Corporate Accountability

For over 60 years, globalisation and MNCs issues have been the most intense debates at the front position of international economy, law and politics. Indisputably, they are the main catchphrases in terms of economics,[1] environmental protection and human rights law. The concept of globalisation, a filter through Smith’s notion of capitalism,[2] has promoted economic liberalisation, that brought to light the theory of ‘the invisible hand’, which perceives that market economy should regulate itself and promote wealth, jobs, capital, right to work, health and economic equality in society.[3] Undoubtedly, such ideological concept has promoted economic development, transfer of technology, knowledge, finances (FDI) and trade liberalisation across the globe.[4]

However, Stiglitz urges that primary concerns of globalisation are economic inequality, social injustice, environmental damage, destruction of ecosystems and indigenous people’s livelihood, promotion of corruption, bad governance in developing countries, a lack of appropriate mechanisms to govern the global economy, imbalance of economic power between developed and developing countries.[5] Thus, in the content of the international legal system and legal scholars’ views, the self-regulatory perception of globalisation has led to violations of international law and human rights law by MNCs, either directly or indirectly, through their subsidiaries or host state governments.

This concern indicates a need to develop an appropriate mechanism to regulate the conduct of MNCs at the international level. It should be noted that the idea of imposing private rights and duties under national and international law through collective jurisdiction and multinational trading systems, at both global and regional levels, signals the end of the Westphalian State System.[6] Past evidence suggests that some authors advocate a ‘hard law’ approach to regulate MNCs,[7] while others affirm their position on a ‘soft law’.[8]

In addition to a well-documented positive impact of MNCs activities on the global economy, MNCs have also made a gigantic growth in overcoming many social and economic difficulties in the last 60 years.[9] Nonetheless, corporate activities have spread economic inequality and injustice in the world,[10] which have increased substantially in the last century.[11] Partly to blame is the failure to develop an appropriate legal enforcement mechanism to regulate the conduct of MNCs,[12] urgency for which can be observed in continuous violations of human rights by corporations.[13] Several studies have also reported MNCs’ behaviour and its negative impact on society,[14] indicating that a lack of international enforcement of human rights and bad governance at national level have led to a ‘venomous circle of poverty’, which can be defined as ‘a self-enforcing process of social destitution, that a state can hardly overcome by itself’.[15]

These predicaments occur partially because MNCs as economic entities have capabilities to operate on a global scale and surpass the regulatory ability of a single state.[16] It is also attributed to MNCs’ ability to influence or force a national government to relax its national law. Furthermore, other researchers, such as Breed[17] and Meyer,[18] have also shown an increasing interest in regulating the behaviour of MNCs. However, such attempts to address the problematic aspect of MNCs were not successful, perhaps because international legal system and legal scholars have ignored the broader concept of the impact of globalisation and could not understand the gravity of social dynamics brought by contemporary globalisation. They also have failed to integrate the orthodox approach of international law with the rapid expansion of MNCs power and globalisation to develop a mechanism that would regulate and minimise human rights violations by enterprises in pursue of economic benefits.

As mentioned above, the orthodox view has undermined a move towards enforcement mechanism to regulate MNCs[19] by creating a legal minefield without any effective and productive solution. Instead of developing worthless guiding principles and ideologies that do not reflect on the current social dynamics in the world, the question to be asked is how to address human rights violations and protect rights of indigenous people, rights of other citizens, ecosystems, rights of property and the environment for future generations, while rewarding MNCs for their investments?

Therefore, this dissertation aims to examine whether MNCs and human rights violations- litigating in the intersection of national and international law could be more effective mechanisms to impose legal obligations on MNCs, establishing a trail to bring litigation against corporations for human rights violations, economic crimes, corruptions and environmental damages. Furthermore, this dissertation seeks to strengthen the argument on litigation against MNCs, as well as to develop and present a new practical paradigm for international legal action against MNCs human rights violations in a host state, in a content of international forum, such as HITNCCC – Hybrid International Transnational Corporation Claims Court with a universal jurisdiction philosophy.

