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					What are the commonalities and distinctions between ‘due diligence’
 and the ‘tort of negligence’? How can they apply to a business and
                        human rights context?

                     By Max North, King’s College London.

                                  1 April 2010




“If we all discharge our duties, rights will not be far to seek. If leaving duties
unperformed we run after rights, they will escape us like a will-o'-the-wisp.” –
Mohandas Gandhi




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Chapter I - Introduction

Since the Second World War politicians have pursued an agenda of globalisation,
involving attempting to break down the barriers to trade and the development of
institutions such as the World Bank and the IMF to facilitate a global economy.
Consequently some of the biggest global economies are now multinational
companies. This has a negative effect; if such companies then abuse human rights,
developing states are either unable to act against the violation or unwilling to do so
for fear of losing the business altogether.

As a consequence of the Second World War a second development arose. In 1948 the
UN General Assembly adopted the UDHR.1 This created a new culture of human
rights with the purpose of preventing the emergence of dictatorial and oppressive
governments such as those of Nazi Germany and the Great Japanese Empire. Due to
these origins, human rights were originally vertical rights designed to operate to
prevent human rights abuses by states. However, such an approach fails to consider
the impact that some non-state actors could have on human rights.

Therefore, if economies are globalising, legal systems must adapt to ensure these
companies are properly held to account. In 2003, the UN Sub-Commission on Human
Rights adopted the UN Norms on the Responsibilities of Transnational Corporations
and other Business Enterprises. Their aim was to set a framework of human rights
standards requiring companies to respect and promote them. The general business
community‟s response noted “the benefits that corporate enterprise bring to all
societies”2 and that voluntary self-regulation through codes of conduct and social
responsibility policies already existed. Despite the Norms setting out useful
boundaries for legal standards and responsibilities, the polarised debate surrounding
them and the business community‟s negative reaction, created a situation now
described as a “train wreck.”3

As a consequence the UN Human Rights Commission appointed a special
representative on the issue of business and human rights.4 This mandate would
develop the issues that had been central to the failure of the Norms and add clarity to
a number of problematic areas; his role would address the lack of policy coherence
between governments, the difference in aims between the private sector and
individual states, governments failing to fulfil their human rights obligations and
corporate governance policies which fail to consider human rights.

John Ruggie5 was appointed to this role, proposing in April 2008 the “Protect,
Respect and Remedy”6 framework, which can be summarised in three core principles.

1
  http://www.un.org/en/documents/udhr/
2
  [2006] H.L.R.Rev.447.
3
  Ruggie, 2006, lecture.
4
  UN Human Rights Resolution 2005/69, 2005.
5
  http://www.hks.harvard.edu/about/faculty-staff-directory/john-ruggie
6
  Ruggie, 2008, p7.


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First, the state duty to protect against human rights abuses by third parties, secondly
the corporate responsibility to respect human rights, thirdly the need for more
effective access to remedies. Further direction was given to this concept in Ruggie‟s
2009 report,7 and the work already done has been approved by the UN Human Rights
Council with the role of the Special Representative being extended until 2011.8 It is
noteworthy that the work the Special Representative has produced is not law as such;
it is merely United Nation‟s policy and guidelines.

There are also the OECD Guidelines, a series of principles and standards adhering
states undertake to promote their business. From the outset they have been criticised,
as “simply an add-on to the inter-governmental Declaration on International
Investment and Multinational Enterprises.”9 They ask enterprises to “respect the
human rights of those affected by their activities consistent with the host
government‟s international obligations and commitments.”10 Government offices
known as NCPs are used to implement them. Theoretically this system is satisfactory,
yet it is undermined by its inability to enforce any of its decisions. For example the
UK NCP in August 2008 held Afrimex breached the OECD Guidelines due to its
mining practices in the Democratic Republic of Congo. Despite this Global Witness
contend that the government is still deciding how to follow up the recommendations
made11 and there is nothing to indicate that it is any progress in this respect. This
suggests an ineffective and failing system.

Other international instruments exist such as UN Global Compact, 12 Ethical Trading
Initiative,13 Kimberley Process14 and Institute for Business and Human Rights.15
However, these tend to have a limited scope within one particular industry, for
example the Kimberley Process focuses solely on the diamond trade.

There is currently a debate whether the human rights standards afforded by the ECHR
extend to a company‟s actions in the exterritoriality of the ECHR if it is domiciled
within the ECHR;16 greater clarity is required for this to become a possible method of
redress. Further complications arise in private international law when the state where
the company is domiciled intervenes, in terms of which law may the court apply- that
of the state enforcing or that of the state where the abuses occur.17


7
  Ruggie, 2009, p3.
8
  UN Human Right‟s Council, Resolution 8/7, 2008.
9
  Clapham, 2005, p201
10
   http://www.oecd.org/document/18/0,3343,en_2649_34255_1815186_1_1_1_1,00.ht
ml#part2
11
   Global Witness, 2009, p4.
12
   http://www.unglobalcompact.org/
13
   http://www.ethicaltrade.org/
14
   http://ec.europa.eu/external_relations/blood_diamonds/index_en.htm
15
   http://www.institutehrb.org/
16
   [2008] J.I.C.J.115.
17
    International Commission of Jurists, 2008, p51.


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This is clearly an area of the law requiring development; the notion of corporate
social responsibility seems to be embedded in the majority of companies today.
Recent reports of violations by Trafigura18 demonstrate the problems that currently
exist due to a lack of proper universal regulation.

In addition to these soft law measures, it is also important to highlight that in reality
the majority of cases in this field are dealt with by hard law under the US Alien Tort
Statute. This allows non-US citizens to make civil claims even if the harm took place
outside the USA. It is problematic as: “it is based on a Jefferson-era statute… and
began to be used only in recent years as the basis for human rights claims against
companies.”19 This has been particularly difficult when attempting to predict what
kinds of human rights abuses qualify under the statute in order to give US courts
jurisdiction. The current jurisprudence of the US Supreme Court is that “federal
courts should not recognize claims for violations of any international norm with less
definite content and acceptance among civilized nations other than the 18th century
paradigms familiar when… [it] was enacted.”20 The second area where the statute has
caused difficulty regards what standard of liability to judge companies on; applying
tort law standards or standards derived from another area of law such as international
criminal law. This issue has not explicitly been dealt with to date, however a body of
thought based on US Supreme Court jurisprudence claims that the “tort be committed
in violation of international law, not that international law itself recognize a right to
sue.”21 The outcome is unsatisfactory; the exigencies of the issue of business and
human rights require more clarity than this.

