Another critical legal issue in liability cases concerning two or more States in one way or the other, the competent court has to decide which State’s law it should apply. Even if a European court accepts jurisdiction it is, as
Enneking explains, not at all a given that the court will be able to adjudicate on a foreign liability claim based on the forum State’s substantive norms on tort law. In fact, in many cases, the forum court involved will have to formulate its judgment with respect to the alleged wrongfulness of the corporate conduct and its legal consequences based on foreign rules of tort law.
87 This application of foreign tort law can have far-reaching consequences, especially when the damage was suffered in a developing State where local law may contain relatively lax environmental
and compensation
standards in comparison with that operating in EU Member States. Consequently, even though the victims of environmental damage
can find German or other European courts willing to accept jurisdiction over corporations domiciled in their State, victims will find it more difficult to prevail in their claim and may even struggle to find lawyers willing to take on their case.
88
The issue of the applicable law must, again, be examined on the ground of private international law which is, in principle, part of the law of the forum State. Courts will, accordingly, apply the rules of private international law of their respective countries. Within the EU, except for Denmark, private international law is largely unified and for claims in tort, the applicable law is defined by the Rome II Regulation of the EU. Contrary to the Brussels Ia Regulation, which is concerned only with torts connected to the EU, Rome II applies universally, i.e. to all transboundary torts regardless of the place where the environmental damage or the defendant’s actions took place.
6.5.1 General Rule of lex loci damni and a Special Rule for Environmental Damage
As a general rule, the law applicable to an obligation arising out of a tort shall be the law of the State in which the damage occurred. This applies regardless of the country in which the event giving rise to the damage occurred and irrespective of the country or the countries in which the indirect consequences of that event occur (Article 4(1) Rome II Regulation). According to this rule (
lex loci damni), it is the tort law of the host country that will, in principle, be applicable in type-two cases concerning damage directly caused by suppliers or subsidiaries abroad but which are brought before EU Member State courts. The same rule in principle also applies if the tort in question is a type-one case,
89 that is when the act (or omission) giving rise to the damage is located in one country whereas the harm resulting from that act (or omission) has arisen in another country.
90
For environmental damage, there is an exception to this principle: Article 7 Rome II gives the claimant a choice between the law of the State where the environmental damage occurs and the law of the State where the event giving rise to the damage occurred. According to recital 24 of the Regulation, ‘Environmental damage’ is understood as meaning an adverse change in a natural resource, such as water, land or air, impairment of a function performed by that resource for the benefit of another natural resource or the public, or impairment of the variability among living organisms. However, the material scope of Article 7 Rome II not only encompasses environmental damage in a strict sense but also damage sustained by persons or property as a result of such damage.
The event giving rise to the damage is commonly understood as the conduct that has given rise to the damage. In cases of environmental damage
, the claimant thus has a right to choose between the law of the place where the damage is sustained and the law of the State where the actions occurred that gave rise to the damage. The Regulation’s choice-of-law rule for environmental damage is based on the principle of ubiquity.
91 The claimant’s right to choose the applicable law is supposed to “discriminate in favour of the person sustaining the damage”, cf. recital 24 Rome II. Article 7 Rome II implies an important facilitation as the claimant is, in principle, free to choose the law which involves more relevant precedents, higher regulatory standards, stricter liabilities, more liberal rules on presumptions of law or on shifting the burden of proof
, higher damages awards and so forth.
92 In many cases, especially those involving incidents in the Global South, this will be the law of the corporate defendant’s home State.
Article 7 Rome II, in accordance with
Enneking’s qualification, can be of significance at least for those liability cases that involve environmental damage
as specified in the Regulation, provided they can be construed as transboundary tort claims in which the event giving rise to the damage in the host country has taken place in the home country.
93 This seems to be obvious for type-one cases where the detrimental effects of an action or omission in one country transcend this countries borders and directly cause environmental damage in another country.
Regarding type-two cases, however, it is controversial whether Article 7 Rome II makes it possible that a decision taken at a corporation’s European headquarters will be understood as the event giving rise to the damage.
94 This could be the case when the demands or policies related to a corporation’s supply-chain, or the lack of supervision regarding a parent company’s subsidiaries
95 that initiate the chain of events, which results in environmental damage
are to be considered the legally relevant action for the purposes of Article 7 Rome II.
