Multinational companies not only maintain subsidiaries in multiple jurisdictions but have increasingly outsourced production to independent suppliers. Industrial disasters like the Ali Enterprises (AE) factory fire in Karachi, Pakistan, or the Rana Plaza factory collapse in Dhaka, Bangladesh, are only the most extreme examples of the results of precarious working conditions in global supply chains. The social responsibility of leading firms in global supply chains has been discussed for a long time while workers and trade unions are now posing the question: do those companies have legally binding obligations towards their suppliers? Starting with the Asbestosis litigation of South African mining workers against the UK-based parent company, tort law litigation against European or North American companies asking for damages which were caused by a Non-EU subsidiary has become more frequent.[1] The lawsuit against KiK Texilien und Non-Food GmbH takes it a step further and poses the question of liability of European companies for harms occurring in supplying firms.[2]

The lawsuit was filed with the District Court of Dortmund (Landgericht Dortmund) in March 2015 by four Pakistani citizens, who were injured or lost relatives in the Ali Enterprises factory fire. [3] On September 11, 2012 a fire had broken out at the Ali Enterprises garment factory in Karachi killing 260 workers and injuring several dozens more. Allegedly, the high number of casualties was caused by a serious lack of fire and workplace safety precautions: the factory was built in violation of applicable building and fire safety standards and did not have enough fire alarms and extinguishers, despite previous fire incidents.[4] Most importantly, there was an insufficient number of  emergency exits, and those that did exist were locked at the time of the fire. Therefore, when the fire broke out, many workers were trapped in the factory.

As KiK, the main buyer of the textiles produced at the factory, is headquartered in Germany in the court district of Dortmund, the court was competent to hear the claim according to Art. 2 (1) in conjunction with Art. 60 (1) of the Brussels I Regulation. The Dortmund courts applied Pakistani law, as this was a case of non-contractual claims arising out of a tort which occurred in Pakistan (lex loci damni).[5] There are two possibilities under Pakistani common law in pursuing a liability claim for compensation under torts, both familiar attempts to bring claims against violations of human rights and labor standards in British jurisprudence. The first is the principle of vicarious liability, which provides for the strict liability of the employer or in a relationship “akin to employment.”[6] Vicarious liability is not necessarily based on a formal contractual relationship, but instead examines the overall circumstances of a business relationship between two parties through a five-factor lens.[7] The second possibility is liability arising from the tort of negligence. This requires the breach of an obligation by way of a negligent act or omission. Following the established English case law, the claimants argued that KiK breached its direct or non-delegable duty of care towards the employees of the Ali Enterprises factory. The requirements for a duty of care are largely based on the decision in Caparo v Dickman,[8] which describes the following three cumulative conditions of a duty of care: the harm that occurred was foreseeable, sufficient proximity between the parties and the imposition of a duty can be seen as fair, just and reasonable.[9]

The German court was asked to assess the nature of the relationship between KiK and AE whether it was of such nature that it would meet the criteria of the causes of action described above. According to the claimants, a relationship between KiK and AE was one of economic dependence as it was unquestioned that KiK bought at least 70% of AE’s outputs over the course of five years. In addition, KiK’s employees visited the factory several times and ordered several social audits of the factory, which according to the plaintiffs strengthens the claim that KiK had influence and control over AE. They further argue that a review of KiK’s code of conduct of 2009 and other public statements show that KiK assumed responsibility through its public commitments to ensure health and safety standards in supplying factories, which had a legally binding effect.

As the court of first instance dismissed the case as time-barred, it never decided on the arguments described above.[10] With the appeal pending, the merits of the case may be decided at a later stage. Undeniably, the question if companies bear extraterritorial legal obligations for human rights and labor standards in supplying firms will surely be a topic courts will need to deal with in the coming years as more and more such cases will be litigated.

[1] Nicola Jägers et al., ‘The Future of Corporate Liability for Extraterritorial Human Rights Abuses: The Dutch Case Against Shell’ (January 2014) American Journal of International Law Unbound; Richard Meeran, ‘Tort Litigation against Multinational Corporations for Violation of Human Rights: An Overview of the Position Outside the United States’ (2011) 3(1) City University of Hong Kong Law Review 1.

[2] For an indepth discussion see: Bader et al, Strategic Litigation against the Misconduct of Multinational Enterprises: An anatomy of Jabir and Others v KiK, (2019) Forth coming: Verfassung und Recht in Übersee VRÜ – Law and Politics in Africa, Asia, Latin America.

[3] Muhammad Jabir and others v KiK Textilien und Non-Food GmbH – 7 O 95.

[4] Forensic Architecture, ‘Outsourcing Risk – Investigating the Ali Enterprises Factory Fire on 11 September 2012’ can be found here: https://www.forensic-architecture.org/case/outsourcing-risk/ (last accessed 17 March 2019)

[5] Article 4 (1) of Regulation EC No 864/2007 (Rome II) While the claim was thus taken forward on the basis of Pakistani law, a scholarly debate emerged about the possibilities to deal with the claim on the basis of German law, see Chris Thomale / Leonhard Hübner, Zivilgerichtliche Durchsetzung völkerrechtlicher Unternehmensverantwortung, (2017) Juristenzeitung, 385-397.

[6] For a more detailed analysis of the legal aspects of the KiK case see: Carolijn Terwindt/Sheldon Leader/Anil Yilmaz-Vastardis/Jane Wright, Supply Chain Liability: Pushing the Boundaries of the Common Law? (2017) Journal of European Tort Law, Vol. 8, 261 – 296; Philipp Wesche /Miriam Saage-Maaß, Holding Companies Liable for Human Rights Abuses Related to Foreign Subsidiaries and Suppliers before German Civil Courts: Lessons from Jabir and Others v KiK, (2016) Human Rights Law Review, Vol. 16, 370–385.

[7] E v. English Province of Our Lady of Charity [2012] EWCA (Civ) 938, [2013] 2 W.L.R. 958, 19, 70 ff.

[8] Caparo Industries plc v Dickman [1992] 2 AC 605; Connelly v RTZ Corporation Plc [1998] AC 854.

[9] In accordance with the decision in Connelly v RTZ the decisive factor in determining a duty of care is the question of whether the party that caused the harm took on responsibility for the harmed party, Connelly v RTZ Corporation Plc [1998] AC 854.

[10] Landgericht Dortmund, Urt. V. 10.01.2019 – 7 O 95/15