In 2021, four NGOs filed a case against the French company Suez claiming it violated the French Law on the Duty of Vigilance (known in short as LDV) for the activities of one of its subsidiaries in Chile which led to a large health crisis. In June 2024, three years after that filing, the Paris Court of Appeal dismissed the case as inadmissible as it found that the defendant company could not be sued under the LDV.

This decision poses a number of issues that are relevant for the future implementation of the LDV as well as the European Corporate Sustainability Due Diligence Directive (CSDDD) and other pieces of legislation for corporate accountability. In this short piece we explain why French judges’ choice to favour a particularly strict interpretation of the French law forces claimants to carry the burden of decrypting complex corporate structures. It also risks creating substantive loopholes in a normative framework aiming at ensuring prevention and redress of human rights and environmental violations linked to corporate activities.

Water privatisation in Chile, violations of the right to water, and Suez’s obligations under the LDV

On 10 July 2019, nearly 2,000 litres of oil were released in the Caipulli drinking water treatment plant managed by Essal, an entity controlled at the time by the French multinational Suez and responsible for the sanitation network of the city of Osorno in Chile.

The entire water supply for 49,000 households (97.9% of the population) was contaminated and cut off for more than 10 days – as were water supplies to city services such as hospitals, health centres, dialysis centres and residential care homes for elderly people. As a result, Osorno inhabitants endured violations of their right to respect for their physical and mental integrity, connected to the right to health, the right to live in a healthy environment, and the right to water.

As confirmed in national investigations, this major health crisis could have been avoided had Essal properly addressed the numerous malfunctions in its infrastructure. It was part of a broader deterioration of Chile’s sanitation services since the large-scale privatisation process initiated in the 1990s.

Essal being a subsidiary of the French multinational group Suez, its parent company was required to identify in its vigilance plan the risks of human rights and environmental abuses arising from Essal’s activities, and to take measures to minimise such risks. It should have done so to prevent this incident.

The shortcomings in Suez’s vigilance plan relating to Essal caused even more concern as several subsidiaries of the Suez Group were at the time operating in Chile and responsible for the provision of water. As a result, the International Federation for Human Rights (FIDH), Observatorio Ciudadano, Red Ambiental Ciudadana de Osorno and the French Ligue des droits de l’Homme (LDH) delivered a formal notice to Suez. They asked the company to comply with the LDV by publishing a new vigilance plan that would include detailed and adequate measures to mitigate and prevent the risk of human rights abuses, particularly the right to health, water and a healthy environment. They also called for a mechanism for monitoring the effective implementation of these measures. This formal notice was delivered to the multinational’s headquarters in France on 9 July 2020.

The legal proceedings in France

The civil society organisations (CSOs) then met twice with Suez’s representatives to discuss and try to obtain the modification of the company’s vigilance plan. However, after noting that the new vigilance plan published by Suez did not take into account the concerns expressed, the four CSOs decided to summon the company to court on 29 April 2021.

Because the representatives that the CSOs had met with belonged to Suez Groupe SAS, the CSOs summoned this entity to court, presuming this was the entity in charge of the vigilance plan.

During the first two years of proceedings, Suez Groupe SAS acted as if they were indeed the authors of the vigilance plan at the heart of the case. However, after nearly two years of proceedings, the company changed its position and argued that it did not have legal standing as a defendant, as the said vigilance plan had been published by its parent company, Suez SA, with which it shared its address.

On 1 June 2023, the Paris Judicial Court declared the CSOs’ action inadmissible, ruling that Suez Groupe SAS’s legal standing was not established because it was unknown whether it had published the disputed vigilance plan.

The CSOs appealed this decision, arguing that Suez Group SAS misled them to believe it was the company responsible for the vigilance plan and that this subsidiary itself fell within the scope of the LDV.

Should claimants know better than the company?

In June 2024, the Paris Court of Appeal dismissed the case as inadmissible, as it found that the defendant company, Suez Groupe SAS, could not be sued under the LDV.

It started by noting that, while all companies meeting the legal thresholds fall within the scope of the law, the LDV provides for a specific presumption for subsidiaries which “shall be deemed to satisfy the obligations”, “if the company that controls them […] establishes and implements a vigilance plan covering the activities of the company and of all the subsidiaries or companies it controls.”

The Court noted that the mere fact that Suez Groupe SAS was a subsidiary of Suez SA was therefore not decisive: in the event its parent company fails to adopt or implement a vigilance plan, a subsidiary meeting the application thresholds indeed has to comply itself with the obligation contained in the law.

The question was rather which company – Suez SA or Suez Groupe SAS – had published the vigilance plan deemed insufficient by the claimants. The Court found that several elements, including the fact that the same plan was included in Suez SA’s universal registration document (which only publicly-traded companies must publish), showed that the parent company had published the plan.

