In the following, I will show how the different legal interventions in the Ali Enterprises case not only exemplify law’s shortcomings in protecting the interests of workers in global value chains, but also how they exemplify the various avenues in global supply chains through which workers can demand redress and compensation.
The German public came to know about the Ali Enterprises fire mainly through an interview published by
Der Spiegel with KiK’s corporate social responsibility manager.
47 In the interview, the manager—expressing dismay about the disaster—described the relationship between KiK and Ali Enterprises as close and long-lasting. He explained how KiK was keen to exercise its corporate social responsibility through the creation of a code of conduct for its suppliers, expecting them to respect health and safety regulations and other core labour standards. Compliance with these standards was to be ensured through on-site visits of company representatives and social auditing firms. In the course of the litigation after the fire, KiK also produced four social audit reports that had been commissioned by the company between 2007 and 2011. Only the first one in 2007 had shown any concern regarding fire safety, while the others did not reflect any major insufficiencies. Additionally, just a few weeks before the deadly fire broke out, on 21 August 2012, the Italian auditing firm RINA SpA issued the factory a SA-8000 safety certificate, said to be one of leading social certification standards for factories and organisations worldwide. RINA had been hired by the Ali Enterprises factory owners. Its certification of the factory was preceded by an audit report, which was approved by RINA’s technical committee on 3 August 2012. RINA had selected and hired the Pakistani service provider RI&CA to conduct the audit. After its verification of the audit report, RINA certified the facility. In the aftermath of the Ali Enterprises fire, the SA-8000 scheme-holder, the Social Accountability Initiative, conducted an investigation into the incident and concluded that there had been several serious shortcomings and even fraudulent behaviour in the certification process.
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3.1 The Building of Transnational Alliances
The international labour rights movement’s immediate reaction to the Ali Enterprises catastrophe in Pakistan and the two subsequent factory disasters in Bangladesh must be seen in its historic context. Over the last 30 years, the anti-globalisation and consumers’ movement has developed into a well-connected network of various trade unions, research and campaigning organisations across Europe, Africa, Asia, and the Americas, with a focus on labour rights in the global textile industry. Over the years, these organisations have cooperated in different constellations on numerous campaigns to scandalise the exploitative labour conditions in textile production,
49 point out the ineffectiveness of corporate social responsibility measures,
50 and call for more robust mechanisms to ensure that brands actually contribute to the improvement of working conditions.
51 The high level of transnational interconnectedness and professionalism already existing between these trade unions and labour organisations in the Global South and Global North allowed them to respond immediately to the major textile industry disasters between September 2012 and April 2013. They quickly mobilised international media attention to the disasters and launched a global campaign demanding international fashion brands and retailers contribute—in the absence of functioning social protection schemes in Pakistan and Bangladesh—to compensation funds for workers. It was their ability to scandalise and raise attention around the issue which created the unprecedented global outcry and the immense pressure on brands that eventually led to the Accord on Fire and Building Safety in Bangladesh and, later on, to the Rana Plaza Compensation Agreement.
52
At this point in time, the European Center for Constitutional and Human Rights had already done quite some research and thinking about the legal arguments that one would need to make to hold a European company responsible in court for human rights violations in its supply chain.
53 While most European and US litigators had previously concentrated on holding parent companies liable for the human rights violations committed by their foreign subsidiaries, ECCHR had begun, since 2010, to use different legal tools to approach the topic of labour exploitation in global supply chains. This included filing consumer claims alleging that a company’s advertisement of its code of conduct constituted misleading advertisement,
54 and by filing OECD complaints against European cotton trading companies.
55
After the previously mentioned Spiegel article was published in late September 2012, it was clear that the constellation of facts revealed would potentially allow workers to directly go to court in Germany against the retailer KiK. While the Ali Enterprises incident was extraordinary in its cruelty and devastation, it also displayed several crucial factors for a potential legal claim. There was a clear violation of the right to life and health, which translates into civil law as a tort, and an undeniable connection to both the retailer KiK in Germany and the auditing company RINA in Italy, which is often difficult to establish. As KiK had admitted to being the major buyer of the Ali Enterprises factory, there was also a reasonable indication of control on the part of KiK.
In autumn of 2012, ECCHR learned that its partner organisation medico international (medico) was supporting the National Trade Union Federation (NTUF) in Karachi in its efforts to organise the survivors and families of the deceased from the Ali Enterprises fire. Right away, medico, NTUF and ECCHR started discussing the possibilities for a common legal effort to hold the German brand KiK and the Italian firm RINA to account. Representatives of medico and ECCHR travelled to Karachi for the first time in February 2013, where we held long deliberations with NTUF, the Pakistan Institute of Labour Education and Research (PILER), as well as groups of survivors and family members of the deceased. Over the next 5 years, several trips followed, occurring almost every 6 months. As described by Saeeda Khatoon, Zehra Khan, and Nasir Mansoor in their contributions to this book, the surviving workers and family members of the deceased founded the Ali Enterprises Factory Fire Affectees Association (AEFFAA) with the help of NTUF and the Home Based Women Workers Federation (HBWWF).
