There have been two recent developments in the UK which further highlight the litigation risk for international companies in respect of the activities of their foreign subsidiaries. The UK is certainly not the only regime where there has been a notable increase in human rights related litigation but a distinct pattern is emerging.
PGI Group (PGI), a group of companies that operate in the agribusiness and renewable energy spaces, and its Malawian subsidiary, Lujeri Tea Estates Ltd (Lujeri), are facing a legal action in the UK High Court in connection with alleged systemic sexual abuse, including rape, sexual assault and discrimination, in Malawi. Lujeri is a supplier to a number of known UK tea brands, including Typhoo, Yorkshire Tea and Tetley. It is also a major supplier of macadamia nuts, which are grown in its Malawi orchards.
In the meantime, British American Tobacco (BAT) and Imperial Brands sought last month to strike out claims made against them and their subsidiaries by Malawian tobacco farmers, which were filed in the UK High Court last December.
These cases add to the growing list of companies to have faced legal claims in the UK courts in respect of the actions of their foreign subsidiaries (see our previous commentary on Camellia plc, Royal Dutch Shell plc and Vedanta Resources plc). The cases also highlight the increasing litigation risk dynamic amid the growing trend of human rights and environmental litigation and underline the importance of UK companies taking steps to identify, prevent and mitigated human rights-related risks both in their own operations and also in the operations of their subsidiaries.
Human Rights and Environmental Litigation – A Growing Trend
The claim against Lujeri and PGI is being brought in the UK High Court, but will be determined under Malawi law. The claim names 36 alleged male perpetrators and alleges that there is “a systemic problem of male workers at plantations abusing their positions of power” to rape, sexually assault, harass and coerce women they supervise into sex. The claims date from 2014 – 2019. The claim also alleges that PGI and Lujeri were negligent in failing to protect women from sexual abuse at work. In response, PGI has applied to strike out the claim on the grounds that it is a holding company that does not take an active role in the operations of the businesses it owns. Lujeri has also disputed the jurisdiction of the English courts to hear the claim. A hearing to determine both matters is scheduled to take place at the end of June 2021.
While Lujeri may be contesting the jurisdiction of the UK courts, recent precedent indicates the willingness of the UK courts to accept jurisdiction for claims against a UK parent where adverse human rights and environmental impacts have been committed by its foreign subsidiary. For example, in Vedanta Resources PLC and another v Lungowe and others, the UK Supreme Court ruled that Zambian villagers who had been the victim of pollution from a nearby mine could seek justice in the UK courts, as there was a risk that they would not be able to achieve justice in the Zambian courts (see our Legal Update). In Okpabi and others v Royal Dutch Shell Plc and another, the UK Supreme Court provided further commentary on the circumstances in which a UK parent company will be held liable for the actions of its subsidiary, including in relation to ESG-related harms, such as environmental damage (see our previous Blog Post).
The claims against BAT and Imperial Brands and their subsidiaries by some 2000 tobacco farmers follow investigations by the Guardian Newspaper into child labour in the Malawian tobacco fields which also led to the suspension of all imports of tobacco from Malawi by the US Government. They allege conditions of work that amount to child labour, forced labour, unlawful compulsory labour and exploitation under Malawian law – as well as breaching UK Modern Slavery Act, Article 14 of the European Convention on Human Rights, and International Labour Organisation’s Conventions. BAT and Imperial Brands assert that the claimants cannot establish that any of them grew tobacco that the two companies purchased. The tobacco farmers acknowledge the difficulties in obtaining evidence to establish the companies’ supply chains but they say that the industry is deliberately opaque – in part to avoid scrutiny of anti-competitive and unlawful practices.
Practical Steps to Mitigate Human Rights Risks
Having in place a robust and effective human rights risk management programme and strategy is instrumental to identifying, preventing and mitigating adverse human rights impacts. Best-in-class companies are applying the below strategies to continually improve their human rights and environmental risk management:
- Integrating human rights into group policies and strategic planning processes;
- Disclosing how human rights considerations are integrated into strategies, policies and procedures;
- Carrying out a human rights impact assessment and taking proportionate counter-measures, as well as communicating internally and externally on what measures have been taken;
- Reviewing and reinforcing complaints mechanisms and speak-up programs;
- Ensuring the business is well equipped to deal with ‘crises’;
- Reviewing the extent to which their board is equipped to address supply chain risks; and
- Reviewing the role, resources and expertise of the legal and compliance functions, who should play a key part in addressing these new challenges
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