UK: British PLCs risk human rights litigation in US, lawyers warn

British companies with global operations face a growing threat of being sued in the US over their dealings with foreign governments accused of human rights violations, a leading lawyer has warned.

Rae Lindsay, a partner at Clifford Chance, said the fear of being held "vicariously" liable for the actions of foreign governments is having a detrimental impact on foreign investment by UK companies.

Under America’s Alien Tort Statute (ATS) a British company with a "corporate interest" in the US â€" such as an American parent or subsidiary - can be sued in a US court over acts which are alleged to have taken place in a third jurisdiction.

Ms Lindsay said a recent trend in ATS litigation is the concept of "aiding and abetting", where litigation is being brought against companies simply for conducting business in countries where human rights violations occur.

"Companies need to keep a close watch on how US courts deal with these claims. Claimants are not alleging that companies themselves have committed human rights abuses, but that they are guilty by association. If ‘association’ can mean as little as being present in a country and paying taxes there, exposure to claims is clear," Ms Lindsay told delegates at a conference organised by Sweet & Maxwell, the legal information provider.

"The uncertainty over the legal standards is not just discouraging investment in less developed countries, but it is making UK companies think twice about their US listings because they can potentially be sued for what they are doing on the other side of the world," she added.

Examples of recent cases brought under the ATS against companies alleged to have aided and abetted the criminal acts of foreign governments include a suit against IBM accusing the US computer giant of complicity with apartheid laws in South Africa because it supplied computers to the South African police force. The case is ongoing.

In another suit, a group of Burmese individuals sued Unocal, the American oil group, alleging that security guards hired to protect the construction of an oil pipeline running through a Burmese village violated the villagers’ human rights. Unocal settled the case out of court.

John Trenor, a partner at Wilmer Cutler Pickering Hale and Dorr, said: "Litigation in US courts under the ATS seeking to hold companies liable for alleged international law violations at the hands of governments or others can present a serious threat to UK and other companies doing business around the world.

"Plaintiffs typically demand significant damages and assert allegations that, even though never proven, can affect a company's public image. Although most such cases are ultimately dismissed by the courts, particularly under the more stringent standards recently adopted by the US Supreme Court, legal fees and costs in defending such lawsuits can be significant and are generally not recoverable in the US."

Even if the actual cash amounts paid to settle such cases are relatively small, lawyers stressed that companies face an enormous reputational risk if they are associated with human rights’ violations.

Many British companies are already taking legal advice to reduce the risks of such litigation.

However, Richard Hermer, a barrister at Doughty Street Chambers in London, welcomed the increased litigation. "It is entirely right and appropriate that those companies that involve themselves in disreputable practices are held to account, if necessary, through the courts. Adopting socially responsible policies should be a priority for businesses, not least because it is in their own self interest," he said.

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• 192 Technology & Telecommunications