Social Implications For The Developing World Law International Essay

Published Date: 02 Nov 2017

"This is it -- they are going to arrest us all and execute us. All for Shell." [1] 

-Member of the Ogoni tribe protesting against the Shell pipeline in Nigeria

Economic globalisation has changed the dynamics in which multinational corporations (MNCs) and States operate in the institutional and regulatory context. As businesses internationalise and States privatise previously public services, the legal frameworks governing operations of MNCs have been significantly impacted. [2] Socially, developing countries which play host States to MNCs also find themselves confronted with human rights, environment, and social justice issues as result of multinational operations. [3] 

With intensified globalisation come intensified social costs. High profile cases of social and environmental destruction wrought by the operations of MNCs have led to a clamour for greater criminal and civil accountability. For instance, human rights abuses have been reported in the oil operations of Unocal and Shell in Burma and Nigeria; the use of child labour in Vietnam by Nike, and the asbestos poisoning alleged against Cape Plc. [4] There is an increasing demand for corporations to be held accountable for the social and environmental impacts their operations have on the peoples of host States. What was previously perceived as mutually exclusive spheres of business and human rights has been displaced by a growing acknowledge that these spheres are interdependent. However, full accountability of MNCs is obstructed by corporate law, notably the doctrine of separate corporate personality or the "corporate veil". [5] The economic power of MNCs overwhelms that of countries in the developing world. This explains why States are often hesitant to exact accountability against MNCs. Nonetheless, considering the extent of social and environmental devastation MNCs pose to host States, it is likely that the cost of investment is too high for developing countries to burden. This paper asserts that the social impacts of MNC operations protected by the corporate veil outweigh the benefits of investment. It will discuss the legal and regulatory framework of MNCs and examine statutory examples and case law to substantiate this thesis.

II. Discussion

Multinational parent companies are shielded from accountability because of the limited liability concept, meaning that whatever conduct subsidiary companies demonstrate overseas liability will not attach to the shareholders. Because of the doctrine of separate corporate personality, corporations cannot be imprisoned. In the context of host states in the developing world, it is difficult to go after MNCs for whatever social and environmental damages the operations of MNCs may cause. [6] 

a. MNCs and the doctrine of separate corporate personality

The decision in Salomon v Salomon [7] affirmed the principle of the separate corporate personality. This is a legal principle which provides that upon incorporation, the company is now a legal entity separate from its shareholders. This principle remains a standard in corporate law for hundreds of years. Shareholders cannot be sued for debts incurred by the company. Defined, the principle of separate corporate personality means that "a company exists as a separate legal entity, separate to its members and separate to its directors." [8] The separate legal entity principle is often referred to as the "corporate veil" fiction. In corporate laws covered in European Union countries and the United States, limited liability attaches to MNCs. Multinationals however may have codes of conduct to follow in line with their corporate social responsibility efforts. [9] 

European Union. Under corporate law, European parent companies have very limited liability should their subsidiary companies commit abuses in host States because of the "separate legal personality" principle. [10] Liability may attach in specific conditions such as if the relationship between the parent company and subsidiary is close enough for the parent company to be aware and in substantive control of operations that resulted in human rights or environmental damages. [11] Nonetheless, current law provides that corporations operating extraterritorially cannot be subjected to human rights standards provided under international law and thus cannot be made accountable. [12] In other words, MNCs and transnational corporations (TNCs) are not obliged to ensure the adherence of human rights in their operations. [13] National governments from which MNCs originate cannot also be held accountable. While there are voluntary initiatives such as corporate social responsibility undertakings, no legislation in international makes national governments answerable for acts committed by MNCs or TNCs or for alleged complicity in the commission of these acts. [14] However, states can have laws which can punish corporations for human rights abuses. [15] 

United States. The US passed the US Foreign Corrupt Practice [16] which attempts to extend criminal legislation to national corporations operating on US soil but the law has met vigorous resistance from other nations due to "the potential costs to diplomatic cooperation and access to markets, investment sites, and raw materials." [17] Moreover, serious political barriers exist to prevent the implementation of regulatory frameworks of MNCs, particularly concerning US MNCs. In an Amnesty International report, [18] four oil giants (ExxonMobil, Chevron and Texaco, Occidental Petroleum and Freeport-McMoRan) were criticised for being notorious human rights abusers in the third-world countries they operate on. The report alleged that all four companies were able to affect a powerful lobby in their favour to the tune of over $2.8 million in campaign contributions for 2002. [19] Another significant law concerning accountability of US companies operating on developing countries is the United States Alien Tort Claims Act (ATCA). The ATCA is a two-centuries-old law which has been used to bring MNCs to court for alleged human rights violations. [20] The celebrated first case using the ATCA was Filartiga v. Irala – Pena [21] which affirmed that federal courts exert jurisdiction on issues pertaining to international law. Since this landmark case, multiple actors have been sued via the ATCA, including MNCs for involvement in human rights and other violations. [22] The continuing use of the ATCA has been feared to open the floodgates which would unfairly burden MNCs and hamper the US judicial system. However, 2006 statistics shows that despite the existence of this law, very few cases have been filed to hold MNCs accountable. Out of the 60 ATCA cases in 2006, only half or 32 were cases against MNCs and half of these cases were dismissed on substantive or procedural grounds. [23] 

b. Relevant Cases

Judgments have been rendered which pierced the separate legal entity principle and MNCs were held accountable but these cases are few and far in between. Decisions in all these cases depended on the notoriety of the abuse itself as well as people’s mobilisations in host countries. Still, the fact remains that there is absolutely no obligation on the part of MNCs to protect the environment and ensure human rights standards are followed. While compensatory damages are awarded in these decisions, sans a binding law which can hold corporate actors liable for massive social and environmental destruction, the social costs of their operations will still outweigh the benefit of investment to the host developing country. A few cases are summarised to illustrate the accountability of MNCs to the developing world.

