7.3.1 Due Diligence in Transnational Value Chains: History and Terminology
Due diligence has been established as a legal concept for decades in quite disparate legal fields, ranging from business law, where it is traditionally used to describe a risk management tool in the context of corporate or real-estate transactions, through to public international law
32.
33 However, the UNGPs
’ ‘second pillar’ has adopted the term but established its own constitutive construct.
34 Although non-binding, the ‘second pillar’ suggests that every business enterprise—regardless of its size, sector, operational context, ownership and structure (UNGP no. 14)—should respect human rights
and, to this end, carry out human rights due diligence (UNGP no. 15(b)). The underlying human rights due diligence (HRDD) concept is distinguished by a particularly broad scope, covering in principle all adverse impacts of an enterprise’s business activity, not only when such impacts are directly caused or contributed to by the enterprise (UNGP no. 13(a), even when such impacts are caused by third parties, as long as the impacts are “directly linked” to an enterprise’s operations, products or services through its business relationships (UNGP no. 13(b). Hence, HRDD’s scope could potentially cover any given enterprise’s entire value chain.
Since the UNGPs
’ adoption in 2011, the concept has been tremendously influential regarding both other soft law approaches
35 as well as hard law legislation.
36
Human Rights Due Diligence
The concept of human rights due diligence was originally developed within the UNGPs’ ‘second pillar’, i.e. the corporate responsibility to respect human rights.
Human rights due diligence’s core elements consist of a series of subsequent steps of
-
identifying,
-
preventing,
-
mitigating, and
-
accounting for
relevant risks that actually or potentially have adverse human rights
impacts with which the company conducting due diligence may be involved. Sometimes, the adoption of a relevant corporate policy statement and a complaints mechanism are also considered as elements of due diligence
37 as these steps are a part of the UNGPs
’ ‘second pillar’ even though not technically part of human rights due diligence. In particular, if a company voluntarily creates a self-obligation to exercise HRDD, this can be a mechanism that creates legally binding obligations. In contrast, if exercising due diligence is mandatory under law, rather than the result of a voluntary decision, the imperative to make such a policy commitment may be reduced to it simply serving as means of a company communicating its compliance policy and expectation to its staff and business partners.
The UNGPs
have obviously been strongly influenced by drawing on the transactional concept of due diligence taken from the business law. However, in doing so,
John Ruggie insisted that the Guiding Principles “establish their own scheme for corporate human rights
due diligence” and “stipulate their own constitutive construct of human rights due diligence”.
38
Due diligence in this sense generally defines a behavioural standard of conduct, rather than one of result, and provides a procedurally structured mode for dealing with certain risks. However, it is not a mere tick-boxing process as it can result in substantive obligations. If certain risks are detected or could be detected, certain obligations come into play that require those risks to be pre-emptively mitigated as far as possible.
Due diligence in this sense is neither a civil law nor a public or administrative law concept but a much broader, cross-cutting approach that can be relevant in all legal fields where risks to human rights are linked to business operations in transnational value chains. In the context of civil liability, due diligence obligations may be considered as the determinants of the relevant standard of care required.
The UN Guiding Principles on Business and Human Rights
have become the global authoritative policy standard for business and human rights,
39 with the ‘second-pillar’ clearly setting the current benchmark in HRDD. It has served as a blueprint for, or at least largely inspired, a number of soft law instruments
40 as well as hard laws
41 and legislative drafts around the world.
Ten years after the original endorsement of the UNGPs
by the UN Human Rights Council in 2011, a strong global and quite consolidated consensus on which elements should be included in corporate HRDD-concepts can be observed.
42 Although the concept was originally designed with the exclusive focus on human rights protection, it has been increasingly transferred to other issues of sustainability in the wider sense in transnational value chains.
Although such due diligence obligations that are currently ‘under construction’ in legislative attempts around the world feature strong procedural elements, they typically also amount to substantive obligations
.
43 Given its procedural character
, the due diligence concept, as it has been developed with a view to human rights
protection, can be transferred to the protection of virtually any type of legal interest or object of protection, including the environment in transnational value chains
.
44 This is true of course for organisational requirements that have been proposed to supplement a binding HRDD-regulation, namely documentation requirements, organisational compliance obligations, whistle-blower protection and a non-judicial grievance mechanism. However, it is also true for the substantive core elements of risk analysis, prevention (including effectiveness control) and remedy.
