I. Introduction
South Africa is both home state to companies operating across Africa and the rest of the world, and host state to foreign-based multinationals. Against this backdrop, a few interesting mechanisms for holding corporations legally accountable for human rights obligations have emerged in legislation and case law. The South African legal framework provides a unique setting for the legal application of corporate human rights obligations. The South African Bill of Rights binds private actors, as provided for in section 8(2) of the South African Constitution:Footnote 2
A provision of the Bill of Rights binds a natural or a juristic person if, and to the extent that, it is applicable, taking into account the nature of the right and the nature of any duty imposed by the right.
However, section 8(3)(a) stipulates that when a human rights provision is applied to a private actor, courts ‘must apply, or if necessary develop, the common law to the extent that legislation does not give effect to that right’. Human rights are therefore not directly applied to companies, but instead through statutory interpretation or the development of the common law.
This piece will highlight a few examples of these developments and consider what options they may offer for other national jurisdictions as well as the international treaty process.
II. Separate Corporate Identity
One of the main challenges facing corporate human rights victims is the principle of separate corporate identity.Footnote 3 Ordinarily, the ‘corporate veil’ protects individual directors, shareholders or parent companies from claims based on the actions of a corporate entity or subsidiary. The obstacles posed by separate corporate identity are particularly pronounced in transnational cases: where the parent company is based in one (often developed) state, and the subsidiary is based in another (often developing) state. Claimants may be unable to hold the subsidiary liable, whether by reason of it having limited finances for compensation, procedural requirements regarding foreign defendants in local courts, or simply because the relevant decision was actually taken at parent company level. The result is a lack of access to a remedy.
A. Individual directors
Two South African cases have held other actors liable for conduct of the relevant company within the context of human rights law application, albeit in different contexts.
The first of these was the 2006 case of Minister of Water Affairs and Forestry v Stilfontein Gold Mining Co Ltd Footnote 4 (Stilfontein). Stilfontein, a mining company, had previously been ordered to comply with certain water management directives as contained in the National Water Act,Footnote 5 and was now being sued for contempt of court for failing to comply with this order. A failure to comply with the court order would be likely to result in water pollution, health risks and flooding, causing a risk to miners’ lives. However, instead of complying with the order, the directors resigned simultaneously.
The Court criticized this behaviour, indicating that the resignations were rushed in order to meet the date of the hearing. It stated that ‘[o]ne does not expect, within the corporate environment, that the entire board of a public company suddenly resigns. There should, at the very least, be some form of notification.’Footnote 6 The Court relied on the King Report on Corporate Governance:Footnote 7
A well-managed company will be aware of, and respond to, social issues, placing a high priority on ethical standards. A good corporate citizen is increasingly seen as one that is non-discriminatory, non-exploitative, and responsible with regard to environmental and human rights issues. A company is likely to experience indirect economic benefits, such as improved productivity and corporate reputation, by taking those factors into consideration.
The Court referred to the obligations of companies within the greater constitutional context, by stating:Footnote 8
To permit mining companies and their directors to flout environmental obligations is contrary to the Constitution, the Mineral Petroleum Development Act and to the National Environmental Management Act. Unless courts are prepared to assist the State by providing suitable mechanisms for the enforcement of statutory obligations, an impression will be created that mining companies are free to exploit the mineral resources of the country for profit, over the lifetime of the mine; thereafter they may simply walk away from their environmental obligations. This simply cannot be permitted in a constitutional democracy which recognises the right of all of its citizens to be protected from the effects of pollution and degradation. For this reason too, the second to fifth respondents cannot be permitted to merely walk away from the company, conveniently turning their backs on their duties and obligations as directors.
The facts of this case are unusual. Instances where all directors resign simultaneously will not be heard before courts on a regular basis. However, the judgment does provide interesting lessons for future litigation.
First, it is significant in that it holds directors liable for breaching the fiduciary duties which they owed to the company, within a human rights context. The Court refers to the principle that good social governance is in the company’s financial best interest.Footnote 9 The judgment also recognizes that companies have legally binding environmental and human rights corporate governance responsibilities.Footnote 10
Some of these principles have since found their way into the 2008 South African Companies Act, which requires certain companies to have a dedicated social and ethics committee.Footnote 11 The function of the social and ethics committee includes monitoring the company’s activities with regard to the ten principles of the UN Global Compact, equality and unfair discrimination, environment, health and public safety, the OECD recommendations on corruption, and the ILO Protocol on decent work and working conditions.Footnote 12
The Stilfontein judgment brings the guiding principles enunciated in the King Report into the realm of binding law.Footnote 13 This judgment predates the UN Guiding Principles on Business and Human Rights (the Guiding Principles),Footnote 14 but it implements human rights provisions contained in the national constitutional frameworkFootnote 15 against a corporate entity and its individual directors.
