The specious ‘corporate veil’
The world's worst industrial disaster, in Bhopal in 1984, left an estimated 8000 dead within a few days of the gas leak. Over subsequent years, about 25,000 have died due to toxic-gas-related diseases, and the lethal effects of the gas leak, however, are still being felt even 25 years on, in the shape of groundwater contamination. H Rajan Sharma is an international lawyer practicing in New York. He is currently lead counsel in a class-action litigation against Union Carbide concerning environmental pollution caused by its Bhopal plant. In the weeks prior to the 25th anniversary of the gas leak, Sharma discussed the case with Himal by e-mail.
In 1999, you filed the class-action suit against Union Carbide Corporation (which had been bought by Dow Chemical in 2001), seeking damages for environmental contamination and for the clean-up of the Bhopal plant, which polluted sub-surface groundwater. What are the key contentions of the suit, and the current position?
The key contentions are that Union Carbide transferred technology to its Indian subsidiary, Union Carbide India Limited (UCIL), of the kind it knew would cause an environmental-pollution problem at the Bhopal location. Our case also contends that Union Carbide was involved in a defective and incomplete clean-up of the plant site after its closure in 1984 until at least 1994. This caused or further contributed to the pollution threat posed by the plant, including the creation of a massive landfill containing thousands of tonnes of toxic waste in the area of the plant's solar evaporation ponds.
The complaint seeks damages, medical monitoring and clean-up of the above-ground waste as well as the groundwater contamination. The complaint also relies on several environmental surveys from independent organisations showing that the drinking water of at least 16 residential communities near the Bhopal plant has been affected by the sub-surface pollution – which, we believe, continues to spread through the groundwater table. Meanwhile, the dismissal of the case on several occasions in the past has had more to do with Union Carbide's efforts to distort the factual record of their extensive involvement in the Bhopal plant than anything else.
You have unearthed evidence to prove that monetary factors were responsible for UCC's low safety standards at the Bhopal plant, which contributed to the magnitude of the disaster. Could you elaborate on this 'criminal negligence'?
Documents obtained as part of the litigation process show that several factors contributed to the defective and improper technology utilised at the Bhopal plant. These extended to safety systems as well as core processes used in manufacture, including changes in choice of materials, instrumentation and the like. One of those factors was the desire of Union Carbide to maintain a majority interest in its Indian subsidiary, despite regulations such as the Foreign Exchange Regulation Act (FERA) under Indian law, which would have required a voluntary dilution of its equity. Had UCC made the decision not to manufacture pesticides in Bhopal, its holding in the Indian subsidiary would have been reduced to 40 percent under FERA. Another factor was the concerns over the licensing of proprietary technology to UCIL, while Union Carbide was simultaneously required to lower its equity stake in UCIL from 60 percent to 40 percent under FERA. As it happens, Union Carbide was able to retain 50.9 percent ownership of UCIL, and the technology ultimately transferred was not entirely its own.
Cost became a significant factor as early as 1977, when Union Carbide's sales projections and other factors began to indicate that earlier estimates of future profits in the Indian pesticides market may have been overly optimistic. Whether or not those decisions and changes in technology – such as cheaper cost materials, and dispensing with some instrumentation – over time amount to criminal negligence or something worse under Indian law is a matter that is before the courts of India. Unfortunately, Union Carbide has not submitted to the jurisdiction of India's courts for the purposes of the criminal case pending against it there.
How was Union Carbide allowed by the Indian government to evade answering for civil and criminal liabilities concerning its misconduct in Bhopal?
Well, Union Carbide did not evade civil liability altogether. It did enter into a settlement agreement with the Union of India, which obliged it to pay USD 470 million as compensation for the harm it caused. That sum is significantly lower than it should have been. A number of factors contributed to the minimising of Union Carbide's civil liability. The first and foremost would have to be the overburdened and nearly decrepit state of the Indian legal system, with its endemic backlogs and outdated procedures – the absence of a class-action mechanism, for example.
