How Six People Could Change the Chocolate Industry.

What’s the story?

For many people, chocolate is a sweet delight. In fact, the chocolate industry is worth over $100bn each year. However, how many of us know where our chocolate comes from? How many of us know who grows the cocoa needed to produce chocolate? And how many of us would guess that two of the industry’s largest companies are marred by allegations of child slavery?

The US Supreme Court has recently heard arguments of these allegations in the case of Nestle USA Inc, and Cargill Inc v John Doe. The case before the nine justices has been going on for more than 15 years and involves allegations of child slavery from six Malians who were all once child slaves.

They claim that they there taken from their country (Mali) and forced to work on cocoa farms in neighbouring Ivory Coast. In case the reader was unaware, Ivory Coast is the world’s largest producer of cocoa. The six Malians told the court that they would work 12-14 hours a day, were given little food and were beaten if their work was seen as slow.

They are claiming reparations from Nestle and Cargill under the 1789 Alien Tort Statute (ATS) which allows foreign nationals to lodge civil suits against US and foreign defendants for torts committed in violations of the ‘law of nations.’

In recent years, the US Supreme Court has interpreted the ATS to cover only those cases that ’touch and concern’ the Untied States. Therefore, there was a presumption against extraterritorial application of US laws. The issue at hand in this case is that the defendants (Nestle and Cargill) are appealing a ruling made by the Ninth Circuit Court against them. There, the court ruled that the defendants had aided and abetted child slavery and forced labour in the Ivory Coast. They alleged that the defendants were aware of these practices and provided local farmers “personal spending money” to guarantee the cheapest source of cocoa. The Ninth Circuit Court found that these payments were akin to kickbacks. In addition to this, it was claimed that the defendants sent employees to the Ivory Coast to inspect operations and report back to the defendant’s American offices. The Ninth Circuit Court concluded that the combination of these two factors amounted to conduct that touched and concerned the United States (the full ruling of this case can be accessed here)

The counsel for the defendants, Neal K. Katyal and Curtis E. Gannon, argued, to the Ninth Circuit Court, that the ATS can infer no corporate liability as only individuals can be sued under its provisions. However, this position was scrutinised by the justices of the Supreme Court. Justice Stephen G. Breyer was quick to point out that in fact, the ATS has been used in over 180 federal cases against American companies over the last three decades. Justice Kavanaugh cited a brief by Yale Law Professor Harold Koh that such reasoning of the defendants would “gut the legislation.” Justice Kavanaugh then poised the question “why should we gut the statute?” to which Kakyal replied “to preserve the status quo.”

This is an interesting response by the defence Counsel, as the ATS has always permitted corporate liability. However there is an outstanding issue as to whether this “touches” or “concerns” the United States, which traditionally required domestic conduct to fall within scope of the ATS. We can expect the justices will want to preserve this liability but not at the expense of fairness. The Court may be concerned that dismissing the lawsuit will significantly curb corporate liability. I expect this case will be decided by the weight of evidence and would advise keeping an eye out into 2021 for the court’s ruling.

How will this affect law firms?

The potential effects of this case depend significantly on the outcome. If the defendants are successful then this would reaffirm an already existing legal position and not much will change. However, if the claimants are successful, this would have major effects.

For instance, the chocolate industry giants will be pressured to crack down on child labour. Companies will need to rebuild their supply chains and protect themselves from future suits. For law firms, this could mean re-negotiating supply contracts to include indemnity clauses to allow their clients to recoup any potential future losses from their suppliers. It could also mean a re-negotiation for the price per tonne of cocoa so that farmers are financially able to veer away from cheap child labour.

I imagine that companies would also take a more vested interest into knowing where there resources originate, as recently the Washington Post stated most companies in the chocolate industry cannot identify the farms where their cocoa comes from, yet alone whether child labour was used in producing it.

Law firms will be able to maintain their streams of revenue on the litigation front, however with the additional potential of litigation against suppliers should they breach indemnity clauses.

Beyond cocoa, widespread rights abuses have been alleged in other global supply chains for US-based companies. If the claimants are successful in this case, this could open up the possibility for an influx of claims against American companies covering a vast array of industries. This surge in litigation will benefit law firms with strong litigation departments. Litigation aside, the risk of financial punishment would prompt companies to perform more careful due diligence prior to agreeing supply contracts with suppliers.

Law firms would be required to investigate a wide array of human rights questions, such as: is the country where the supplier is based known for rights abuses? Is the supplier subject to any accusations? And has the supplier had any previous allegations made against them? There could also be uncertainty as to the extent a company is required to monitor their suppliers and at which point wrongdoings by a supplier attach themselves to a company.

There is also the possibility that some foreign governments may balk at the pressure to enforce human rights standards, which come at economic and potentially political costs, in order to satisfy the legal obligations of American importers. This could potential lead to a surge of investment in countries with better human rights practices and a decline in those with worse. If this were to happen, law firms with a presence in the more human rights friendly countries would see an uptick in demand for commercial services. However, on the flipside, firms with offices in countries with worse human rights records would likely see a decline in revenue.