The Forum Problem

In one line

The hard question about a multinational corporation is not what law applies to it but which court will hear the claim, and for forty years the answer has been moving from the place of the harm back towards the parent's home State.

The problem stated

A parent company is incorporated in State A. Its subsidiary operates a plant in State B. The plant injures people in State B.

Sue in State B and you get jurisdiction easily, because the harm and the defendant subsidiary are both there. But the subsidiary may be small, under-capitalised or insolvent, the parent may not be within the court's reach, and a judgment against the parent, if obtained, must then be enforced in State A.

Sue in State A and the parent is plainly within the court's jurisdiction, because it is incorporated or seated there. But the court may decline to hear a case about foreign harm to foreign claimants, and the parent will say that the proper defendant is a separate legal person abroad.

Neither route is comfortable, and the doctrine that decides between them is not international law at all. It is the domestic law of the forum: forum non conveniens, the separate legal personality of a company, and the rules on service and enforcement.

What happened in Bhopal

The Union of India, acting as parens patriae under the 1985 Act, sued Union Carbide Corporation in the United States District Court for the Southern District of New York. It sued there deliberately, because the parent was there, the design decisions were said to have been taken there, and American damages awards were far larger.

The case was dismissed on the ground of forum non conveniens in 1986, and the dismissal was upheld on appeal in 1987. The court held that India was an adequate alternative forum and that the balance of private and public interests, the location of the plant, the witnesses, the records and the victims, favoured trial in India. The dismissal was made conditional, the conditions including that Union Carbide submit to the jurisdiction of the Indian courts.

The claim therefore went back to India, was filed at Bhopal, and ended in the settlement described two chapters ago.

Read the consequence carefully. The doctrine that decided the most important environmental claim of the twentieth century was a discretionary domestic rule about convenience. No principle of international environmental law played any part in the decision.

Why the parent is hard to reach

Three obstacles, and they compound.

Separate legal personality. A parent and a subsidiary are distinct persons. The parent's liability is limited to its shareholding. Courts lift the veil rarely, and generally only for fraud or sham, not merely because a subsidiary is under-capitalised.