As Suez SA’s subsidiary, Suez Groupe SAS was therefore “deemed to satisfy the obligation” and could not be sued. According to the Court, the claimants’ confusion was not legitimate and, in any case, nothing prevented them from requesting the intervention of the parent company in the proceedings when they realised their mistake.

At first sight, this ruling seems to be a plain application of the presumption set out in the LDV. Yet, the result may appear particularly severe for the claimants. In this case, the subsidiary – Suez Groupe SAS – answered the formal notice, sent representatives to meet with the claimants and claimed that it had drafted the vigilance plan in its own initial court submissions. The first-instance judge also failed to determine which company had published the plan. Knowing how corporate groups work, this is barely surprising: subsidiaries are often legal constructs, sometimes disconnected from the way activities and decisions are structured within corporate groups, through geographical or business units. As in the case at hand, several legal entities may share the same address or the same executive officers.

The LDV itself aimed to look beyond the formal corporate structure, taking account of economic realities within corporate groups and value chains. Concluding that the claimants’ mistake was not legitimate while the company itself was confused about its own internal structure may therefore seem overly formalistic.

The Court also made a reference to the Duty of Vigilance Radar, claiming that it identified Suez SA as the group entity covered by the LDV and that therefore this should have been clear to the claimants. However, this website – created by civil society organisations to expose corporate opacity – makes it clear that its tentative list of companies is not exhaustive and that several entities within the same corporate group may well be covered. Having Suez SA listed there did not mean that Suez Groupe SAS was not covered. More generally, it is quite peculiar that the judge uses a civil society tool based on publicly available and partial information as a reference – while an official list of companies subject to the LDV has never been published by French authorities.

The duty of vigilance in the event of corporate takeovers and restructurings

An additional complexity came from the many corporate changes that had occurred within the Suez group from the beginning of the proceedings. First, just after receiving the formal notice, it sold its Chilean subsidiary Essal – the one which had caused the crisis in Osorno – to a Canadian company. Second, once the lawsuit had been filed against Suez Groupe SAS, the company Veolia Environnement SA completed a hostile takeover of Suez. As a result of the merger, the parent company Suez SA was struck off the register. By the time of the first-instance decision, Suez SA no longer existed.

The appeal decision however seems to suggest that, once they realised their mistake, the claimants should have requested the parent company to forcefully intervene. This begs the question: could the claimants have requested that Veolia Environnement SA – which had not received the formal notice – be ordered to include in its own vigilance plan a series of improvements to the vigilance plan previously adopted by Suez SA? If so, could these changes be based on violations that resulted from the activities of a company that was never a Veolia subsidiary, as it was sold before the takeover?

Sharing responsibility between parent and subsidiaries: is the CSDDD clearer?

Unfortunately, the recently adopted EU Directive on Corporate Sustainability Due Diligence does not seem to bring a clear solution to the difficulties raised by the Suez case.

The Directive does not include a presumption similar to the LDV. First, under Article 2.3, an ultimate parent company that “has as its main activity the holding of shares in operational subsidiaries and does not engage in taking management, operational or financial decisions” may apply for an exemption, provided that it designates and empowers a subsidiary to comply on its behalf. It is however specified that the parent company “shall remain jointly liable with the designated subsidiary” for a failure of the latter to comply with its obligations.

Second, when several companies within the same group fall within the scope of the Directive, Article 6 enables the parent company to fulfil the obligations of its subsidiaries on their behalf, subject to several conditions. Here again, it is however “without prejudice to such subsidiaries being subject to the exercise of the supervisory authority’s powers in accordance with Article 25 and to their civil liability in accordance with Article 29.”

Although both these provisions suggest that they cannot be used as a defence in liability cases, both mechanisms appear much more complex than the current presumption under the LDV, leading a legal committee consulted by the French Ministry of Justice on this matter to conclude that “these provisions lack clarity and are a source of legal uncertainty.”

Conclusion

To conclude, we should not overlook the issue of the application of the duty of vigilance or human rights due diligence obligation to corporate groups.

The Paris Court of Appeal’s decision suggests that, in the not-so-rare event of human rights and environmental violations related to complex corporate groups, the claimant has the burden of identifying the right corporate entity within the group which held the legal obligation, despite what the company itself might suggest. This operation might be not so simple for victims and their representatives, particularly in the event of subsequent takeovers. Indeed, these might take place while the proceeding, usually lasting years, is still ongoing and without any tool available to the claimant to access this information simply and directly. This risks opening a substantive loophole in the implementation of the French law and potentially of other corporate accountability legislations such as the EU Directive that could be exploited by business and deprive rightsholders and communities of effective access to justice.

To address this, companies should be transparent about their corporate structure. They should be required to specify in their vigilance plan which corporate entity has published said plan and which subsidiaries should therefore be presumed to comply with their obligations under the LDV. Failing that, those subsidiaries should not be able to avail themselves of this presumption. In many instances, claimants will otherwise have no choice but to sue all corporate entities potentially subject to the LDV within the same group.