As a first step in the cooperation, ECCHR assisted initial public interest litigation (PIL) proceedings led by advocate Faisal Siddiqi before the High Court of Sindh by submitting an amicus brief in 2014. The amicus brief outlined Pakistani authorities’ obligation not only to investigate the responsibility of Pakistani actors, but also the role of the international retail and auditing companies. The next step in building the cooperation involved holding a series of workshops and assemblies with the AEFFAA, in which we discussed the possibilities and risks of a transnational legal claim against KiK and RINA. For the AEFFAA, as well as NTUF, medico and ECCHR, it was clear that the possibility of filing a civil compensation lawsuit was not primarily about gaining the much-needed compensation. Given the cost restraints, only a handful of victims could realistically bring a claim and, as such, it would hardly lead to compensation for all. The option of going to court in Germany against KiK offered the possibility to claim the rights of workers in global value chains rather than asking companies for a humanitarian gesture. It was seen as a chance to make a political claim for justice.
The risks of this approach were also obvious: lengthy procedures and slim chances of actually winning could exhaust the claimants and eventually leave the whole group disillusioned. The claimants would also expose themselves to the public, with all the pressures that this might entail. The decision-making process around whether to pursue the litigation against KiK or not included several meetings and workshops in Karachi and online. In the end, the AEFFAA nominated a group of 10 people who they felt could represent the whole group and their wider claim for justice, and who could also stand the pressure of the legal proceedings.
56 Out of that group, ECCHR selected four people, as it was not possible to cover the litigation costs for all 10. As pre-trial negotiations with KiK stalled in the winter of 2014/2015, the AEFFAA together with ECCHR, NTUF and medico eventually decided to engage in the civil litigation against KiK. In March 2015, the surviving worker Muhammad Hanif, along with Muhammad Jabir, Abdul Aziz, and Saeeda Khatoon, all parents of deceased workers, brought civil action against KiK before the Regional Court of Dortmund, demanding 30,000 euros each in damages for pain and suffering.
While ECCHR, NTUF, medico and AEFFAA engaged in the civil litigation against KiK in Germany, filed a criminal complaint against RINA officials in Italy, and, later on, also lodged an OECD complaint in Italy, other organisations like PILER,
57 the Clean Clothes Campaign, and the IndustriALL Global Union focused their efforts on negotiating a long-term compensation fund in accordance with the standards of the International Labour Organization, along the same lines as the Rana Plaza Compensation Agreement. Controversial discussions occurred between those who saw the ILO negotiations as the best route to pursue and those who preferred to opt for the lawsuit, as some feared the lawsuit would harm the negotiation strategy at the ILO and vice versa. ECCHR made a deliberate decision to put significant energy into the process of reaching a common understanding among all the different actors. A division among the groups collectively fighting for workers’ rights would have been a major defeat of the groups’ common ideals and would have weakened the broader struggle of workers to the benefit of companies. After many travels between Europe and Pakistan, and after many meetings and long discussions, all of the parties finally reached an agreement on how to work together in a way that would allow both strategies to mutually reinforce each other.
The “legal route,” we decided, would aim to provide an accelerating effect on the ILO negotiations by serving as an implicit incentive for the company to engage in them. The lawsuit deliberately asked only for compensation to cover pain and suffering, while the ILO negotiations demanded compensation to cover the loss of income and medical costs.
58 In this way, the lawsuit in Germany did not provide KiK with an argument for opting out of the ILO compensation talks. Meanwhile, those negotiating with the ILO actively endorsed the legal case as an important additional step.
59 Over time, it seems that the pending lawsuit did indeed enhance KiK’s willingness to agree to the terms of compensation suggested by the ILO: one week after the Dortmund court granted legal aid and legal standing to the Pakistani claimants and allowed the case into the discovery phase (
Beweisaufnahme),
60 KiK agreed to pay an additional US$5.15 million into the ILO Ali Enterprises compensation fund, breaking the almost 2-year deadlock in which the ILO negotiations had been stalled.
3.2 The Litigation Against KiK: Procedure and Key Legal Arguments
According to both Paragraph 17 ZPO (
Zivilprozessordnung, the German Code on Civil Procedure) and Article 4 of the Brussels I Regulation, the Regional Court of Dortmund (Landgericht Dortmund) had jurisdiction over the case. In accordance with Article 4(1) of the Rome II Regulation, the applicable law in this transborder litigation was Pakistani civil law, which is strongly influenced by Indian and English jurisprudence.
61 Following the established English case law, the claimants argued that KiK breached its duty of care towards the employees of the Ali Enterprises factory.
62 The requirements for a duty of care are largely based on the decisions in
Caparo v. Dickman and
Chandler v. Cape,
63 according to which, a duty of care is established under the following cumulative conditions: the harm that occurred was foreseeable, there was sufficient proximity between the parties, and the imposition of a duty can be seen as fair, just, and reasonable.
