The Court of Appeal in England and Wales has dismissed claims that an English domiciled parent company of an international group owed a duty of care in respect of incidents occurring at its subsidiary’s overseas premises.
On 4 July 2018, the Court of Appeal handed down its judgment in AAA & Others v. Unilever PLC and Unilever Tea Kenya Limited (“Unilever Appeal”), dismissing the appeals brought by employees and residents of a plantation owned by Unilever Tea Kenya Limited (“UTKL”), a subsidiary of the English domiciled parent company Unilever PLC (“Unilever”), for damage sustained during an outbreak of violence linked to the 2007 national elections in Kenya. The Court of Appeal overturned Laing J at first instance by holding that Unilever had insufficient proximity to the Claimants, with the result that there was no “anchor defendant” to establish jurisdiction against UTKL. The Claim was therefore dismissed.
The Unilever Appeal is one of a spate of recent cases where the English High Court has been asked to determine whether an English domiciled parent company can owe a duty of care for human rights violations allegedly sustained at the premises of a foreign subsidiary. The decision consolidates the law in this area and may provide some comfort to English companies that operate abroad, especially in regions with high political, environmental and human rights risks. The judgment can be accessed here: http://www.bailii.org/ew/cases/EWCA/Civ/2018/1532.html
Background:
For many years UTKL operated a tea plantation near the town of Kericho, in Kenya. Tribal tensions in the area ran high, with the majority of plantation workers being drawn from different tribes from the principal group who are resident in the surrounding areas. There was a longstanding history of violence at Kenyan presidential elections, often arising out of tribal rivalries, although before the 2007 election this had not spread to the plantation. Following the announcement of the 2007 election results, there was an unprecedented outbreak of violence throughout the country, resulting in more than 1300 deaths and extensive damage to property. The violence spread onto the plantation which was invaded by mobs who committed murders, rapes and other violent assaults, whilst also damaging property.
A claim was issued in the English High Court against Unilever and UTKL by certain employees and former employees of UTKL, as well as residents of the plantation. In order to found jurisdiction against UKTL, it had to be established that there was a real issue which it was reasonable for the Court to try, that UKTL was a necessary or proper party to the proceedings and that England and Wales was the proper place to bring the claims. In doing so, the Court considered whether Unilever (and therefore UKTL) owed the Claimants a duty of care in tort to take effective steps to protect against the inter-tribal violence resulting from the presidential elections, thereby establishing Unilever as an “anchor defendant”.
The claim was originally dismissed by the High Court on the basis that that the case against UTKL did not have a reasonable prospect of success and there was not a real issue to try between the Claimants and Unilever. In reaching this conclusion, Laing J applied the three-pronged test established by Caparo Industries Plc v Dickman [1990] 2 AC 605 (being that a duty of care exists when the incident is foreseeable, there is sufficient proximity between the parties and the events, and it is fair, just and reasonable to impose a duty) and was assisted by guidance set out in Chandler v Cape [2012] EWCA Civ 525, one of a small number of English decisions holding a parent company liable for the actions of its subsidiary. The Chandler v Cape decision set out non-exhaustive guidance to assist in establishing parent company liability, namely that: the businesses of the parent and subsidiary are in a relevant respect the same; the parent has, or ought to have, superior knowledge in the particular industry; the subsidiary’s system of work is unsafe as the parent company knew, or ought to have known; and the parent knew or ought to have foreseen that the subsidiary or its employees would rely on its using that superior knowledge for the subsidiary’s protection.
Laing J found that there was no duty of care owed by either Defendant as the damage suffered was not foreseeable. It was also held that it would not be fair, just and reasonable to impose a duty on Unilever since this effectively required the parent company to act as a surrogate police force when it had been entitled to rely on the Kenyan police to protect the Claimants. Laing J did, however, find that there was sufficient proximity between Unilever and the Claimants and that England and Wales was the appropriate forum should the Claim be considered viable. The Claimants and Unilever appealed.
Key Findings:
The Court of Appeal overturned Laing J’s decision on proximity, dismissing the claim against Unilever as anchor defendant and thereby preventing the Claimants from founding jurisdiction against UKTL in England and Wales. The Court did not therefore need, nor was it appropriate, to consider other two limbs of Caparo since these were issues to be determined by the Kenyan courts should proceedings pursued against UKTL in Kenya.
Although the Chandler v Cape guidance was considered helpful, the Court set out its own criteria for establishing parent company liability, being: “(i) where the parent has in substance taken over the management of the relevant activity of the subsidiary in place of (or jointly with); or (ii) where the parent has given relevant advice to the subsidiary about how it should manage a particular risk”. After examining the relationship between the companies and considering the degree of control exerted by Unilever over UTKL’s management and policies, the Court concluded that “UTKL understood that it was responsible itself for devising its own risk management policy and for handling the severe crisis which arose in late 2007” and that it “did not receive relevant advice from Unilever in relation to such matters”. There was therefore no basis on which to establish proximity between the Claimants and Unilever.
Commentary:
The Unilever Appeal follows on the back of two recent Court of Appeal decisions addressing similar issues: Lungowe v Vedanta Resources Plc [2017] EWCA Civ 1528 and in Okpabi v Royal Dutch Shell Plc [2018] EWCA Civ 191. Although the Shell defendants were successful, the claimants in Vedanta were able to establish the parent company as an anchor defendant and found jurisdiction against the subsidiary. It seems likely that Vedanta will be distinguished given the finding of the subsidiary’s dishonesty and impecuniosity, but nevertheless the Unilever Appeal will be reassuring to English domiciled parents operating overseas.
Although the approach taken by the English Courts have not been inconsistent, it may give rise to some degree of uncertainty for international companies trying to define the scope of their accountability for subsidiaries operating abroad. The Unilever Appeal does, however, reinforce the trend for these cases to be very much won or lost on the evidence – or, critically, the absence of evidence – presented to the Court. In this respect, companies do currently seem to have the upper hand as it remains fairly difficult for claimants to find sufficient evidence to contradict viable properly implemented company policies and procedures. Nonetheless, this type of litigation remains a significant financial and reputational risk for certain international group companies. In many cases, companies may consider it to be more viable to settle spurious or legally futile claims than risk the spotlight generated by such high profile litigationy highsk the spotlight k the spotlight ditated ce contradicting company policies and procedures.eet. .
It still remains to be seen how these cases will be interpreted by the Supreme Court and whether the Caparo test can or will be expanded to specifically address these issues. At present, what can be said is that the English Courts seem to apply a high threshold in holding parent companies to account for actions taken by their subsidiaries overseas, consistent with their stance on piercing the corporate veil. Ultimately, however, the Unilever Appeal is only one of an increasing number of cases to serve as a reminder that litigation remains a very real threat to multi-jurisdictional group companies.
Both Shell and Vedanta are on appeal to the Supreme Court whilst leave for appeal was granted for the Unilever Appeal.