45
The line between exclusively procedural obligations, such as nominating a compliance officer, and substantive due diligence obligations, such as specific prevention measures, is blurry. Arguably, undertaking a risk analysis could be seen as falling between meeting either a simple procedural or clear-cut substantive obligation
. Nevertheless, both types of obligations can be sharply distinguished from a third category that may be referred to as ‘direct commands or prohibitions’ and bind the obliged party to specifically do or not do something, e.g. not to import seal products or illegally logged timber.
46 Although such commands or prohibitions can be regulated with regard to value chains, they do not necessarily constitute due diligence obligations. While both types of obligations may be combined, a clear distinction can be crucial to the legal evaluation of several issues related to the design of EDD. Generally speaking, legal requirements regarding such direct commands and prohibitions can be more demanding in terms of their material scope,
47 requirements with regard to legal certainty,
48 the exercise of extraterritorial jurisdiction
49 and potential incompatibility with WTO law
50 than due diligence obligations.
If a due diligence obligation potentially covering an entire value chain was established, it would have legal consequences not only for the so called ‘arm’s-length’ value chains, linked by chains of contracts, but would extend even more so to the value chains between parent companies and their subsidiaries within corporate groups (
argumentum a forteriori51). Therefore, the issue of corporate group liability is not specifically addressed here.
52
7.3.2 Comprehensive HREDD Approaches in Home State Law
Comprehensive due diligence concepts try to tackle all or most of the human rights
issues, sometimes complemented by environmental
matters, through a single, comprehensive set of due diligence rules, without limiting its scope in particular to specific industries or objects of protection. A number of examples for this type of due diligence legislation in national home State law will be outlined below, namely the French ‘Duty of Vigilance Act’ of 2017, a Swiss popular initiative (narrowly failed 2020), and the German ‘Supply Chain Due Diligence Act’ of 2021. At European level, the European Parliament’s proposal for a ‘Directive on Corporate Due Diligence and Corporate Accountability’ and the EU-Non-Financial Reporting Directive
will be briefly presented. Other more recent examples from 2021, such as the Norwegian ‘Transparency Act’
53 and the Dutch Draft Bill for a ‘Responsible and Sustainable International Business Conduct Act’
54 could not be discussed here for reasons of practicality.
The ‘Duty of Vigilance Act’ amends the French Commercial Code’s chapter regarding public limited companies (société anonyme) by introducing a “duty of vigilance” for certain corporations in Article L. 225-102-4 and -5.
The personal scope of application covers any corporation that has at least 5000 employees on French territory or at least 10,000 employees around the world (Article L. 225-102-4 para. I subpara. 1 Commercial Code). Several questions regarding the personal scope of the law are unclear and await clarification by the French courts, particularly regarding the required corporate form and the location of a corporation’s registration.
68
According to the plain wording, the provision could be applied to
any corporation with at least 10,000 employees anywhere throughout the world, regardless of whether or not its registered seat is in French territory. However, according to the interpretation by the Constitutional Council and most commentators, the parent company having a registered office in French territory is required.
69 As such, current estimates suggest that a fairly small number of only 150–300 companies falls within the personal scope of this law.
70 Indeed, a study conducted by a civil society project, identified, as of June 2020, a total number of 265 companies that were within the scope.
71
The amended Commercial Code now obliges the corporations within its scope to establish and effectively implement a vigilance plan.
72 Such a plan must include reasonable vigilance measures able to identify risks and prevent “severe violations” of human rights, “fundamental freedoms”, the health and safety of persons as well as environmental damage
resulting directly or indirectly from the operations of the corporation and its subsidiaries.
73
Moreover, even violations and damage resulting from the operations of subcontractors or suppliers with whom the duty holder maintains an “established commercial relationship” must be included, provided that such operations are connected to this relationship. The legal concept of an “established commercial relationship” (“
relation commerciale établie”) has been entrenched in French commercial law (cf. Article L. 442-1 II Commercial Code
74) for more than 20 years.
75 Traditionally, the concept is meant to protect smaller businesses in particular from an abuse of power where they are economically dependent on larger business partners which can threaten to suddenly terminate the relationship.
76 The use of this recognised legal concept may be motivated by the legislature’s intention to avoid the creation of new, and perhaps not sufficiently precise, legal terms.
