Companies Law Performance for Multinational Groups Liabilities

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Date added: 17-06-26

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Companies Law Performance for Multinational Groups Liabilities Law is absolutely essential for a civilized society to prosper and thrive. Therefore, we have got Laws pertaining to all walks of life ranging from Human Rights to Criminal Laws, from Laws of Inheritance to Family Laws; similarly there is also a need for the Law which would regulate the way in which a Company behaves and operates its functionalities. These set of Rules and Regulations in the United Kingdom (UK) are contained under the Companies Act of 2006. The Company being a separate legal entity; enjoys the rights just like ordinary human beings. It has the right to take others to the court and in turn it can be sued upon. Furthermore, whatever the actions which are done under the Company’s name by the employees; the Company will be solely responsible for those actions and not the employees[1], unless of course those actions which are deemed as illegal by law; only then will the relevant employees be held liable of misconduct. In a similar context, the Companies Balance Sheet consists of two main components, Assets and Liabilities. Assets are all those things that are of use for the organization[2]; which can be utilized to ensure the smooth functioning of operations of the firm. Similarly, liabilities are all those things under a legal context for which the company is responsible for[3]; often people consider liabilities as the amount owed by a firm. When companies accomplish their obligations as per law; they are known to have conducted a performance of Law. In other words; they have completed their responsibilities as per Law. However; when they fail to do so or they are found to be in negligence of their duty, their actions are referred to as non performance of Law[4]. Multinational Companies are those companies; which are operating in several countries but use their home country as the head quarter of their operations. However; this is not necessary that they should be running all operations from home country; because we live in an age of outsourcing where outsourcing has evolved from 3rd Party contracts to 4th and 5th party contracts. Another definition for Multinational organizations is that; all those companies or groups of companies which derive 1/4th of its revenue from abroad. Now that the basic definitions of terms and phrases are clear; let us head towards the main topic of discussion, i.e. what Laws have been enshrined in the constitution for cases of Multinational Companies (MNC), How do these Laws come into place or are enforced when an organization is found to be liable for unpaid debts? This is why the Companies Act of 2006 is applied in the UK; in order to clarify the legalities which could arise either by performance or non performance of contracts, promises and other legally binding agreements between two or more companies. The situation is not that simple it may seem to be. Since the status of a Multinational firm is often ambiguous due to the fact that the Companies and their Parent Organization both enjoy a separate Legal Entity as per Law; and because they are operating in Multinational countries, they reap in good profits for the country in which they operate and also are politically strong contenders in international area because of fulfilling their Corporate Social Responsibility towards those countries, they earn a good repute in the international market and become the apple of the eye of several Governments for provision of employment to a large sector of unemployed persons in their countries. Since an MNC legally is a non-state actor, it is not bound by the Laws which are established by countries multilateral agreements which are often signed to ensure the safety of their respective environments in which an MNC is going to operate. Since these Laws are not applied on a Local Level; often an MNC is not obliged to follow these multilateral agreements. What is further alarming and disturbing to note is that MNCs often target under developed and developing nations where laws are set forth by the respective governments are such that they may be written in the constitutions; but are not enforced by letter and spirit. Let us consider the example of Brazil, India, China and Russia; these are often referred to as BRIC countries and have been one of the fastest growing countries in the recent years in terms of GDP growth rate[5]. The BRIC Countries rapid rise is the result of a combination easy and lax government policies set forth in the recent years and of course the cheap availability of resources both human and material has resulted in a rapid boom for these countries. However; recently development between Ukraine and Russia and the result of EU embargo has left Russia fall short of reaching that expected growth rate as was predicted by Trade Analysts and Economists in the recent years. Nevertheless, the MNCs often target such regions where the governments are often found negligence of fulfilling their constitutional responsibilities. On the other hand the governments do so because they can foresee the profits and benefits which an MNC would bring in at the cost of damaging their own Ecological Environment. As it has been observed by Mac Donald et al (2000), often; NMCs function in those areas that are not regulated by the governments and Parent Company enjoys no legal obligations arising from any such operations of its subsidiary[6]. Hence we may state that an MNC tries its best to generate the corporate veil in order to safeguard its parent company. This has also been supported by Scovazzi (1991); who thinks that judicial proceedings to pierce such a corporate veil will be time consuming but it will also eventually expose the loopholes that are pertinent in the legal system[7]. This being said; we may come to the conclusion from these arguments stated above that an MNC enjoys an unfair advantage over a local firm because a local company will always find itself entangled in a web of legal issues; whereas due to the lack of international laws governing the activities of the MNC provide it a legal cover as