In this piece I would like to discuss two concepts in an attempt to see how suitable
they would be for companies to prevent their involvement in future human rights
violations whilst as a consequence reducing their liabilities in law. The first, due
diligence, is traditionally defined as “the diligence reasonably expected from and
ordinarily exercised by a person… to satisfy a legal requirement or discharge an
obligation.”22 Ruggie‟s 2008 framework has put it into the business and human rights
debate. Ruggie would like to include it within the second pillar of the corporate
responsibility to respect human rights, “to discharge the responsibility to respect
requires due diligence.”23 This fact-based process comprises three factors for a
company to consider. The first is to look at the context of the country they are
operating in and highlight any potential human rights challenges they may face. The
second is what human rights impacts their company's activities may have within that
context. The third is whether they might contribute to abuse through the relationships
connected to their activities such as suppliers or State agencies. In effect it imposes a
standard for companies to adhere to.


18
   http://www.timesonline.co.uk/tol/news/world/africa/article6837795.ece
19
   Sherman and Lehr, 2010, p6.
20
   [2004] 542U.S.692.
21
   http://www.cmht.com/pdfs/saaclawscholars083005.pdf/
22
   Black‟s Law Dictionary, 2006.
23
   Ibid, p17.


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The second concept for comparison is the tort of negligence, a vast body of law in the
UK and in most other common law jurisdictions. In order to avoid being held liable in
negligence an actor must avoid acts or omissions that it could reasonably foresee
would be likely to injure its neighbour.24 The principle creates a duty of care on an
actor provided there is a reasonable foresight of harm being caused to the claimant in
the actor‟s actions, there is a sufficient proximity between the two and it would be
fair, just and reasonable to impose such a duty.25 In order to breach that duty of care,
which essentially founds liability, one has to ask whether the defendant has failed to
take the degree of care of the reasonable man.26 This forms a minimum standard as to
the kind of conduct that can give rise to civil liability.

For the remainder of this piece I shall outline in detail how these two principles
operate and their similarities and differences. I shall then analyse whether the process
of due diligence can be used in conjunction with the tort of negligence in order to
resolve some of the problems raised in this introduction. This may be in respect of
companies limiting or excluding their negligence liability if they comply with
Ruggie‟s due diligence. Another variant on this possibility may be to see the due
diligence standard as the standard a court expects a reasonable company to act when
exercising a duty of care. Exploration of these two concepts should provide answers
to these possibilities throughout the course of this piece.

Chapter II – What is Due Diligence?

The Ruggie Framework

As aforementioned, Ruggie proposes using the concept of due diligence as a means of
discharging a company‟s corporate responsibility under the framework and he
outlines three sets of factors to consider. Moreover it is important to notice the
language used in the 2009 report, which both clarifies and imposes a further burden
than the traditional due diligence used in other areas of law; he uses the term in a
broader sense describing it as a “proactive attempt… over the entire life cycle of a
project.”27

The important aspect of this for the purposes of this piece is what the due diligence
process actually requires a company to do. One Australian law firm believes a
properly implemented due diligence process “may provide a means of incorporating
consideration of human rights standards into operational and legal compliance”28 and
“in turn may allow a corporation to decide on an informed basis how to meet a duty to
respect human rights, if such a duty is incorporated”29 into law.


24
   [1932] AC.562.
25
   [1990] 2.AC.605.
26
   [1856] 11.Ex.781.
27
   Ruggie, 2009, p18.
28
   Allens Arthur Robinson LLP, 2008, p1.
29
   Ibid, p1.


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For this to happen I will argue that this places 3 requirements upon a business to
perform: to investigate risks, to monitor risks and to deal with the risks. However, to
establish how exactly this could be done will be difficult due to the lack of precedent
for the use of human rights due diligence. In this chapter I intend to look first at the
use of due diligence in other aspects of law, then to examine the guidance Ruggie has
provided before finally attempting to make some suggestions on the effectiveness of
such a measure.

Comparisons for other areas of law

Due diligence is not a new concept; it first came into use in section 13 of the United
States Securities Act of 1933,30 removing liability of brokers if reasonable diligence
has been exercised.

At present accountancy firms perform due diligence exercises when assessing
taxation; even in this seemly straightforward and well-defined area of law, “a tax due
diligence engagement rarely proceeds exactly as envisaged at its outset.”31 This
emphasizes the difficulties businesses may encounter when performing human rights
due diligence. By its nature tax due diligence is fairly regimented; the “information
for the purposes of tax due diligence is often provided via a data room”32 and the
applicable rules and laws are clearly stated with those making such assessments being
professionally trained in the field of taxation. Human rights due diligence is not as
easily achieved; it is difficult to state how to accurately assess a country context, or
the impacts business may have on that context if the company has never operated
there before.

In the field of mergers and acquisitions, under section 123(2) of the Financial
Services Act 2000 “it is a defence… that a person took all reasonable precautions and
undertook due diligence to avoid committing market abuse.”33This area of law is a
more useful comparison as the variety of different business contexts and problems
that they may cause is more comparable to the variety of human rights contexts
business may be involved in.

Peter Howson argues that the merits of due diligence here is that it is good for
“unearthing problems no one really knew existed”34 and that “comparatively due
diligence is cheap, litigation is not.”35 Despite these positive elements to the process
he also outlines a number of problems that frequently occur. He discusses timing
where there is often a conflict, the seller wants to reduce time scale whereas the
longer the buyer has the more accurate it will be. This could be problematic in the
field of human rights due diligence too; businesses often want to start operating as

30
   United States Securities Act 1933 15 U.S.C.§77a
31
   Peppitt, 2009, p27.
32
   Ibid, p29.
33
   Kenyon-Slade, 2004, 7.66.
34
   Howson, 2003, p7.
35
   Ibid, p7.


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soon as possible or the country affected may object to a long and detailed
investigation which may unearth serious issues, with the consequence that the due
diligence is not adequately performed. Furthermore with human rights due diligence
being a relatively undeveloped process it would be impossible to quantify an ideal
time frame for it.