B. Legislative provisions for piercing the corporate veil
The second and more recent case is Ex Parte Gore NO and 37 Others NNO (in their capacities as the liquidators of 41 companies comprising King Financial Holdings Ltd (in liq) and its subsidiaries) (Gore).Footnote 16 Section 20(9) of the Companies Act of 2008Footnote 17 provides a statutory basis for piercing the corporate veil in cases of an ‘unconscionable abuse of the juristic personality of the company as a separate entity’. Gore was the first reported judgment on this provision.Footnote 18
The Cape High Court discussed the common law principles relating to the piercing of the corporate veil, referring to English, Australian and South African cases.Footnote 19 The Court then distinguished section 20(9) from the common law position set out in these traditional cases, holding that the statutory provision will ‘inevitably operate…to erode the foundation of the philosophy that piercing the corporate veil should be approached with an à priori diffidence’.Footnote 20 The Court found that the remedy’s ‘unqualified availability…militates against an approach that it should be granted only in the absence of any alternative remedy’.Footnote 21
Importantly, this remedy can be invoked by any ‘interested person’, and the Court expressly stated that this includes a claimant whose human rights have been affected.Footnote 22 In this case, the application was brought by liquidators of a group of companies, all managed by the same directors, which had mismanaged investors’ funds. Investors included elderly individuals, pensioners and poor farm workers.Footnote 23 The Court referred to section 38Footnote 24 of the Constitution, which provides that anyone whose rights have been infringed has the right to approach a court, either in their own interest, on behalf of another person or group, or in the public interest.
The Gore case provides an interesting example of regulation which allows for piercing of the corporate veil in the application of corporate human rights obligations.
These examples demonstrate that states can be inventive in circumventing the obstacles traditionally posed by the corporate veil. Similar provisions are certainly possible within national jurisdictions to afford victims remedies against parent company entities.
III. Statutory Interpretation
As mentioned above, the South African Bill of Rights binds private entities, where applicable.Footnote 25 However, private entities are not ordinarily held liable directly under the Constitution. Instead, human rights are given effect against private actors indirectly through the interpretation of legislation or the development of the common law.Footnote 26
Section 39(2) of the Bill of Rights stipulates that a court, tribunal or forum interpreting any legislation or developing the common law ‘must promote the spirit, purport and objects of the Bill of Rights’. This applies to judgments made on all matters, including those legal areas which would ordinarily not fall within the ambit of human rights law, such as traditional corporate or commercial law.Footnote 27
Section 39(1)(b) furthermore provides that when a court, tribunal or forum interprets the Bill of Rights, it ‘must consider international law’. Despite not being legally binding, the Guiding Principles recently found their way into ‘hard law’ through this interpretative mechanism.
In University of Stellenbosch Legal Aid Clinic and Others v Minister of Justice and Correctional Services and Others (Stellenbosch Legal Aid Clinic),Footnote 28 the applicants were low income earners who were subjected to emoluments attachment orders in terms of the Magistrates’ Courts Act.Footnote 29 These orders provided for the debtors’ earnings to be attached, and obliged their employers to pay the attached instalments directly to the debt collector.Footnote 30 The Act provided neither a limit for the amount which may be deducted, nor for the number of orders which could be obtained against an individual.Footnote 31 It was possible for the private debt collectors to obtain an order from the clerk of a court without any judicial oversight,Footnote 32 and without the debtor themselves being present or even resident in the relevant court’s jurisdiction.Footnote 33 All the orders had been obtained in this manner by the companies involved.
In finding that the emoluments attachment orders were unconstitutional, the Court referred to the UN Guiding Principles. It stated:Footnote 34
[T]he UN Guiding Principles on Business and Human Rights … place a duty upon the state to take measures to prevent the abuse of human rights in their territory by business enterprises. States are obliged to reduce legal and practical barriers that may deny individuals a remedy.
The Court further held:Footnote 35
It seems to be firmly established in international law that states have a duty to protect their citizens against the abuse of human rights by business enterprises in their territory. Where such abuses do occur, states have a duty to provide victims with an effective remedy. These duties should be taken into account in the interpretation of the provisions of the [Magistrates’ Courts Act] and the Constitution.
The Court referred to the UN Human Rights Council resolution 26/22,Footnote 36 which deals with barriers to remedies of corporate human rights abuses. The Court also referred to the International Labour Organization Protection of Wages Convention,Footnote 37 of which South Africa is not a party but the provisions of which the Court held to be ‘highly persuasive’.Footnote 38
The first and second respondents were included in the claim in their capacity as the government ministers in charge of the relevant legislation, and they indicated from the outset that they would abide by the court’s order.Footnote 39 The government accordingly did not oppose the relief sought, and the judgment was in reality against the fourth to seventeenth respondents, which were all private entities, including one law firm. This judgment is significant in the business and human rights context because the Court used the Guiding Principles and other business-related international human rights norms to find unconstitutional statutory provisions applicable to private companies.