77 However, it appears to be a rather unfortunate legislative choice to ‘transplant’ the term to a concept that is meant to protect third parties, in particular employees and local communities, so it is now applicable in the context of environmental
issues within transnational value chains. Arguably, a broader and better fitting interpretation of “established commercial relationship” seems possible in the light of the UN Guiding Principles’ concept of a direct link formed by business relationships, relevant adverse impacts on the ground and the addressee of the norm’s business operations or products.
78 However, the Constitutional Council’s ruling seems to indicate that it favours a rather narrow interpretation in the light of its original meaning in Article L. 442-6 I Nr. 5 Commercial Code (now Article L. 442-1 II Commercial Code).
79 As a result, this interpretation seems to lead to a relatively limited scope regarding supply chains. Against the backdrop of these doubts arising from the terminological history in French law, the EU Commission’s proposal to ‚transplant’ the term
once again into a future EU Corporate Sustainability Due Diligence Directive (Art. 3 lit. f and g of the Commission’s Proposal, cf. below ¶ 63)—thereby creating a kind of ‘second-degree legal transplant’—may cause even more confusion.
Regarding its purpose and object of protection, the French ‘Duty of Vigilance Act’ goes beyond human rights
80 and specifically includes the protection of the environment against “severe impacts”. However, the statute does not specify its notion of ‘human rights’ nor what is included in its use of the word ‘environment’. A more explicit listing of norms of reference had been considered, however, this was ultimately not adopted.
81
Under the Act, the required vigilance plan needs to be developed in cooperation with relevant stakeholders, preferably within the framework of a multi-stakeholder initiative. It must include at least the following five elements (Article L. 225-102-4.-I- para. 4 no. 1–5 Commercial Code):
1.
a ‘risk map’ (‘cartographie des risques’) that identifies, analyses and prioritises the risks for the mentioned objects of protection,
82
2.
evaluations of subsidiaries, subcontractors and suppliers with which the corporation maintains an “established commercial relationship”,
3.
appropriate action to mitigate risks and prevent serious harm,
4.
a whistle-blowing mechanism established in cooperation with relevant trade unions, and
5.
a system to monitor the effectiveness of the implemented measures.
A decree providing more specifications for the required elements of the vigilance plan (Article L. 225-102-4-I para. 5
83) may be issued by the government after consultation of the Council of State (Conseil d’État).
The French law contains a threefold enforcement
mechanism: First, the corporation is obliged to publish the vigilance plan and a report on its effective implementation as part of its non-financial reporting obligations under Article 225-102 Commercial Code.
84 Second, anyone who can justify a legitimate interest in the corporation’s compliance has standing
to file a motion for non-compliance/injunction
to comply. Three months after an unsuccessful formal notice (‘mise en demeure’) the competent court may, according to Article L. 225-102-4.-II, compel the corporation in question to comply if necessary, by imposing a periodic penalty payment (‘astreinte’). This procedure is an interesting enforcement mechanism as a complementary approach to civil liability
for damages which, unlike the latter, does not require that any damage has already occurred. Rather, this periodic penalty payment approach may be viewed as more of a preventive measure applied as soon as the duty of vigilance as such has been violated.
Finally, Article L. 225-102-5 Commercial Code provides for liability for any damage caused by non-compliance with the obligation imposed by its Article L. 225-102-4. However, the pressing issue of the conflict of laws is not addressed. This may lead to practical problems when suing based on the French ‘Duty of Vigilance Act’ because, in the paradigmatic case of damage occurring in a third country, it will be the third country’s tort law, rather than France
’s, that would be applicable pursuant to Article 4(1) Rome II Regulation as a basic rule (
lex loci damni).
85 The French liability provision can and should be interpreted as an overriding mandatory provision within the sense of Article 16 Rome II Regulation resulting in the application of French law, however, in absence of an explicit clarification, such an interpretation does not appear to be compelling. Although the issue was considered during the deliberation in the French National Assembly,
86 a motion to clarify this point was dismissed.
87 This could be interpreted as the legislator’s intention not to make the liability rule an overriding mandatory provision.
88 Nevertheless, the National Assembly’s intention to hold French companies liable pursuant to the French duty of vigilance standard, especially in cases such as
Rana Plaza, was very clear. The most appropriate way to achieve this is the interpretation that the liability aspect of the law should be viewed as an overriding mandatory provision.
Article L. 225-102-5 para. 1 Commercial Code refers to the general tort rule stipulated in Article 1240 (formerly Article 1382)
et seq. Civil
Code.
