Focus: US court holds foreign corporations not liable for human rights harms under Alien Tort Statute
20 July 2018
In brief: In a decision on human rights litigation that has important consequences for business, a divided US Supreme Court has held that foreign corporations will not be held liable in suits brought under the Alien Tort Statute. Partner Rachel Nicolson (view CV), Associate Shamistha Selvaratnam and Graduate Calypso Strauss report.
How does it affect you?
- The US Supreme Court has held that foreign corporations may not be defendants in suits brought under the Alien Tort Statute (the ATS), on the basis that it is not for the courts to extend ATS liability to foreign corporations without further action from Congress.
- It is still unclear whether US corporations can be held liable in suits brought under the ATS.
- Companies, including those in the financial sector, should ensure that they are aligned with international and domestic human rights standards and principles as much as possible. Failure to do so will open up companies to a range of risks, including litigation, shareholder activism and reputational damage.
The ATS is a section of the US Code, dating back to 1789, which gives United States courts jurisdiction over torts committed against aliens that amount to violations of international law.
The case1 concerned a series of applicants who alleged that they, or those on whose behalf they asserted claims, were injured or killed by terrorist acts committed outside the US. The suits were filed under the ATS against Arab Bank, PLC (the bank), a Jordanian financial institution that has a branch in New York. It was alleged, among other things, that the bank used its New York branch and Clearing House Interbank Payment System to clear dollar-denominated transactions and launder money for the benefit of terrorist organisations. The applicants sought to impose liability on the bank for the conduct of its human agents, including high-ranking banking officials, under the ATS.
Between 2004 and 2010, the plaintiff, Joseph Jesner, along with a number of other plaintiffs, filed lawsuits against the bank, under the ATS, in the US Federal District Court. In May 2013, the court dismissed the plaintiffs' claims under the ATS, finding that they could not bring suits against companies under it. On 8 December 2015, the applicants appealed to the US Court of Appeal for the Second Circuit. In a unanimous opinion handed down on 8 December 2015, the court upheld the US Federal District Court's judgment. On 5 October 2016, the applicants appealed to the US Supreme Court.
On 24 April 2018, the Supreme Court held, by a vote of 5-4, that foreign corporations may not be liable for violations of international law in suits brought under the ATS. As a result, the bank faced no liability in the US courts.
Justice Kennedy delivered the court's majority judgment. In recognising that there is a general reluctance for courts to extend judicially created private rights of action, His Honour emphasised that courts must exercise 'great caution' before permitting new forms of liability under the ATS.
The majority looked to the purpose of the ATS, which is to promote harmony in international relations by ensuring foreign plaintiffs have a remedy for international law violations when a lack of such a remedy might cause upset in foreign nations. The majority expressed concern about placing liability on a foreign corporation because it may '[trigger] … serious foreign policy consequences'. The court placed specific emphasis on the fact that the length and nature of the litigation had already had problematic diplomatic consequences for the relationship between the US and Jordan, a 'critical ally in one of the world's most sensitive regions'. It was held instead that such politically charged decisions ought to be left to Congress to decide because the courts are not well suited to make 'policy judgments that are implicated by corporate liability', due to the unique problems created by foreign corporations.
The US Supreme Court considered other factors:
- The only cause of action under the ATS that was created by Congress (rather than the courts) limits liability to natural persons and therefore excludes liability for corporations. Accordingly, absent 'compelling justification', the courts should not expand the scope of liability under the ATS to include foreign corporations.
- Expanding the scope of the ATS to corporate liability is not 'essential' to achieve the purpose of the ATS.
- The applicants are still able to vindicate their rights by suing the responsible individual employees working at the bank. Therefore, an extension of the ATS is not only undesirable but unnecessary.
- Corporate liability for breaches of international law is not a clearly established international law principle.
- If foreign corporations could be held liable under the ATS, other countries could hold American corporations liable for breaches of international law, which would discourage those corporations from making investments overseas, including in developing economies.
- The doctrine of separation of powers requires that political decisions of this nature be left to Congress, not the courts.
- It is not for the courts to resolve disputes between foreigners and a foreign entity in relation to international law.
The dissenting judgement was delivered by Justice Sotomayor, with whom Justice Ginsburg, Justice Breyer and Justice Kagan agreed. Her Honour placed specific focus on the text, history and purpose of the ATS, as well as the well-established principle of corporate liability for torts in US domestic law, and held that the ATS ought to extend to corporate liability. Failing to do so, Justice Sotomayor said, would undermine the system of accountability in international law because it allows corporations to 'take advantage of the significant benefits of the corporate form' without having to deal with the responsibilities that accompany those benefits.
Despite the US Supreme Court's decision, companies, including those in the financial sector, should continue to take steps to ensure corporate alignment with human rights. This includes identifying key issues and risks based on target sectors and geographic reach, and ensuring that your business can demonstrate alignment with both international and domestic frameworks.
It is important for your company to understand the broad scope of human rights obligations that are potentially impacted by your business operations, including your labour practices, procurement and supply chain activities. Failure to identify and manage business practices that attract human rights risk poses a range of risks, including litigation, shareholder activism, risk to project financing, operational delays and significant reputational damage.
- Jesner, et al. v Arab Bank, PLC, No. 16-499.
- Rachel NicolsonPartner,
Ph: +61 3 9613 8300
- Peter HaigPartner,
Ph: +61 3 9613 8289
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