In Lungowe & Ors v Vedanta Resources Plc & Anor [2017] EWCA Civ 1528, the Court of Appeal clarified the principles that apply to establishing whether a parent company may be liable for the actions of its overseas subsidiaries.
The claims
In July 2015, almost 2,000 Zambian claimants from the country’s copper producing region brought claims in the High Court against UK-based Vedanta Resources Plc and its Zambian subsidiary, Konkola Copper Mines Plc (‘KCM’).
The claimants sought compensation for environmental damage and personal injury caused by numerous discharges of toxic waste from the Nchanga copper mine over the years.
Image: Christian Aid/David Rose
The claimants alleged that Vedanta was liable for torts under Zambian law as well as negligence under English law. Vedanta had assumed the responsibility to ensure that KCM did not harm the local environment. As the UK company had superior industry knowledge and exercised effective control over KCM, it knew or should have known that KCM’s operations resulted in harmful contamination of the local terrain.
Although the factual basis of the claims has not been challenged, Vedanta and KCM raised a raft of technicalities in response. They asked the High Court to declare that it had no jurisdiction over the claims. The High Court dismissed their applications and the companies (who were jointly represented) both appealed to the Court of Appeal.
The arguments on appeal: jurisdiction
Under Article 4 of the Recast Brussels Regulation [1], persons (including corporations) domiciled in a Member State “shall, whatever their nationality, be sued in the courts of that Member State”.
Vedanta argued that this should not provide a route for non-EU claimants to sue a UK-based corporation when their real complaint lies against a non-EU subsidiary, simply because of their preference is to use the UK courts. They should not be allowed to use Vendanta as the ‘anchor defendant’ for their claims.
The Court rejected this argument (at § 34):
…article 4 of the Recast Regulation precludes the English Court from declining what is a mandatory jurisdiction where the defendant is a company domiciled in England and Wales.
As a result, the Court had to accept jurisdiction over the claim against Vedanta Resources Plc, regardless of whether there was a more appropriate forum in which to try the claims.
Was Konkola Copper Mines a ‘necessary and proper party’?
KCM argued that the claimants should not have permission to serve the claim forms outside of the UK jurisdiction [2] on the basis that the claims were so weak that there was no real issue to be tried and the UK was not a proper place to bring the claim.
The claims concerned events in Zambia, complaints by Zambian citizens against a Zambian-domiciled company and local law fell to be applied (arguments echoing a distantly related litigation in the United States case of Kiobel v. Royal Dutch Petroleum Co., 133 S.Ct. 1659 (2013)). KCM also contended that justice could be done within the Zambian court system.
After summarising the issues that the High Court had identified (at § 43), the Court made several preliminary observations:
- Appeal courts hearing challenges to these types of evaluative decisions should take care not to substitute their own views for those of the first Judge (§ 46);
- The parties could not draw much help from a similar international litigation (known as Okpabi) brought by a Nigerian farming community against Royal Dutch Shell and its local subsidiary (§ 53). [3] Although Mr Justice Fraser in the High Court declined jurisdiction over those claims, Okpabi arose from different facts in a highly fact-sensitive area. It is also under appeal.
Was there a ‘real issue’ to be tried?
The Court was satisfied that there was a real issue to be tried between the Claimants and Vedanta, under both Zambian statutory torts and the English law of negligence. The High Court was right to conclude that the claims were arguable.
A long line of cases (many of them asbestos claims by subsidiary-employed workers) has established parent company liability for torts committed by subsidiaries, including those overseas, in certain circumstances. This will need to be determined on the evidence available (as the different outcomes in the Vedanta and Okpabi cases demonstrate).
Image: Daniela Mackova
Summarising the overarching principles as to when a parent company owes a duty to persons affected by the operations of a subsidiary, the Court concluded:
(1) The starting point is the three-part test of foreseeability, proximity and reasonableness.
(2) A duty may be owed by a parent company to the employee of a subsidiary, or a party directly affected by the operations of that subsidiary, in certain circumstances.
(3) Those circumstances may arise where the parent company (a) has taken direct responsibility for devising a material health and safety policy the adequacy of which is the subject of the claim, or (b) controls the operations which give rise to the claim.
(4) Chandler v. Cape Plc and Thompson v. The Renwick Group Plc describe some of the circumstances in which the three-part test may, or may not, be satisfied so as to impose on a parent company responsibility for the health and safety of a subsidiary’s employee.
(5) The first of the four indicia in Chandler v. Cape Plc [80], requires not simply that the businesses of the parent and the subsidiary are in the relevant respect the same, but that the parent is well placed, because of its knowledge and expertise to protect the employees of the subsidiary. If both parent and subsidiary have similar knowledge and expertise and they jointly take decisions about mine safety, which the subsidiary implements, both companies may (depending on the circumstances) owe a duty of care to those affected by those decisions.
(6) Such a duty may be owed in analogous situations, not only to employees of the subsidiary but to those affected by the operations of the subsidiary.
(7) The evidence sufficient to establish the duty may not be available at the early stages of the case. Much will depend on whether, in the words of Wright J, the pleading represents the actuality.
It was, on the facts of this case, reasonable for the Court to try the issue between the Claimants and Vedanta.
Access to justice in Zambia
While Zambia was the appropriate forum for the claims against KCM, the claimants could not access justice there, and it would not be acceptable to have parallel claims in the UK and Zambia with substantially overlapping evidence (§ 117).
The absence of legal aid and Conditional Fee Agreements (ie. ‘no win, no fee’ agreements) in Zambia effectively shut out the vast majority of the claimants who were unable to afford local lawyers. These problems of access were acute in this case, where KCM had a reputation for being a difficult opponent to litigate against in Zambia.
Conclusions
The judgment has been welcomed by Leigh Day (who represented the claimants) as a positive step forward for the Zambian claimants who appear to have suffered significant damage as a result of undisputed pollution from the KCM copper mine.
It has also brought clarity to the correct approach to whether a parent company owes a duty of care to persons affected by the activities of a subsidiary (including those overseas).
However, the Court did sound a note of caution in the long-run (at § 133):
There must come a time when access to justice in this type of case will not be achieved by exporting cases, but by the availability of local lawyers, experts, and sufficient funding to enable the cases to be tried locally.
Quite how (and when) that prophetic warning fits into the neatly defined factors for determining parent company liability is another matter yet to be determined.
[1] Regulation (EU) 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (‘Recast Brussels Regulation’).
[2] The rules governing the procedure of service out of jurisdiction are found in the Civil Procedure Rules at paragraph 3.1 of Practice Direction 6B as read with CPR r. 6.37(3).
[3] Disclosure: I was involved in the Okpabi case at the pre-action stages.
