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“All Citizens are Equal before Law and are Entitled to Equal Protection of Law”-Article 27 of the Constitution of the People’s Republic of Bangladesh

Issue No: 164
April 10, 2010

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Reviewing the views

Environmental destruction and MNCs accountability

Fayazuddin Ahmad

The Growth of Multinational and Transnational Corporations (MNCs) are reflective of the trend towards Globalisation and a globalised economy which is taking place. The power of MNCs is evident by their incomes which is much higher than the GDP's of most states. In fact in the mid 1990s the majority of the 100 largest economies were corporations. The Bhopal Gas Tragedy brought to the forefront the extent of damage, especially with respect to environment, that can occur because of the activities of large corporations and the subsequent process to make them accountable illustrated the problems of multinational litigation. Besides the activities of Union Carbide which caused unimaginable disaster in Bhopal and the Asbestos case in Africa, other MNCs which deal in oil , pharmaceuticals, car production and nuclear energy , have put the world at risk during the course of their existence.

Appeal 'for' and 'of' MNCs
There are many incentives because of which corporations aim to structure themselves as MNCs. The United Nations Conference on Trade and Development (UNCTAD) in its report 'World Investment Report 2007: Transnational Corporations, Extractive Industries and Development', showed that Governments continue to adopt measures to facilitate Foreign Direct Investment (FDI). This included lowering corporate income taxes and expanding promotional efforts. For the MNC, it assists in their expansion, enables entry into foreign markets, access to international resources, tax exemptions due to foreign investment, favourable production conditions in foreign countries and also a system of patent laws which promote the firms competitive advantages by granting them a monopoly for the exploitation of that advantage for a specific period of time. Efficiency seeking motives apply mainly to investments in the processing or early manufacturing stage where MNCs seek to exploit differences in costs of production between countries.

Regulating MNCs and TNCs
Regulating the activities of multinationals is challenging because of jurisdiction issues and applicability of laws and courts of the different countries involved. In the case of national regulation, the main legal issue is that the MNC operates across the limit of National Legal Jurisdiction. The differences in the regulatory practices of different countries are often exploited by these corporations for their own benefit and may result in situations where regulation exclusively within the territorial jurisdiction of the regulating entity may be ineffective. A possible solution for national regulation is the adoption of Multilateral Regulation which would recommend reducing the role of national regulatory barriers and promoting the adoption of common tax laws and universal standards.

Liability for environmental damage
There is a strong relationship between MNCs and the environment and often they are largely to blame for environmental degradation and pollution. This was evident in the reports by the Secretary General of the Commission of Transnational Corporations (CTC) which focused on national legislation and corporate environmental management, information disclosure relating to environmental measures, hazardous technologies as well as strengthening environmental institutions, laws and regulations. MNCs usually comprise of companies or other entities established in more than one country and whose ownership may be private, state or mixed. In such a scenario, one or more of these entities may be able to exercise a significant influence over the activities of others and the degree of autonomy within the enterprise may vary. There exist a number of 'Soft' regulatory initiatives to assess MNCs performance and obligations, including the OECD Guidelines on MNEs and the UN Global Compact. However, these are inadequate to combat powerful MNCs who engage in environmentally harmful activities.

Liability in the law of tort
There exist rules which provide compensation in the form of monetary damage to individuals who have been harmed by wrongful acts of others. In systems based on common law, these rules form the law of torts. Vicarious Liability in Tort Law may be defined as liability imposed by the law upon a person as a result of 3 possible scenarios: tortuous act or omission by another, relationship between the actual tortfeasor and the defendant whom it is sought to make liable, and some connection between the tortuous act or omission and that relationship. Tort liability is generally based on some notion of 'fault'. A person is not subject to known exceptions generally liable in tort, except where he has intentionally or negligently caused some loss or damage to the plaintiff. In the case of Joint liability, the parties liable are jointly at fault, whereas in the case of vicarious liability, one person compensates another for loss not due to his fault. At times vicarious liability seems to run counter to two principles of tort law, namely, a person should only be liable for loss or damage caused but his own acts or omissions and secondly that a person should only be liable where he has been at fault. One is not liable for acts or omission, instead a corporation is liable to pay damages for the results of an act or omission and the function of the law is to decide when it bears a sufficient responsibility for the results of the acts or omissions to justify the imposition of liability.

