United Kingdom

08 Dec 2020
Legislation and cases

Seven years have passed since the UK became the first country in the world to publish a national action plan on implementing the UN Guiding Principles on Business and Human Rights. As the UK’s business and human rights legal framework continues to evolve, we set out below a summary of the key developments in 2020, and what to look out for in 2021.

 
Business practices

Proposed amendments to the Modern Slavery Act

Many readers will be familiar with section 54 of the Modern Slavery Act 2015 (MSA), which requires certain commercial organisations to publish an annual slavery and human trafficking (SHT) statement.1 As we recently reported (see our previous article), in September 2020 the Government published its response to a 2019 consultation on the MSA, in which it committed to amending section 54 by introducing a number of key changes which will better align the MSA with the Australian Modern Slavery Act 2018. Most notably, the Government has confirmed the matters to be addressed in an organisation’s SHT statement will become mandatory. As things currently stand, the six reporting criteria2 (e.g. policies, due diligence processes, etc.) are only discretionary. Also significant will be the introduction of:

  • a single reporting deadline: all organisations will need to report on the period 1 April to 31 March, with a single reporting deadline of 30 September (six months after the end of that period); and
  • a Government run reporting service: organisations will be required to file their SHT statements with a Government registry being developed by the Home Office.

In terms of the administrative requirements of preparing SHT statements, section 54 will be amended to require that “group” statements name all entities in the corporate group covered by the statement, and an organisation’s statement will need to specify the date on which it was approved by the board (or equivalent) and the date it was signed by a director (or equivalent).

Section 172 statements

2020 marked the first year large UK companies became obliged to include “section 172 statements” in their annual strategic reports, describing how the directors had regard to their duties under section 172 of the Companies Act (CA 2006) during the financial year.3 Section 172 requires directors to promote the success of the company for the benefit of its members as a whole, having regard to (amongst other things) employees, the community and the environment. The strategic report assists shareholders in assessing how the company’s directors have performed their duties, and the ‘section 172 statement’ adds to existing human rights related reporting requirements for quoted / traded entities and certain larger banks and insurance companies introduced in 2013 and 2016.4 It has far broader application, however, in that it catches all companies meeting two of the following three criteria: (i) a global turnover in excess of £36 million; (ii) a balance sheet in excess of £18 million; and (iii) more than 250 employees.

Claims against companies

A number of group action claims against companies progressed through the UK courts this year following the landmark 2019 Supreme Court ruling in Vedanta Resources Plc v Lungowe [2019] UKSC 20 (see our previous article). The Supreme Court heard arguments in the case of Okpabi v Royal Dutch Shell Plc [2018] EWCA Civ 191, on 23 June 2020, and the judgment is expected in the coming weeks. This case bares a similarity to Vedanta, in that it focuses on the jurisdiction of the English courts and specifically the issue of when a UK parent company can be liable in the English courts for alleged harm caused by the operations of its subsidiary. The Court of Appeal concluded in 2018 that the claimants had failed to put forward a good arguable case that the defendant parent company owed them a duty of care (see our previous article).

In another case earlier this year, Kalma v African Minerals Limited [2020] EWCA Civ 144, the English Court of Appeal refused a claim brought by Sierra Leonean claimants, who argued the defendant company should be found liable in tort for harm which they suffered as a result of the violent conduct of the Sierra Leonean police. The company had called upon the police to quell protests in the vicinity of its mine on two occasions, and had also provided logistical support and cash payments to the police. On the facts, the court found the company was not liable as an accessory by common design (in that it had not intended for the police to use excessive force). Nor was the company liable in negligence, as the court deemed this a case of “pure omissions”. The law does not generally impose liability for the acts of third parties, and the court determined that none of the exceptions to this rule applied (e.g. creating the source of the danger).

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What do you predict for 2021?

Though the decision in Kalma turned on its facts, it highlights well the challenges which group litigants face when bringing such claims before the English courts. Cases such as this will add to calls for the introduction of legislation requiring companies to conduct human rights due diligence in their businesses and value chains, as recommended to the Government by the UK Parliament’s Joint Committee on Human Rights in 2017. With the European Commission having committed this year to tabling draft mandatory human rights due diligence legislation in early 2021 (see our previous article), the UK will face continuing pressure to enact similar legislation of its own post Brexit. In the meantime, UK businesses should take note that the European Parliament’s Committee on Legal Affairs has suggested an EU-wide mandatory human rights due diligence law should extend to non-EU businesses which sell goods or services in the single market. This is of considerable importance, as the EU is the UK’s biggest trading partner.

2021 will also likely see the Government taking steps to amend the MSA; see above. The timing of this legislative process is unclear, but businesses should proceed on the basis that the requirements of the MSA will change in the near future. As such, businesses not already publishing SHT statements which accord with the six reporting criteria in section 54 would be well-advised to consider what additional SHT measures they might implement now to ensure they are better placed to meet stakeholder expectations once these topics become mandatory topics to disclose in future SHT statements.

In the new year, companies should also look out for the findings of an ongoing consultation regarding a discussion paper published by the Financial Reporting Council (FRC) in October 2020.[1] The FRC has proposed a new reporting model whereby companies would publish a dedicated public interest report in their annual filings, consolidating the non-financial information which companies are obliged to report on under the CA 2006, including regarding human rights matters. Alongside the consultation, the FRC has published a discussion paper, “A Matter of Principles: The Future of Corporate Reporting”, in which it suggests non-financial matters should be given the “same importance as financial information”. The FRC also proposes that “materiality” should be “judged by reference to the communication objective of the specific report”. In other words, in the context of public interest reports, information would be “material” (i.e. sufficiently important to address in the report) if it helps users to understand how the company performed its obligations regarding the public interest, regardless of whether that information is material in terms of understanding the business’ financial performance.

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Contacts

Stuart Neely
+44 20 7444 3289
Stuart.Neely@nortonrosefulbright.com

Holly Stebbing
+44 20 7444 5143
Holly.Stebbing@nortonrosefulbright.com

Patrick Bourke
+44 20 7444 2691
Patrick.Bourke@nortonrosefulbright.com