Responsible Business Initiative – a Change-Maker for Corporate Liability?

The Responsible Business Initiative (the Initiative) proposes a new due diligence obligation for Swiss-based large companies as well as a liability provision to hold them accountable for human rights and environmental violations made abroad by controlled companies. This initiative has caused a heated debate over the last months as the Swiss people approach the polling stations.

The present blog is part of FRORIEP’s series on the Responsible Business Initiative and gives an overview on the context surrounding this Initiative and examines whether such a proposal is a novel aspect in comparison with laws from other countries. In another upcoming FRORIEP blog, you will read more on the question of the due diligence obligation.

The Responsible Business Initiative

The Initiative has two main focuses:

• First, it introduces mandatory due diligence duties obliging companies to embed respect for human rights and the environment in all their business activities, including those abroad.
• Second, and more debated, the Initiative wants to hold Swiss-based large companies liable for breaches of human rights and environmental violations caused abroad by companies under their control. With this liability provision the Initiative would enable victims of such violations to submit before Swiss courts a claim for damages against such Swiss-based companies.

In the event the Initiative is rejected, the indirect counter-proposal adopted by the Swiss Parliament will enter into force. This means that in either case, Swiss-based large companies will be required to disclose nonfinancial information and in some sectors companies will have to conduct human rights and environmental due diligence, while the scope of liabilities and requirements depends on the outcome of the vote. The counter-proposal does not contain a liability provision.

Who can be held responsible?

The text of the Initiative targets “companies that have their registered office, central administration or principal place of business in Switzerland”. The term company is not a legal term under Swiss law and the text of the Initiative mentions that the legislator “will take into consideration the needs of the small and medium sized companies with little human rights and environmental risks.” The Initiative Committee has said that small and medium sized companies with little risk are considered to be excluded and thus the Initiative principally targets multinationals. This will have to be defined by the Parliament if the Initiative passes.

Violations caused by companies “under their control”

Swiss-based companies would become liable for violations caused by companies “under their control”. The notion of control is not precisely defined in the Initiative’s text. The text states that control is to be determined according to the factual circumstances and may also result through the exercise of power in a business relationship. Generally, such controlled companies are subsidiaries. However, based on the Initiative, a multinational company could also be held liable for a company which is under its de facto control through the exercise of economic control.

The Initiative opted for the concept of de facto control. This does not include any business relation. In the case of a sub-contractor for example, de facto control could be established where the multinational has sufficient economic control over the sub-contractor, such as for example where the sub-contractor works exclusively and regularly for the multinational.

The notion of liability

The Initiative’s concept of liability is modelled on a well-known concept under Swiss law of objective liability for acts of a third party, in particular the objective liability of employers for the acts of their employees. According to Art. 55 of the Swiss Code of Obligations (CO) “an employer is liable for the damage caused by his employees or ancillary staff in the performance of their work, unless he proves that he took all due care to avoid a damage of this type or that the damage would have occurred even if all due care had been taken.”

Under the Initiative, this notion of liability for a controlled entity is based on the principle of liability that whoever derives economic benefit from another’s activity shall also bear the associated risks of damages to a third party. Whoever controls someone must also use this control to prevent damage.

Human Rights breaches and environmental violations

The Initiative itself does not define the term Human Rights and environment. In its explanations, the Committee behind the Initiative refers to the UN Guiding Principles on Business and Human Rights (the UNGP) as well as the OECD Guidelines for Multinationals regarding environmental obligations. The Initiative seeks for companies to respect internationally recognised human rights and environmental standards; these include treaties Switzerland has ratified, such as the International Covenant on Civil and Political Rights and the International Covenant on Economic, Social and Cultural Rights, as well as the core conventions of the International Labour Organisation. The Committee further refers to general principles of liability under Swiss law, based on which liability presupposes the violation of an absolutely protected right, notably body, life, personality or property.

If the Initiative is accepted, the Swiss Parliament will have to define in detail which internationally recognised human rights and environmental standards companies will have to respect, and which law applies to determine the human rights and environmental duties.

Reversal of the burden of proof?

The Initiative seeks to introduce liability for Swiss-based large companies, in the event a company it controls causes loss or damage to someone. This liability is incurred, unless the Swiss-based company can prove that it took all due care to avoid such loss or damage, or that the loss or damage would have occurred even if all due care had been taken. The assessment of a company’s liability will therefore proceed in the following way:

1. The plaintiff will have to establish that there was a human right or environmental violation, that such violation caused damage, and that there is a causal link between the two.
2. The plaintiff will not need to prove the fault of the Swiss-based company.

