This entry is drawn from Chapter 2, “Legal Risk,” of Business and Human Rights as Law (LexisNexis 2019) which surveys developments in national and international law related to corporate respect for human rights.

The Guiding Principles on Business and Human Rights are intrinsically and expressly voluntary, but they have nonetheless inspired — and are inspiring — material developments in human rights-related legal risks facing businesses across the globe. The legal developments are still nascent. The trend lines, however, are clear. Emerging legal risks track the structure of the Guiding Principles to encourage or mandate corporate human rights risk management through practical governance, including due diligence and remediation. To the extent such risks are built on voluntary corporate responsibility standards, those standards will themselves need to be justiciable for liability to accord with the rule of law.

In parallel to legislation — and at times fueled by it — litigation risk related to business and human rights is increasing across jurisdictions, specifically in the form of transnational tort claims, misrepresentation claims, and shareholder class actions. Chapter 2, “Legal Risk,” provides a survey of relevant business and human rights legal developments to illustrate trend lines and what business should anticipate. This entry, part 1 of 2, summarizes the trends in litigation; the next entry summarizes legislative developments.

Transnational tort litigation provides fertile ground for the Guiding Principles to shape corporate liability. In this regard, there is a critical distinction between human rights litigation and tort litigation simpliciter. The former turns on principles of international law, which is generally geared to public wrongs. Alien Tort Statute claims in the United States were expected to show a nexus to government action. By contrast, tort litigation simpliciter draws on conventional principles of civil liability, particularly for negligence and voluntary assumption of risk, to ground corporate responsibility for human rights injury.

Recent English and Canadian cases show how corporate parents may be held liable for extraterritorial human rights impacts based on negligent risk management. In this context, voluntary commitments and standards (notably the Guiding Principles) can shape a reasonable business’s duty and standard of care — independently of separate corporate personality. While the contours of such risk are still being defined, the direction of travel is clear: corporate parents across jurisdictions will face increasing legal exposure flowing from injuries most closely related to the actions of far-flung subsidiaries. Navigating that risk will turn on effective, objectively justifiable human rights governance.

Key cases discussed: Filartiga v. Pena-Irala 630 F.2d 876 (2d Cir. 1980); Choc v. Hudbay Minerals Inc., [2013] O.J. №3375, 2013 ONSC 1414, 116 O.R. (3d) 674 (Ont. S.C.J.); Araya v. Nevsun Resources Ltd., [2017] B.C.J. №2318, 419 D.L.R. (4th) 631 (B.C.C.A.); Garcia v. Tahoe Resources Inc., [2017] B.C.J. №117, 2017 BCCA 39 (B.C.C.A.); Das v. George Weston Lt., [2017] O.J. №3542 (Ont. S.C.); Chandler v. Cape plc., [2012] EWCA Civ 525, [2012] 3 All E.R. 640; AAA and others v. Unilever plc and another company [2017] EWHC 371, [2017] All E.R. (D) 07 (Q.B.); Lungowe and others v. Vedanta Resources plc and another, [2017] EWCA Civ 1528, [2017] All E.R. (D) 102; Okpabi and others v. Royal Dutch Shell plc and another, [2018] EWCA Civ 191, [2018] Bus. L.R. 1022.

Another stream of litigation is related to misrepresentation claims, focused on the veracity of corporate policies, statements, and disclosures. Such claims are often pleaded as part of broader transnational tort claim, helping to frame the duty and standard of care in the cases above. They also increasingly ground stand-alone claims based on fair-competition and consumer-protection legislation. While claimants have yet to succeed in establishing liability for misrepresentations regarding a company’s human rights impact, the claims are nevertheless proliferating and shaping corporate behavior. What these cases also indicate is a trend toward increased judicial scrutiny of public representations by companies regarding their human rights policies, practices, and governance. In the wake of this judicial scrutiny — and attendant legal, financial, and reputational risks — the specificity and certainty of corporate human rights representation, particularly as they relate to industry standards, becomes all the more critical.

Key cases discussed: Kasky v. Nike, Inc. 45 P.3d 243 (Cal. 2002), cert. denied 539 U.S. 654 (2003); Dana v. Hershey Co., 180 F. Supp. 3d 652, 2016 U.S. Dist. LEXIS 41594 (N.D. Cal. March 29, 2016); Sud v. Costco Wholesale Corp., 2016 U.S. Dist. LEXIS 5524 (N.D. Cal. January 15, 2016); Wirth v. Mars Inc., 2016 U.S. Dist. LEXIS 14552 (C.D. Cal. February 5, 2016); Barber v. Nestlé USA, Inc., 154 F. Supp. 3d 954, 2015 U.S. Dist. LEXIS 170608 (C.D. Cal. December 9, 2015).

The confluence of legal, reputational, and financial corporate risks related to human rights governance also implicates director and officer liability and potential shareholder class actions. In the Canadian case of Drywall Acoustic Lathing and Insulation Local 675 Pension Fund (Trustees of) v. SNC-Lavalin Group Inc, the claimants argue that that the defendant company misrepresented itself in various disclosure documents and filings as a “socially responsible company” that conducted business in practice with its Code of Ethics and Business Conduct. In New York, a putative shareholder class action is pursuing the directors of Tahoe Resources, a mining company, for misrepresenting the corporate responsibility standardsimplemented at its Guatemalan operations. Mitigating it will turn on the efficacy of corporate human rights governance measures and the veracity of human rights representations. And judging those will depend on justiciable metrics of effectiveness and truth.

Key cases discussed: Stone v. Ritter 911 A.2d 362 (Del. 2006); In re Abbott Laboratories Derivative Shareholders Litigation 325 F.3d 795 (7th Cir. 2003); Drywall Acoustic Lathing and Insulation Local 675 Pension Fund (Trustees of) v. SNC-Lavalin Group Inc. [2015] O.J. №5631, 81 C.P.C. (7th) 91 (Ont. C.A.).

In the same way that voluntary standards are finding their way into claims made before domestic courts, they are beginning to infiltrate the reasoning of international investment tribunals. The roots of this reasoning can be found in corruption and fraud defences used by states to deny investors treaty protection based on principles of “transnational public policy”. The Guiding Principles provide an alternative route to incorporating human rights concerns in investor-treaty claims, by framing effective human rights governance as a principle of transnational public policy that investors must follow.

This theory has been tested to some extent in Urbaser S.A. v. The Argentine Republic, which was the first case to feature a substantive consideration of a host-state argument based on corporate human rights responsibility. Argentina argued that the investor’s claim should be dismissed because it did not respect the human right to water. The tribunal rejected Argentina’s argument based on the particular facts. But, critically, it noted that “international law accepts corporate social responsibility as a standard of crucial importance for companies operating in the field of international commerce”. Despite its outcome, Urbaser represents a paradigm shift in international investment law for the explicit recognition that corporations can owe human rights obligations.

Key cases discussed: Inceysa Vallisoletana, S.L. v. Republic of El Salvador, ICSID Case No. ARB/03/26, Award (August 2, 2006); World Duty Free v. Kenya, ICSID Case No. ARB/00/7, Award (October 4, 2006); Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v. The Argentine Republic, ICSID Case No. ARB/07/26, Award (December 8, 2016).