it enjoys exploiting the loopholes in the legal system; whereas the due to the lengthy procedures involved in piercing the veil of corporations, quite too often the governments do not purse the cases despite being fully aware of the operations of the MNC. The problem here is not that the Laws are not being put in place to address such issues as Environmental damage, but the problem lies at the implementation and on the defined ambiguity of these Laws are often suggested in multilateral agreements. The MNC cannot be brought to book as long as these laws are not further refined at the local level of the government. Hence the MNCs avoid the liabilities that would have otherwise risen from such scenarios. What is also disturbing to note is that there is a lack of provisions for international environmental liability[8]; the governments also fail to include provisions for such liabilities; in those multilateral agreements; despite there have been repeated history of violations and damages caused by MNCs and such firms have made a mockery of International Law by exploiting the legalities of the clauses. Examples which have involved nuclear power plants like Chernobyl and Fukushima have gained the attention of the international community members[9]. Also disasters which include the oil spillage incidents are note worthy in history of liabilities of MNC arising from such disasters. These disasters have forced the particular industry operators to be immensely scrutinized by the States in which they are functional, because the dangers associated with such disasters are great as compared to the cost of individual lives and the overall Eco-system is put at risk. Considering the liabilities arising from the oil slick incidents and the liabilities arising from pollution of Marine Life; notably two important conventions can be cited here to support this article. First was the Civil Liabilities convention of 1970; which had reduced the liabilities arising from such marine disasters and pollutions arising from oil slicks and another being the Civil Liabilities Conventions; which imposed stringent yet addressed the liability arising from such incidents as limited liability[10] The Lugano Convention of 1993 and the European Union (EU) impose liabilities on a broader division of companies that are involved in activities which are dangerous to the environment; this is done with the help of Environmental Liability Directive (2004/35/EC). The principle which states that the ‘polluter must pay’is well known among the civil jurisdictions[11] and it has been by judges that polluting units have to go[12]. It is also note worthy go into the details to note that this principle strict liability; holds that if it has been deemed that the activity which was carried out has been considered as dangerous; the person carrying such an activity is to compensate for the losses which may arise from conducting of such an activity; regardless of the fact whether due care was taken or not whilst the activity was undertaken. Also the United Nations Global Compact (UNGC) in this regards has set forth guidelines and principles which the companies are encouraged to follow which also include the environmental standards as well. These principles can be found in the ‘The Ten Principles’ an online guide published on the website of (UNGC). It is important to point out here that Organization for Economic Cooperation and Development (OECD have also set forth guidelines in order to help governments to make recommendations to the MNCs operating in their countries which though are non-binding but yet an effective way of improving the coordination between the MNCs and government. It is up to the government to close in on the gap pertaining to the limited liability scope and accountability for the MNCs, for this reason a Conference in Stockholm took place in 1972 where the need for recognition of Environmental Laws was stressed to be recognized and the need to implement better laws pertaining to environmental protection was stressed considering to keep it in line with the growing activities of MNCs. In this regard several; Transnational Investment Agreements (TIA) have been signed between the MNCs and the hosts, but it has been often noted that particularly the third world countries are not eager to implement these TIAs and other laws pertaining to the environment preservation because these agreements would compel the MNCs to limit their activities which hazardous in nature but yet necessary to produce the finished product. One such example is of Baku-Tsibili-Ceyhan (BTC) pipeline project. The Pipeline runs 1,760km long and stretches from Azerbaijan through Georgia to the Mediterranean coast of Turkey. The project had to face several of difficult problems relating environmental challenges. Financing of the project was agreed in 2004 after a delay of several years and completion of various environmental and social projects. Completion of the project took place by the end of 2005 and the project finally commenced its operations in 2006 with Ceyhan as being its hub. Now that we have seen how MNCs behave in international arena, let us examine the cases which have taken place in the jurisdiction of UK and how the Companies Law of UK came into play and what verdicts were given in the issues involving MNCs. It was in In 1980s a company named Thor operated in Margate, England and manufactured Chemicals involving Mercury. The Health and Safety standards in Margate came under fire when workers blood and urine samples taken by Health and Safety Executive (HSE) were found to be containing high levels of Mercury deposits. In 1986, the company switched its operations from Margate to Cato Ridge in South Africa. In Cato Ridge; the workers of the factory showed similar symptoms of having high levels of Mercury in Urine and Blood. Instead of changing the Safe Procedures and Methods of conducting the operations the company decided to shuffle its workers. It lay off those who had high levels of Mercury deposits in their body systems and hired new ones instead. In Feb of 1992, the poisoning of workers came to light as three workers died and several others showed case of severe poisoning. A criminal inquiry was held in magistrates court and a fine of £3,000 was