Other problems include “the sheer volume of material available”36 and
misrepresentation by the seller leading to vital information and considerations being
overlooked. This is also a conceivable problem for human rights. However, provided
that the company acts within a reasonable manner and according to the Ruggie‟s
guidelines, this is something that may be unavoidable but should not have negative
consequences for the company itself.

Howson believes that “good planning and active management are paramount.”37 In
this regard human rights due diligence is well placed. Subject to clearer guidelines
from Ruggie, greater government intervention within the scope of the first pillar and
companies accepting their human rights obligations, a successful structure for human
rights due diligence can emerge.

In spite of this useful comparison it is important to note the fundamental difference;
due diligence in mergers and acquisitions is not a continuous process. Whereas the
due diligence that Ruggie suggests is a continuous process that needs to be repeated
and updated for the duration of the business activity. This is a far more stringent
requirement which comparative examples cannot help us with.

Ruggie’s four methods

In the 2008 report Ruggie states that a basic human rights due diligence process
should include policies, impact assessments, integration and tracking performance.

By policies he envisages “detailed                       guidance in specific functional areas.” 38 This
would require a company to move                          beyond the corporate responsibility codes that
many presently use, which tend                           to be based upon ethical or „bottom line‟
considerations, towards accountable                      policy requiring compliance, rather than being
merely aspirational.

The fundamental element for a company with impact assessments is Ruggie‟s
requirement to “take proactive steps to understand how existing and proposed
activities may effect human rights.”39 This is a positive obligation for the company,
which despite the suggestion it could “be linked with other processes,”40 places a
responsibility on businesses to try to foresee potential human rights risks.

36
   Ibid, p23.
37
   Ibid, p27.
38
   Ruggie, 2008, p18.
39
   Ibid, p18.
40
   Ibid, p18.


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For the due diligence element of the framework to work, Ruggie admits: “integration
of human rights policies throughout a company may be the biggest challenge.” 41 The
reason for this links to David Kinley‟s arguments discussed later in the chapter;
companies today can be extremely large with very complex and convoluted
management structures. Thus to discharge their responsibility to respect they need to
implement systems to prevent inconsistent or contradictory actions by different parts
of the company. Ruggie emphasizes leadership from the top and adequate training42
as the means to achieve this. This large task may be the hardest for a company to
implement and for a court to assess how well this has been done.

The final aspect of Ruggie‟s due diligence process is performing monitoring and
auditing, which is “needed to create appropriate incentives and disincentives for
employees.”43 He argues that this will lead to “standardisation of metrics” across
industries. The difficulty that may arise here for companies is that the substantive
minimum standard, Ruggie suggests they need to adhere to and by implication
monitor their standards by, is in “the international bill of human rights and the core
conventions of the ILO.”44 This ambiguity is confusing for companies who need
coherent and clear guidelines on how to operate their business.

2009 Report

Ruggie gives companies direction on how they need to judge their operations, saying
their responsibility will vary according to size but how this will happen is not fully
understood.45 He provides the useful example that “a bank‟s human rights due
diligence for a project loan will differ in some respects from that of the company
operating the project.”46 This emphasises a new point, that it is crude to merely talk of
companies collectively; to address due diligence properly in this field one has to
appreciate the complexity and variety of degrees of involvement in the decision
making process that different companies have. Thus when a company is seeking to
discharge the corporate responsibility to respect, the way to do this is based on
individual industry standards rather than the global human rights agenda.

When referring to integrating a human rights policy, the 2009 report gives two clear
principles to guide a company. The first that “human rights are not merely another
topic”47 and the second being “oversight of compliance with a company‟s human
rights policy must have its own direct line of access to corporate leadership.”48
Although this does not indicate whether due diligence requires a freestanding process

41
   Ibid, p18.
42
   Ibid, p18.
43
   Ibid, p18.
44
   Ibid, p17.
45
   Ruggie, 2009, p18.
46
   Ibid, p18.
47
   Ibid, p19.
48
   Ibid, p19.


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to exist within a company, it certainly exerts the importance of due diligence having a
prominence within a company‟s operations and decisions.

The 2009 report also discusses the effect performance of due diligence may have on
liability; however this is discussed later on in this piece in relation to other
commentaries regarding potential liability.

Potential effectiveness

A good comparative example to indicate the potential success of companies
implementing policies is the existence of Corporate Responsibility Codes. Individual
company codes first began in 1991 with Levi-Strauss, such corporate activity has
exponentially grown with the World Bank estimating that over 1000 companies use
them.49 However the success thus far of these ethical codes has been limited, to the
extent that some commentators label them “ineffective.”50 Additionally this problem
would seem to be exacerbated by “a lack of empirical studies”51 about their impact.

However, Frankel and Scott‟s study comparing two suppliers implementing the
Adidas-Salomon Code, in China found that the factory implementing the code
properly demonstrated better levels of pay, health and safety and lower staff
turnovers.52 Furthermore the Schrage Report points out “focusing only on the direct
impact of an individual code fails to capture accurately the full range of its impact on
the global economy”53 in the sense that it may cause a „ripple effect‟ to other
companies and suppliers.

Despite some benefits of the present system, Fiona McLeay concludes they are “at
best an opaque mechanism.”54 This suggests that in order for the due diligence system
to be successful, there needs to be a far greater monitoring system of codes; an
example of this at present is the NGO Fédération Internationale des Ligues des Droits
de l‟Homme and their supervision of Carrefour.55

The Dow Chemical Company Code illustrates how codes are unclear and potentially
ineffective. This states: “We understand that children may legitimately perform tasks
that do not interfere with their education… Dow expects the suppliers and contractors
with whom we do business to embrace similar values and standards.”56 This is an
expressly different and significantly lower standard than simply prohibiting child
labour as would be required by due diligence.

