Model law

Parent Company Liability for Environmental Damage Bill

Louis' Law

Introduce a class of environmental crimes for which liability will pass through from overseas subsidiaries to parent companies registered, listed or active in the target jurisdiction.

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Why use this?

The proposed amendments will allow people in any jurisdiction to sue UK parent companies for serious environmental damage caused by their overseas subsidiaries, unless the UK parent company directors can show adequate procedures were in place to identify, avoid and mitigate the relevant risks.

How it promotes a net zero future

Due to limited liability and the corporate veil, parent companies are not typically liable for environmental damage caused by their subsidiaries. This allows businesses to unfairly limit their responsibility for and authority over profitable subsidiaries whose activities may be causing gross environmental damage.

The proposed clause will prevent companies from shielding themselves from liability for serious environmental crimes by virtue of their corporate structure, and place a proactive obligation on directors to supervise activities of their subsidiaries.

The law

Parent Liability For Environmental Damage Bill

A BILL TO

Hold parent companies responsible for the environmental damage caused by their international subsidiaries.

BE IT ENACTED by the Queen’s most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows:

1. [base new law on UK bribery act: incorporate definitions as appropriate.]

Offences of causing Gross Environmental Damage

(1) A relevant commercial organisation is guilty of an offence if its officers cause, or are reckless as to causing, Gross Environmental Damage, whether in the United Kingdom or another jurisdiction.

Failure to prevent Gross Environmental Damage caused by a subsidiary undertaking

(2)  A relevant commercial organisation (“C”) is guilty of an offence under this section if a subsidiary undertaking causes, or is reckless as to causing, Gross Environmental Damage, whether in the United Kingdom or another jurisdiction.

(3)  But it is a defence for C to prove that C had in place adequate procedures designed to prevent subsidiaries of C from undertaking such conduct.

Guidance about commercial organisations preventing Gross Environmental Damage

(4)  The Secretary of State must publish guidance about procedures that relevant commercial organisations can put in place to prevent subsidiaries from causing Gross Environmental Damage.

(5)  The Secretary of State may, from time to time, publish revisions to guidance under this section or revised guidance.

(6)  The Secretary of State must consult the Scottish Ministers and the Department of Justice in Northern Ireland before publishing anything under this section.

(7)  Publication under this section is to be in such manner as the Secretary of State considers appropriate.

Penalties

(8) A relevant commercial undertaking guilty of an offence under this Act is liable to a fine not exceeding

(a) up to [20 million Euros], or 4% of the entity’s total annual worldwide turnover in the preceding financial year, whichever is higher, or

(b) in any other case, [20 million Euros].

Personal Liability

(9) [Draft new provision that, where the directors of the parent undertaking fail to follow adequate procedures, tortious liability to flow against the parent company for the actions of its subsidiaries]

In this section:

partnership” means:

(a) a partnership within the Partnership Act 1890, or

(b) a limited partnership registered under the Limited Partnerships Act 1907,

or a firm or entity of a similar character formed under the law of a country or territory outside the United Kingdom,

relevant commercial organisation” means:

(a) a body which is incorporated under the law of any part of the United Kingdom and which carries on a business (whether there or elsewhere),

(b) any other body corporate (wherever incorporated) which carries on a business, or part of a business, in any part of the United Kingdom,

(c) a partnership which is formed under the law of any part of the United Kingdom and which carries on a business (whether there or elsewhere), or

(d) any other partnership (wherever formed) which carries on a business, or part of a business, in any part of the United Kingdom, and, for the purposes of this section, a trade or profession is a business.

subsidiary” means:

a subsidiary undertaking as defined in s 1159 of the Companies Act 2006.