89 Thus, traditional tort law, both substantive and procedural, would apply to claims under Article L.255-102-5 Commercial Code. Generally speaking, tortious liability simply requires three elements: some form of damage (‘dommage’), intention/negligence/breach of a duty (‘faute’) and a causal link (‘lien de causalité’) between the two aforementioned elements.
90 The burden of proof
for all of these elements rests with the claimant.
It has been pointed out that the duty of vigilance in the new Act is conceptualised as a duty of conduct and not one of result.
91 Hence, any breach of the duty of vigilance cannot simply be inferred by establishing the occurrence of damage.
92 Therefore, the plaintiff needs to prove all three elements cited above to establish tortious liability. While proving that there has been a breach of the duty of vigilance may not be easy, given that all the relevant information is in the possession of the obliged corporation, proving the necessary causal link is likely to be even more difficult. This becomes apparent when one considers that the plaintiff must prove that the damage would not have occurred if the defendant had duly complied with his duty of vigilance. Shifting the burden of proof
onto the corporation,
93 which had been considered in the initial stages of the first legislative procedure on the matter,
94 was discarded at later stages of the procedure. Interestingly, just as in the case of injunctive relief, any person showing an interest in acting for this purpose has standing
to bring the lawsuit for damages (Article L. 225-102-5 para. 2 Commercial Code).
Pursuant to Article L. 225-102-5, para. 3 Commercial Code, the adjudicating court may order its ruling on civil liability to be published, disseminated or displayed at the cost of the losing party.
To date, very few cases have been brought alleging a violation of the duty of vigilance and, as of December 2020, there were only a total of seven procedures ongoing (against TOTAL (two cases), EDF,
95 TELEPERFORMANCE,
96 XPO Logistics Europe,
97 SUEZ,
98 and Casino Guichard-Perrachon
99). All seven of these are based on the procedure pursuant to Article L. 225-102-4.-II (formal notice and subsequent injunction
with penalty payment). No civil liability
claim for compensating damages has yet been filed. Only four cases have passed the preliminary procedure of a formal notice (
mise en demeure) and progressed to the point of having been filed in court: The two lawsuits against TOTAL, the one against EDF and the one against Casino Guichard-Perrachon: The first case was brought by Friends of the Earth France
(‘Les Amis de la Terre’) and other NGOs against TOTAL. In this case, the claimants allege that TOTAL failed to comply with its duty of vigilance obligations, in particular, that the vigilance plan is insufficient with regard to its business activities in Uganda.
100 The case was brought at the Nanterre High Court, however, the Court declared itself incompetent to hear the case and referred it to the Nanterre Commercial Court,
101 a decision that was upheld by the Court of Appeals of Versailles,
102 but finally overturned by the Court of Cassation.
103 Another case against TOTAL was brought by
Notre Affaire à Tous and other NGOs as well as fourteen municipalities (‘communes’) regarding issues concerning climate change.
104 A third case, that involving EDF, concerns an alleged violation of indigenous peoples’ rights in the context of the construction of a major wind farm in Mexico. The claim was filed in October 2020 by individual members of the affected communities with the support of a local NGO (ProDESC), the European Center for Constitutional and Human Rights (ECCHR) and a number of other French and international NGOs.
105 It was dismissed by a civil court in Paris in December 2021.
106 A fourth case was brought against the Casino group,
107 a global retailer with a special focus on the Latin American market, claiming that Casino’s business activities contribute to deforestation and land-grabbing in Latin America.
108
As is obvious from the foregoing, the ‘flood’ of lawsuits for damages or injunctions and penalty payments, often invoked by the corporate lobby opposing a liability mechanism, is not in sight.
Germany: Corporate Supply Chain Due Diligence Act: ‘LkSG’ (2021)
Four years
after the pioneering French law was enacted, Germany
adopted a similar piece of legislation: The ‘Act on Corporate Due Diligence Obligations for the Prevention of Human Rights
Violations in Supply Chains’
109 (hereafter: ‘Supply Chain Due Diligence Act’) was passed by the German Bundestag on 11 June 2021, at the very last moment of its 19th legislative term and in the penultimate week of the parliamentary session.
110
The passage of this bill signalled something of an preliminary end to the policy debate that had been triggered at the national level in 2015 by the Federal Government’s consultation procedure for a National Action Plan for Business and Human Rights
. Civil society had been calling for binding HRDD-legislation in Germany
and four NGOs (Amnesty, Bread for the World, Germanwatch and Oxfam) commissioned a proposal on how a statutory HRDD-obligation could be set out and enforced in German law. The proposal for a draft ‘Bill on the Obligation of Companies to Exercise Due Diligence in the Protection of Human Rights’ (in the following ‘HRDD Bill-proposal’ or simply ‘NGO-proposal’) was published in 2016.