49
   de Schutter, 2008, p222.
50
    Ibid, p223.
51
    Ibid, p224.
52
    Ibid, p231.
53
    Ibid, p231.
54
    Ibid, p231.
55
   http://www.fidh.org/article.php3?id_article=2448
56
   http://www.dow.com/PublishedLiterature/dh_004f/0901b8038004f2bd.pdf?filepath
=about/pdfs/noreg/473-00001.pdf&fromPage=GetDoc


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From the lessons learnt from these codes, in order for due diligence polices to be
effective they need to be transparent and require enforcement. If due diligence
became the standard which judges use to assess whether a company has been acting in
such a way as to incur liability this may feasibly suggest that this could happen.
However, if due diligence only imposes a responsibility similar to corporate
responsibility it is difficult to envisage how this could be a success.

David Kinley argues most corporations do not knowingly or intentionally violate
human rights; he describes them as “corporate transgressions”57 due to reasons
ranging from “unpardonable ignorance (including head-in-the-sand ineptitude and
wilful neglect) to sincere practical or policy dilemmas.”58 This echoes Ruggie in his
2007 report where he argues that issues of business and human rights are made more
complicated due to “fundamental institutional misalignment”59 which “creates the
permissive environment”60 for violations to occur.

Thus impact assessments can be said to bring human rights issues directly to the
attention of enterprises; they provide a focus for which companies can then consider
when deciding how to operate abroad. This logical considered and well researched
process removes many of the ambiguities that have existed in the past that would help
demonstrate that a corporation is exercising its duty to respect.

As previously suggested, companies may encounter difficulties when monitoring their
performance due to the limited description of the standards they need to adhere to,
namely “the international bill of human rights and the core conventions of the ILO.”
This unfortunate choice of language is imprecise and subject to various different
interpretations, which is indicative that the „Protect, Respect, Remedy‟ framework is
only UN policy rather than law. The description „Core conventions of the ILO‟ is
likely to refer to Declaration on Fundamental Principles and Rights at Work adopted
at the 86th International Labour Conference, however Ruggie never states this. This is
significant as there are 187 conventions,61 which is potentially misleading. Similarly
there is no official international bill of human rights; it is merely a name usually used
in diplomatic circles when referring to both the UDHR 1948 and the ICCPR 1966
with its two optional protocols.62

Given the need for proper regulation and monitoring as expressed above, such
ambiguous descriptions of the substantive standard to judge company actions are
unsatisfactory. It leaves companies in the position where they are unclear as to what
standards they need to follow and it makes it difficult for a court or a quasi-judicial


57
   Kinley, 2009, p153.
58
   Ibid, p153.
59
   Ruggie, 2007, p3.
60
   Ibid, p3.
61
   http://www.ilo.org/ilolex/english/conventions.pdf
62
   http://www.ohchr.org/Documents/Publications/FactSheet2Rev.1en.pdf


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actor to assess whether a company has met the standard needed to discharge the
corporate responsibility to respect.

It is also important to observe that companies need to know not only which human
rights are relevant but the relevant standard a company must adhere to if it is to act
reasonably and in accordance with the Ruggie framework. Ruggie does not mention
any tangible suggestions for this, which leaves companies in a position where they
may be unsure how to act.

Chapter III – What is the Tort of Negligence?

Cees van Dam states that the tort of negligence in both common law and civil law
jurisdictions generally “consists of three elements: a duty of care, a breach of that
duty and consequential damage.”63 Whilst damage to the claimant is necessary for a
claim, the essential two features that need to be explained in detail for the purpose of
this piece are the duty of care and the breach of duty. “The establishment of damage
caused by negligent conduct is not sufficient for liability”64 thereby meaning that the
claimant needs to convince a court of the existence of the other two requirements for
the tort of negligence to operate.

Duty of care

In order for a defendant to be liable in negligence, the claimant must first establish
that a duty of care relationship existed between the defendant and the claimant. A
duty of care is a legal obligation imposed on an actor, which requires them to act with
a reasonable standard of care where they could foreseably cause harm to others.
Examples of such relationships are “the relationship between employer and employee,
driver and passenger, occupier and visitor or parent and child.”65 This principle was
established by Lord Atkin in Donoghue v. Stevenson, he held: “you must take
reasonable care to avoid acts and omissions which you can reasonably foresee would
be likely to injure… persons who are so closely and directly affected by my [the
defendant] act that I ought reasonably to have them in contemplation as being so
affected when I am directing my mind to the acts or omissions which are called into
question.”66

In effect the duty of care is a control mechanism to determine when liability can and
cannot be found. For the purposes of business and human rights this raises two
important issues: what is the framework for establishing a duty of care for a company
directly causing harm to the victim, and can parent companies owe victims a duty of
care for acts of their subsidiaries?



63
   van Dam, 2006, p502.
64
   Ibid, p503.
65
   Ibid, p1702.
66
   [1932] AC.562


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Duty of care for a company directly causing harm

Although tort law does not specifically refer to human rights, it can still call
businesses to account in this area in its aim to protect rights such as life, bodily
integrity, health and property. Therefore in order for a company directly operating in
an area to decide whether it owes a duty of care for actions that infringe an
individual‟s human rights it must ask if there is a practical link between the human
right that is affected with an act that causes tortious liability. This has been done in
cases involving asbestos mine workers who were not protected by their employers in
Connelly v. RTZ67 and Lubbe v. Cape Plc.68 If we apply Donoghue v. Stevenson69 to
this situation the company would owe a duty of care if it was foreseeable the
claimant‟s human rights violation would occur.

Does a parent company owe victims a duty of care for acts of their subsidiary?

An obstacle arises here. The parent company is legally distinct from its subsidiary
which gives rise to a corporate veil situation. When advising the Joint Committee on
Human Rights on this issue, Richard Hermer QC and Rachel Chambers have argued
that the “courts have shown themselves unwilling to lift the corporate veil in order to
prevent parent companies taking advantage of limited liability in relation to tort
liability.”70

This is certainly an unclear area of law although I would argue parent companies are
able to make some presumptions from the case law. Connelly v. RTZ71 and Lubbe v.
Cape Plc72 involved such relationships although the issue before the House of Lords
in both instances was whether the UK was the correct forum for the cases to be heard
and when this was established, out of court settlements were made and consequently
the direct issue of the „corporate veil‟ was not discussed. However due to the fact that
their Lordships did not rule out the possibility of there being liability from the outset,
one can infer that they believed a parent company could be liable in such
circumstances.

