Editor’s
note: Maisie Biggs recently graduated with a MSc in Global Crime,
Justice and Security from the University of Edinburgh and holds a LLB
from University College London. She is
currently an intern with the Doing Business Right project at the Asser
Institute in The Hague. She previously worked for International Justice
Mission in South Asia and the Centre for Research on Multinational Corporations
(SOMO) in Amsterdam.
“No one who
comes to these courts asking for justice should come in vain. The right to come
here is not confined to Englishmen. It extends to any friendly foreigner. He
can seek the aid of our courts if he desires to do so. You may call this ‘forum
shopping’ if you please, but if the forum is England, it is a good place to
shop in both for the quality of the goods and the speed of service.”
Lord Denning in The
Atlantic Star [1973] 1 QB 364 (CA) 381–2
The United Kingdom Supreme Court today
has handed
down Vedanta
Resources PLC and another (Appellants) v Lungowe and others (Respondents) [2019] UKSC 20, a significant judgement concerning
parent company liability and the determination of jurisdiction for these
claims. Practically, it now means for the first time a UK company will face
trial and potentially accountability in their home jurisdiction for
environmental harms associated with operations of foreign subsidiaries.
This is a closely-watched jurisdiction case concerning a UK parent
company’s liability arising out of the actions of its foreign subsidiary. The claimants are 1826 Zambian
citizens from the Chingola region of the Copperbelt Province. This group action
is against UK-domiciled Vedanta Resources PLC and its subsidiary KCM, a second
defendant which is incorporated in Zambia. The original claims
concern discharges from the KCM-owned Nchanga mine since 2005 which have
allegedly caused pollution and environmental damage leading to personal injury,
damage to property and loss of income, amenity and enjoyment of land.
Following the initiation of this claim, in 2015 Vedanta and
KCM challenged the jurisdiction of the English courts, however Coulson J dismissed
their applications. The Court of Appeal then upheld the
dismissal of those applications, so the defendants appealed to the
Supreme Court. (See our previous blog on the case here).
The Supreme Court today denied the
appeal by Vedanta Resources and KCM, and allowed the claim to proceed to merits
in England. The Court made it clear the real risk that the claimants would not
obtain access to substantial justice in Zambia was the deciding factor in the
case. The Court denied there was an abuse of EU law by the claimants using
Vedanta as a jurisdictional hook to sue both the parent company and subsidiary
in England, and the claimants succeeded in demonstrating there was a “real
triable issue”, nonetheless Zambia was held to be the “proper place” for the
case. However, because the Court supported the finding of the first instance
judge regarding the risks faced by claimants in accessing substantial justice
in Zambia, the appeal was denied, and the case can proceed in England.
This is a significant judgement, as it
now means for the first time a UK company will face trial and potentially
accountability in their home jurisdiction for environmental harms associated
with operations of foreign subsidiaries. Lord Briggs delivered the judgement on
four major issues: the potential for abuse of EU law; whether there was a real
triable issue against Vedanta; whether England is the proper place for these
proceedings; and whether there was a real risk that substantial justice would
not be obtainable in that foreign jurisdiction.
Why is this significant? For those
following this case, and the appeals of Okpabi & Ors v
Royal Dutch Shell Plc & Anor (Rev 1) [2018]
EWCA Civ 191 and AAA & Ors v
Unilever Plc & Anor [2018] EWCA Civ 1532 in the English courts, there
are two major findings in this judgement that will likely impact future cases
concerning parent company liability. Firstly, the reasoning behind the finding
of a “real triable issue” between a foreign claimant and UK parent company, and
secondly the primacy the Supreme Court placed on the significance of access to
justice as a jurisdictional hook for claims in England.
A.
Finding of a “real triable issue” between a foreign claimant and UK parent
company
Previous major cases decided in lower
courts have fallen at this hurdle. The courts in Okpabi and AAA v Unilever
both allowed jurisdictional appeals because they determined there was no real
triable issue between the claimants and the UK parent company. In this case,
Lord Briggs characterised the test as simply “whether Vedanta sufficiently
intervened in the management of the Mine owned by its subsidiary KCM to have
incurred, itself (rather than by vicarious liability), a common law duty of
care to the claimants [44].”
Four major developments allowed this
to happen; firstly, claimants can more heavily rely on the potential of future
disclosure of internal defendant documents; secondly, the Chandler
criteria ought not to be a ‘straitjacket’ for finding a parent company
exercised control; thirdly, that the size of a company’s operation does not
dilute a duty of care, and finally that group-wide policies and guidelines alleging
group control are potentially sufficient as a basis to argue a triable case of
parent company control. Interestingly, all of these points (without explicitly
saying so) went against the Court of Appeal’s judgement in Okpabi.
1.
