Liability of Multinational corporations/Companies

In one minute

International law was built for States, not companies. A victim of a multinational company's pollution cannot sue it before an international tribunal in the way one State can arbitrate against another.

The company's own structure adds a second barrier. A parent and its local subsidiary are separate legal persons. The Bhopal gas leak showed the problem, and recent United Kingdom decisions show one way round it.

Legal provision

• Bhopal Gas Leak Disaster (Processing of Claims) Act, 1985: authorised the Government of India to act as the exclusive representative of all victims, and so to consolidate their claims.
• United Nations Guiding Principles on Business and Human Rights (2011): 31 principles on the State's duty to protect, the company's responsibility to respect and access to remedy. They are soft law.
• Vedanta Resources plc v. Lungowe [2019] UKSC 20 and Okpabi v. Royal Dutch Shell plc [2021] UKSC 3: decisions of the United Kingdom Supreme Court on when a parent company owes a duty of care.

Meaning and definition

A multinational company is a company group that operates in several countries, usually through locally incorporated subsidiaries. The home State is where the parent sits. The host State is where the subsidiary runs its plant.

The question here is when the parent, or the group, answers in law for environmental harm done by the subsidiary in the host State.

Detailed explanation

Step 1: why the structure shields the parent

The rule of separate corporate personality treats a company as distinct from its shareholders. A parent that owns a subsidiary is therefore not automatically liable for the subsidiary's wrongs. The rule serves honest business by limiting investors' risk. It also lets a rich parent stay behind a thinly funded subsidiary.

Step 2: the Bhopal litigation

On the night of 2 and 3 December 1984, methyl isocyanate gas leaked from a pesticide plant at Bhopal run by Union Carbide India Limited. The American company Union Carbide Corporation held 50.9 per cent of its shares. Thousands died and many more were injured.

The victims' side sued the parent in the United States. A United States federal court dismissed those suits on the ground of forum non conveniens (the case is better heard elsewhere), because the plant, victims and evidence were in India. The matter returned to India. The Government of India took up the claims under the 1985 Act. In February 1989, a settlement of US $470 million was made with the corporation and approved by the Supreme Court of India. Victims objected that they had not been heard.

Step 3: soft-law responses

No binding treaty makes multinationals directly liable for environmental harm. The main response is soft law. The 2011 Guiding Principles rest on three ideas: the State must protect against abuse by companies, companies must respect human rights, and victims need access to remedy.

Step 4: suing the parent at home

The United Kingdom Supreme Court has opened a route. In Vedanta (2019), Zambian villagers were allowed to pursue a negligence claim in England against a parent over pollution from its Zambian copper-mining subsidiary. In Okpabi (2021), Nigerian claimants from the Niger Delta were allowed to pursue a similar claim against the Shell parent.

The Court said a parent's control over the subsidiary is only a starting point. Group-wide policies may or may not create a duty, and this is a question of fact for trial. Both rulings decided only whether the claims could go forward. Neither found the parent liable.

Step 5: the Indian domestic route

Indian courts can also act against an enterprise that runs a hazardous plant in India. In M.C. Mehta v. Union of India (Oleum Gas Leak Case), the Supreme Court laid down absolute liability for enterprises engaged in hazardous or inherently dangerous activities. This rule works inside India against the operating company.

Don't confuse: State liability and company liability

Point	State liability	Company liability
Who answers	A State, to another State	A company, to victims
Where decided	Talks or international arbitration	National courts, host or home
Main law	International law	Company law, tort and local statutes

Common mistakes

• Saying international law directly binds multinationals. It binds States, and the company route is mostly national law and soft law.
• Saying Vedanta and Okpabi held the parents liable. They allowed the claims to proceed.
• Calling the Guiding Principles a treaty.
• Forgetting that in Bhopal the United States court sent the case to India.

Leading case laws

• M.C. Mehta v. Union of India (Oleum Gas Leak Case)

  Facts. A leak of oleum gas from a Delhi plant harmed people nearby.

  Principle. Enterprises engaged in hazardous or inherently dangerous activities face absolute liability.

  Why it matters. It is the Indian answer to the kind of harm seen at Bhopal.

• Vedanta Resources plc v. Lungowe [2019] UKSC 20

  Facts. Zambian villagers claimed against a UK parent over pollution by its mining subsidiary.

  Principle. The claim against the parent was allowed to proceed in England.

  Why it matters. It opened the home-court route.

• Okpabi v. Royal Dutch Shell plc [2021] UKSC 3

  Facts. Nigerian claimants from the Niger Delta sued the Shell parent over oil pollution.

  Principle. Control is a starting point, and group-wide policies may ground a duty, as a question of fact.

  Why it matters. It applied Vedanta to another group, and the claims could go forward.

How to write this answer in the exam

Key points to remember

• International law binds States, not companies.
• Separate corporate personality shields a parent.
• Bhopal: US suits dismissed on forum non conveniens; 1985 Act; settlement of US $470 million in 1989.
• Guiding Principles, 2011: soft law with 31 principles.
• Vedanta (2019) and Okpabi (2021): parent claims allowed to proceed.

Quick self-test

Related topics

• State Liability
• International Environmental Regime
• Strict Liability & Absolute Liability