International Regulatory Enforcement (PHIRE)

EU Mandatory Corporate Due Diligence and Corporate Accountability Directive: Is Expanding EU Courts in the Cards?

February 19, 2021

By Jonathan C. Drimmer,Tara K. Giunta,

& Nicola Bonucci

For nearly a year, there has been rapid progress toward an EU requirement that companies doing business in the EU conduct broad human rights due diligence across their operations and value chains.  In April 2020, following the publication of a lengthy scoping study in February 2020, the EU Justice Commissioner announced that he would introduce mandatory due diligence legislation as part of the Commission’s 2021 work plan.  Following that announcement, the Commission launched a “public consultation” that closed on February 8, 2021, which elicited hundreds of comments.  We are now expecting a formal proposal by the Commission to be tabled, in principle, before the end of the first quarter of 2021. 

In parallel to the Commission work, the European Parliament Committee on Legal Affairs published a draft report in September 2020, with a draft Directive that takes a maximalist approach in terms of breadth and scope.  That initial blueprint goes well beyond just human rights, requiring many EU-based and global businesses, including those providing financial products and services, to create substantial new internal systems and processes.  Last week, the Committee issued a provisional Final Committee Report.  The report includes a motion for a European Parliament resolution, and recommendations for a directive, and was adopted by 21 votes in favor, 1 against and 1 abstention.  Although the Committee notes that its final text for the Directive is ready and will become available “in coming days,” it made public a “provisional version,” stating that the “next and final step is that the report will be discussed and voted in plenary in March.”  While we are publishing a larger client alert regarding the provisional version next week, with one exception, the provisional report does not differ materially from the September draft report, and is unlikely to substantially differ from the final report.

That one exception, however, is major. It includes suggested amendments to EU regulations to allow claimants to bring civil cases against EU-based businesses and non EU-based businesses operating in the EU for harms caused by entities in their overseas value chains.  Specifically, it recommends changing “Brussels I” - on jurisdiction and the recognition of judgments in civil and commercial matters in the EU - and “Rome II” - on the law applicable to non-contractual obligations - with respect to jurisdiction for human rights-related legal claims. The draft provides that for “business-related civil claims for human rights violations within the value chain” of a company domiciled in the EU, or operating in the EU within the scope of the provisional draft directive, a claimant may choose to file the case in the country where the harm occurred or where the defendant is domiciled or, if it is not domiciled in a Member State, where it operates.  This would extend the jurisdiction of Member States’ courts to human rights cases against EU undertakings for harms caused by their subsidiaries or suppliers abroad, largely obviating the need to establish a parent duty of care or corporate veil piercing.  The provisional draft also suggests a forum necessitatis provision:  it would allow claimants to file cases in the courts of EU Member States where they do not otherwise have jurisdiction, if they cannot reasonably be brought in the country where the case is closely connected, provided the claim has a sufficient connection with the country where the court exists.  On its face, and provided that the conditions set out above are met, the provisions as drafted suggest that human rights cases could be brought in the EU against both EU-based businesses and non-EU based businesses that operate in the EU based on their third-country supply chain activities.

These suggested amendments are far-reaching, and we expect will engender robust debate.  Thus, while we do not expect the diligence and reporting components of the new provisional draft to change materially, whether the civil litigation suggestions will appear in the proposal that the Commission will put forward is less than clear.

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ESG & Sustainable Finance

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Image: Jonathan C. Drimmer
Jonathan C. Drimmer

Partner, Litigation Department

Image: Tara K. Giunta
Tara K. Giunta

Partner, Litigation Department

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