This means that if the Initiative is accepted, a potential plaintiff will first have to prove that there was a human rights and/or environmental violation, that he/she suffered a loss or damage and that this loss or damage is causal to such violation committed by a controlled company.

Moreover, the Initiative contains the possibility for a company to exonerate itself (preuve libératoire / Entlastungsbeweis) from liability, a concept already known under the aforementioned employer’s liability (Art. 55 CO) (“an employer is liable unless he proves that he took all due care”). In other words, the Swiss-based company will have the possibility to establish that it took all the required due care measures with the controlled entity to ensure the respect of human rights and the environment.

Under Swiss law, there are other similar liability concepts, notably the liability of parents (Art. 333 Civil Code) (“the head of the family is liable, unless he can show that his supervision of the household was diligent”) and liability of an animal owner (Art. 56 CO) (“the animal’s caretaker is liable unless he proves that he took all due care in keeping and supervising the animal”).

Applicable law and jurisdiction

Under Swiss private international law, transnational claims in tort are generally governed by the law of the country in which the result of the tort occurred. Thus, in cases where the tortuous act and its resulting damage occur abroad, foreign tort law would generally apply. However, under the Initiative the goal is that the proposed conditions of liability for torts and the standard of conduct for companies apply before Swiss courts irrespective of the law applicable under private international law, and thus irrespective of the tort law applicable abroad.

Based on the existing Lugano Convention of 2007 and the Swiss Federal Statute on Private International Law a company with a seat in Switzerland can be sued at its place of business. With the Initiative, its proponents do not seek that a company be sued abroad, but rather to extend the right to action against the Swiss-based controlling company. This means that it opens the door for a company based in Switzerland to be held liable for a company it controls abroad.

Change-maker in the international context?

One of the debated questions over the past months has been whether the liability provision the Initiative seeks to introduce is a new concept or whether similar concepts already exist in other countries.

A number of countries have introduced legally binding obligations for businesses to exercise human rights due diligence. These mainly introduce mandatory disclosure laws and are often limited to specific human rights violations. However, to date, only France has introduced a broad liability standard as foreseen by the Initiative.

• The French “loi de vigilance”, introduced in 2017, which targets “big companies”, contains the possibility for victims to seek damages in front of French courts against said French companies and to hold them responsible for the actions of any company, with whom they have an “established business relationship”. The French company has the duty to establish a monitoring plan defining the human rights or environmental issues it commits to respect. Such a law does not include the possibility for the “big company” to exonerate itself from liability; rather the victim must also prove that the company violated its duty of care.

At the multilateral level, there are two major developments both at the European Union and United Nations level.

At the EU level, access to remedies for victims of Human Rights violations by businesses has been the topic of a recent 2020 report published by the European Union Agency for Fundamental Rights. One of its recommendations is for the “EU to encourage Member States to consider shifting the burden of proof in cases where the fundamental rights of individuals are infringed by corporate activity. This should apply to causality between the company’s conduct and damage, as well as to proving liability for the supply chain.” The report goes as far as to submit that “[T]hose found to have violated a legal norm should be required to prove that ensuing damages are not the result of this violation. The same should apply to companies who fail to apply due diligence to their supply chain“.

In September 2020 the European Parliament Committee on Legal Affairs published a draft proposal for a directive which is currently in consultation. The current draft is inspired by the French law and aims to ensure that companies can be held accountable for their adverse human rights, environmental and governance impacts throughout their value chain.

At the UN level, some strong steps have been taken in the last few years. In 2014 the UN Human Rights Council launched an intergovernmental working group to establish an international legally binding instrument on Transnational Corporations and Other Business Enterprises with respect to human rights which has met various times over the years. They issued a draft instrument whose second revised draft was discussed in October 2020. It includes a provision calling on state parties to include legal liability for companies conducting business activities, domiciled or operating within their territory or jurisdiction, or otherwise under their control, for human rights abuses that may arise from business activities, including of transnational character, and from their business relationships.

Thus, while no country has the exact same liability provision as the one the Initiative seeks to introduce, the Initiative is aligned with the current trends on human rights and environment in other countries, as well as the EU and the UN level.

Conclusion

One of the Responsible Business Initiative’s objectives is to enable victims of Human Rights and environmental violations of de facto subsidiaries of Swiss-based large companies to seek remedy in Switzerland. It builds on a legal concept already known in Switzerland of objective liability for acts of a third party, in particular the employer’s liability for the acts of its employee. Neighbouring countries such as France has introduced a similar concept and it is a matter of time before the EU and the UN introduces similar facilitation of access to remedies for victims and human rights due diligence requirements.