Based on the principles in Donoghue v. Stevenson discussed earlier in the chapter this
would result in the parent company asking two questions in order to decide whether
or not it could owe a duty of care. The first, does the parent company know the
subsidiary is causing the damage and if it does not should it have known? Then the
parent company must ask if it could take precautions to prevent the subsidiary causing
the harm? This would have the effect of meeting the requirements of foresight of
harm and reasonableness.


67
   [1997] 3.WLR.373
68
   [2000] 1.WLR.1545
69
   [1932] AC.562
70
   Hermer and Chambers, 2009, p3.
71
   [1997] 3.WLR.373
72
   [2000] 1.WLR.1545


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Breach of the duty of care

Working on the presumption that a duty of care has been established we must also
consider the more important question of how to assess a breach of that duty in order
to bring liability under the tort of negligence. The starting point is Alderson B‟s
definition: “negligence is the omission to do something which a reasonable man…
would do or doing something which a prudent and reasonable man would not do.”73
In essence this is an objective question74 of fact rather than law.

When assessing whether a breach of duty has occurred the court will take a number of
factors into account when making an assessment; I will deal with these factors one by
one in order to show the level of negligence required in order for a breach causing
liability to occur.

Establishing the mind of a company

Conceptually this is one of the most difficult aspects to approach when looking at a
company‟s liability under the tort of negligence. As the 18th century Lord Chancellor
Baron Thurlow once said “Did you ever expect a corporation to have a conscience,
when it has no soul to be damned, and no body to be kicked?”75 Today companies
operate through numerous chains of commands. It is often difficult to pin-point at
exactly what stage the company is able to have a mind capable of having foresight of
harm and therefore be liable itself opposed to being vicariously liable for the acts of
its employees. In order to do this the law creates a legal fiction that the corporation is
acting through the mind of living persons. Lord Reid qualifies this to mean: a person
“acting as the company… he is not acting as a servant, representative, agent or
delegate. He is an embodiment of the company or, one could say, he hears and speaks
through the persona of the company, within his appropriate sphere, and his mind is
the mind of the company.”76 This places a requirement of seniority in the decisions,
which cause the negligent action, which causes the harm for liability to occur;
Denning LJ suggests that it is only “managers and directors who represent the
directing mind and will of the company.”77

Timing

Denning LJ stated: “we must not look at the 1947 accident with 1954 spectacles,”78
meaning that the knowledge of the defendant should be assessed the knowledge
possessed at the time of the alleged breach rather than the time of the trial. Similarly


73
   [1856] 11.Ex.781
74
   [1971] 2.QB.691
75
   [1981] 79.MichLR.386
76
   [1971] 2.WLR.1166
77
   [1957] 1.QB.159
78
   [1954] 2.QB.66


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in Smith v. P & O Bulk Shipping Ltd79 the reasonable employer was judged to be
unable to know that in 1971 asbestos caused a danger to health despite the evidence
that was available at trial in 1998.

Probability

The leading case in this area is Bolton v. Stone.80 The plaintiff was struck by a cricket
ball that had been hit out of the ground, which was an extremely rare occurrence; a
ball had not been hit out of the ground more than six times in thirty years. Lord Porter
stated the relevant standard: “there must be sufficient probability to lead a reasonable
man to anticipate it. The existence of some risk is an ordinary incident of life, even
when all due care has been, as it must be, taken.”81 Thus the degree of probability
will be a key factor in deciding whether negligence occurred.

In the Wagon Mound (No. 2), Lord Reid interpreted the law as: “If a real risk is one
which would occur to the mind of a reasonable man in the position of the defendant‟s
servant… the criterion is to be what that reasonable man would have done in the
circumstances… surely he would not neglect such a risk if action to eliminate it
presented no difficulty.”82 We see that there is no particular degree of probability that
has to be obtained in order for negligence to be found. This is especially relevant if
precautions were easy to take or the activity serves no public benefit.

Gravity of harm

In Paris v. Stepney Borough Council83 Lord Normand found that the defendant‟s duty
of care must be tailored to the known or reasonably foreseeable characteristics of the
individual claimant. Thus the council should have taken more precautions to protect a
one-eyed employee than a two-eyed employee as if a spark of metal hits the former
employee the blindness that subsequently follows is far graver than the loss of one
eye by the two latter.

Precautionary measures

Lord Asquith concluded in Latimer v. AEC Ltd84 that after a chemical leak in a
factory and the employer‟s attempt to combat the problem by placing sawdust on the
factory floor, it would not have been the requirement of a reasonably careful
employer to suspend all work in the factory. Lord Tucker‟s reasoning here is that “the
common law duty… should not be gradually enlarged until it is barely distinguishable
from his absolute statutory obligations.”85

79
   [1998] 2.Lloyd‟sRep.81
80
   [1951] AC.850
81
   [1951] AC.850
82
   [1967] 1.AC.617
83
   [1951] AC.367
84
   [1953] AC.643
85
   Ibid


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This rule is by no means absolute. In the Court of Appeal, Brown LJ stated: “despite
the employee's desire to remain at work notwithstanding his recognition of the risk he
runs, the employer will nevertheless be under a duty in law to dismiss him for his own
good so as to protect him against physical danger.”86 An interesting comparison is a
decision of the High Court of Australia in a claim for stress-induced psychiatric
illness, where it was held “insistence upon performance of a contract cannot be in
breach of a duty of care.”87 This suggests the nature of the injury will be balanced
against the cost of the precaution in the court‟s decision.

Common industrial practice

The seminal case in this area is Morton v. William Dixon. Lord Dunedine stated that
where an employer allegedly commits negligence in the form of an omission to prove
this you must show either: “that the thing he did not do was a thing commonly done
by other persons in like circumstances”88 or “that it was a thing which was so
obviously wanted that it would be folly in anyone to neglect to provide it.”89

Nevertheless this is not an absolute rule; the House of Lords in Brown v. Rolls
Royce90 decided that failure to take a well-established precaution in an industry may
be sufficient evidence to suggest a finding of negligence but it does not definitely
connote negligence. Medical opinion was split on the effectiveness of the protective
cream in question, so despite it being commonly used in the sector because the
company had acted with advice from their medical advisor they could not be held
liable.