Another legislative provision which may create binding corporate human rights obligations through statutory interpretation is section 7(a) of the Companies Act, which reads:
The purposes of this Act are to-
-
(a) promote compliance with the Bill of Rights as provided for in the Constitution, in the application of company law
By listing the purposes of the Act, section 7 is aimed at facilitating the interpretation of the rest of the Act. Indeed, this section was utilized for this purpose in Gore, where the Court interpreted section 20(9) of the Companies Act on piercing of the corporate veil with reference to section 7.Footnote 40 In that case, the Court found that a person whose human rights have been affected qualifies as an interested person for the purposes of an application to pierce the corporate veil.
The constitutional requirement that all courts must consider the Bill of Rights in the interpretation of legislation and the development of the common lawFootnote 41 facilitates the application of human rights against corporate entities.Footnote 42 Myriad examples of this are taking place in daily South African legal practice, from mortgage foreclosuresFootnote 43 to compensation claims for occupational injuries.Footnote 44 Similarly, the constitutional requirement that international law should be taken into account when interpreting the Bill of RightsFootnote 45 provides an avenue for the UN Guiding Principles to permeate binding case law.
IV. Conclusion
These developments demonstrate the ease with which human rights can be applied to companies where the legal framework encourages or even mandates it. Of course, all legal frameworks are different, and exact provisions may not be directly translatable into other contexts. Nevertheless, a few lessons may be learned from the above cases for application both within South Africa as well as other jurisdictions.
The Gore case expressly allows human rights claimants to sue controlling shareholders or parent companies using section 20(9) of the Companies Act. In order to pierce the corporate veil, claimants no longer need to show such stringent requirements as fraud or improper conductFootnote 46 and ‘both control of the company by the wrongdoer and impropriety in the sense of a misuse of the company as a device or façade’.Footnote 47 Instead, a claimant has to satisfy the requirements of section 20(9) by demonstrating ‘unconscionable conduct’. It is no longer a remedy only to be granted ‘in exceptional circumstances and as a last resort’,Footnote 48 but a remedy with ‘unqualified availability’.Footnote 49
This mechanism should not be confused with the remedy which relies on the duty of care which the parent company owes directly to a claimant. The latter type of claim was used in the UK case of Chandler v Cape Footnote 50 and the Canadian case of Choc v Hudbay.Footnote 51 Claimants in these cases relied on the parent companies’ own direct relationship with the community affected.Footnote 52 In Chandler, the claim was based on the parent company’s failure to implement adequate health and safety procedures at the subsidiaries it controlled.Footnote 53 In Choc v Hudbay, the direct relationship was based on the parent company’s knowledge of foreseeability and sufficient proximity to the harms which occurred.Footnote 54 In contrast, section 20(9) provides for veil-piercing in instances of unconscionable conduct, regardless of whether the parent company owed a direct duty of care to, or indeed had any relationship whatsoever with, the claimants.
Of course, section 20(9) is a corporate law clause, which is not specifically aimed at human rights implementation, although it can be used for human rights purposes. The provision will presumably most often be used in day-to-day disputes of a contractual or commercial nature, where separate corporate identity leads to unconscionable conduct. However, as a result of the constitutional framework which provides for corporate human rights responsibilities, it is equally useful to human rights claimants. Indeed, in the Gore case, there was reference to such a human rights element.Footnote 55
These types of regulatory provisions are within reach of other jurisdictions. Companies are creatures of statute, and all corporate behaviour is regulated in some form or another. The Court in Gore highlighted that even before the enactment of section 20(9):Footnote 56
[South African] courts have shown an acute appreciation that juristic personality is a statutory creation and that “their separate existence remains a figment of law, liable to be curtailed or withdrawn when the objects of their creation are abused or thwarted”.
This principle applies to all considerations around the need for, and possibility of, regulation of corporate human rights impacts—not simply in the context of separate corporate identity.
Currently, treaty negotiations are taking place at the United Nations around creating possible binding human rights obligations on companies. State parties may consider these South African examples of regulation, which are expressly aimed at overcoming the burdens posed by traditional corporate identity, as possible models. Any treaty obligations placed on states to hold companies within their jurisdiction liable for human rights abuses may benefit from clauses which allow for directors’ liability and piercing of the corporate veil under certain circumstances.
None of the cases discussed above drew a rigid conceptual distinction between the obligations of states as against those of companies. Indeed, within the South African constitutional context this distinction may, in many instances, be hypothetical. Nevertheless, South African courts still prefer to hold the state liable for human rights obligations, rather than companies directly.Footnote 57 Corporate human rights obligations are usually adjudicated through statutory interpretation or development of the common law.
Similarly, in keeping with the nature of international instruments, it is almost certain that any possible treaty in this area would contain provisions binding on states.
By referring to the Guiding Principles obligations of both companies and states, courts are able to turn the responsibilities set out in the three Pillars into binding obligations through legal precedent. In Stellenbosch Legal Aid Clinic this has already started to take place. This method of introducing the Guiding Principles into national ‘hard law’ through judicial precedent is being utilized in other jurisdictions as well. Notably, claimants before Canadian courts are currently arguing that international norms such as the Guiding Principles describe a legally actionable standard of care.Footnote 58
The above examples highlight that states and courts can take innovative approaches in adhering to the state duty to protect those within their jurisdiction against corporate human rights abuses.