imposed. Subsequently this resulted in compensation claims against the parent company in the English High Courts on behalf of 20 workers. The claims were based on the grounds of having a negligent set-up of operations and lack of safety standards and monitoring of hazardous processes; hence it was based on the overall failure to take steps necessary steps to protect the South African workers against the foreseeable risk of mercury poisoning. The company had applied for a stay of action on forum grounds, but application was dismissed. The Judge; J. Stewart noted the associations of the claim with England and held that English law were to be applied to the case. Thor’s appeal was struck down by the court and Thor settled the claim for £1.3 million in 1997. Another example is of compensational claim which was brought in to English Courts by E. Connelly, a laryngeal cancer victim who was employed at RTZ’s Rossing uranium mine in Namibia. The allegations held English-based RTZ companies responsible for all Key strategic technical and policy decisions relating to Rossing; this meant that despite whatever Rossing did in terms of misconduct and negligence, the parent company was to be held liable for its actions and carelessness towards the precautionary measures which were to be implemented for workers safety. It was in March of 1995, that RTZ was able to convince the court that Namibia was the rightful forum for this particular case. The case was brought to the Court of Appeal two times before ending up at the House of Lords and it was held that since Mr. E. Connelly was not able to pursue the case legally in Namibia; therefore the case should be litigated England. Another claim was brought by the widow of an (esophageal) cancer victim; who was employed at Rossing, Peter Carlson. The victim worked during the same period and in the same region as did Connelly. RTZ applied to strike out the Connelly’s claim and to stay the Carlson action on the ground of forum being non-convenient. Interesting as it may seem, the court struck out Connelly’s claim but dismissed on the grounds of limitaitons RTZ’s application to stay the Carlson action on the grounds that his widow would not be able to attain necessary funding which is required to obtain justice in Namibia. The Cape Asbestos Company Limited, was involved in mining asbestos in the Northern Cape respectively from 1890 - 1979. From 1948 onwards the operations in the North Western Cape were carried out directly by the parent company, via its subsidiaries. The Prieska mill was located in the middle of the town, near by a school. The operations pertaining to mining and milling led to the families being infected with the asbestos-related disease. It was a tragedy; which affected the whole families. When the Chief Medical Officer of Cape visited The Prieska mill in 1962, hed reported that the conditions around the mill were not good; he noted that the crusher had no doors thus a cloud of dust was being blown with strong winds towards the town. At Cape’s Penge mine, the conditions were just as bad with asbestos dust levels. In 1970s it was several times greater than the UK limit during the corresponding period. Compensation claims were commenced in the English High Court in 1997. The claimse were in favour of 3 Penge workers who had lived near the mine suffered from asbestosis and 2 Prieska residents who had lived in the vicinity of the mine suffered from mesothelioma. The claims were based on the negligence of the company’s world-wide asbestos business. To make matters worse, claims were also filed on behalf of 4 Italian workers, employed at Cape’s Turin manufacturing operation, run by another subsidiary, Capamianto. Cape applied to stay the South African claims on forum grounds, their application was granted, but on appeal in July 1998, the Court of Appeal reversed this decision. The Court insisted that breaches of duty of care took place in England and not in South Africa. In Dec of 1998, the House of Lords dismissed Cape’s petition and in Jan of 1999; two further actions comprising almost 2000 claims were commenced in England against Cape plc by South African claimants exposed to asbestos in the same geographical regions of South Africa. Cape applied to stay the 2000 claims on forum grounds contending that the emergence of the group was a sufficiently material change to warrant a different conclusion from that of the Court of Appeal in the first 5 cases. Cape also sought a stay of the first 5 cases on the grounds that the Court of Appeal had been misled as to the true nature of the case. The Judge granted a stay of all the actions including the 5 Lube claims. SA is divided into 9 separate provincial jurisdictions, each of which exercises jurisdiction over a Claimant if; the cause of action arose in the jurisdiction and, the Defendant is based, or has assets in the jurisdiction, or the Defendant submits to that jurisdiction. However, in the case of the Northern Cape Provincial Division, mere submission will not suffice. There, money will also have to be lodged in a bank account and “attached” by the Claimants in order for the N Cape Court to have jurisdiction. However, Buckley J concluded that once he had decided to stay the action, the manner of its progress in South Africa was a matter for the SA Courts. Buckley J said he was also “comforted” by decisions of the US Courts in which public policy considerations had influenced the decision of the courts to stay proceedings in favour of the alternative forum. The specific reference to the Bhopal case was perhaps surprising given that it is widely known that the settlement of these
[1] Refer to the ruling of Lord Halsbury, in Salomon vs A. Salomon & Co. Ltd [1897] [2] Refer to WordWeb Online Dictionary [3] Refer to http://www.investopedia.com/terms/l/liability.asp [4] Refer to http://thelawdictionary.org/ [5] Refer to http://www.tradingeconomics.com/country-list/gdp-annual-growth-rate [6] Mac Donald et al (2000) pp. 20-31 [7] Scovazzi (1991) pp. 413-421 [8] Ong (2001) pp. 697 [9] Friedman (2011) pp. 55-56 [10] Refer to Article (6) of Civil Liabilities Convention [11] Ong (2001) pp. 700 [12] Mc Mehta v Union of India and MC Mehta v Kamal Nath & Ors.
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