Yet the principle still stands, as expressed by Swanwick J: “where there is a
recognised and general practice which has been followed for a substantial period in
similar circumstances without mishap, [the defendant] is entitled to follow it” 91 but
not where “in light of common sense or newer knowledge it is clearly bad.”92 Mustill
J even decided where a practice has been used and accidents had occurred, it may be
reasonable if the risk is “an inescapable feature of the industry.”93

Authority over subsidiary

It is necessary for the claimant to prove that a parent company had a sufficient degree
of control over the subsidiary in order for it to be capable of to exercise authority over
the subsidiary to prevent the breach. Where the parent company has a controlling

86
   [2003] 1.WLR.536
87
   [2005] 222.CLR.44
88
   [1909] SC.809
89
   Ibid
90
   [1960] 1.WLR.210
91
   [1968] 1.WLR.1776
92
   Ibid
93
   [1984] QB.405


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stake (over 51% of the shares) it would be relatively easy for the claimant to state a
case that the parent had de facto authority over the subsidiary.

Difficulty arises where the parent company owns 50% or less of the shares. The onus
would then be on the claimant to show that the parent company has a significant
material influence on the subsidiary. This may be easier to demonstrate when the
parent is the largest individual shareholder. There is a distinct lack of guidance from
the courts in this area. This is a significant hurdle for the claimant, given the
fundamental starting position of the case law is that “each company in a group of
companies… is a separate legal entity.”94

Chapter IV – Comparison

At the most fundamental level, the tort of negligence and human rights due diligence
differ in their aims and purposes. Traditionally regarding an infringement of an
individual‟s human rights, the concern will be to bring the infringement to an end and
compensation will be subordinate to this. This is still the UK‟s position following
Lord Bingham‟s judgment in relation to s.8 of the Human Rights Act 1998 and s.41
ECHR.95 By contrast, tort law aims to compensate, placing the claimant back in the
position he or she was in before the defendant‟s negligent act. This is a more intrusive
measure and suggests that the standards expected when dealing with human rights
should be higher than the threshold for liability in tort.

However as Cees van Dam argues “carrying out due diligence is akin to acting as a
reasonable man… developing Ruggie‟s framework may lead to standards of conduct
that can also be useful to establish what is legally required.”96 In fact it has been
argued that “it is not inconceivable that human rights due diligence may be standard
of care in a negligence case.”97 On this basis I will compare the 3 requirements that
businesses must perform when performing due diligence, namely investigating risks,
monitoring risks and dealing with risks, with the levels of negligence to amount to a
breach of duty in the tort of negligence. This in turn should indicate the effect due
diligence may have on a company‟s liability in tort and may also suggest how
effective implementing the Ruggie framework in this area may be.

Investigating and monitoring risks

A company‟s investigation of risks translates to having foreseeable knowledge of the
risk standard in tort law. The examples of due diligence in tax law and in mergers and
acquisitions show an inherent feature of due diligence is that it is difficult to achieve
and is a method of discovering unexpected issues. Howson claims that the only way
to deal with these difficulties and the workload such a process entails is through
positive management and substantial planning. As previously mentioned due to the

94
    [1977] AC.807
95
   [2005] UKHL.14
96
    van Dam, 2009, p1.
97
    Sherman and Lehr, 2010, p9.


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delicate nature of human rights due diligence these problems are likely to be
heightened in this context.

By contrast the tortious standard is far less imposing; it refers to the ordinary,
reasonable man. This raises the question of whether a reasonable company would
investigate human rights risks in the course of its business? In the traditional context
such as that advocated by Milton Friedman the answer would be that: “There is only
one social responsibility of business – to use its resources to engage in activities
designed to increase its profits so long as it stays within the rules of the game, which
is to say, engages in open and free competition, without deception or fraud.”98 Thus a
reasonable company would not have an obligation to investigate its human rights
impacts.

However, past litigation suggests tort law has moved on from this position. Provided
there is a right in tort that covers the human rights violation in question there can be
liability. I would argue in Lubbe v. Cape plc that due to measures taken by the
defendant, such as only employing older people so the effects of asbestos poisoning
would not occur, there was actual knowledge opposed to reasonable foreseeability.
On this basis it would seem to be too greater assumption their Lordships would have
considered the levels of management and planning that is used in other areas of due
diligence to be the threshold required to avoid negligence liability.

As previously discussed, Ruggie wants detailed and specific company policies to
guide the company whilst investigating, monitoring and dealing with risks. From the
analogy with present company codes if they are to be more effective they would need
to be transparent, enforceable and use language that does not leave them susceptible
to being construed generously or even ignored.

We have seen in tort that if there is a commonly accepted and recognised practice in
an industry, the defendant is entitled to perform to this standard. Given that generally
speaking, present company codes are criticised for being opaque and effective, it
would be a strong imposition for the common law to move this requirement to a
standard as strict as those proposed by Ruggie.

Negligence has stronger similarities to Ruggie‟s requirement to investigate risks
changing in accordance with a company‟s size and level of involvement in the
project. The relevant tortious standard is objective but varies in accordance with two
important factors: first, the defendant‟s level of skill and what it purports itself to be,99
and secondly the probability and gravity of harm given the context in which they are
operating.100 Therefore given that both standards vary according to nature and
context, the due diligence standard being higher in the area of investigating risks, if a
company is performing due diligence a valid assumption is that it is exceeding the
requirements to avoid liability of the tort of negligence.

98
   Friedman, 1970, p30.
99
   [1938] 1.All.ER.566
100
    [1967] 1.AC.367/ [1951] AC.367


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The applicable suggestions by Ruggie in this respect are his concepts of performing
impact assessments and continuous monitoring and auditing; these again are
comparable to the tortious standard of reasonable foresight.

In terms of impact assessments again we are dealing with a positive obligation. This is
the most difficult to achieve accuracy in, as many developing countries are very
volatile and frequently subject to change. Kinley and Ruggie have suggested it is of
paramount importance; they have labelled corporate ignorance and institutional
misalignment as the reason behind abuse of human rights through business. This is
indeed an arduous and expensive task and it certainly goes beyond the challenges of
due diligence in other contexts.

