidelines, the contact point is viewed sometimes as not as impartial because it is part of the UK Government and, finally, the contact point does not have any power to impose sanctions. Now, being able to report non-compliant companies to export credit guarantee departments would be one important additional tool, and also perhaps reporting non-compliant companies to banks, funders, would be another, so, in answer to your question, I do not think that that would be sufficient.

  Q75  John Austin: Can I follow on from that and go on to the Corporate Responsibility Coalition's proposal for a Commission for Business and Human Rights. CORE has proposed that this would not only be a policy guidance, advisory and educational body, but it should also have the power to adjudicate on complaints and impose penalties on UK companies. Have any other states introduced this kind of extraterritorial power, or would the UK be breaking new ground if they went down this road?

  Ms Zerk: As far as the extraterritorial aspects of the Commission's proposal are concerned, this would be a case of the UK trailblazing and providing a less formal means of resolving disputes between people affected in other countries by the operations of UK companies abroad and UK companies. Many of the elements of the CORE proposal are already in place as regulatory devices in the UK. For example, the informal dispute resolution services are already provided within the powers of the Equality and Human Rights Commission, they are provided by the Financial Services Ombudsman. The power to investigate complaints, the power to make financial awards up to a specified limit, the promulgation of certain standards, these are all regulatory devices that are already in use. It would not be the first time either that a state had attempted to control corporate activity abroad, and we were already discussing earlier on the example of what states currently do in relation to bribery and corruption, but it would be the first time that a state were to pull all of this together into one package and create a regulatory body with specific responsibility for the human rights performance of companies abroad.

  Q76  John Austin: Mr Frankental, do you have anything to add?

  Mr Frankental: I can perhaps describe a little bit some of the more potential functions, but that was not really your question.

  Q77  John Austin: I know that Mr Meeran is somewhat sceptical about an enhanced role for the national contact points system, but there are those who argue that a strengthened system could provide a non-judicial solution. If we pursue the CORE proposal, is that going to detract from the possibility of a strengthened NCP?

  Mr Frankental: Not at all; the two could exist side by side. The problem at the moment is that the NCP is part of a mechanism that has been established by the OECD and that mechanism does not allow for remedies, so either the UK would have to develop this mechanism in an entirely different way or the UK and other governments would have to press the OECD to change not just the guidelines to give them more specificity on human rights because, as my colleague said, they do not actually specify what activities are acceptable and what are not, but they would actually have to offer a remedy. Governments would have to be committed, as part of the mechanism, not just to cite the company, but to actually offer a remedy to the victims. The Commission would have an ombudsman role and would receive complaints, investigate complaints and offer a remedy and, at some point in the future, there is no reason why that function should not subsume the national contact point, but at the moment it is a completely different kind of animal with no enforcement, no remedies, no specificity on human rights, whereas what we are proposing with the Commission would be an ombudsman which would be able, under particular circumstances, to receive complaints and offer a remedy and have some limited enforcement powers, and that could include requiring the company to give an undertaking not to repeat the behaviour that led to the abuses in the first place. Those kinds of requirements of companies to give undertakings are not part of the remit of the existing national contact points.

  Q78  John Austin: In her answer to me earlier, Jennifer Zerk mentioned the role of national human rights institutions. We have not yet taken evidence from the HRC, but can you tell us what you think the Human Rights Commission in the UK could add to the process?

  Ms Zerk: Well, they clearly have a very important role to play in relation to business and human rights issues, particularly in relation to equality and discrimination issues where they have a specific mandate to enforce specific pieces of legislation, and they have a number of very useful powers at their disposal to do this, including commissioning research, carrying out inquiries and promulgating codes of conduct as well. It will be interesting to hear what their evidence to you is, but, as yet, they do not seem to be playing a very significant role in relation to business and human rights, although, it has to be said, there has been a very interesting submission from the Scottish institution which clearly advocates a greater role for these kinds of institutions in relation to business and human rights issues, particularly in relation to foreign, extraterritorial issues. It may just be that they are very new institutions, and they may have other priorities, but it would be good to find out what their plans are, of course. As regards business and human rights issues in other countries they are restricted by legislative mandate and resources, although, yes, it would be interesting to hear some more about that.

  Q79  John Austin: That is true here with the EHRC terms of its powers of investigation and enforcement, is it not, which are limited to discrimination and the Act?

  Ms Zerk: That is right.

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