European Union: Multinationals Unaware of Transnational Litigation Threat
Article by Davies Arnold Cooper´s Product Liability and Mass Tort Department

A recent DAC survey highlights an area of real business risk that many multinationals appear to have overlooked.

Our transnational litigation survey undertaken jointly with Legal Director shows that almost half the Heads of Legal in UK multinationals mistakenly believe that there is no potential threat of their company being sued in the UK courts for the acts or omissions of their subsidiaries overseas.

According to the findings, four out of ten in-housers said their companies have already been threatened with legal action from abroad, and one third report an increase in litigation levels generally. Yet despite this, 49% were unaware that they may have a potential liability to overseas claimants, with a further 29% admitting they did not know one way or the other. And in stark contrast to their US counterparts, only half of the UK multinationals interviewed have in-house lawyers dedicated to litigation. Across the Atlantic, the majority of large companies have sizeable teams dedicated to contentious work.

The survey comes in the wake of a growing number of transnational claims, which are typically high value personal injury actions brought in the UK by groups of claimants from overseas. Several claims already proceeding in the UK have been backed by the Legal Services Commission, which is the body responsible for administering the UK’s legal aid budget. The availability of funds for claimants to pursue these cases in the UK potentially makes the prospect of action more likely.

Anne Ware, Head of Product Liability, offers her answer:

"Multinationals with business operations in countries where there is no established system of public funding for claimants should take the threat of transnational litigation very seriously. Particularly at risk are companies in the mining, oil and gas, engineering, manufacturing and construction sectors, but the threat goes even further."

Fellow Partner, Fiona Gill explains:

"In principle, the so called "corporate veil"  argument prevents companies from being responsible for the acts of an overseas subsidiary. In practice, judges are allowing claims to be heard in the UK on the grounds that claimants would not get "substantial justice" in their own country. There has yet to be a successful challenge to the corporate veil principle, but if it happened it would have huge repercussions for every UK-headquartered multinational" she adds.

"There is tremendous pressure from trade unions, non-governmental organisations, political parties and the media for UK companies to settle these high profile group actions, even though direct liability has never yet been established in English law. Settling can be a costly exercise in itself where claimaints are publicly funded and there is no prospect of defendants recovering their costs," adds Partner Alison McAdams.

In practical terms, what can be done? Simon Pearl offers this advice:

"There is not much you can do about preventing claims relating to historic activities, but you can try and close the door to future claims. If you have risk assessment procedures in the UK, do you also have them overseas? What due diligence exercises do you conduct when acquiring a new business or setting up overseas? What areas of exposure do you review?"

The survey reveals that this is something that companies are failing to do adequately. Some 15% of companies do not look at either employment or health and safety issues, 21% ignore antitrust liability, 22% do not consider environmental factors, 24% do not cover product liability and 38% do not address human rights. While not all these categories will necessarily be relevant to every company, the results do suggest that some multinationals are needlessly placing themselves at risk.

In light of such findings and given an increasingly litigious environment, perhaps more multinationals should be looking to prepare for the threat of transnational litigation whatever their experience to date!