By Alex Tawanda Magaisa
THE operation of business ventures involves several risks that may affect the company itself directly or the stakeholders who are involved in its affairs and oper
The role of multinational companies in developing countries is a key issue in this respect in light of allegations that they often export hazardous activities to countries with limited regulatory capacity. The role of company law in this area is vital. Many multinational and local companies are now operating as groups of companies (hereafter referred to as “corporate groups”).
These are business networks in which firms are organised into groups of companies comprising of a dominant parent company and smaller subsidiaries below. In multinational entities the parent company is often based in a foreign developed country or tax havens. In some cases, the networks comprise semi-independent enterprises mutually connected through cross-shareholdings, franchises and management contracts. In these complex networks, the true identity of the owners or controllers of the companies is often hard to decipher.
Legally, courts face the dilemma of having to deal with the reality that corporate groups operate as single economic units yet company law recognises that each individual company within the group as a separate legal entity.
Most multinational companies that were engaged in the asbestos industry decided to abandon or limit their operations in this area in the 1980s and early 1990s when it became clear that some types of asbestos were hazardous to health and the environment. South Africa and Zimbabwe were major producers of asbestos in the region. Thus companies such as Cape Industries and Turner & Newell were heavily involved in the mining and processing of asbestos in southern Africa. However, the banning of asbestos in most developed countries caused not only a drop in business but also exposed the companies to legal liability by individuals who had been exposed to asbestos products.
Certain types of asbestos cause various respiratory diseases including mesothelioma, which leads to a slow and painful death as asbestos particles settle in the lungs when inhaled. These included former employees of the mines and manufacturing industries, individuals who used asbestos in their homes and industries. Millions of dollars were paid out in the 1980s and even today claims are being made against companies in this industry. Of the companies that have paid out millions, Cape Industries appears to have attracted more publicity arising from at least two high-profile litigation in the USA and UK.
The more recent cases in the UK involved claims by thousands of former employees of Cape Industries’ subsidiary entity’s operations in South Africa. People living in the area where asbestos was mined and processed also brought claims against Cape. However, the victims could not sue the subsidiary in SA since it had already ceased to operate by the time the lawsuit was launched. So they brought the lawsuit against Cape Industries, the parent company of the group which is still based in the UK.
Cape did not want to be sued in the UK and argued that the matter should instead be held in SA on the basis that the damage had been suffered there and in any event, it was not Cape, the parent but its subsidiary which had incurred liability and was based in SA at the relevant time. It was also clear that the indigent litigants would not be able to sue in SA if they were to be sent back because they could not get legal aid for their case, whereas they could secure legal aid in the UK.
The protracted battle was finally settled in the House of Lords, the UK’s highest court. The House decided in favour of the victims thereby allowing them to pursue their claims in the UK courts. At that point, Cape was more willing to settle and eventually there was a settlement, which allowed the litigants to receive payments from Cape Industries.
Like other multinationals, Cape appears to have decided against taking the battle further with the risk of creating a legal precedent that could spell doom for itself and its peers. And so the legal question of whether a parent company in corporate groups can be held liable for its subsidiary’s liabilities was left unsettled.
This case is interesting and key for Zimbabwe because like South Africa, Zimbabwe previously hosted a multinational company in the asbestos industry and the current network that operates the Shabani and Mashaba Mines appears to be a multinational albeit with more local roots than its predecessor. It has been argued that scientifically, Zimbabwean asbestos is safe. Indeed, international road shows have been held to make the point that asbestos from Zimbabwe is safe and should not be banned.
At this point it may be accepted that this is a correct representation of the facts. However, science is by no means a certain discipline and new evidence is always emerging to disprove certain commonly held “truths”. Indeed, should the current “truth” about the safety of Zimbabwean asbestos prove to be wrong at some point in the future, one would expect the current owners to take responsibility.
A closer observation at the asbestos sector in Zimbabwe also reveals the complex networks that involve SMM Holdings (Pvt) Ltd, Africa Resources Ltd, Southern Asbestos Sales, Turnall Fibre Cement and Tube and Pipe Industries. It has been said that Africa Resources is incorporated and registered in the British Virgin Islands. This makes the ARL group a multinational albeit with a heavy local influence. Now, it is common cause that the small towns of Shabani and Mashava depend on the mining of asbestos and virtually everyone who has lived in those towns has had some contact with the product.
One hopes that the alleged safety of asbestos in Zimbabwe is a correct representation of the facts and that the many past and present inhabitants of those towns have not been adversely affected by asbestos. Indeed, one hopes that the cases diagnosed as tuberculosis or other respiratory diseases in Zvishavane are not related to asbestos infections at all. The potential damages that could result will be enormous and indeed the involvement of the state in assisting in the purchase of the mines at a time when many were disinvesting from the industry may be called into question.
Did it ever occur to anybody in authority why Turner & Newall disinvested from the industry in the mid-nineties? They accepted the nominal dollar and a government guarantee for the full payment by way of instalments. It sounds like a normal business deal but it seems to me that in addition to other factors, one must consider the international context within which the disinvestment was taking place. The fear of liability and further exposure as well as popular campaigns in their home countries drove most mining and manufacturing multinationals out of the asbestos industry. One might speculate that the issues of liability may have been uppermost in their minds when the directors of Turner & Newall decided to dispose of their operations in Zimbabwe.
Nonetheless, as the case of the South Africans against Cape Industries in the UK demonstrated, the liability arising from their operations, if ever it were to be established that asbestos was harmful to people and the environment, may still haunt them in future. The fact that they operated as a subsidiary may prove to be inadequate to avoid liability. However, by disinvesting, they were clever enough to reduce their exposure to the liability.
Maybe ARL would also argue for the limitation of exposure within and across their intricate network and at that point it will be necessary for the interpreters to either stick to legal formalism and view each entity within the group as a separate person and thereby leave many victims exposed or to simply take the group as a single entity for purposes of liability. Indeed regulators may even take measures now, to ensure that operators of asbestos mines and related entities have enough in reserve, to meet future claims should the need arise.
Banks already have to pay to the Deposit Protection Scheme – there is no reason why companies engaged in risky activities that endanger human and environmental life should not be required to cover for potential harm in future. This a matter of life and conservation of the environment and companies must start taking measures to meet potential responsibilities or the state must require them to do so as a matter of law. The inhabitants of Zvishavane and Mashava may be dependent on asbestos for their survival, but on the other hand, their lives may be at risk from asbestos and sufficient cover must be taken without further ado.
* Alex Tawanda Magaisa is Baker & McKenzie Lecturer in Corporate & Commercial Law at the University of Nottingham, UK. He can be contacted at email@example.com