96 In such cases, the corporation’s behaviour may be regarded as an ‘indirect event’ in the sense that it precedes the subsidiary’s or tortious action causing the damage directly.
97 Many scholars argue, however, that Article 7 has to be interpreted in such a way that, in order to be linked to the place of action, only the action or omission that directly caused the violation of rights is the decisive factor. Causal contributions on a preliminary stage thus would not be relevant.
98 When the legally relevant contribution is an omission, i.e
. if the parent company is blamed for not taking the required action to prevent damage directly caused by a supplier or a local subsidiary, the place where the act (omission) giving rise to the damage occurred (
lex loci delicti commissi) then shall be the place where action should have been taken in accordance with the law applicable at the location of the legal interest to be protected. This place, in principle, will be the place where the legal interest was infringed.
99 In cases of strict liability, the place to be considered as the
lex loci delicti commissi is the place where the event causing the damage occurred, understood as the place where the polluter acted dangerously or the place where the damage-causing facility operated.
100
To support this interpretation, scholars point to common principles of autonomous international tort law
101 and—given that there are no decisions of the European Court of Justice involving Article 7 Rome II—on the case law on Article 7(2) of the Brussels Ia Regulation
.
102 CJEU cases dealing with the jurisdictional treatment of indirect damage accordingly demonstrate that only the place where the direct victim suffers direct damage is of jurisdictional relevance.
103 Applying this distinction to the question of the nature of the event giving rise to the damage for the purposes of Article 7 of Rome II would imply, as
Grušić explains, that both the ‘indirect event’ (i.e. the parent company’s or purchasing company’s decisions that started the chain of events resulting in environmental damage
) and the actions of the ‘indirect tortfeasor’ (i.e. the company whose decisions concerning the operations of the subsidiary or supplier) would be disregarded for choice-of-law purposes.
104
Although many seem to support this restriction of the ubiquity principle of Article 7 to the type-one kind of direct transboundary damage,
105 a number of arguments can be made in favour of applying Article 7 to type-two cases and, thus, open the door to consider the decisions and actions of the parent company or purchasing company as the causal event relevant for choice-of-law. Most importantly it should be noted, with
Enneking, that such a narrow interpretation neither seems “to be in line with the Rome II Regulation
’s universal application, nor with the environmental damage
rule’s main aim, which is to raise the overall level of environmental protection and of making the polluter pay”.
106 As the Commission made clear in the explanatory memorandum to the proposal of the regulation, Article 7 shall, as a reflection of the European Union’s more general objectives of environmental policy, “not only […] respect the victim’s legitimate interests but also […] establish a legislative policy that contributes to raising the general level of environmental protection, especially as the author of the environmental damage, unlike other torts or delicts, generally derives an economic benefit from his harmful activity”.
107 The major rationale of the rule, besides having the goal to adequately take into account the right of injured persons to effective redress, is to guarantee an environmental rule of law despite the existence of an uneven regulatory playing field:
108 it was implemented to make sure that private international law does not give economic actors problematic incentives by exclusively applying the law of the place where damage is sustained. Elsewise, benefit-maximising actors could exploit the lower environmental standards in other States by establishing risky facilities at locations well-suited for the purpose, such as border regions, and thereby avoid the costs of effectively mitigating their risk of liability.
109
The Commission thus explicitly acknowledges the significance of environmental
liability for environmental policies. It highlights the importance of applying an adequate standard of
care to transboundary environmental damage
to prevent “pollution havens”.
110 While the Commission only expressly refers to externalities caused in “neighbouring countries”, the regulatory ratio or “underlying philosophy”
111 regarding environmental liability as a functional precautionary mechanism
112 would not allow the restriction of this rule to only certain situations, such as when local conduct results in transboundary environmental damage
which manifests in a neighbouring (EU) country.
113 The assumption that there will be problematic effects from leaving corporate leeway to take advantage of “pollution havens” is also plausible in constellations where liability risks can be shifted to far away developing countries, just as it is in constellations where damage would manifest in a neighbouring (EU) country. To restrict the
lex loci delicti commissi-rule of Article 7 Rome II to type-one cases would entail that non-EU environmental interests do not fall within the scope of Rome II’s environmental policies.