111 It was largely based on the UNGPs
’ ‘second pillar’ and also draws on early draft versions of the French ‘Duty of Vigilance Act’ and the Swiss Coalition for Corporate Justice’s proposal.
112 The NGO proposal focused strictly on human rights due diligence and did not include any specific obligations with respect to the protection of the environment as such. Nevertheless, in February 2019, a classified draft outline (‘internal memo’
113) by the Federal Ministry for Economic Cooperation and Development (BMZ) became publicly known after it was leaked to the press
114 (hereafter: the BMZ draft
115). Some parts of it were obviously inspired by or literally taken from the 2016 NGO proposal. However, unlike the NGO proposal, the BMZ draft also contains a comprehensive set of rules regarding EDD in its Section 4(3) and Section 3 no. 8 and 9. A third and more recent proposal was commissioned in November 2020 by the German Green Party and published in June 2021.
116 Given the highly contentious political battles that ensued regarding the proposed legislation, it is no surprise that the ‘Supply Chain Due Diligence Act’ eventually fell short of these early drafts in several respects, as will be outlined below.
The ‘Supply Chain Due Diligence Act’ generally applies to enterprises regardless of their legal form that have their central administration, principal place of business, administrative headquarters or statutory seat in Germany
and that have at least 3000 employees (from 1 January 2024 this will be reduced to 1000 employees) in Germany
(Section 1(1) of the Act). The threshold criterion is less restrictive than in the French law,
117 however, it still appears somewhat arbitrary. It would have had more been more consequent, especially with regard to the principle of the protection of legitimate expectations (‘Vertrauensschutz’),
118 if the threshold criterion had not exceeded the recommendation from the German National Action Plan for Business and Human Rights
of 2016
119 (500 employees).
Enterprises that fall within the scope of the Act are obliged to exercise due regard for the human rights and environment-related due diligence obligations pursuant to ‘Division 2’ (“Due diligence obligations”) of the Act (Section 3(1) s. 1). The core elements of these due diligence obligations include establishing a risk management system (Section 4(1) of the Act), performing risk analyses (Section 5), taking preventive measures, which includes making a policy statement (Section 6) and taking remedial action (Section 7). Those core elements are flanked by supplementary, organisational obligations, such as designating a compliance officer (Section 4(3)) as well as documenting (Section 10(1)) and reporting (Section 10(2)) requirements. These basic elements of due diligence can all be traced back to the UNGPs’ ‘second pillar’ and, therefore, were barely contested in the legislative procedure.
A major area of criticism
120 in the ‘Supply Chain Due Diligence Act’ relates to its general limitation of scope regarding the affected companies “own business area” and “direct suppliers”, i.e. ‘tier 1’ (cf. Section 5(1) s. 1, Section 6(3) and (4), Section 7(1) and (2) ‘Supply Chain Due Diligence Act’). Hence, the entire downstream
value chain is categorically excluded from the due diligence obligation’s scope. The upstream
value chain beyond direct suppliers (‘tier 1’) is subject to the due diligence only exceptionally if an enterprise obtains “substantiated knowledge” (“subsantiierte Kenntnis”) of potential human rights-related or environment-related issues in the supply chain. ‘Substantiated knowledge’ is defined as having “actual indications” that “suggest” a violation of a human rights-related or an environment-related obligation by an indirect supplier may be possible (Section 9(3) ‘Supply Chain Due Diligence Act’). This approach is problematic, firstly, because it is inconsistent with the UNGPs
which are, as previously notes, accepted as the global authoritative standard, secondly, it creates an undesirable and unpalatable reward for ignorance; indeed, those companies which responsibly and voluntarily ‘did their homework’ on their supply chain to examine and monitor their specific problems; in contrast, their competitors that simply ignored these issues could be better off.
121 It remains to be seen, whether avoiding such contradictory results can be achieved by means of an extensive interpretation of the term “substantiated knowledge”.
