KiK Lawsuit German Discounter Sued in Pakistani Fire

Representatives of 259 people killed in a factory fire in Pakistan in 2012 are demanding compensation from German discounter KiK, which used the site to make inexpensive clothing. The case could bar western companies from outsourcing legal liability.
A fatal fire at the Ali Enterprises textile factory in Karachi, Pakistan in 2012 killed 259 workers.

When fire broke out in September 2012 at the Ali Enterprises textile factory in Karachi, Pakistan, it claimed the lives of 259 people.

Survivors reported that emergency exits were sealed and windows barred, preventing workers from escaping.

The German textile discounter KiK, the largest customer of Ali-manufactured clothing, initially paid $1 million and promised more to survivors and victims’ families.

But talks failed to produce a settlement and victims are now taking their demands to court. A former worker and three family members of victims sued last week in Dortmund district court, seeking €30,000, or $31,600, each in damages.

Their case is supported by Medico aid group and the European Center for Constitutional and Human Rights, which represents victims and families.

“Intense negotiations led by the parties in past months have failed to reach a settlement,” the lawsuit notes.

KiK, a subsidiary of the Tengelmann Group, denies it is to blame for the catastrophe and said it is working on a settlement. “KiK has always accepted its moral responsibility to victims and their dependents,” said Heinz Speet, chief executive officer, in an interview with Handelsblatt.

It will probably be difficult to find KiK liable. Rupert Bellinghausen, Partner, Linklaters

Mr. Speet said the textile discounter was prepared to make additional payments spanning “considerable amounts.” However, he said that other contractors, in addition to the Pakistani government, should share that obligation.

KiK also wants more transparency in the distribution of the $1 million it has already paid and any future payments. The company said it welcomes the lawsuit as “a possibility for legal clarification.”

The lawsuit is the first of its kind in Germany. Ultimately it could affect all companies that outsource the manufacturing of products to low-wage countries.

In another high-profile tragedy, KiK was one of many international retailers whose clothing was produced in Bangladesh’s Rana Plaza building, which collapsed in April 2013 and killed more than 1,000 workers.

A Dortmund district court source would not comment on the Karachi factory lawsuit other than to say it had been received on Friday.

One question now is whether the court has jurisdiction in a case arising in Pakistan. KiK is based in Bönen in the state of North Rhine-Westphalia, which is in the Dortmund judicial district. In Germany, there is no law that regulates the liability of companies along its supply chain. Lawyers for the plaintiffs, however, are suing under Pakistani law.

“It will probably be difficult to find KiK liable,” said Rupert Bellinghausen, a partner in the global Linklaters law firm. KiK is the contractor and not the owner of the factory, he noted.

Plaintiffs will have to prove that KiK knew about unsafe conditions at the Pakistani factory. “For each liability, according to German standards, there needs to be a fault,” Mr. Bellinghausen said.

Thomas Seibert of Medico said KiK has claimed it bought 75 percent of clothing manufactured by Ali Enterprises. But according to the lawsuit, the textile discounter was the company’s sole client.

The lawsuit against KiK should show that transnational companies are legally responsible for work conditions in their subsidiaries and supplier operations abroad. Wolfgang Kaleck, General secretary, European Center for Constitutional and Human Rights

That might have made Ali Enterprises economically dependent on KiK, argues lawyer Remo Klinge. Therefore, KiK could be seen as responsible.

Even in one visit to the Karachi plant, KiK could have seen safety violations described by survivors, the lawyer said – including barred windows, only one stairway exit, wooden floors and no working fire extinguishers.

KiK emphasizes recent reports that the fire might have been arson, but the lawsuit said that is not central to the case. “For the disputed legal argument, the cause of fire is not crucial in the findings,” the suit says.

The plaintiffs understand that the case might go on for years, said Wolfgang Kaleck, general secretary of the European Center for Constitutional and Human Rights. But they want to send a signal to global companies that do business with manufacturers in low-wage countries.

“The lawsuit against KiK should show that transnational companies are legally responsible for work conditions in their subsidiaries and supplier operations abroad,” Mr. Kaleck said.

The lawsuit will certainly raise awareness of unsafe conditions in such factories. Asian unions from Bangladesh to Pakistan have been betting on that for months. Most recently, KiK has responded with a public relations campaign, said Mr. Seibert from Medico.

“In a crisis like this, it is particularly important how quickly and openly the company communicates," said Walter Brecht, the owner and managing director of the German brand consulting company, Spirit for Brands.

“KiK is vulnerable because the company moves in a controversial low-cost market and was in the headlines,” said Mr. Brecht.

Not only the general public, but also other fashion companies will be watching carefully how KiK handles the situation.

 

Christoph Kapalschinski covers consumer goods, textiles and food for Handelsblatt. Kirsten Ludowig is an editor on the companies and markets desk, specializing in trade. To contact the authors: [email protected]; [email protected]