Even though there is substantial evidence to support the argument surrounding the notion of race to the bottom for FDI, Permanent Sovereignty over Natural Resources, this claim is beyond the scope of the study and shall not be examined in it. The dissertation shall focus merely on the economic impact of MNCs on the livelihood of people and the environment, therefore cannot provide the comprehensive review of the current development of environmental law. Finally, it shall not conduct detailed analysis of corruption in a host country in relation to FDI and protection of citizen rights in the country as well as case studies on MNCs human rights violations as these issues are also beyond the scope of this dissertation. The study shall disregard the impact of international relations on MNCs tort litigation, which is observed as one of the reasons why 20 out of the 30 ATCA cases were thrown out of court.

This dissertation contributes to the current debates surrounding MNCs regulation and litigation against human right violations in terms of development of international forum and policy to regulate the conduct of MNCs. It also broadens the scope of economic literature on MNCs economic activities and globalisation for a better understanding of the relationship between MNCs economic activities and the effect of global economy on human rights and environment. This will assist the concept of regulating MNCs, based on global economic output and power, economic benefits, environmental suitability, protection rights of society and corporations.

Therefore, the key questions to address are the following.

What is MNCs’ legal identity and what is the definition of MNCs?

What is the current approach to MNCs regulation?

Orthodox approach to international law - What is a sovereignty right of a state under international law and human rights law? The purpose of this specific question is to clarify the arguments and contradictions surrounding state sovereignty in relation to MNCs’ legal obligations under international law and to enhance the development of a new paradigm that could act as a mechanism to bring a successful litigation against MNCs thereby examining the orthodox approach to modern globalisation. It is crucial stage in a quest to establish MNCs’ legal obligations under international law to develop HITNCCC concept.

Do MNCs have legal obligations under international and human rights law?

What are current mechanisms to bring litigation against MNCs for human rights violations?

What happens if a state does not sign or ratify the treaty? Are there other instruments better than a treaty?

To address the above questions, the overall structure of the dissertation takes the form of six chapters. The first chapter is concerned with the legal identity and definition of MNCs, while the second chapter examines MNCs’ economic and political power. The third chapter inspects current law and mechanisms for bringing litigation against MNCs. The fourth looks at limits and effects of imposing international legal obligations on MNCs under international law and human rights law and the fifth reviews the doctrine of state sovereignty. The new theoretical concept of litigation against MNCs is presented in the sixth chapter and is followed by conclusion.

1. THE LEGAL IDENTITY AND DEFINITION OF MNCS

The first part of this chapter discusses the fundamental difficulties of the orthodox approach to international legal identity of MNCs, while the other part considers the issue of defining MNCs in international law. To address the aim of the dissertation, it is imperative to critically analyse and address complexities, contradictions and consider different legal scholars’ views on legal identity of MNCs. Defining MNCs and their legal identity will assist in laying a foundation for developing a new litigation paradigm.

1. Legal identity

Nowadays MNCs, as emerging powers, make it difficult for international legal orthodox scholars to discount corporations as subjects of international law and embrace a multipronged approach.[20] This methodology discards the doctrine of nineteenth century, a positivism approach, which has created uncertainty in the legal scholar spectrum regarding legal identity of none-state actors. At the same time, it does not mean to displace the relevant natural law principles of early origin,[21] as the legal philosophy behind both principles is crucial to international law in terms of state and MNCs.

In addition, critics have also dismissed the orthodox approach as an old-fashioned[22] artefact of a previous age that is irrelevant today, because it is incompatible with current social dynamics of globalisation.[23] This view is further supported by the right wing paradigm that puts MNCs outside the centre of international law. They have also attacked the orthodox approach by arguing for its abandonment and for the abandonment of the subject-object separation.[24] In their opinion, the orthodox approach is rigid and outdated. As result, it have claimed lives of indigenous people and environment in the content of self-determination.[25] It has also served as a limitation for litigation against MNCs,[26] thus this dissertation further argues against the orthodox approach and supports the call for an alternate approach to international law doctrine that will encourage wider participants, a stretch that is broad enough to incorporate states, international organisations, individuals, private and non-governmental organisations and MNCs.[27]

To support the view adopted by the dissertation, there is another argument against this doctrine, concerning the controversy around international legal personality not being a requirement for imposing a right or a duty on MNCs.[28] The interpretation indicates that regardless of what the orthodox approach is, international legal personality follows acknowledgement of rights and duties.[29] Hence, this could lead to dispute that under moral and legal philosophy and the fundamental reason behind the enactment of the UDHR, acknowledgement of MNCs’ legal identity and obligations under international law should follow the principle of acknowledgement of rights and duties under international law in terms of MNCs’ power and influence.