By contrast, the tort of negligence requires reasonable foresight of harm. On this
basis, mere performance of impact assessments one can infer would be sufficient to
mitigate liability. The law of tort at its most imposing is in the field of professional
standards; in order to mitigate liability in these circumstances the defendant has to
show they acted in accordance with a “responsible, reasonable or respectable”101 body
of opinion. This is even a too high standard to impose on companies who are not
professionals in the field of human rights. Roe v. Minister of Health held that the
relevant knowledge was the knowledge available at the time opposed to the
knowledge gained after the event. This provides for the conclusion that performance
of Ruggie‟s impact assessments would fulfil the requirement that a company had
reasonable foresight; thus even if circumstances changed it would be difficult for
them to be held liable as the impact assessments are sufficient to show the company is
acting reasonably.

The same argument can be applied to Ruggie‟s concept of monitoring and auditing.
He intends this to involve creating a benchmark of conduct for each industry to
adhere to which should be compatible with the international bill of human rights and
the ILO‟s core conventions. This is a very broad substantive standard, which makes
the direct comparison with the precisely defined tests and principles of negligence
difficult. In spite of this it would be logical to conclude that if a company is to
consider its operations in light of such wide reaching convention provisions, this will
be sufficient to show that it had given a reasonable consideration of the harm the tort
of negligence compensates for, in order for it to mitigate liability.

Therefore performance of both investigating and monitoring risks has the effect of
bringing human rights risks to the attention of a company before they occur. If
properly conducted this should reduce the company‟s exposure to litigation in the tort
of negligence as if it has been performed the company can easily state that the harm
which occurred was not reasonably foreseeable.




101
      [1998] AC.232


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Dealing with risks

This is an area where there is a practical link to the case law in the tort of negligence
regarding precautionary measures. As aforementioned the common law that is quite
lenient in this area due to the statutory obligations that often apply to situations where
a duty of care has been established. However, where there is a risk of physical danger,
precautions need to be taken, although this is less clear from cases of psychiatric
injury.

As regards due diligence, we know the responsibility to deal with risks is a company
wide requirement and management should be accountable for compliance in this area.
At all stages in the process there is a proactive element, which places human rights at
the forefront of a decision making process.

The latter again seems to be a higher standard requiring greater commitment to
protection of rights than the tortious standard. So in this respect dealing with risks in a
manner prescribed by Ruggie, will be sufficient to avoid liability.

The negative of this for the protection of human rights is that due to the stringent and
imposing nature of due diligence and also its undefined and unproven nature, it is too
difficult to argue that a court could use it as the objective standard from which to
judge a company in the short term future. However if there is a move towards human
rights due diligence becoming common industrial practice, this could be a future
aspiration.

The effect of due diligence on liability

Wachell, Lipton, Rosen and Katz LLP advises their clients that the Ruggie framework
would “impose on corporations the obligation to compensate for the various
deficiencies of the countries in which they perform their business.” 102 However this
focus is only from the perspective of company or corporate law, which requires a
company has actual knowledge before liability can be found.

As Weil, Gotshal & Manges LLP explains to its clients “the Special Representative‟s
mandate does not… include the ability to impose new binding legal obligations on
corporations.”103 Thus performance of due diligence can only have the effect of
bringing issues to the attention of businesses, having the effect that a company can
avoid liability in the tort of negligence which uses the stricter threshold of reasonable
foresight of harm. Due diligence prevents litigation rather than act as a trigger for it.

Ruggie suggests that there are two scenarios where due diligence could bring
additional liability. Either when “the company gains knowledge of possible human
rights violations”104 then “violations occur and the company‟s prior knowledge gets

102
    Goldhaber, 2008, p1.
103
    Weil, Gotshal & Manges LLP, 2008, p?
104
    Ruggie, 2009, p20.


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out,”105or “the company publicly misrepresents what it finds in due diligence and that
fact becomes known.”106 It is important to note this liability is not because of
performing due diligence per se. In fact it is due to not performing it properly and
adequately liability arises.

This analysis provides one answer: a process of human rights due diligence enables a
company to fulfill its duties in law and ensures global business is conducted in an
ethical manner. This can only be mutually advantageous for business and society.




105
      Ibid, p20.
106
      Ibid, p20.


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Bibliography

Books

Philip Alston – “Non-state Actors and Human Rights” 2005 OUP

Black‟s Law Dictionary, 8th Edition, 2006

Elisabeth Bürg – “Human Rights and International Trade” 2005 OUP

Andrew Chapman – “Human Rights Obligations of Non-State Actors” 2006 OUP

Cees van Dam – “European Tort Law” 2006 OUP

George Fletcher – “Tort Liability for Human Rights Abuses” 2008 Hart Publishing

Gower & Davies – “Principles of Modern Company Law” 8th Edition 2008 Thomson,
Sweet & Maxwell

Peter Howson – “Due Diligence: the critical stage in mergers and acquisitions” 2003
Gower Publishing

Stephen Kenyon-Slade – “Mergers and Takeovers in the US and UK” 2004 OUP

David Kinley – “Civilising Globalisation: Human Rights and the Global Economy”
2009 Cambridge University Press

David Kinley – “Human Rights and Corporations (International Library of Essays)”
2009 Ashgate Publishing

Mark Lunney & Ken Oliphant – “Tort Law: Text and Materials” 3rd Edition 2008
OUP

Mathew Peppitt – “Tax Due Diligence” Spiramus 2009

Olivier De Schutter – “Transnational Corporations and Human Rights” 2008 Hart
Publishing

Reports

Allens Arthur Robinson LLP – “Corporate Duty and Human Rights Under Australian
Law,” March 2008

Clifford Chance LLP – “Submission to the Corporate Tools Project – United
Kingdom,” September 2009




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Corporate Law Tools Project – Summary Report – “Opportunities and Challenges of
using Corporate Law to Encourage Corporations to Respect Human Rights,” 6th
November 2009

Cees van Dam – “Submission to the Joint Committee on Human Rights: Call for
Evidence – Business and Human Rights,” May 2009

Global Witness – “Submission to the Joint Committee on Human Rights: Call for
Evidence – Business and Human Rights,” May 2009

Richard Hermer QC and Rachel Chambers – “Submission to the Joint Committee on
Human Rights: Inquiry into Business and Human Rights,” 30th April 2009

House of Lords & House of Commons, Joint Committee on Human Rights – “Any of
our business? Human Rights and the UK private sector,” 16th December 2009