Another important factor was the international or transnational nature of the defendant and the harm, which required that any Indian judgment would have to be subject to enforcement in American courts. The Indian Supreme Court upheld the civil settlement reached in 1989, while mandating that the criminal case proceed against Union Carbide. Nothing was done, however, to ensure that Union Carbide would subject itself to the criminal jurisdiction of India's courts for that purpose, either by the Supreme Court in its judgments or by the Union of India thereafter.
The Indian government has shown a considerable lack of political will when it comes to holding Union Carbide accountable in a criminal court, where criminal charges remain pending against the corporation. Indeed, the Indian government has been lackadaisical even about pursuing Union Carbide's liability with respect to the present-day environmental pollution caused by the Bhopal plant, even though it may ultimately end up bearing a significant amount of the costs for remediation of soil and groundwater at the plant site.
If it chose to do so, the Indian government could take a much more proactive role, both with respect to the outstanding criminal charges against Union Carbide as well as with respect to our case concerning groundwater pollution. For example, the government could intervene as a party in the New York litigation and seek to compel Union Carbide to bear costs for the clean-up of the plant as well as remediation of groundwater at the site. To date, it has only made a submission requesting such relief, but has not shown any interest in filing an intervention petition to obtain such relief itself. As a sovereign entity, the Union of India has standing to assert claims for recovery of clean-up and remediation costs both for the plant site and for subsurface water contamination.
Why was such a suit not filed soon after the disaster? Is there any possibility that damages for death and continuing injury/illness can be sought from UCC/Dow now? Also, can the recent dismissal of the suit filed by victims of the pesticide Agent Orange, 30 years after the Vietnam War, be read as the mood of US courts in cases seeking justice for decades-old corporate crimes?
There was no proof of groundwater contamination until an environmental survey of hand-pump wells was conducted in 1999 by Greenpeace, with the help of laboratories at the University of Exeter in the United Kingdom. The plant itself remained closed to the public and in the control of UCIL until 1998, when the lease for the land was 'surrendered' to the state of Madhya Pradesh. The environmental problem posed by the abandoned Bhopal plant and the landfill created in 1998 is separate and unrelated to the 1984 gas-leak disaster. This is a contemporary problem that is still ongoing.
The criminal case against UCC, however, relates to the 1984 disaster, and that is still pending in the Bhopal District Court. If Union Carbide were to be prosecuted on that criminal case, or plead guilty to those charges, then presumably some sort of criminal fine could be levied upon the company that could be used as restitution for the disaster victims and the continuing injury or illness related to the gas leak. That is an issue for Indian law, of course, and therefore outside of my area of expertise.
The comparison to the claims of Agent Orange victims is entirely different, legally and factually, from the situation in Bhopal. That said, I think courts are understandably reluctant to deal with claims or wrongs that have taken place in the remote past, because of problems associated with difficulties of proof and lack of evidence. That is why statutes of limitation exist. Unless a claimant has a legally valid excuse for why the claims were not brought earlier, they will be precluded from asserting them many years after the fact of the wrong. In the context of the Agent Orange claimants, a number of political questions related to the context of the injuries (an international military conflict) compound the problems caused by the passage of time. As I indicated, the groundwater contamination was not discovered until 1999, when the case was originally filed, so there is no statute of limitations with regard to the claims in our case.
Could you explain the relationship between UCC, UCCL and Dow Chemicals, which is now being held accountable for the fall-out of the disaster?
Union Carbide was doing business in India through a subsidiary, Union Carbide India Limited, which was originally formed in the 1930s. UCIL had a number of businesses in India and locations, including but not limited to the pesticide plant at Bhopal. UCC originally owned 60 percent of UCIL's outstanding shares. That amount was reduced to 50.9 percent in the mid-1970s as a result of FERA, when the Bhopal plant shifted from a formulation unit to a manufacturer of pesticides. In 2002, Dow Chemical Co, an entity that was separate from the foregoing companies, purchased all of the outstanding shares and assets of UCC in a merger transaction. UCC is now a wholly owned subsidiary of Dow Chemical, which means that Dow owns 100 percent of the outstanding shares of UCC.