Further argument to support the recognition of MNCs’ legal personality and corporate responsibility is that MNCs, arguably, are international legal persons, because they already have rights in international settings, such as right to establish business, right for protection under the human rights law, property rights and other corporate rights under international law.[30] These recognised privileges and obligations under international law allow them to enforce their rights[31] in an international court or arbitration. This led Okeke to contribute to the ongoing debate about international legal identity of MNCs, which is referred to as the ‘Okeke criteria’.[32] The author stresses that MNCs to some extent are subjects of international law, they have rights, possess obligations and are authorised to vindicate their rights.[33] Additionally, attribution of international legal personality to MNCs has been attached to the capacity, transboundary nature and international impact of MNCs’ business operations that are combined with an access to international legal proceedings,[34] which modern MNCs possess.

This trend follows Charney’s confident suggestion that MNCs possess international legal personality and continually have participated in the international legal system.[35] The author supplements this argument by illustrating that public international law has been applied to contracts, established between MNCs and state bodies, as well as a corporate access to forum created under international convention or by inter-governmental institution for the settlement of disputes.[36] Ijalaye also comes to similar conclusion to indicate that MNCs could be regarded as selective subjects of international contract law for agreements, signed with states.[37]

This view is reaffirmed and supported by international arbitration practice. For instance, in the Libya-oil Companies Arbitration[38] Umpire Dupuy has applied international law in settlement of the dispute between a state and a private oil company. In this case, international law was observed as the governing law of the contract. On the other hand, Lauterpacht observes international dispute settlement mechanism as enclosed in investment treaties as well as previously in investment arbitration of the WWII, concluding that a state is a sole subject of international law and individuals do not possess rights under international law.[39] The author further submits that virtue of these contracts and other expansions in the international law system proclaim that MNCs do possess international legal personality.[40]

Reiterer states ‘challenge the proposition of “state alone are subjects of international law”’[41] and expresses the view that NGOs, transnational corporations and individuals can be subjects of international law. This finding also correlates with other authors’ views that ‘modern trend is to recognise that there are other subjects of international law, together with corporations’.[42] Overall, evidence presented in this discussion has proven contradictions and delusion in orthodox legal system view on MNCs. It is obvious that such delusion is, by no means, conclusive, but one does not need a conventional wisdom to contend that orthodox legal view is outdated and was cogent when MNCs were less significant in international settings.

In addition, several jurists, legal scholars and commenters have probed the conclusion that the inclusion of international legal personality on corporations is established evident. But other American casebook on international law has expressed that MNCs’ legal personality issue is controversial in terms of economic and political power they have, while their legal power, however, supports the traditional view,[43] and has asserted that corporations are private organisations and are subjects to national law, not international law.

Correspondingly, Malanczuk in the current study of MNC supports this view and rejects the concept of ‘internalised contract’ with a sovereign state amount to a recognition of a corporation to be a subject to international law,[44] ‘even in partial or limited sense’.[45] This view is noted by Muchmore and supported in the jurisprudence of the PCIJ and its successor the ICJ. It can be noted from the Serbian Loan Case, [46] where the PCIJ advocated that the law governing an agreement not concluded between subjects of international law must be the municipal law of the concerned state with the dispute.[47] Likewise, in the Anglo- Iranian Oil Company Case[48] between Iranian government and a British oil company, the ICJ concluded a line of reasoning that an oil company was not a subject of international law.[49] Consequently, it declined to apply the jurisdiction when Iran refused to consent to the Courts jurisdiction.[50] The ICJ pronounced that the agreement was not the international treaty; therefore, it did not seek the involvement of the Court.[51] Additionally, other authors debate that due to the decentralised nature of the international legal system, whereby no centralised law making and law-enforcing establishments occur, rights and obligations alone cannot constitute MNCs as subjects of international law.[52]

