Corporate Legal Accountability Quarterly Bulletin - Parent Company Liability

Corporate Legal Accountability, The Business and Human Rights Resource Centre

20/09/2018

Multinational corporations (MNCs), comprised of a parent company (with controlling interest) based in one country (home state) and multiple subsidiaries operating across the world, play a dominant role in the global economy. Business activities of such corporations are known to cause a range of adverse human rights and environmental impacts, in particular in countries in which the subsidiaries operate (host states). The communities and individuals affected by these activities invariably struggle to hold MNCs accountable and to obtain redress for the harm suffered. However, as recent caselaw continues to show, doing so is no easy task, and plaintiffs face a series of legal and practical barriers when attempting to obtain remedy.

Each entity that makes up an MNC is usually established as a separate legal person, and therefore only subject to the laws of the jurisdiction in which that entity is incorporated. More often than not, the subsidiaries of a company headquartered in the Global North operate in developing countries that may have laxer legislation, lower labour and environmental standards, weak governance and/or suffer from widespread corruption. Lack of due process, judicial independence and weak law enforcement may significantly limit access to legal remedy for victims of business-related human rights abuse when they bring claims against the subsidiaries in the country where the harm occurred (host states).

In view of these limitations, victims often find themselves forced to seek justice in a foreign court, typically where the parent company is incorporated and supposedly carrying out global management of its subsidiaries' operations. Targeting the parent company along with its overseas subsidiaries can offer certain advantages to the victims of corporate abuse.

Compared to their subsidiaries, parent companies tend to have greater assets at their disposal to remedy the alleged harm and provide meaningful compensations to victims. On the other hand, courts are better equipped to enforce judgements against a parent company domiciled in their jurisdiction. However, convincing a foreign court to admit jurisdiction over a case alleging an abuse suffered abroad may be a challenging task for the plaintiffs.

To continue reading click here