On 10 April 2019, the United Kingdom Supreme Court (Lady Hale, Lord Wilson, Lord Hodge, Lady Black and Lord Briggs) unanimously dismissed the procedural appeal against the Court of Appeal’s judgment of 13 October 2017 in Lungowe and Ors. v. Vedanta Resources Plc and Konkola Copper Mines Plc [2017] EWCA Civ 1528. In doing so, it allowed proceedings to remain before UK courts regarding a group tort claim brought by approximately 2,000 Zambian villagers (the “Claimants”) against Zambia-based Konkola Copper Mines Plc (“KCM”) and its London-based parent, Vedanta Resources Plc (“Vedanta”) (the “Appellants”).
This case will prove pivotal for a series of similar cases currently pending on appeal, including AAA v. Unilever (2018) EWCA Civ 1532 and Okpabi v. Royal Dutch Shell Plc (2018) Bus L.R. 1022, which concern claims of foreign nationals brought before UK courts against UK-based parent companies for the activities of their local subsidiaries.
Background
In a civil suit filed in 2015 against both Vedanta and KCM, the Claimants argued that they had suffered personal injury, damage to property and loss of income, amenity and enjoyment of land as a result of pollution and environmental damage caused by KCM’s Nchanga mine. The Claimants further argued that UK-domiciled parent company, Vedanta, breached its duty of care in relation to KCM operations.
The Appellants challenged the jurisdiction of the English courts on grounds of forum non conveniens and claimed that Vedanta did not owe a duty of care to the Claimants.
In May 2016, the High Court dismissed the challenge, in a decision subsequently upheld by the Court of Appeal in October 2017.
Key findings
In a much awaited decision, the Supreme Court provided some noteworthy conclusions in relation to two main issues: 1) the jurisdiction of the UK courts and the proper place in which to bring a claim against a UK-based parent and a foreign subsidiary; and 2) the extent of the parent company’s duty of care.
1) Jurisdiction: Risk of lack of access to substantial justice in Zambia allows for proceedings to remain in UK courts
The Supreme Court reaffirmed that under European Union law (Article 4 of the Recast Brussels Regulation), English courts have mandatory jurisdiction where the defendant (here: Vedanta) is a company domiciled in England and Wales. The Supreme Court found no abuse of EU law by the Claimants, considering that the claim against Vedanta was genuinely pursued for a real remedy. In light of the decision in Owusu v. Jackson (C-281/02) [2005] QB 801, English courts can no longer stay the proceedings against a UK-based parent company on forum non conveniens grounds.
Nonetheless, the Supreme Court acknowledged the concern about the wide effect of Article 4 and indicated that the problem can be resolved under the domestic law on the “necessary or proper party” gateway. It noted that the risk of irreconcilable judgments against the parent company in England and against the subsidiary in the foreign jurisdiction is no longer “a trump card” in favour of jurisdiction of English courts. It also noted that if the parent company is prepared to submit to the foreign jurisdiction, then the whole case could be heard in the foreign jurisdiction.
Considering that Vedanta had by the time of the hearing offered to submit to Zambian jurisdiction, and in view of the relevant connecting factors, the Supreme Court found that Zambia would plainly have been the proper place for the litigation as a whole, provided that the Claimants were able to obtain access to substantial justice in Zambia. However, because of the practical impossibility of obtaining funds and proper legal representation in Zambia in support of such a complex group claim, the Court found this not to be the case. The risk that access to substantial justice would not be available to the Claimants was the decisive criterion in the Court’s decision to allow the claim to proceed in the UK.
2) Parent company’s duty of care: Level of parent’s intervention required for establishing parent-level liability
In examining whether there is a real triable issue against Vedanta, the Supreme Court identified that the critical question is whether Vedanta had sufficiently intervened in the management of KCM’s mine to have incurred itself a common law duty of care to the Claimants or a fault-based liability under Zambian legislation. The Supreme Court agreed with the High Court that there was enough material supporting the view that the Claimants had an arguable case for Vedanta’s potential negligence as well as potential breach of statutory duty.
The Supreme Court introduced a more flexible and functional approach in determining whether the parent company owes a duty of care, to be based on the specific circumstances of each case. It found that the relevant duty in parent company cases is not prescribed by any special category of tort law. Rather, the duty can be established on the basis of general tort principles. It further held that the factors established in the Chandler case regarding the parent company’s duty of care to the employees of its subsidiary merely offers examples of circumstances in which a duty of care may arise for a parent as opposed to a “straightjacket” of set requirements.
Examining Vedanta’s level of managerial control, the Supreme Court offered examples of circumstances that could trigger a duty of care for the parent, including: (a) setting up group guidelines about minimising the environmental impact, which contain systemic errors that cause harm to third parties, when implemented by a subsidiary; (b) taking active steps to see that the subsidiaries implement group policies (through training, supervision and enforcement); and (c) assuming responsibility through, for example, published materials.
Commentary
The Vedanta decision is likely to be seen as a hallmark case with significant wider implications for UK-domiciled companies investing overseas. It serves as a warning to parent companies to assess carefully their involvement with subsidiaries from the perspective of a duty of care and to consider potential exposure to human rights-based litigation in their home jurisdiction.
The Supreme Court in its reasons for allowing proceedings to stay in the UK gave unprecedented priority to the risk of unavailability of substantial justice in the foreign jurisdiction; although the proper forum would otherwise have been Zambia. As a result, courts in future cases will need to assess what this requirement means in practice, that is, what amount or quality of access to substantial justice plaintiffs should be entitled to expect in the foreign jurisdiction.
The Vedanta judgment also suggests that parent companies heavily involved in the affairs of their subsidiaries may owe a duty of care. At the same time, however, less involvement in the subsidiaries’ conduct will not necessarily absolve them from liability. Rather, parent companies can minimise risk by exercising carefully tailored due diligence and monitoring in relation to their subsidiaries. This includes ensuring that subsidiaries are acting in compliance with local laws and regulations; that adequate procedures and mechanisms are operating throughout the corporate structure to monitor compliance, conduct investigations and address grievances; and that, where appropriate, proper warranties, indemnities and insurance are in place.
Notably, the Vedanta case appears to crack open a budding new practice field: civil society organisations and class-action plaintiff law firms increasingly seek accountability of parent companies in their home State jurisdictions for actions of overseas subsidiaries and the English courts now accept that corporate entities that invest overseas are drawn into their target sites. UK parent companies should proceed with caution and ensure that they have sufficient capacity and competent legal advice to avoid becoming targets of such actions.
For further information about these developments and other issues related to Business and Human Rights, please contact Robert Volterra, Graham Coop or Maria Fogdestam-Agius.
