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Focus: Commercial Litigation – January 2005

Unocal: the business of human rights

In brief: A recent announcement by Unocal Corporation to settle human rights claims under international law highlights the importance of the US Alien Tort statute. Lawyers Emily Gerrard and Sam Cadman and Partner Craig Phillips (view CV)look at the settlement and what it means for multinational corporations.

On 13 December 2004, Unocal Corporation announced that an 'in-principle agreement' had been reached to settle legal proceedings relating to human rights abuses in Myanmar during the 1990s. Legally, the question of whether corporations may be held liable under the United States Alien Tort statute (ATS) for indirect involvement in human rights abuses, outside the US, remains unresolved. Unocal has received a deluge of negative publicity and criticism from investors in relation to the claims however and the case has sparked global interest in the relationship between corporate conduct and human rights.  The Unocal settlement highlights that, whatever legal liabilities exist for multinationals under the ATS, the reputational pressures can be very significant.

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Alien Tort statute

The ATS gives US federal courts jurisdiction for civil actions brought by aliens for torts committed in violation of international law, or a US treaty.1 The US Supreme Court decision in Sosa v. Alvarez-Machain2 discussed in Focus: Commercial Litigation - August 2004, confirmed that the ATS confers authority on US federal courts to hear claims against individuals arising from human rights violations in other countries. Sosa left open the question of whether corporations may be liable under the ATS for breaches of international law.

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Action against Unocal

In 1996, villagers from the Tenasserim region of Myanmar filed legal proceedings against Unocal in the US District Court for the Central District of California (Los Angeles) (District Court) under the ATS and California state law, including the torts of negligence and intentional infliction of emotional distress. The plaintiffs alleged that Unocal and other members of a joint venture project were involved in human rights abuses during the construction of the Yadana gas pipeline. Specifically, it was alleged that Myanmar's military forces were engaged by the joint venture to provide security and assist with infrastructure, and that the military then tortured, murdered and raped local residents, and used local residents as 'slave labour'.

In August 2000, the District Court granted Unocal's motions for summary judgment. The District Court found that:

  • in relation to claims based on murder, rape and torture, the plaintiffs were unable to demonstrate that Unocal engaged in state action or controlled Myanmar's military forces; and
  • in relation to claims of forced labour, the plaintiffs could not demonstrate that Unocal 'actively participated' in the acts.

At that time, the plaintiffs took their state law claims and filed a separate proceeding in California. This was pending before the 13 December 2004 settlement. 

The federal ATS claims were reinstated by the Ninth Circuit Court of Appeal in 2002. The Ninth Circuit concluded that a trial was required to determine whether the company had aided and abetted abuses by the Myanmar military. Unocal appealed to the Ninth Circuit's en banc panel of 11 judges, and this second appeal was pending at the time the settlement was announced on 13 December 2004.

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Issues of complicity

Key to the reinstatement of the federal action in 2002 was the Ninth Circuit's interpretation of the standard for aiding and abetting under the ATS. The Ninth Circuit concluded that the correct standard for aiding and abetting is where a defendant provides practical assistance, encouragement or moral support, which has a substantial effect on the perpetration of the crime. This broad standard was derived from International Criminal Tribunals for Rwanda and Yugoslavia, rather than international or US law about complicity in a civil contest.   

The evidence against Unocal included documents which allegedly suggested that Unocal gave practical assistance to the military by engaging the military to provide security and build infrastructure, and by using photos, surveys, and maps in daily meetings to show the military where to operate. The Ninth Circuit found that payments to the military for providing these services, despite Unocal's knowledge that the military had used forced labour to provide them, may have encouraged the military to continue to use forced labour in connection with the project.3

On 29 November 2004, just two weeks before Unocal's in-principle settlement was announced, a different approach was taken by the Southern District of New York when it dismissed claims relating to the apartheid regime in South Africa.4 Judge Sprizzo in that proceeding stated that '[a]lthough the [ATS] points to international law for the causes of action over which it grants jurisdiction, the [ATS] does not presently provide for aider and abetter liability and this Court will not write it into the statute.'

The breadth of corporate ATS liability in the US ultimately will depend in part on the standard applied by US courts for aiding and abetting, or conspiracy.

Settlement of the Unocal proceeding will abandon the 11-judge panel hearing of the Ninth Circuit, leaving the question of the standard for aiding and abetting under the ATS unresolved.

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Agency

During the California state proceedings, the judge held that although Unocal was not liable in its own right for actions of the Myanmar military, because of the corporate veil, it could be liable on the basis that its Myanmar subsidiaries acted as its agents. 

The idea that a holding company can be liable for actions of a subsidiary, based on agency, where the corporate veil is intact, seems novel to the US human rights law context.

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Where to from here?

The settlement of the Unocal case will create a commercial precedent, and will perpetuate a legal uncertainty that may cause the settlement of similar ATS claims pending in US courts. The law is in a state of confusion, as demonstrated by the wide divergence between the 2002 Ninth Circuit decision in Unocal and the recent apartheid decision of the Southern District of New York, in relation to complicity. The commercial reality seems clearer: that so-called 'human rights abuses' can be bad for business.

The ATS highlights the need for multinational corporations to scrutinise the social and environmental practices of their business partners and subsidiaries, particularly for projects in developing nations. Likewise, it reinforces the need for international businesses to factor human rights issues into assessments of project feasibility and business risk. 

References
  1. 28 U.S.C. s1350.
  2. 2004 U.S. LEXIS 4763 (June 29, 2004).
  3. Doe I v Unocal  Nos. 00-56603, 0057197 (9th Cir. September 18, 2002) at 14221 and footnotes at 14221.
  4. In Re: South African Apartheid Litigation 2004 US. Dist. LEXIS 23944 (S.D.N.Y, 29 November 2004).

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