"Mere Corporate Presence" and Corporate Liability: the US Supreme Court's Nestle Decision

The case concerned the alleged trafficking and enslavement of six Malian individuals on cocoa farms in the Côte D'Ivoire (the "Respondents"). Nestle, Cargill and other corporate entities (the "Petitioners") did not own or operate the farms, but they did purchase cocoa from the farms in which these Respondents were allegedly enslaved, and they did supply training, fertiliser, tools and cash in exchange for the exclusive right to purchase cocoa. The Respondents sued the Petitioners, seeking to apply the Alien Torts Statute (the "ATS"), on the basis that they had "aided and abetted" modern slavery practices.

The ATS is seen by many civil society groups and activists as a potential route to hold corporations to account for breaches of international law. Accordingly, many cases have been brought under the ATS over the past 40 years and the US Supreme Court has been asked on several occasions to consider the scope of the ATS. There were two key parts to the Nestle Decision:

• First, there was the question of the extraterritorial application of the ATS. The Supreme Court had previously held (in Kiobel v Royal Dutch Petroleum Co., 569 U.S. 108 (2013)) that the ATS does not have extraterritorial application. Consequently, the Respondents needed to establish that conduct relevant to the ATS's focus occurred in the United States for there to be a permissible domestic application of the ATS. Accordingly, the Petitioners submitted that the conduct in question was not central to the ATS' focus, and as such the Respondents had failed to demonstrate a sufficient connection between the alleged harm and the conduct of Nestle and Cargill within the United States.
  
  
• Second, there was the question of the cause of action itself. The Respondents argued that ATS allowed for a claim to be brought on the basis that the Petitioners aided and abetted those who allegedly enslaved the Respondents. They argued that the focus of the ATS was conduct which violates international law, and that domestic conduct can aid and abet an injury that occurs overseas. The Petitioners argued that the cause of action was novel and that the Respondents were asking the Court to effectively create new law.

The US Court of Appeals for the Ninth Circuit had previously accepted that the Respondents could apply the ATS, on the basis that the harm alleged by the Respondents was ultimately caused by the financing decisions of the Respondents, and that these decisions "originated" domestically in the US. The Supreme Court disagreed, and overturned this decision, holding that the Respondents had improperly sought to apply an extraterritorial application of the ATS. The majority of the Supreme Court considered that the there was an insufficient connection between the overseas conduct and the Petitioners' activities in the United States. The majority considered that the Respondents could only allege "general corporate activity" and that there must be something more in order for the ATS to apply.³

The majority further held that the Courts cannot create a new cause of action – this role lies with Congress, not the Judiciary. In the leading Opinion, Thomas J considered that there would be foreign policy concerns associated with creating a cause of action to enforce international law. Thomas J considered that the only "international" torts that could apply under the ATS related to three historical torts that existed at the time the ATS was passed (i.e. violation of safe conduct, infringement of the rights of ambassadors and piracy). Thomas J considered that, in the absence of Congressional intervention, no new causes of action could be brought under the ATS. In support of this point, he pointed to the amendments made to enforcement against human trafficking in the Trafficking Victims Protection Reauthorisation Acts of 2003 and 2008, as examples of a Congress-driven approach to modern slavery, and noted that Congress may decide to create a cause of action against one category of defendants, and not another, and that this approach will evolve over time after careful thought and consideration on the part of Congress (as opposed to the Judiciary).

Within the US there are other existing avenues for redress in relation to enforcement against modern slavery, though these do not necessarily provide an avenue for suit in all respects. In particular, the 2008 reauthorisation of the Trafficking Victims Protection Action allows for claims to be brought against those who have indirectly benefited from human trafficking (for example. financially). 

At the State level, many States in the US have enacted modern slavery legislation including, in some jurisdictions (e.g. Florida), legislation that allows for criminal and civil claims to be brought against corporates that have benefitted from forced labour or human trafficking. Indeed, the UK's Modern Slavery Act is largely based on the California Transparency in Supply Chains Act, one of the first pieces of legislation in the world to specifically target large retailers and manufacturers.

Although the Supreme Court has held that there is a high threshold for bringing a claim under the ATS, the Supreme Court has made it clear that corporates can be pursued under the ATS. Five of the Justices concluded that corporates are not, as a general proposition, immune from suit under the ATS, with Gorsuch J going so far as to say that the law generally places corporations and individuals on equal footing when it comes to assigning rights and duties. Though this may not be of much comfort to the Respondents in the Nestle Decision, it is of significance in the broader context of corporate liability. 