Where the tort in question is or is based on negligence it is necessary to show that the defendant has actually authorized, assisted or procured the negligent mode of performing the act in question, and not merely that he has authorized, assisted or procured the act. Tort systems may replace fault-based liability with strict liability since strict liability is assigned without proving fault such as negligence or tortuous intent. This does make sense since the interest of safeguarding the public and providing adequate compensation outweighs the interest of establishing any form of fault of the defendant. Such policy considerations lie behind the judgment in Rylands vs. Fletcher which established strict liability in respect of non natural land uses in the UK. It seems that strict liability would be an automatic prerequisite of any environmental liability regime.

In litigation involving MNC liability, once the question of jurisdiction has been answered in favour of impeding the foreign parent company, the extent of its responsibility for the acts of its local subsidiary or branch will depend on the applicable principles of law concerning corporate group liability. In many cases concepts of contractual or tortuous liability will suffice to establish the liability of the parent company without the need to resort to liability based on control.

Forum Non Conveniens
The doctrine of Forum Non Conveniens allows the court to stay the proceedings where an adequate alternate forum exists and where certain other criteria are met. It was originally invoked to protect the defendant from being harassed by a plaintiff choosing a genuinely inappropriate or inconvenient forum. This doctrine has been heavily criticized as it has become a device for parent companies to escape liability for tortuous acts committed abroad and it operates to prevent parent companies from being held accountable. The question of a convenient venue for litigation involving the activities of MNCs becomes important when the events leading to the dispute have occurred in a foreign host jurisdiction, at the hands of a subsidiary but the plaintiff is seeking to carry out the litigation process before the forum jurisdiction of his or her choice.

Polluter Pays Principle
This Polluter Pays Principle states, 'the costs of pollution should be borne by the person responsible for causing the pollution'. This concept can be applied to cases where environmental harm is caused by the conduct of hazardous industrial activities or the diffusion of environmentally harmful products or waste. However, in such cases, the compensation depends on the level of knowledge the corporation had regarding the potential danger of its activities. A thorough civil liability regime would include the Polluter Pays Principle and the Precautionary Principle because liability would ensure that operators bear the costs of any damage done. Also, the fear of being held liable and probability of paying compensation may encourage corporations to take steps to prevent any disaster which is reflective of the precautionary principle.

The government, the environment, and the corporation
The government exists for the benefit of the community rather than for private advantage since governmental action determine important aspects of public and private well being. Potential liability may influence the conduct of government policy, particularly where heavy costs may be incurred by one course of action. Due to many reasons, including sovereign immunity, the focus on the liability of officials for wrongful acts was and is inadequate to account for the full extent of government liability.

Principle 13 of the Rio Declaration on Environment and Development calls on states to co-operate in developing liability and compensation rules for environmental damage caused by activities both within and beyond their areas of territorial jurisdiction or control. Thus, the state is vital regarding liability of MNC'S. Very often they may reduce adverse environmental consequences by using superior technologies and management practices than smaller domestic companies. (UNCTAD, 'World Investment Report 2007') In some cases hazardous and polluting activities have been exported from home countries to lesser developed countries precisely to avoid strict regulated at home. Though Alternate Dispute Resolution (ADR) may be a good alternative to settle disputes without incurring the high legal costs and without spending years in the litigation process, in order to set precedence, a legal judgment may serve as a warning towards MNCs to make sure that they act responsibly.

The Global community will need to develop a strong network of environment management devices to deal with issues of environmental harm by MNCs and TNCs. Such a system would employ mechanisms of regulation, taxation and criminal sanctions. Civil liability and tort law can be called upon to play a contributory role. (Anderson 2002) Struggles in determining jurisdiction will call for international law to investigate concepts like global jurisdiction, and establishment of courts that have the power to deal with TNCs and different states, and most importantly, with 'Transnational liability'. Finally, the implementation of Hard Laws and Strict Liability at the global level cannot be underestimated as part of the process to achieve environmental protection.

The writer is a Legal Researcher.




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