64 The Regional Court of Dortmund was asked to assess the relevant duty of care and thereby had to assess the nature of the relationship between KiK and Ali Enterprises, the applicable industry standards of CSR, the relevant standards for safety audits, and KiK’s duty in relation to such audits.
65
The claimants argued that there was a clear economic dependence between KiK and Ali Enterprises, as KiK had purchased almost three quarters of Ali Enterprises’ production output over the 5-year period preceding the fire. The claimants also argued that such an economic dependence created KiK’s ability to influence and control the health and fire safety conditions under which Ali Enterprises ought to have conducted its business in Pakistan. The claimants further constructed KiK’s obligation through a review of its 2009 code of conduct
66 and a statement by KiK’s managing director weeks after the factory fire that “the monitoring of adherence to safety and fire prevention is obligatory for us as a buyer.”
67 As KiK’s code of conduct was incorporated into the terms and conditions of every purchasing order, the claimants argued that the company’s public pledges on safe and ethical working conditions caused legal obligations: self-regulation must lead to legal obligation.
68 Finally, the claimants also argued for vicarious liability, which provides for the strict liability of the employer, but also of the principal in a relationship “akin to employment.” The concept of vicarious liability under common law is more flexible than it is under German law, as it is not necessarily based on a formal contractual relationship but instead rests on the overall circumstances of a business relationship between two parties examined through a five-factor lens.
69
KiK defended itself by restating its corporate social responsibility narrative, which presents the company as truly committed to improving working conditions in its suppliers’ factories and as taking concrete efforts to achieve this end. At the same time, KiK denied any form of liability, arguing that, as a fully independent legal entity, Ali Enterprises was the only duty bearer for its employees’ safety. KiK admitted to having sent its own personnel to visit the production site, to having commissioned several social audits of the Ali Enterprises factory, and to having obliged its suppliers to sign the company’s code of conduct. Despite all of this, KiK claimed to have no ability to influence, let alone control, the fire safety standards of the Ali Enterprises factory. Referring to the social audit reports that KiK itself had commissioned, which displayed little to no deficiencies in fire safety, the company additionally claimed that they could not have possibly known about the real state of fire safety and, therefore, could not be legally liable. KiK insisted that corporate social responsibility measures do not imply any legal responsibility. The social audit reports served as a proof of the fact that KiK was under the assumption that general working conditions, and fire safety in particular, were in accordance with their code of conduct. KiK’s legal briefs follow the classic industry narrative: “We are concerned about workers’ rights and do all we can, but we do all of this purely voluntarily, and take no responsibility.”
While the claimants in the KiK case had negotiated a waiver on the statute of limitations in pre-trial negotiations, KiK claimed in the litigation that the case was time-barred under Pakistani law. In a decision based on the expert opinion of a British law professor it had commissioned, the Dortmund court eventually held that the negotiated waiver was invalid because the case was governed by Pakistani law, which does not provide for the possibility of such a waiver. The claimants’ attempt to argue that the waiver was governed by German law, because both the representatives of the claimants and the defendant were German lawyers using German legal language, and therefore implicitly agreeing on the application of German law, did not succeed. As a result, the court only superficially dealt with the question of which duties of care a buyer may owe towards the employees of a subsidiary.
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3.3 The Legal Interventions Against the Social Auditing Firm RINA
Parallel to the legal action against KiK, Italian lawyers filed criminal charges against the managing director of RINA on behalf of the AEFFAA, NTUF and ECCHR in 2014. The allegation was that top managers of RINA, who had allowed for the issuance of the SA-8000 certificate weeks before the fire in 2012, were liable under Italian criminal law for the crime of giving false certification and falsification of documents.
71 The investigating judge in Turin opened the criminal proceedings and ordered expert opinions on the causes of the fire, but then handed the case over to the public prosecutor in Genoa for jurisdictional reasons. There, the investigative judge closed the proceeding in December 2018 after an appeal,
72 holding that it would be hard to argue in court that the issuing of the SA-8000 certificate had been causal to the fire. In her view, RINA Services could not have prevented the factory’s continued operation in the absence of adequate safety conditions for workers, and therefore RINA could not have prevented the fire. With regard to the RINA top manager under investigation, the judge did not see sufficient evidence to indicate that he had been aware of the alleged falsification of the audit report, which was the basis for the issuance of the SA-8000 certificate. Furthermore, in her assessment, RINA managers did not commit the crime of giving a “false statement,” as the certification was not legally mandatory, but only issued upon the voluntary request of individual companies, mostly driven by market demand.
As RINA’s activities are not only subject to Italian criminal jurisdiction, but also to the OECD Guidelines for Multinational Enterprises because Italy is an OECD member state, the above-mentioned organisations, together with a broader international coalition, filed a complaint against RINA with the OECD National Contact Point in Italy in September 2018. While the National Contact Point treated the complaint in a very swift but thorough manner, RINA management also proved to be very reluctant to accept any responsibility under the soft law standard of the OECD guidelines. The parties, therefore, did not reach an agreement in the negotiations.