114 This would, given the global relevance of most environmental problems, not only contradict the ‘enlightened self-interest’ of the EU but would also collide with the ‘cosmopolitan objective’ that the Regulation presumably pursues, namely, raising the general level of environmental protection based on the universally accepted principles of environmental law.
115
It has been proposed that a more ‘cosmopolitan understanding’ of Article 7 Rome II in this sense may be more viable for another reason: This follows, as
van Calster explains, from the close link between Rome II and the European Environmental
Liability Directive (ELD). On the one hand, again according to
van Calster, the Commission’s reference to the Rome II Regulation in its proposal regarding recent developments, which recognise environmental damage
as being included (without specifically mentioning it), undoubtedly relates to the concepts of the ELD. The ELD, on the other hand, specifically mentions in Article 3(2) that it shall apply without prejudice to more stringent Community legislation regulating the operation of any of the activities falling within the scope of the Directive and without prejudice to community legislation containing rules on conflicts of jurisdiction. Article 6 and 8 of the Directive establish liability of the ‘operator’, as defined in Article 2(6): “‘operator’ means any natural or legal, private or public person who operates or controls the occupational activity or, where this is provided for in national legislation, to whom decisive economic power over the technical functioning of such an activity has been delegated, including the holder of a permit or authorization for such an activity or the person registering or notifying such an activity.”
116 With regard to the prevention and remedying of environmental damages
, precisely this broad definition of ‘operator’ in the ELD and the ELD’s link to the Rome II Regulation are considered to open up an option to accept the characterisation of corporate-headquarter decisions as “an event giving rise to damage” in terms of Article 7 Rome II.
117 Concerning the relevant content of Article 7 and its practical implications for extraterritorial liability cases, however, there remains a need for further clarification.
6.5.2 Exceptions According to Rome II
In addition to the special rules for environmental damage
in Article 7, Rome II contains several relevant exceptions that may allow for the application of the law of the (European) forum, even though the
lex loci damni rule of Article 4 would stipulate the application of foreign law. The first exception concerns overriding mandatory provisions of the forum which, according to Article 16, should be applicable irrespective of the law otherwise applicable to the non-contractual obligation. The ECJ has defined overriding mandatory provisions as national law with which compliance “has been deemed to be so crucial for the protection of the political, social or economic order in the EU Member States concerned as to require compliance therewith by all persons present on the national territory of that EU Member States and all legal relationships within that State”.
118 Overriding mandatory provisions, in
Enneking’s words, “include domestic regulations of a (semi-) public law nature that intervene in private legal relationships in order to protect the public interest”.
119 Such “regulatory private law”
120 could be seen in “statutory duties for locally based internationally operating business enterprises with respect to the people and planet related impacts of their activities in host countries, [which] could be considered to be overriding mandatory provisions that should find application in foreign direct liability cases brought before the courts in those EU Member States.”
121 As has been observed recently, legislative provisions on mandatory due diligence, such as the French Law on the Duty of Vigilance, could form the basis for overriding mandatory rules to ensure their applicability in civil liability
cases relating to corporate human rights
abuses or environmental damage in third countries.
122 Such national due diligence regulations aimed at creating extraterritorial effects, which will be discussed in detail in Chap.
7, may also expressly stipulate that their provisions should be considered as overriding mandatory provisions, and as such, applied regardless of the otherwise applicable law. Drafts for such laws, such as the unsuccessful Swiss Responsible Business Initiative and the regulatory debate that preceded the German Supply Chain Due Diligence Act (“Lieferkettensorgfaltspflichtengesetz”, LkSG), discussed a provision to ensure the applicability of due diligence obligations of companies in civil liability claims irrespective of the foreign applicable law.
123
The second relevant exception in Rome II is found in Article 26 and provides that the forum can preclude the application of a foreign law that would be manifestly inconsistent with its public policy (
ordre public).
124 This exception, according to
Marx et. al. could provide a minimum guarantee in transnational liability cases that are brought before EU Member State courts but governed by host country law.
Marx et al. refer to transnational liability cases arising from human rights violations, as those, whether ensuing from international or domestic law, are considered a part of the public policy of the forum. The same can be true for environmental
liability cases, which involve infringements of fundamental human rights. Just as the mandatory-provisions exception, Article 26 may, at least in theory, open the possibility for a forum State to apply its own law when the law of the host State does not offer sufficient protection for the victims, or when damages in a host country is too low to deter businesses from further abuse.
