# 10 / 2016

Solutions rather than Litigation

Deeper legal analysis

Vague basis

The Initiative demands that companies be obliged to incorporate the protection of "internationally recognised human rights" and "international environmental standards" into all business procedures. In the field of human rights, there are a large number of international standards and agreements. The problem here is that these – when they actually refer to companies – are often formulated as recommendations, so there is an absence of legally precise language. When it comes to environmental standards, the legal fuzziness is even more apparent. There is no indication of which international standards the Initiative actually refers to.

Furthermore, the Initiative demands that the duty of care should also apply to "enterprises controlled by the company" in Switzerland and abroad. It is completely unclear in legal terms how far such controls and duties of care would go, partly due to the differences in wording in the Initiative text. This regulation results in an automatic de facto liability of the parent company for incidents along the supply chain. It is highly problematic that the duties of care extend beyond the enterprises controlled by the parent company, even to subcontractors that may be unknown to it.

The big sham: Companies must de facto assume liability always and for everything.

Extreme liability without fault

The Initiative demands automatic liability without fault of the company, and creates new rights to file an action. Companies are expected to assume liability for loss or damage that is caused by an enterprise under their control abroad "in the course of executing business transactions". Exoneration is not possible in practical terms because no company can prove that far-distant suppliers also comply with all the relevant standards. It is not possible to ensure control of the entire supply chain right down to the remote supplier of a supplier. Such an extension of liability would have far-reaching consequences and is tantamount to a paradigm shift in liability law. It would overturn the tried-and-tested Swiss company law and the liability of the group companies described above.

The claims of the Initiative could even be interpreted to mean that the individual members of the board of directors of the parent company are made personally liable guarantors of the whole enterprise. According to this interpretation, they would even be liable if infringements of human rights or environmental protection occurred outside the group company's own controllable area.

The companies are only free of liability if they can prove that they have considered the following points for all their controlled companies or suppliers with which they have some form of business relationship:

  • The companies have to determine the actual and potential effects of the actions of the subordinate company on internationally recognised human rights and environmental protection.
  • The companies must take suitable measures to prevent violations of internationally recognised human rights and international environmental standards (regardless of whether they are even allowed to impose such directives on their suppliers).
  • The companies must end existing violations and report on the measures taken (again, regardless of whether they are even allowed to impose such instructions on their suppliers).

In practice it is almost impossible to produce such evidence in relation to a company that is not directly controlled. With the lack of authority to impose instructions, there is also a lack of means to obtain the required information. However, the Initiative hazards the consequences that these uncertainties may disadvantage the company and benefit the claimant in litigations. The parent company in Switzerland would have to provide evidence on something for which there are no applicable standards, with regard to one of its suppliers abroad over which it cannot exert any influence in practice. This can only mean that the proof of exoneration is doomed to fail, so the parent company is always liable, whether it has complied with the duties of care, or not.

Legal imperialism and interference in the sovereignty of other countries

The Initiative asks that Swiss companies be sued in Switzerland for everything that happens anywhere in the world and has some remote connection to them. This would mean that the competence of courts in other countries has to be called into question by the courts in Switzerland. Legal actions would no longer be initiated at the place where the loss or damage occurs.

This would undermine international developments that aim to counteract precisely the propensity of jurisdiction and the place of loss or damage to drift apart. In the past few years, the jurisdiction of courts for global incidents has been limited in many countries (including Spain, Belgium and even the USA).

The political message is also highly detrimental. The country that is actually competent would be told that its law is invalid and its courts do not have capacity to act. This is not only an affront but also represents a serious interference in the sovereignty of the nations in question. Instead of denying them jurisdiction to take up civil proceedings and drawing such cases into Switzerland, it would be much more effective to develop the court systems in the respective countries. Not only the people in developing countries, but also the international companies investing in them have a significant interest in maintaining a properly functioning, local legal system. Such a new type of imperialism in court disputes would result in a forced export of jurisdiction.

Precedence of Swiss law

The Initiative finally requires that the Swiss court must apply Swiss law in all cases. But this is not always in the best interests of the local contracting party. At present, the parties partly have a choice of law, since different legal systems may be applied. The parties therefore have to decide which legal system they want to use. If contracting parties intentionally or unintentionally fail to use the possibility of choosing a legal system, the law of the country which shows the closest connections to the contract, applies by default. This is usually the country where the seller or supplier has its registered office. This form of facilitation that normally benefits the supplier abroad, would also no longer be available to them according to the Initiative.

Impossible expectations from international legal assistance

If a company domiciled in Switzerland could be sued for an incident at the other end of the world, this would create great difficulties for a court in Switzerland. Even now it is difficult to obtain and evaluate evidence in cross-border proceedings. A Swiss court is not permitted to undertake any evidence-collecting measures on foreign territory, because it is forbidden to conduct official activities outside Switzerland. Thus, for example, Swiss judges are not permitted to travel abroad for a legal inspection or interrogations.

It is true that the law of international civil proceedings offers two possible solutions for this situation. The judge in Switzerland can request the help of authorities abroad via the instruments of international legal assistance (letters of request). They can be asked to carry out legal proceedings or other official activities within their territory and communicate the results to the court in Switzerland. But this authority abroad would generally be the very court that is actually competent for the case, and the Swiss judge submitting the request would have to inform this court that it is not sufficiently competent to handle the case itself. It is easy to imagine how reluctant this court would then be to support the requesting court in Switzerland in the complex enquiries related to a case.

From the standpoint of the foreign claimant, as well, a lawsuit would be a great challenge. The claimant would have to submit a written complaint to the court in Switzerland, name all the evidence in detail, and provide proof of the damages in numbered sections. The claimant would hardly be in a position to do so – for linguistic or financial reasons. An NGO based in Switzerland would most probably have to step in.

The emphasis is on the spectacle before the court and its effect on the media

The "image of the enemy" evoked by the Initiative is based on the easily refutable charge that companies in Switzerland intentionally violate the principles of ethical business management. On closer inspection, it is clear that the Initiative does not focus on due diligence of companies in relation to human and environmental rights; that is at most a pretence. Instead, NGOs in Switzerland are given a means to hold proceedings in Switzerland against Swiss companies in the name of selected victims abroad with high-profile media results, thanks to an extension of the liability clause that would be unprecedented in the world.