Thor Chemicals Holdings Ltd. Thor Chemicals is an English company which transferred its mercury manufacturing plants to South Africa in the 1980s to escape domestic criticism for the dangers its operations posed on its workers. Soon, the South African workers registered elevated mercury levels and they soon found themselves replaced by casual workers. In 1992, mercury poisoning was found to have killed three workers while seventeen others suffered from mercury poisoning. [24] Damages were sought before the English High Court and Thor attempted to half judgment by alleging forum non conveniens. The High Court ruled that it had jurisdiction and ordered Thor to pay for damages for "its negligent design, transfer, set-up, operation, supervision and monitoring of an intrinsically hazardous process". [25] Thor settled in 1997 for £1,300,000. [26] 

RTZ Corp. Plc. British company RTZ was sued by an employee working for its Namibian subsidiary Rio Tinto who developed laryngeal cancer. In Connelly v. RTZ Corporation Plc. and Another, uranium mine worker Connelly alleged that the cancer was due to the failure of the subsidiary company to provide face masks to protect workers from dust. He alleged that RTZ was fully aware of this lack of precaution and that it had strategic control over decisions pertaining to safety. [27] The High Court ruled forum non conveniens and decided that Namibia is the natural forum for the case before deciding on appeal that he could take the suit to England.

Cape Plc. This case involved asbestos mining company Cape Plc., a British company with a subsidiary company in South Africa. No health and safety precautions existed in the 1970s and high asbestos levels led to the endangerment of the workers and the communities near the mine. Cape plc was sued in 1997 because of asbestos-related lung cancer developed by workers and residents. The English High Court decided it had no jurisdiction in the case only to reverse it upon appeal, citing that "the alleged breaches of … duty of care … took place in England rather than in South Africa". [28] 

Wiwa v. Royal Dutch Petroleum (Shell). This is a high-profile ATCA case initiated by a Nigerian indigenous tribe against Royal Dutch Shell for its complicity in human rights abuses committed by the Nigerian government. [29] The tribal people alleged that the torture and hangings committed against the Ogoni was the government response to the construction of Shell pipeline, which the people were against. Shell, in its defence, alleged among others that there was lack of jurisdiction because of the separate legal entity principle. It also alleged that the ATCA had no coverage over TNCs due to the principle of forum non conveniens. The Court of Appeals held that the US was a proper forum and rejected Shell’s plea an held that ATCA is applicable to the case because "the actions of Royal Dutch/Shell … constituted participation in crimes against humanity, torture, summary execution, arbitrary detention, cruel, inhuman and degrading treatment and other violations of international law". [30] 

Doe v. Unocal. Doe v. Unocal [31] was a landmark decision which further stresses the importance of holding corporations accountable for human rights violations in developing countries where they operate subsidiaries. Fifteen Burmese farmers filed torts claims with the ATCA versus American oil company Unocal for human rights abuses committed by Burmese military in the course of the construction of a pipeline. The Court held that considering the egregious human rights record of the Burmese military, it knowingly became complicit in the commission of atrocities against civilians. However, the District Court initially dismissed the case on the ground of strict liability. This was overturned upon appeal and on 2005, plaintiffs were compensated.

These are some of the high-profile cases where MNCs have been made accountable for violating economic and socio-cultural rights of people in host countries in the developing world. At present, in many developing countries, MNCs are alleged to have been involved in—or were found culpable for numerous rights violations including child labour (allegations of forced labour against Firestone operating in Liberia) [32] , forced labour (Unocal was complicit in hiring people forced to work by Burmese military in the pipeline) [33] , torture (Private security contractor Blackwater not responsible for killing and wounding civilians in the context of war in Iraq), [34] gender discrimination (sexual abuse allegations of Thai women workers in export zones [35] and in Mexico’s maquiladoras [36] ).

III. Analysis and Conclusion

Presented in the discussion were some notable examples of multinational corporations being held accountable for injurious actions in a developing nation, despite the separate legal entity principle. Cases such Cape, Thor, and Wiwa offered not only substantial compensation for damages but they serve as warning against MNCs that human rights standards are not meant to be applied selectively. However laudatory these high profile cases are, they are rare and do not alter the existing regulatory framework regarding MNCs. However, the settlements gained in these cases are a mere cautionary tale and do not serve as legal binding precedent in the developing world. Almost all of the aforementioned cases were settled out of court. Absent a legal binding precedent, there is no guarantee that such egregious acts that have a significant social impact in these countries will be stopped. That the corporate veil in these instances has been successfully pierced may be a welcome thing, but it is still far from certain. The social costs – environmental degradation, violations to the right to life, labor rights and indigenous rights – still outweigh the lack of a clear legal framework to hold MNCs accountable for violations in host developing countries. International law and national laws in developed nations where 90% of these TNCs originate from do not obligate the latter to pursue human rights standards. Thus, a legally binding and enforceable international convention needs to be formulated and practiced in order to exact accountability not only among subsidiary companies but parent companies as well. [37] Citizens must be able to enforce rights specified in this proposed convention.