Report of the International Commission of Jurists – “Corporate Complicity and Legal
Accountability: Volume 3 Civil Remedies,” 16th September 2008

John Ruggie – “Business and Human Rights: Mapping International Standards of
Responsibility and Accountability for Corporate Acts,” UN Report of the SRSG on
the issue of human rights and transnational corporations and other business
enterprises, 19th February 2007

John Ruggie – “Protect, Respect and Remedy: a framework for Business and Human
Rights,” UN Report of the SRSG on the issue of human rights and transnational
corporations and other business enterprises, 7th April 2008

John Ruggie – “Business and human rights: Towards operationalizing the protect,
respect, remedy framework,” UN Report of the SRSG on the issue of human rights
and transnational corporations and other business enterprises, 22nd April 2009

TwentyFifty Limited report for the Ministry of Justice – “The Private Sector &
Human Rights in the UK” October 2009

Weil, Gotshal & Manges LLP – “Corporate Social Responsibility for Human Rights:
Comments on the UN Special Representative Report Entitled „Protect, Respect and
Remedy: a Framework for Business and Human Rights,” 22nd May 2008

Articles and Journals

John Coffee Jr. – “No Soul to Damn, No Body to Kick” [1981]

Lucien Dhooge – “Lohengrin Revealed: The Implications of Sosa v. Alvarez-Machain
for Human Rights Litigation Pursuant to the Alien Torts Claims Act” [2006] Loyola
of Los Angles International and Comparative Law Review 393




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Milton Friedman – “The Social Responsibility of Business is to Increase Profits,”
New York Times Magazine, 13th September 1970

Michael Goldhaber – “A Sarbanes-Oxley for Human Rights?” The AM Law Daily 2nd
June 2008

David Kinley & Rachel Chambers – “The UN human rights norms for corporations:
the private implications of public international law” [2006] H.R.L. Rev. 447

Joanna Kyriakaks – “Freeport in West Papua: Bringing Corporations to Account for
the International Human Rights Abuses under Australian Criminal and Tort Law”
[2005] 31 Monash University Law Review 95

Alex Twanga Magaisa – “Suing Multinational Corporate Groups for Torts in Wake of
the Lubbe Case” [2001] L.G.D. 2

Adam McBeth – “A look at Corporate Codes of Conduct Legislation” [2004] 33
Common Law World Review 222

Campbell McLachlan – “International Litigation and the reworking of the Conflict of
Laws” [2004] L.Q.R. 580

John F. Sherman III & Amy K. Lehr – “Human Rights Due Diligence: Is it too
Risky?” February 2010, available at:
www.hks.harvard.edu/m_rcbg/CSRI/publications/workingpaper_55_shermanlehr.pdf

Tobias Thienel – “The ECHR in Iraq: the judgement of the House of Lords in R (Al-
Skeini) v. Secretary of State for Defence” [2008] J.I.C.J. 115

Cases

Adams and Others v. Cape Industries Plc [1990] Ch. 433

Arab Banking Corporation v. First Union National Bank [2001] WL 239670

Blyth v. Birmingham Waterworks Co [1856] 11 Ex 781

Bolton (Engineering) Company v. Graham [1957] 1 QB 159

Bolton v. Stone [1951] AC 850

Brown v. Rolls Royce [1960] 1 WLR 210

Caparo Industries plc v. Dickman [1990] 2 AC 605

Connelly v. R.T.Z. Corporation Plc (No. 2) [1997] 3 WLR 373




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Connelly v. R.T.Z Corporation Plc (No. 3) [1999] C.L.C. 533

Coxall v. Goodyear Great Britain Ltd [2003] 1 WLR 536

Donoghue v. Stephenson [1932] AC 562

Koehler v. Cerebos (Australia) Ltd [2005] 222 CLR 44

Latimer v. AEC Ltd [1953] AC 643

Lubbe and others v. Cape Plc [2000] 1 WLR 1545

Morton v. William Dixon [1909] SC 809

Nettleship v. Weston [1971] 2 QB 691

Overseas Tankership (UK) Limited v. The Miller Steamship Co Pty Ltd, The Wagon
Mound (No.2) [1967] 1 AC 617

Paris v. Stepney Borough [1951] AC 367

R. (Greenfield v. Secretary of State for the Home Department) [2005] UKHL 14

Roe v. Minister of Health [1954] 2 QB 66

Smith v. P & O Shipping Ltd [1998] 2 Lloyd‟s Rep 81

Sosa v. Alvarez-Machain [2004] 542 U.S. 692

Spiliada Maritime Corporation v. Cansulex Ltd [1986] 3 WLR 972

Stokes v. GKN [1968] 1 WLR 1776

Tesco Supermarket v. Nattrass [1971] 2 WLR 1166

The Albazero [1977] AC 807

Thompson v. Smith Shiprepairers Ltd [1984] QB 405

Treaties and Legislation

Consumer Protection Act 1987, s.4(1)(e)

Financial Services Act 2000 s.123(2)

OECD Guidelines as revised in 2000




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United States Securities Act 1933 15 U.S.C. §77a

Universal Declaration of Human Rights 1948

Lectures and Transcripts

Milan Markovic (Baker Hostetler LLP) – “Vindicating Human Rights Through Civil
Litigation,” Global Justice Series King‟s College London, 10th March 2010

Richard Meeran (Leigh Day & Co) – “Ethical Dilemmas of a Public Interest
Lawyer,” King‟s College London Public Lecture, 3rd February 2010

John Ruggie – Corporate Responsibility Forum, Fair Labour Association and the
German Network of Business Ethics, 14th June 2006

Websites

http://www.amnesty.org.uk/

http://www.business-humanrights.org/

http://www.cmht.com/

http://www.dow.com/

http://www.ehticaltrade.org/

http://www.europa.eu/

http://www.fidh.org/

http://www.globalwitness.org/

http://www.hks.harvard.edu

http://www.ilo.org/

http://www.institutehrb.org/

http://www.nikebiz.com/

http://www.ohchr.org/

http://www.opsi.gov.uk/

http://www.thesullivanfoundation.org/



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http://www.timesonline.co.uk/

http://www.umn.edu/

http://www.unglobalcompact.org/




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