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Carsten Koenig
European Business Law Review
Volume 35, Issue 3/4 (2024) pp. 343 – 366
https://doi.org/10.54648/eulr2024022
Abstract
There is currently a great deal of interest in tort and corporate law doctrines that allow for what this article refers to as (corporate) cross-entity liability: holding companies liable for violations and harm caused primarily by the activities of other companies. One reason for the current attention to such liability is the growing effort to improve accountability in global supply chains. In many legal systems, several approaches can be considered, which differ significantly in their prerequisites and legal consequences. This article discusses the four most important ones: (1) veil piercing, (2) duty-based liability, (3) vicarious liability, and (4) enterprise liability. The aim is to distinguish the areas of application of these doctrines. To this end, their respective purposes are examined primarily on the basis of economic arguments. The underlying premise is that there can be no one-size-fits-all solution, but that there is a need for different approaches whose functions, however, should be distinguished more precisely in the future.
Keywords
Cross-entity liability, veil piercing, duty-based liability, vicarious liability, enterprise liability, corporate groups, parent companies, subsidiaries, independent contractors, supply chain due diligence
Extract
Human rights due diligence (HRDD) regimes have been criticized for suffering from an accountability gap caused by the lack of effective enforcement mechanisms. In this respect, the upcoming EU Directive on Corporate Sustainability Due Diligence can be argued to be a fundamental step forward, as an infringement under the proposed Directive may result in substantial administrative fines. This article critically analyses the effectiveness of administrative corporate sanctions in the context of HRDD violations and suggests that morally light administrative sanctioning is not, as such, an appropriate mechanism in motivating impactful HRDD. Drawing on existing behavioural evidence on intrinsic and extrinsic motivational factors, the article argues that any HRDD regime should rely, with the most severe breaches, on a corporate sanction system addressing the morality of the intended corporate behaviour in order to signal the societal significance of corporate human rights obligations and to support related value internalization in corporations. In terms of regulatory design, this means applying a liability system, whether criminal or adminisrative, which takes a clear stance towards corporate culpability, blame and the moral condemnation of severe HRDD violations.