In contrast, the earlier alternative drafts by the NGOs and by the BMZ made attempts to include the entire value chain and avoid a fixed limitation to a certain tier in the value chain. The practical challenges associated with imposing such a far-reaching obligation on value chains were addressed by an ‘adequacy
test’ (“Angemessenheit”) that looked at all the substantive obligations
related to the entire value chain and any human rights
abuse to which a company potentially contributes (cf. Section 6(4) HRDD Bill-proposal). However, all obligations in this context are limited by an adequacy criterion. The company is obliged to carry out a risk analysis and to adopt preventive and remedial measures only to the extent that make the given measures adequate (“angemessen”) (cf. Section 6(2), Section 7 sentence 3, and Section 8 sentence 2 HRDD Bill-proposal). Section 6(2) sentence 2 HRDD Bill-proposal further defines the ‘adequacy test’ by explicitly mentioning certain criteria, namely the country- and sector-specific risks, the severity and likelihood of possible human rights abuses, how directly the company is contributing to such abuses as well as the size of the company and the actual economic leverage the company can exert on the actor directly causing the abuse. This catalogue of criteria is inspired by UNGP no. 17(b) and a version of this proposal for an adequacy-criterion list was eventually adopted in Section 3(2) ‘Supply Chain Due Diligence Act’.
122
Unlike the French ‘Duty of Vigilance Act’ and the BMZ draft, the ‘Supply Chain Due Diligence Act’ touches upon environmental
issues merely in passing and rather puts a clear focus on human rights. The Act’s official title—‘The Act on Corporate Due Diligence Obligations for the Prevention of Human Rights Violations in Supply Chains’—does not even mention environmental protection.
123 Nevertheless, the Act does contain some elements on environmental aspects.
Firstly, its catalogue of “human rights
risks” contains a clause relating to certain environmental impacts. Section 2(2) no. 9 ‘Supply Chain Due Diligence Act’ reads as follows:
A human rights risk within the meaning of this Act is a condition in which, on the basis of factual circumstances, there is a sufficient probability that a violation of one of the following prohibitions is imminent: (…) no. 9. the prohibition of causing any harmful soil change, water pollution, air pollution, harmful noise emission or excessive water consumption that a) significantly impairs the natural bases for the preservation and production of food, b) denies a person access to safe and clean drinking water, c) makes it difficult for a person to access sanitary facilities or destroys them or d) harms the health of a person;
Hence, a human rights risk pursuant to Section 2(2) no. 9 of the Act always requires an impairment of one of the human rights goods listed in items a) through d). Purely environmental
damage, such as a loss of biodiversity, is not covered. Climate change issues are not addressed explicitly; if and to what extent Section 2(2) no. 9 of the Act could nevertheless fuel climate change litigation remains to be seen.
124 Environmental issues are addressed in Section 2(3) of the Act, irrespective of any human rights implications, by referencing the quite narrow prohibitions in the Minamata, the POPs and the Basel Conventions.
The BMZ draft went further as it explicitly set the protection of the environment in global value chains as a core purpose (cf. Section 1 sentence 1 BMZ draft). Section 4(3) BMZ draft recommended a stipulation that the object of EDD is compliance with fundamental environmental protection requirements on the one hand and the prevention of environmental damage on the other. Both terms were defined in BMZ draft Section 3 no. 8 and 9. The draft also went on to create an overarching concept of violations, which were defined as “human rights abuses” or “not insignificant” violations of fundamental environmental protection requirements or not insignificant environmental damage (Section 3 no. 10 BMZ draft). Consequently, the three due diligence core elements (risk analysis, preventive and remedial measures) relate to this broad concept of ‘violation’ (cf. Sections 5 and 6 BMZ draft).
The core enforcement mechanism of the ‘Supply Chain Due Diligence Act’ consists of monitoring and enforcement by the Federal Office for Economic Affairs and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle—BAFA) (Division 4 of the Act). Means for administrative enforcement include financial penalties (‘Zwangsgeld’) and administrative fines (‘Bußgeld’, Section 24 of the Act).
A legal basis for any civil liability claims for damages caused by a violation of the due diligence obligations is not included. On the contrary, Section 3(3) s. 1 ‘Supply Chain Due Diligence Act’ specifically states that: “A violation of the obligations under this Act does not give rise to any liability under civil law.” However, civil liability claims pursuant to the lex lata remain unaffected (Section 3(3) s. 2 of the Act). The Act does, however, presuppose the existence of legal grounds for civil liability claims, as is highlighted by the civil procedural rule in Section 11 of the Act pursuant to which victims of certain human rights abuses may authorise a domestic trade union or NGO to bring proceedings to enforce his or her rights in its own capacity. The inclusion of this rule was a compromise intended to account for the lack of an explicit enforcement measure for civil liability and make the Act acceptable to the needed majority within the Federal Government. However, this rule is rather unlikely to have much impact on litigation practice.