125
These interpretations of Articles 16 and 26 Rome II, however, are not undisputed.
126 In addition, the exceptions to the general rules of the Rome II Regulation are subject to certain restrictions.
127 Their practical relevance for environmental
liability cases therefore remains to be seen. A statutory reform could resolve this uncertainty. In this regard, the recent report of the JURI committee proposed to include a new Article 6(a) into the Rome II Regulation that provides a specific choice of law provision for civil
claims relating to alleged business-related human rights abuses committed by EU companies in third countries. Victims of business-related human rights violations would, accordingly, be able to choose between the law of the country in which the damage occurred (
lex loci damni), the law of the country in which the event giving rise to the damage occurred (
lex loci delicti commissi) and the law of the place where the defendant undertaking is domiciled or, lacking a domicile in the Member State, where it operates.
128 Such a proposition, as
Marx et. al. explain, “would take into consideration the specific nature of the business-related human rights claims and redress the power imbalance between the parties, the victims usually being in a situation of particular vulnerability in relation to the multinational companies. It would also promote the interests of the respective countries and of the EU as a whole in upholding higher human rights standards […] At the same time, it also determines the possibilities for host country-based individuals and communities who have suffered harm as a result of the activities of EU-based businesses with international operations to ensure, through this type of litigation, that the level or protection of their environmental and human rights interests is adequate and not fundamentally different from that afforded to those living in the EU home countries of the business enterprises involved.”
129
Article 17 of the Rome II Regulation provides that “in assessing the conduct of the person claimed to be liable, account shall be taken, as a matter of fact and in so far as is appropriate, of the rules of safety and conduct which were in force at the place and time of the event giving rise to the liability”. Conduct and safety rules may bear specific relevance in the context of environmental damage
.
130 According to the Commission’s Explanatory Memorandum to the Regulation, Article 17 shall be of help with respect to “one of the most frequently asked questions [concerning] the consequences of an activity that is authorised and legitimate in State A (where, for example, a certain level of toxic emissions is tolerated) but causes damage to be sustained in State B, where it is not authorised (and where the emissions exceed the tolerated level). Under Article 17, the court must then be able to have regard to the fact that the perpetrator has complied with the rules in force in the country in which he is in business.”
131 Whereas the Commission’s explication indicates that rules of safety and conduct at the place of the event giving rise to the liability may exonerate the perpetrator, this does not necessarily mean that those rules could not also lead to a stricter or extended liability.
132 However, the Commission chose a more neutral wording that also seems to allow for an interpretation in the latter direction by saying that rules of conduct should be taken into account by the court “as a point of fact and insofar as is appropriate, for example when assessing the seriousness of the fault or the author’s good or bad faith for the purposes of the measure of damages”.
133 Therefore, it seems not out of the question to assume that provisions on rules of safety and conduct may also play a role with respect to type-two cases. Before EU Member State courts dealing with the liability of EU-based parent companies for harm caused to human rights and environmental interests in non-EU host countries, it could allow the court to take into account home country behavioural standards that can be stricter than those in the host country, even when the law of the host country is applicable to the case.
134 There seems to be a wide consensus, however, that Article 17 should, on the one hand, not be understood in such a way as to provide for an application of the rules of safety and conduct, but does only allow the court to take them into account as a matter of fact in assessing the conduct of the tortfeasor and, on the other hand, it is intended as a tool for helping the tortfeasor, but not necessarily the victim.
135
However, Article 17 may help to resolve the complex issue of how to best deal with public permits or licences for potentially harmful conduct in cases of transboundary environmental damage
. As will be further discussed below,
136 permits might limit a perpetrator’s liability. If the environmental damage was caused by an emission or event expressly authorised by and fully in accordance with the conditions of an administrative
authorisation conferred by or given under applicable national laws, cf. Article 8(4)(a) Environmental Liability Directive, the question arises whether this authorisation affects the juridical assessment of the environmental damage. The aim of an authorisation can be to provide legal certainty about the permissibility and legality of an emitting installation not only for the neighbourhood and the public but also for the owner of the emitting installation. Depending on the concrete legislation, it is conceivable that the authorisation would legalise environmental damage to a certain level or that the authorisation limits the possibility of third parties to claim remediation or compensation
.
137