Therefore, the dissertation argues that the approach adopted by the PCIJ and the ICJ, which is very restrictive in defining and incorporating MNCs as not being subjects of international law, is questionable. Based on this statement, it can be concluded that the court verdict lacks substantial grounds and its refusal to exercise its power or clarify the subject of corporation international legal personality can be seen as a failure and biased approach to international law. Furthermore, this dissertation shall conclude on the basis that the court perhaps could have adopted a more helpful approach by, firstly, acknowledging state as the main and leading subject of international law[53] and, secondly, recognizing that MNCs are capable or do bear international legal personality under international law. Nonetheless, this acknowledgement by the court could be seen as not exclusionary.[54]

Similarly, it could be contended that other legal personalities are not inevitably non-subjects, nor are they excluded from having international legal personality in future. A subject of international law does not need to have the same features or share same qualities as a state to fit into a subject and the definition of a subject of international law.[55] Lastly, there are stages of legal personality, so all subjects do not possess same or have similar level of legal personality in international stage.[56] Thus, this section shall render the court’s view as unsophisticated on the subject of corporate legal identity in relations to the MNCs.

This section will further argue that the court verdict’s reasoning is inconclusive regarding MNCs legal obligations under international and human rights law and its position on legal personality could not serve as a valid view on globalisation. Also the dissertation supports the definition of international legal personality by the ICJ in the Reparation for injuries suffered in service of the United Nations, where it was highlighted that an entity could be a subject of international law only if two accumulating conditions are fulfilled, which are ‘capability of possessing international rights and duties and capacity to maintain its rights by bringing international claims’.[57] It was also acknowledged that a legal subject should possess a capacity to establish diplomatic relations, capacity to conduct international agreement and capacity to bring international claim.[58] Even though one could argue that this quality imposes recognition of legal entity, which MNCs do not possess, in a critical observation it is perfectly adequate to say that MNCs do fall indirectly in the first two categories and directly in the third category. Therefore, this dissertation shall reaffirm that whether MNCs are viewed directly or indirectly under international law, they have legal identity under international law. This section proposes a new definition of international legal personality that is broad enough to incorporate states, international organisations, individuals, non-governmental organisations and MNCs.

The dissertation shall propose the following definition for international legal personality:

“An entity can be defined as a subject of international law if only it accrues a condition of state, international organisation, individual, non-governmental organisation and corporation, which has rights under international law, a sufficient economic and political power to influence or part-take in either direct or indirect domestic and global decision making, which has a potential that can or do impact significantly on international law, human rights and the global community in respect to its activities”.

The moral and legal philosophy behind this definition is to broaden the scope of international legal entity concept that includes every actor of society who has or may have a capability to bear international legal identity as well as a capability to exhibit direct or indirect influence, which has a potential to impact or violate human rights. Haven’t decide the legal personality under international law, it is imperative now to look at the definition of MNCs to support the approach this dissertation is trying to adopt.

[1]Janet Dine and Andrew Fagan (eds), Human Rights and Capitalism: a Multidisciplinary Perspective on Globalization (Edward Elgar 2006) 147.

[2]Adam Smith, Wealth of Nation (C. J. Bullock ed, Vol. X. The Harvard Classics, P.F. Collier & Son, 1909–14; Bartleby.com, 2001) <www.bartleby.com/10/> accessed 8 June 2015.

[3]Rawi Abdelal and Richard S. Tedlow, ‘Theodore Levitt's “The Globalization of Markets”: An Evaluation after Two Decades’ (2003) Harvard NOM Working Paper No. 03-20, Harvard Business School Working Paper No. 03-082 <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=383242> accessed 8 June 2015. See also Menno T. Kamminga, ‘Holding Multinational Corporations Accountable for Human Rights Abuses: A Challenge for the EC’ in Philip Alston (ed), The EU and Human Rights (OUP 1999) 553, 554.

[4]Arnoldo C. Hax, ‘Building the Firm of the Future’ (1989) 30 (2) Sloan Management Review 75 <http://search.proquest.com/openview/63c2ebf36830d8c46ee32fc7482c4ecc/1?pq-origsite=gscholar> accessed 8 June 2015.

[5]Jonathan Perraton, ‘Joseph Stiglitz’s, Globalization and its Discontents’ (2004) 16 (6) Journal of International Development 897-905.

[6]Duncan B. Hollis, ‘Private Actors in Public International Law: Amicus Curiae and the Case for the Retention of State Sovereignty’ (2002) 25 BC Int'l Comp L Rev 235.

