Last month, we criticized The New York Times for leaving a big hole in a page-one story on the aftermath of Bhopal—the worst industrial disaster in history—by skimming over the issue of whether Dow Chemical ought to be responsible for the cleanup. The unremediated site of the disaster, which killed 3,000 people in their sleep, has dangerously polluted the drinking water of thousands of Indians around it.
After receiving a letter from a U.K.-based Bhopal advocate spelling out why Dow is legally liable for the mess because of its acquisition of Union Carbide—which owned the chemical plant that killed all the people—we asked Dow for a response. Both letters are below.
For background, this BusinessWeek story from 2002, a year after the acquisition, says Dow was on the hook for Union Carbide’s asbestos liabilities in the U.S., but doesn’t address the issue of responsibility for the Indian disaster.
Another BW story a couple of months ago looked at the question of Dow’s liability, but doesn’t give us much more than he said/she said.
In an awkwardly worded sentence (actually four run-on sentences in the passive voice), Dow asserts that it settled liability in 1989:
Liability was settled by Union Carbide Corporation in 1989 and they have no outstanding liability for Bhopal Union Carbide Corporation and the former Union Carbide India Limited (now Eveready Industries India Limited) settled their liabilities regarding the Bhopal tragedy with the Indian government in 1989 and this settlement was upheld by the Indian Supreme Court in 1991.
The U.K. advocate, Tim Edwards, meanwhile, says the 1989 settlement dealt only with the deaths and injuries that resulted from the accident, not with remediation. This 1989 NYT story supports the advocate’s position.
Also, Dow’s claim that Union Carbide “remains a separate company” after Dow’s 2001 acquisition of UCC—even if upheld by the courts—doesn’t mean that Bhopal doesn’t affect it. While corporations protect shareholders and directors from liability (with certain exceptions), that doesn’t mean Union Carbide itself isn’t liable for its actions and those of its own subsidiaries at Bhopal. Its former CEO, Warren M. Anderson, is still a fugitive from Indian law nearly twenty-five years after the incident.
Finally, Dow claims that the Indian state in 1998 had already taken back the lease that tagged a Carbide Indian unit (and Carbide’s future owners) with responsibility to clean up the land.
But Edwards, who edits Bhopal.net, offers an interesting account of how the state decided to take back a lease so loaded with liabilities—it was a bureaucratic mistake. As it happens, as late as 1998, the Carbide unit was still (slowly) cleaning up the site, tacitly acknowledging its liability:
That is, until they got lucky: in 1998, another branch of local government, seemingly unaware of what the left hand was doing, wrote to EIIL [the unit] to ask if they were still using the land for industrial purposes and, if not, to return the lease. EIIL responded with barely suppressed glee that they were not using the land and asking for a date to return the cursed lease. The lease was duly returned in July 1998. The Pollution Control Board realized the mistake and demanded that EIIL come back and finish the work but the Union Carbide-trained manager refused, citing the hand-over of the lease.
The fact is, though, the matter of Dow’s liability remains one of genuine controversy, and our criticism of the Times was a little too easy. Still, in handling a twenty-four-year-old controversy, the Times should at least have spelled out the issues, even if it couldn’t resolve them.
To advance the discussion, we post the two sides’ letters and invite further comment. Here’s Edwards:
Yours is a highly astute reading of this issue.
That Dow is in the clearest legal sense ‘successor in liability’ to its wholly owned subsidiary Union Carbide is indisputable. The form of the deal between Dow and Union Carbide Corporation (UCC) is a classic merger: Carbide’s accounts became consolidated into Dow’s; a proportion of the takeover price was paid in the form of Dow shares. As this article states, a merger involves assets and liabilities. That Dow didn’t own Carbide in 1968, 1978 or 1984 is irrelevant in the eyes of the law. All that matters is that Dow entirely owns Carbide now. That’s why when a raft of asbestos-related litigation filed against Carbide came to light shortly after the 2001 merger, billions were wiped off Dow’s—not Carbide’s—share price.
The chief difference between these asbestos liabilities and the Bhopal ones is geographical: Bhopal is not in the USA, therefore Dow is able to take advantage of the manifold difficulties that face any state attempting to enforce legal accountability against a multinational not headquartered within its borders.
Dow managers seem to have gambled that they could play the absence of an international accountability regime for multinationals in order to get away with having become— to all legal extents and purposes—Union Carbide. Dow could have thoroughly protected itself against this risk by picking and choosing the liabilities it would inherit from Carbide via the merger, if only it had been open about them in filings with the Securities and Exchange Commission. Instead, Dow failed to declare the existence of ongoing criminal proceedings concerning the deaths of over 20,000 people, or indeed civil litigation ongoing in the Southern District Court of New York addressing the separate matter of environmental contamination. Unrepentant, Dow perpetuates these lies-by-omission to its shareholders each year at its annual general meeting.
The unavoidable fact is that there is plenty of legal liability still attached to Bhopal. UCC remains on-the-run from charges of culpable homicide in India. In pusillanimous Carbide’s 16 year absence, Dow itself—a growing presence in India—has been issued a summons to attend and explain why it cannot produce its subsidiary in court. The summons is yet to reach Dow in the US because Dow hired a leading member of the ruling Congress party in India to apply for a stay order. That stay order will one day be lifted. Meantime, Dow continues to mislead its shareholders into believing that there are no Bhopal liabilities attached to Carbide.
Dow also turns questions concerning the former Union Carbide factory site in Bhopal into another red herring about ownership.