The statements in the Nestle Decision regarding corporate liability indicate that corporates, even in the US, may be liable for similar conduct under other statutes. This, together with the growing trend in the UK and Europe of holding corporates accountable for human rights violations in their supply chains, require those in management to play close attention to risk factors in their supply chains.

How does the US approach compare to other jurisdictions?

While "parent company liability" and "value chain" claims are in their relative infancy in the UK, given that the UK Supreme Court has now twice declined to strike out "parent company liability" claims⁴, we expect to see more of these claims coming before English Courts in the future. For example, the English courts have demonstrated in recent years an increasing willingness to allow novel and ambitious international tort claims to progress to trial, overcoming early stage procedural challenges to their viability.

Whether this procedural flexibility will ultimately lead to these claims succeeding is, however, moot. As we recently explored in an article on this topic in our Disputes Resolution Yearbook, in both Maran and Kalma the Court of Appeal expressed scepticism (albeit in obiter) in relation to similar claims where the harm to the claimants was caused not by the defendant, but by a third-party (as was the case in the Nestle Decision). Similarly, we note that the claimants in Kalma sought (and failed) to impose a form of accessory liability (i.e. a substantively similar concept to the "aiding and abetting" cause of action in the Nestle Decision) on the UK-domiciled defendant for the actions of a third-party (the Sierra Leone Police). So while some procedural barriers to these claims may have fallen in the UK, claims brought in the UK may still face significant legal hurdles. (Although we note that in the recent Josiya claim, the High Court declined to strike out a novel value chain claim against two UK-domiciled tobacco companies. For more on this, see our recent article.)

Regulatory developments

UK-domiciled businesses should, however, also keep an eye on ongoing regulatory developments, both in the UK and internationally. The UK already has in place a corporate reporting regime under the Modern Slavery Act 2015, and the UK Government has announced an intention to expand it following pressures from NGOs, consumers and business leaders. In addition, civil society groups are campaigning for the UK Government to introduce a form of mandatory human rights and environmental due diligence across their global value chains ("mHRDD"), similar to the EU's proposed mandatory value chain regime (described below). A mHRDD regime is directed towards holding businesses accountable for human rights and environmental impacts further along their "value chain", usually in emerging markets. This would potentially broaden the scope of the current UK Modern Slavery Act corporate reporting regime, which focuses mainly on an organisation's upstream suppliers. The proposed mHRDD would require businesses to (i) carry out supply chain or value chain due diligence and (ii) identify and assess human rights infringements and/or environmental risks flowing from their operations.

Within the EU, Member States are starting to introduce mHRDD regimes to apply to European businesses throughout their global supply chains. For example, France's "Duty of Vigilance" law, passed in 2017, is already starting to see civil claims being brought against businesses for failing to put in place measures to prevent deforestation in Brazil. Further, the European Commission is currently considering whether to introduce an EU-wide mHRDD regime, potentially with a transnational effect. For more on the development of the EU's proposed mHRDD regime, please refer to our recent briefing on the subject.

Key takeaways

• International regulatory and litigation developments and trends should be carefully monitored by companies with international operations.
  
  
• While both the US and the UK have introduced legislation that targets some types of human rights due diligence (e.g. modern slavery) neither country has introduced a comprehensive due diligence legislative regime in the mould of those we are starting to see in Europe.
  
  
• Notwithstanding this, the European regulatory developments in this area may well have substantial ramifications for UK-domiciled business that conduct business within the EU, even if the UK Government does not introduce an expanded Modern Slavery Act, or a UK mHRDD regime.
  
  
• Irrespective of the type of legislative "stick" that is put in place, many UK businesses may choose to develop their own voluntary human rights due diligence processes for reasons of business ethics and also as a way of mitigating against litigation risk. This may involve, for example, creating contractual mechanisms to encourage commercial partners to adhere to particular human rights standards.
  
  
• What is clear from cases like the Nestle claim in the US, and Maran, Kalma and Josiya in the UK, is that regulatory developments are not alone in driving substantive change in this area: we are seeing "value chain" claims being brought around the world, albeit many of these claims have been either unsuccessful or are yet to be tried.