The CSDDD and Civil Liability: Expanding the reach of EU Courts24 May 2024

Which court has jurisdiction?

As with the rest of the CSDDD, these new civil liability provisions must be transposed into national law to be effective. It will be up to each EU member state how they choose to implement legislation meeting the minimum requirements set out in the directive.

Third-country companies that are caught within the scope of the CSDDD to an extent have the capacity to choose which national law will apply to it. If a company has one European branch in a member state, it will be responsible for enforcement of the CSDDD for that company. Where a company has branches in multiple member states, regulatory authority will be determined by where the highest net turnover occurs. For non-EU companies that do not already have a physical presence in the EU, this may result in strategic decision-making with respect to where a branch should be established.

The civil liability provisions were aimed at enabling those suffering loss and damage to bring proceedings in an EU member court as an alternative to local courts, where it is often alleged there is no access to justice, sometimes due to lack of funding or resources.

This could potentially result in companies facing multi-jurisdictional proceedings arising from the same or connected issues. For example, a UK-domiciled company meeting the turnover threshold could find itself facing claims under Article 29 of the CSDDD in EU courts at the same time as a claim of alleged breach of a tortious duty of care in the English courts based on the decision in Vedanta Resources PLC and another v Lungowe and others [2019] UKSC 20 and other similar cases to argue a voluntary assumption of a duty of care in relation to issues arising in a company’s group or supply chain. Similarly, in common law countries where similar legal arguments can be made, parallel proceedings could potentially be brought in an affected individual’s home jurisdiction as well as a relevant EU member state court.

Conclusion

The questions raised by the CSDDD around the scope of civil liability set out above make up only a small part of the long list of questions to consider with respect to this new piece of legislation. Whilst it is currently unclear exactly what enforcement under the CSDDD will look like for UK companies and other companies domiciled outside the EU, what is certain is that the CSDDD will introduce a host of new and complex requirements that companies will have to grapple with, either because they are directly caught by the turnover provisions, or because they form part of an EU company’s value chain.

Companies should consider the effectiveness of existing and new contractual provisions, to properly apportion liability between the parties in the event of claims, as well as ensuring effective mechanisms are in place to facilitate compliance. This may well also require careful consideration of applicable law and jurisdiction, to mitigate the risk of being caught between multiple legal regimes.