[7]Alicia Grant, ‘Global Laws for a Global Economy: a Case for Bringing Multinational Corporations under International Human Rights Law’ (2013) 6 (2) Studies by Undergraduate Researchers at Guelph 14-23.

[8]John J Kirton and Michael J. Trebilcock (eds), Hard Choices, Soft Law: Voluntary Standards in Global Trade, Environment and Social Governance (Ashgate 2004) 3-29.

[9]Robert Gilpin, Global Political Economy: Understanding the International Economic Order (Princeton University Press 2011) 278-304.

[10]Clair Apodaca, ‘Global Economic Patterns and Personal Integrity Rights after the Cold War’ (2001) International Studies Quarterly 587-602 < http://www.jstor.org/stable/3096061?seq=1#page_scan_tab_contents> accessed 9 June 2015.

[11]Mitchell A Seligson and John T. Passé-Smith (eds), Development and Underdevelopment: the Political Economy of Global Inequality (Lynne Rienner 1998) 10-150.

[12]<http://openpolitics.ca/tiki-index.php?page=economic+injustice> accessed 8 June 2015.

[13]Cristina Baez, Michele Dearing, Margaret Delatour, and Christine Dixon, ‘Multinational Enterprises and Human Rights’ (2000) 8 U Miami Int'l & Comp L Rev 183.

[14]Emilie M. Hafner‐Burton and Kiyoteru Tsutsui, ‘Human Rights in a Globalizing World: The Paradox of Empty Promises’ (2005) 110 AJS 1373. See also Francis O. Adeola, ‘Cross-National Environmental Injustice and Human Rights Issues. A Review of Evidence in the Developing World’ (2000) 43 (4) American Behavioral Scientist 686-706.

[15]Partha Dasgupta, An Inquiry into Well-being and Destitution (Clarendon Press 1993).

[16]Peter T. Muchlinski, Multinational Enterprise and the Law (2nd edn, OUP 2007).

[17]Michael Breed Logan, ‘Regulating Our 21st-Century Ambassadors: A New Approach to Corporate Liability for Human Rights Violations Abroad’ (2002) 42 Va J Int'l L 1005.

[18]William H Meyer, ‘Human Rights and MNCs: Theory Versus Quantitative Analysis’(1996) 18 Human Rights Quarterly 368-397.

[19]Claire A. Cutler, ‘Critical Reflections on the Westphalian Assumptions of International Law and Organization: a Crisis of Legitimacy’(2001) 27 Review of International Studies 133-150.

[20]Emeka Duruigbo, ‘Corporate Accountability and Liability for International Human Rights Abuses: Recent Changes and Recurring Challenges’ (2008) 6 Nw UJ Int'l Hum Rts 222. <http://heinonline.org/HOL/LandingPage?handle=hein.journals/jihr6&div=14&id=&page=> accessed 10 June 2015

[21]Beth Stephens, ‘Individuals Enforcing International Law: The Comparative and Historical Concept’ (2002) 52 DePaul L Rev 433.

[22]Stephen C Neff, Justice among Nations: A History of International Law (Harvard University Press 2014) 290-300.

[23]Myres S. McDougal and Gertrude C.K. Leighton, ‘The Rights of Man in the World Community: Constitutional Illusions Versus Rational Action’(1949) Yale Law Journal 60-115.

[24]Rosalyn Higgins, Problems and Process: International Law and How We Use It (OUP 1995).

[25]Angela Hegarty, Human Rights: 21st Century (Cavendish 1999) 290-310.

[26]Carlos M. Vázquez, ‘Direct vs. Indirect Obligations of Corporations under International Law’ (2004-05) 43 Colum J Transnat'l L 927 <http://heinonline.org/HOL/LandingPage?handle=hein.journals/cjtl43&div=35&id=&page=> accessed 6 August 2015. See also Jennifer A Zerk, Multinationals and Corporate Social Responsibility: Limitations and Opportunities in International Law (CUP 2006) 48.

[27]Philip Allott, Eunomia: New Order for a New World (OUP 1990).

[28]Olivier De Schutter (ed), Transnational Corporations and Human Rights (Bloomsbury 2006).