At no time did Carbide actually own the grounds of the site, instead they were taken on a 100 year lease from the Madhya Pradesh State government. Under the conditions of the lease, the land was supposed to be returned in a habitable and usable condition. Alas, over a decade of reckless housekeeping prior to the gas disaster had resulted in thousands of tons of process and waste chemicals being buried in unlined pits inside the factory, leading to a massive contamination problem. Thus, from 1989, Union Carbide had to be involved in an assets-recovery and site remediation project at the heavily polluted site, which was monitored by one local branch of government, the Madhya Pradesh Pollution Control Board.
Secret bio-assay tests conducted by Carbide on soil and water in 1989 caused 100% mortality to fish. Instead of informing local authorities, Carbide hid the results and took minimal action to prevent further contamination while maximizing assets recovery. Internal documents show that UCC wanted to be rid of the site as quickly as possible but were frustrated by the legal conditions attached to the lease. Then, in 1994, Carbide was inexplicably given permission to sell its shares in its Indian subsidiary, UCIL, which had already been seized by Indian courts due to the fact that Carbide was (and continues to be) a fugitive from the ongoing criminal proceedings concerning the unprecedented mass homicide caused by its gas disaster.
UCIL subsequently became Eveready Industries India ltd (EIIL), though the staff at the site, including the UCC trained manager, remained the same, continuing the slow, reluctant remediation process. That is, until they got lucky: in 1998, another branch of local government, seemingly unaware of what the left hand was doing, wrote to EIIL to ask if they were still using the land for industrial purposes and, if not, to return the lease. EIIL responded with barely suppressed glee that they were not using the land and asking for a date to return the cursed lease. The lease was duly returned in July 1998. The Pollution Control Board realized the mistake and demanded that EIIL come back and finish the work but the Union Carbide trained manager refused, citing the hand over of the lease.
Much as Dow’s attitude toward the criminal proceedings reveal a desire to escape the rule of (largely Anglo-Saxon) law in India, Dow’s stance on the contaminated site is an implicit repudiation of that bastion of environmental protection, the ‘polluter pays’ principle, which exists in Indian common and statutory law just as it does in the US and elsewhere. In effect, Dow is saying that it refuses to abide, voluntarily, by this internationally accepted law.
It’s rare that such a criminal escapes justice forever, and even $50 billion Dow is no exception: the Law Ministry of India recently issued the considered opinion that if there was any liability for Bhopal, it would have to be borne by Dow. As Dow’s future business strategy hinges upon access to the South Asian market, justice will not be denied for much longer.
Tim Edwards
Editor, Bhopal.net
And Dow’s response:
We have sympathy for the plight of those who were victims of the Bhopal tragedy and the fact that the site has not been cleaned up. I think we would all agree that these issues need to be addressed. The solution to this problem, however, rests in the hands of the Indian central and state governments and recent media reports indicate that they are working to get the site cleaned up. As there are those who wish to unfairly attach liability to Dow for the Bhopal issue, we are not in a position to contribute to these efforts. Dow has a fiduciary responsibility to its employees, retirees and shareholders to not take on liability risks that are not ours to bear. That said, Dow and its subsidiaries’ commitment to the communities in which we operate is significant.
I’ve provided information below that addresses the specific question of liability raised by Mr. Edwards:
Liability was settled by Union Carbide Corporation in 1989 and they have no outstanding liability for Bhopal Union Carbide Corporation and the former Union Carbide India Limited (now Eveready Industries India Limited) settled their liabilities regarding the Bhopal tragedy with the Indian government in 1989 and this settlement was upheld by the Indian Supreme Court in 1991.
Union Carbide Corporation stopped doing business in India in 1994—with the permission of the Government of India, it sold its interest in Union Carbide India Limited in 1994 and the proceeds were used to build a state-of-the-art hospital in Bhopal to treat victims of the tragedy (a bit of history here—after UCC sold its interest in Union Carbide India Limited, the new owner renamed the company Eveready Industries India Limited. Eveready was doing some remediation at the Bhopal plant when the State Government of Madhya Pradesh revoked the lease of Everyeady and took ownership of the plant site in 1998.
The site was then, and is now, under the ownership of the state government of Madhya Pradesh. As I noted earlier, this has been the case since 1998 and for whatever reason most of us do not know or fully understand, the site remains unremediated. As owners of the site, the Madhya Pradesh government is the entity that has the ability and, more importantly, the authority to ensure that the plant site gets cleaned up. And they are trying to clean up the site. Recent media reports in India indicate that the State Government is, in fact, attempting to implement their remediation plan—see Times of India article attached at end of email. Please also see Union Carbide’s web site on Bhopal for full details of the sale of UCIL).
Union Carbide Corporation remains a separate company. It has its own board of directors, its own financial reporting, its own manufacturing facilities and its own employees. And, more importantly, UCC manages its own liabilities.
Dow did not inherit nor does it manage Union Carbide Corporation’s liabilities. UCC manages its own liabilities and reports these to the U.S. Securities and Exchange Commission. You will not that there is no mention of Bhopal in Union Carbide Corporation’s report to the SEC. This is because Union Carbide settled this liability with the Government of India in 1989.
To recap: The Dow Chemical Company is not a successor-in-interest to Union Carbide Corporation. Successor-in-interest is a legal term. One legal precondition to Dow becoming a successor-in-interest is that Union Carbide would no longer exist as a separate corporation. However, UCC does exist as a separate corporation and I have provide a link to their most recent 10Q report.
I have also attached for you the link to The Dow Chemical Company’s position on Bhopal found on dow.com. This link will also attach to Union Carbide Corporations’ Web site regarding the Bhopal tragedy and I would encourage you to visit that as well.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.Scot Wheeler,
Spokesman, Dow Chemical Company