In contrast, both the NGO proposal from 2016 and the BMZ draft from 2019 advocated for the inclusion of an explicit liability clause. However, Section 15 of the NGO proposal did not recommend creating a new legal basis for civil liability
, rather, it simply elucidated the behavioural standard as set out by the due diligence obligations in its part 2 to be the applicable standard of
care. By stipulating its applicability irrespective of any extraneous laws otherwise applicable to the non-contractual liability under private international law, the NGO proposal declared the due diligence obligation explicitly as an ‘overriding mandatory provision’ pursuant to Article 16 Rome II Regulation.
125 As a result, claims for damages relating to human rights
abuses would still have been adjudicated based on the
lex loci damni. Only when determining the relevant duty of care standard would the potentially stricter due diligence obligations pursuant to the NGO proposal need to be consulted.
The public administrative enforcement aspect of the Act is flanked by the rules on public procurement (Section 22), stipulating that any enterprise that has been fined pursuant to Section 24 for a violation of its due diligence obligations shall be, under certain circumstances, excluded from the award of public contracts.
Overall, the enforcement mix in the ‘Supply Chain Due Diligence Act’ does contain some rather innovative approaches with a strong focus on public administrative oversight instruments. However, a more comprehensive mix, such as one that included the elements of civil liability and criminal liability as suggested in the BMZ draft, would have provided the Act with ‘more teeth’.
Switzerland: A Narrowly Failed Popular Initiative (2015–2020)
After a
legislative proposal was narrowly defeated in the Swiss National Council in March 2015 following a turbulent and somewhat dubious voting procedure,
126 the so-called ‘Swiss Coalition for Corporate Justice’ (‘Konzernverantwortungsinitiative’, hereafter: ‘Initiative’) launched an initiative text
127 containing a draft for a new Article 101a (“Responsibility of Business”) of the Swiss Federal Constitution (hereafter: BV-E). The initiative text proposed to impose a legal obligation on companies with a registered office, central administration or principal place of business in Switzerland
to respect “internationally recognised human rights” and “international environmental standards” even in their overseas operations. On 29 November 2020, the Initiative secured the necessary majority (‘Volksmehr’, ‘majorité du peuple’); however, according to Article 142(3) of the Swiss Constitution it would have also required the majority of cantons (‘Ständemehr’, ‘majorité des cantons’). The Initiative failed to clear this hurdle (8.5 canton-votes in favour and 12.5 votes against).
128 Nevertheless, the Initiative triggered a piece of HRDD legislation, albeit a rather weak one, focusing on conflict minerals and child labour that relied solely on reporting obligations as an enforcement mechanism but which did not create any new legal liabilities.
129
Although the Initiative’s draft was ultimately not adopted, it may serve as reference material for the examination and development of HREDD legislation. The proposal contains two core elements: a substantive due diligence obligation with regard to human rights and environmental standards throughout the value chain and a corporate liability mechanism for harm caused by the company itself or undertakings it controls.
The first core element of the proposal is a HREDD obligation that shall be regulated by law (Article 101a(2)(b) BV-E). This element is largely based on the concept of HRDD according to UNGPs and OECD Guidelines. Beyond the duty bearer’s own operations, the due diligence obligation’s scope includes undertakings that the entity legally or economically and factually controls and all business relationships (Article 101a(2)(b) s. 3 BV-E). The due diligence obligation includes (1) the duty to investigate actual and potential impacts on the environment and internationally recognised human rights issues, (2) the duty to take appropriate measures to prevent violations of internationally recognised human rights and international environmental standards as well as putting an end to existing violations, and (3) to account for the measures taken (Article 101a(2)(b) half-sentence 2 BV-E).
The phrase “international environmental standards” is not explained in detail in the Initiative’s draft, however, the explanatory remarks in the official communication of the Swiss Federal Council indicated that they include both standards under international law (such as the United Nations Framework Convention on Climate Change, the Vienna Convention for the Protection of the Ozone Layer
and the ambient air quality standards of the World Health Organization) as well as private standards of NGOs (e.g. technical norms or standards of the International Organization for Standardization [ISO]).
