Jesner v Arab Bank Plc No. 16-499, 584 U.S. _(2018)
By a narrow 5-4 majority, the United States Supreme Court held that it did not have the authority under the Alien Tort Statute (ATS) to determine civil liability for foreign corporations that engage in gross human rights violations in contravention of international law.
Over 6000 petitioners sought damages from Arab Bank PLC, a major Jordanian financial institute, for injuries and deaths sustained by terrorist acts allegedly committed in the Middle East. It was alleged by the petitioners that funds had been transferred to terrorist groups through the Clearing House Interbank Payments Systems at the Arab Bank's New York branch. Additionally, it was alleged that the New York branch was complicit in laundering money for a Texas-based charity affiliated with Hamas. The petitioners stated that money was transferred to the bank accounts of terrorist affiliated charities from the Texan charity through Arab Bank's New York branch. The transferred money allegedly enabled or facilitated acts of terrorism which led to the petitioners’ injuries. Consequently, the petitioners sought to recover compensation from the Arab Bank though the ATS.
The ATS provides that “[t]he district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States”. Although enacted in 1787, it remained relatively dormant until the 1980s when a string of cases seeking to hold corporations liable for human rights and other international law violations commenced in US courts.
The issue for the Supreme Court was whether the ATS provided courts with the authority to impose responsibility and liability on a corporation in the event that its human agents violate international human rights laws.
Controversially, the decision was split with a narrow majority of the Court (Chief Justice Roberts, Justices Kennedy, Gorsuch, Alito and Thomas) finding that foreign corporations could not be held liable under the ATS because in the absence of a clear finding as to whether corporations are subjects of international law, it is a matter for the US Congress to make the policy decision to impose liability on foreign corporations.. The minority (Justices Sotomayer, Ginsburg, Brayer, Kagan) strongly dissented, on the basis that nothing in the ATS prevented cases being brought against companies and that to make such a finding effectively allowed for corporate impunity for grave violations of human rights.
The majority decision: The ATS does not impose liability on foreign corporations
Although stemming from different reasons, the majority (led by Justice Kennedy) concluded that the Court could not and should not create a new cause of action under the ATS by finding that foreign entities could be liable. Therefore, a broad prohibition against suing foreign companies for human rights violations was imposed.
To recognise an action was available under ATS, the Court was required to apply a two-step threshold test enunciated in the decision of Sosa v Alvarez-Machain, 542 U.S. 692 (2004) (Sosa). The primary question was whether the alleged human right violation is a specific, universal and obligatory norm. Justice Kennedy, with whom the Chief Justice and Justice Thomas agreed, considered that the jurisdictional reach of human rights law had been consciously limited by the international community to natural persons. That decision was a persuasive reason for not broadly extending liability to corporate parties. However, the Court ultimately did not resolve whether international law recognised or governed corporate liability.
The second point in Sosa required the Court to determine whether the issue of corporate liability should be referred to Congress. Justice Kennedy considered that the Court should be extremely cautious in creating or extending a new cause of action. Any imposition on liability for international law violations should first be determined by the parliament. In separate concurring judgments, Justices Alito and Gorsuch also affirmed that the conclusion was founded in the separation of powers. To hold foreign corporations responsible under the United States' legislation could create political tension and risk reprisal against it. That decision is ultimately a matter for Congress since they are answerable to the United States' public. The Courts' function is simply to effectuate policy rather than create it.
The dissent: There should not be an overarching prohibition of foreign corporate liability
The minority, comprised of Justices Sotomayor, Ginsburg, Breyer and Kagan, dissented from the Court's majority on the basis that it had misconceived and misapplied the first step in Sosa. The minority considered that the majority, by focusing on whether international law recognised foreign corporate liability, had incorrectly focused on whether there was consensus on enforcement. Rather the focus should be whether the substantive conduct (for example, genocide) was universally recognised. As the minority articulated, there should be no reason to distinguish between a corporation and a natural person for violations of international law. Indeed, the ATS itself did not distinguish between the types of defendants.
With respect to the second step, the minority argued that the Court had to consider whether it was appropriate to exercise its discretion to permit the case to proceed. It argued that nothing about the form of the defendant, in particular its corporate status, justified preventing it from being liable. Foreclosing foreign corporate liability was simply too broad a response when there were other methods of limiting liability (for example, analysing whether or not there was sufficient connection to the United States in light of them being foreign parties). Notably the majority acknowledged the existence of the insufficient connection argument even if corporations were capable of being deemed liable under the ATS. However, their Honours appeared pre-persuaded against entertaining a finding of foreign corporate liability and limiting liability by virtue of this insufficient connection rationale. Ultimately their Honours noted that this argument was raised by various amici curiae but was not the appropriate question to be answered by the Court.
In a bold statement, Justice Sotomayor articulated that by absolving corporations from liability for human rights violations, it allowed them to enjoy the benefits of the corporate form without shouldering responsibility for its actions.
In a continuing debate around how the 230 year old ATS should be interpreted today, the Court’s findings are illustrative of tensions around the place of the corporation in international law, the extent to which remedy for grave violations of human rights can be accessed in domestic courts against corporate actors, and issues around comity, sovereignty and international relations. The majority’s findings effectively permitthe corporate veil to act as a shield against the repercussions of corporate decision-making, unless the United States' Congress expressly permits foreign corporate liability under the ATS.
In this regard, it is interesting to note the majority's reference to the potential for diplomatic tension as a persuasive factor against corporate liability. Would that same tension not arise when foreign individuals are held liable under the ATS? Curiously the majority noted that the petitioners would still have an action against the individual employees of the Arab Bank. By way of contrast, the dissenting judgment did not consider that corporations should be afforded any special immunity from suit as compared to a natural person, and expressed concern that the majority’s findings would “absolve corporations from responsibility under the ATS for conscience-shocking behaviour”. With a sharply divided Supreme Court, it remains to be seen how lower courts in the United States approach future cases brought against companies for extraterritorial violations of international human rights.
The full judgment can be read here.
Megan Fung is a Lawyer at Ashurst.