What is your analysis of 'successor liability' and the law concerning the 'corporate veil' between Dow and UCC? Since both are American corporations, there is little question that US law controls both of those legal inquiries.
My understanding of 'successor liability' is that a corporation that acquires all or substantially all of the assets of another inherits its liabilities as well. I think that rule is well established in the corporate law of most jurisdictions, including the United States. You are correct that American law would control the issue, certainly as between Dow and Union Carbide. The doctrine of 'corporate veil' is a separate, but related, matter. To argue that Dow can acquire UCC without acquiring its liabilities suggests an abuse of the corporate form (ie, a type of incorporation such as Subchapter S corporations or, in India, 'private limited' companies, etc), an attempt to evade legal liabilities using a corporate transaction to shield assets from collection through a lawful judgment. Most of the arguments advanced by various spokespersons to suggest that Dow has not acquired the liabilities of Union Carbide are misleading and, I believe, ultimately specious under American law.
The case filed in a US federal court in 1985 by the Indian government, acting on behalf of the victims, was sent to Indian courts in May 1986 on grounds of forum non conveniens, under the condition that Union Carbide would submit to the jurisdiction of Indian courts. Could you explain this turn of events – and the anomaly that Indian jurisdiction was applied where convenient, but not where inconvenient, for instance with the arrest of Union Carbide boss Warren Anderson? Would continuing in US courts have ensured more than the paltry total settlement, which averaged out to a mere USD 500 per affected person?
This is an anomaly, as you correctly point out. The doctrine of forum non conveniens, as developed and applied in American courts, permits a defendant such as Union Carbide to argue that trial in its own home forum is inconvenient. Based on the defendant's plea of convenience, the case may be transferred to another, alternative forum. Nothing in the doctrine, however, obliges that same defendant to abide by any judicial result in that forum. A judgment rendered by a foreign court still has to come back to the United States and its courts for the purposes of enforcement, where it can be denied recognition and enforcement for a number of reasons – for example, as violative of American standards of due process. That is a serious anomaly.
Nor is the defendant obliged to submit to that forum again in subsequent litigation arising from the same or related set of facts. So Union Carbide is not obliged to submit to India – for instance, with respect to the pollution and environmental claims currently being litigated by us in federal court in the US, even though it had once argued strenuously that India was the appropriate forum for claims arising out of or related to the Bhopal plant. Nor can we compel Union Carbide to submit to that forum under the doctrine as it presently exists.
The issue of criminal jurisdiction is distinct from civil jurisdiction. And the question of Mr Anderson submitting to India's jurisdiction is a separate matter from Union Carbide's agreement or consent to jurisdiction in India, civil or criminal.
In what way can India's position as an emerging economy be leveraged over foreign investors such as Dow who want to do business in its markets? How can the interests of the Indian consumers and citizens in general be protected, and liability in case of disasters such as that in Bhopal, can be pinned on them?
These are complex political questions, of course. One way perhaps would be for India to oblige foreign companies doing business in India to waive the defence of forum non conveniens in subsequent litigation, either contractually or through legislation. I believe that eventually an international tribunal will be required to resolve private legal disputes that transcend national boundaries, either through litigation, arbitration or some form of alternative dispute resolution. Interestingly, corporations are already able to avail themselves of the benefits of this type of dispute resolution with regard to investment and trade disputes under various multilateral treaties. Tribunals created for implementing conventions dealing with the Law of the Sea offer another approach similar to what I have suggested above.
There are certain non-binding codes of conduct for multinational or transnational corporations but, without any enforcement mechanism, such codes tend to be toothless and aspirational. The International Law Commission at the United Nations was, at one time, tasked with drafting a code of conduct for multinational corporations, but that process has essentially stalled over whether or not such a code would be legally binding or voluntary in nature. During Kofi Annan's tenure as secretary-general, the UN moved even further in the direction of a voluntary or self-regulation form of regime for corporations doing business in multiple jurisdictions. At present, however, I do not think that international law has evolved to the point where it would begin to address these types of private transnational disputes.