[29]Bin Cheng, ‘Introduction to Subjects of International Law (1991) in M.Bedjaoui (ed), International Law: in Achievements and Prospects (Martinus Nijhoff 1991) 23-40.

[30]Markos Karavias, Corporate Obligations under International Law (OUP 2013) 160-190.

[31]Michael K. Addo (ed), Human Rights Standards and the Responsibility of Transnational Corporations (Martinus Nijhoff 1999) 263.

[32]Christian N. Okeke, Controversial Subjects of Contemporary International Law (Rotterdam University Press 1974) <http://digitalcommons.law.ggu.edu/pubs/603/> accessed 11 June 2015.

[33]Malcolm N. Shaw, International Law (6th edn, CUP 2008).

[34]Cynthia Day Wallace, Legal Control of the Multinational Enterprise: National Regulatory Techniques and the Prospects for International Controls (Martinus Nijhoff 1982).

[35]Jonathan I. Charney, ‘Transnational Corporations and Developing Public International Law’ (1983) Duke Law Journal 748-788 <http://www.jstor.org/stable/1372465> accessed 11 June 2015.

[36]ibid.

[37]D Kokkini-latridou, ‘Review of David Adedayo Ijalaye ‘The Extension of Corporate Personality in International Law’ (1981) 28 (3) Netherlands International Law Review 365-368.

[38]Rudolf Dolzer, ‘Libya Oil Companies Arbitration’ in Rudolph Berhardt et al, Encyclopedia of Public International Law III (1997) 215-216.

[39]Elihu Lauterpacht, ‘International Law and Private Foreign Investment’ (1997) 4 (2) Ind J Global Legal Stud 259 <http://heinonline.org/HOL/LandingPage?handle=hein.journals/ijgls4&div=22&id=&page=> accessed 10 June 2015.

[40] ibid 272-76.

[41]Michael Reiterer, ‘Book Review: Reviewing Ruth Donner “The Regulation of Nationality in International Law” (1983)’ (1987) 81 Am J Int’l L 970.

[42]Jonathan Fried, ‘Globalization and International Law—Some Thoughts for Citizens and States’ (1997) 23 Queen’s LJ 259.

[43]Lori Fisler Damrosch et al (eds), International Law: Cases and Materials (West Group 2001).

[44]Peter Malanczuk, ‘Multinational Enterprises and Treaty-Making: A Contribution to the Discussion on Non-State Actors and the “Subjects” of International Law’ in V.Gowlland-Debbas (ed), Multilateral Treaty-Making (Springer-Science-Business Media 2000) 45-72. See also Peter Malanczuk, Akehurst's Modern Introduction to International Law (Routledge 2002).

[45]Adam I Muchmore, ‘Review of V.Gowlland-Debbas “Multilateral Treaty-Making (2000)”’ (2001) 26 YALE J Int’l L 547-548.

[46]Payment of Various Serbian Loans Issued in France (Fr v Yugo) (1929) PCIJ (ser A) No 20 <http://www.icj-cij.org/pcij/serie_A/A_20/62_Emprunts_Serbes_Arret.pdf> accessed 1 August 2015.

[47]ibid.

[48]Rudolf Dolzer, Anglo-Iranian Oil Company Case (1981) in Rudolph Berhardt et al (eds), Encyclopedia of Public International Law I (1992) 167-168.

[49]ibid.

[50]ibid.

[51]ibid.

[52]Alexander Orakhelashvili, ‘The Position of the Individual in International Law’ (2001) 31 (2) California Western International Law Journal 241.

[53]Antonio Cassese, International Law (OUP 2007).

[54]Jennings R and Watts A (eds), Oppenheim's International Law: Peace (Longman 1992).

[55]Olivier De Schutter, The Challenge of Imposing Human Rights Norms on Corporate Actors (Hart 2006).

[56]Hugo J. Hahn, `Euratom: The Conception of an International Personality’(1958) 71 Harvard Law Review 1001-1056.

[57]Eric Heinze and Fitzmaurice Malgosia (eds), Landmark Cases in Public International Law (Martinus Nijhoff 1998).

[58]Robert Beckman and Dagmar Butte, Introduction to International Law (2013) 1 <https://www.ilsa.org/jessup/intlawintro.pdf> accessed 13 June 2015.