130
By mentioning “international environmental standards”, the Initiative’s proposal references international environmental treaty law on the one hand and to non- specified soft law standards on the other. This referral to two fundamentally different categories of legal sources may raise questions, especially given that the text is supposed to define a binding legal standard. However, it should be borne in mind that the wording is designed as a proposal for a, typically broadly formulated, constitutional norm. A constitutional norm requires further implementation and concretisation by laws below the constitutional level. The underlying reason is that according to Articles 138 and 139 of the Swiss Federal Constitution, only an amendment to the Constitution may be the subject matter of a ‘popular initiative’ (‘Volksinitiative’). Consequently, the Swiss legislature will have to specify more precisely what is to be considered an “international environmental standard” within the meaning of the Constitution.
131
The second core element of the Initiative’s proposal is a civil liability
regime for damage resulting from “violations of internationally recognised human rights
or international environmental
standards in the course of their business activities”. This regime includes instances where the damage in question is directly caused by third-party companies to the extent that these are “controlled” by the obliged company. The liability regime is modelled on the concept of the principal’s liability (“Geschäftsherrenhaftung”
132) pursuant to Article 55 of the Swiss Code of Obligations (‘Obligationenrecht’, hereafter ‘OR’). The plaintiffs in such cases must prove the occurrence of a damage, wrongfulness, and an adequate causal link. However, the company may exculpate itself by observing due diligence as required by law or by the fact that the breach of due diligence was not causal for the damage (Article 101a(2)(c) s. 2 half-sentence 1 BV-E).
Werro considered the proposal based on Article OR to be a reserved and rather business-friendly regulation by international comparison.
133
In contrast to the due diligence obligation, which can essentially cover the entire value chain (‘all business relationships’), the liability regime is limited to causation by the company itself and causation contributions stemming from controlled companies.
134 The notion of control is explicitly intended to include the simple and factual economic exercise of power and, as such, is not limited to corporate group structures under company law (Article 101a(2)(a) half-sentences 3 and 4 BV-E). According to
Gregor Geisser, the leading counsel behind the Initiative, this is to be interpreted as a broad concept of a corporate group, which goes beyond the concept of a group under accounting law and its formal concept of control according to Article 963 sentence 2 OR.
135 However, in his understanding, this broad concept encompasses the outer limit of liability where liability for damage in pure supply and value-added chains without at least de facto economic control over the direct causer is ruled out.
136
Thus, it must be noted that while the Initiative advocates a broad conceptualisation of what constitutes a corporate group, it limits liability strictly to the outer edges of the group. The substantive due diligence obligation explicitly encompasses “all business relations” i.e. even those beyond the company’s own control.
137 However, the company can only be held liable for those portions of the business relations that it controls, i.e. basically only for events within its own corporate group in the wider sense as described above.
At first glance, liability pursuant to the German proposals by NGOs in 2016 and the BMZ in 2019 seems to go further than the Swiss Initiative’s draft. While the latter strictly requires full control over the entity that directly caused damage, the mentioned German proposals do not explicitly do so. As the due diligence obligation pursuant to these proposals potentially covers the entire value chain, even those parts of the chain beyond the obliged company’s sphere of control, it thereby creates (via Section 15 HRDD Bill-proposal) a tortious duty of care that provides for liability without necessarily requiring the obligated company to control the entity that directly caused the damage. Nevertheless, it is likely that the outcomes of cases based on either the Swiss draft or the German proposals would not differ fundamentally. This is because pursuant to the German proposals, a company may be held liable only to the extent that the damage can be causally attributed to a breach of due diligence obligations, i.e. if it could have been prevented by careful conduct on the part of the obligor. In the absence of any possibility of control over the direct perpetrator, it is difficult to imagine a situation where a breach of due diligence obligations may cause specific damage: If an obliged company does not have any control whatsoever or at least potential influence on a third-party tortfeasor in the value chain, the obliged company cannot prevent damage caused by the third-party even with the highest could not have been prevented and therefore liability is equally ruled out in such cases under the 2016 NGO-concept.
Article 101a(2)(d) BV-E solves the problem of the conflict of laws, an issue that also arises under Swiss international private law. Just as under the Rome II Regulation (Article 4), generally foreign tort law is applicable (Article 133 IPRG) in relevant cases where the damage occurs somewhere abroad.
138 Therefore, the duty of care pursuant to Initiative’s proposal shall apply “irrespective of the law applicable under private international
law” (Article 101a(2)(d) BV-E).