"Reconciling the rights of multinational companies under IIAs with the tort liability caused by their subsidiaries," 19 Dec 2020

Because of their structure, multinational corporations (MNCs) can resort to IIAs to protect their subsidiaries. Provided they fulfill certain conditions, MNCs can trigger the investor–state dispute settlement (ISDS) clause under a relevant IIA and seek monetary compensation from host states for the damages caused to their subsidiaries. Conversely, by virtue of the principles of corporate separation and limited liability, MNCs can take advantage of their structure to avoid liability for the damages caused by their subsidiaries. This contradictory treatment highlights the need for a more balanced approach with regards to the rights and obligations of MNCs under IIAs...

In parallel, there is renewed interest at the international level in initiatives on corporate responsibility and the liability of parent companies. These initiatives, which vary in terms of scope and nature, include the OECD Guidelines for Multinational Enterprises, the UN Guiding Principles on Business and Human Rights, and the proposal for a Legally Binding Instrument to Regulate, in International Human Rights Law, the Activities of Transnational Corporations and Other Business Enterprises.[5]

The evolution of IIAs with regard to investor’s obligations, on the one hand, and the international initiatives aimed at enhancing MNCs’ corporate social responsibility, on the other, seem to be moving toward some sort of convergence. In this context, new IIAs could serve as mechanisms for enhancing this convergence.

...under IIAs, investors must demonstrate they own or control a covered investment. This connection between the investment and the investor, which is one of the conditions for benefiting from the protection of IIAs, could also operate inversely. Stated differently, tort victims should have access to a remedy against the parent company before the courts of the home state in those cases in which it is demonstrated that the parent company owns or controls the subsidiary that gave rise to the liability. The rationale underpinning this proposal is straightforward. If MNCs benefit from the rights conferred by IIAs to protect their subsidiaries, in exchange they should bear the eventual liability that such investment might give rise to...

The objective of this proposal is threefold. First, it would address one of the main deficiencies of the corporate responsibility framework by circumventing the legal hurdles posed by the principles of corporate separation and limited liability. Hence, tort victims could directly argue over the merits of the case instead of spending years litigating whether the foreign court has jurisdiction over the case. Secondly, it would provide an effective mechanism for enforcing corporate responsibility of MNCs while addressing the concerns expressed with regards to IIAs. Thirdly, it would serve as an incentive for capital-exporting countries to exercise more control over the MNCs under their jurisdiction.