The potential for evidence to emerge upon disclosure
The finding of a “real triable issue”
has been a challenge in past cases because particular facts must be determined
before the disclosure of the defence’s documents, and there runs a risk of a
‘mini-trial’ ensuing based on limited evidence. This may be of interest to
lawyers and courts in other jurisdictions which do not have the same disclosure
requirements: the English courts have had to establish how to best ascertain
the likelihood of a duty of care based on only publicly-available documents.
In past, claimants were told they
could not base their claim on merely the potential for more evidence to emerge
upon disclosure. Lord Justice Simon
previously found in Okpabi in the
Court of Appeal that “[a]lthough, the claimants make a further point that [the
presented evidence] is illustrative of what may emerge on disclosure, the difficulty is that jurisdiction is founded on a properly
arguable cause of action and not on what may (or may not) become a properly
arguable cause of action [122].” Sir Geoffrey Vos agreed, saying “I might mention in closing that I thought throughout the hearing of
the appeal that the court had a responsibility in a case of this kind not to
strive to find a reason to allow jurisdiction [208].”
Lord Briggs
was very clear on this point:
“[The
question whether the] level of intervention in the management of the Mine [was]
requisite to give rise to a duty of care upon Vedanta to persons living,
farming and working in the vicinity… is a pure question of fact. I make no
apology for having suggested during argument that it is blindingly obvious that
the proof of that particular pudding would depend heavily upon the contents of
documents internal to each of the defendant companies, and upon correspondence
and other documents passing between them, currently unavailable to the
claimants, but in due course disclosable [44].”
This confirms Lord Justice Simon’s (interestingly different from his stance in Okpabi) finding when considering this
case in the Court of Appeal. He held that at the early stage of a case the unavailability of sufficient
evidence ought not be a barrier, rather “much will depend on whether (…) the pleading represents the actuality [83].”
Defendants in
these cases have been pushing for the evidentiary bar to be raised, while
judges have bemoaned the rising piles of evidence for only preliminary
hearings. This decision should lower both the bar and the piles. Section 3
(below) will address the alternative publicly available evidence the courts may
now look to.
2.
Rejection of a Chandler ‘straitjacket’
Lord Briggs did not take the view that
this parent company liability is a novel category of common law negligence
liability requiring specific criteria, rather “there is nothing special or
conclusive about the bare parent/subsidiary relationship, it is apparent that
the general principles which determine whether A owes a duty of care to C in
respect of the harmful activities of B are not novel at all [54].” He positively cited Home Office v Dorset
Yacht Co Ltd [1970] UKHL 2 as a circumstance in which it had
previously been appropriate to find this duty of care. This is a reversal of
previous English judgements that have pushed toward more stringent (and
difficult to prove without private documentation) criteria for determining a
duty of care in these types of cases.
This case, and Okpabi, AAA v Unilever,
and Thompson v The
Renwick Group Plc [2014] EWCA Civ 635, all draw from the judgement of Lady
Justice Arden in Chandler v Cape
Plc [2012] EWCA Civ 525. In this case Arden concluded that there were “appropriate circumstances
[80]” in which liability may be imposed on a
parent company for a subsidiary's employees’ health and safety. Four of these
that were relevant for this case included:
“(1) the businesses of the parent and subsidiary are in a relevant respect the same; (2) the parent has, or ought to have, superior knowledge on some relevant aspect of health and safety in the particular industry; (3) the subsidiary's system of work is unsafe as the parent company knew, or ought to have known; and (4) the parent knew or ought to have foreseen that the subsidiary or its employees would rely on its using that superior knowledge for the employees’ protection. For the purposes of (4) it is not necessary to show that the parent is in the practice of intervening in the health and safety policies of the subsidiary. The court will look at the relationship between the companies more widely. [80]”
She makes it clear however, that
this is not a restrictive list. She positively quoted Lord Oliver in Caparo
Industries Plc v. Dickman [1990] 2 AC
605:
"'Proximity' is, no doubt a convenient
expression so long as it is realised that it is no more than a label which
embraces not a definable concept but merely a description of circumstances in
which, pragmatically, the courts conclude that a duty of care exists [page 633]."
What had
happened however, is that these criteria have hardened
throughout Thompson, AAA v Unilever and Okpabi as courts determine how to find evidence of parent company
control. Briggs found that one of the few mistakes of the trial judge
was “imposing a straitjacket derived from the Chandler case. [60]” Rather,
since there is “no limit to the models of management and control which may be
put in place within a multinational group of companies… I would be reluctant to
seek to shoehorn all cases of the parent’s liability into specific categories
of that kind, helpful though they will no doubt often be for the purposes of
analysis. [51]”
As acknowledged by Briggs, analysis
and consistency will probably lead to the Chandler criteria (and subsequent
iterations) continue to be used as a stepping-off point, however future
first-instance judges should no longer view themselves bound to accept these as
the only means of determining the likelihood of a duty of care arising.
3.
The size of a company’s operations does not dilute a duty of care
Briggs‘s
judgement reflects Sale’s dissent in Okpabi,
in which he disagreed that the scale of a company’s operations should
necessarily be a factor precluding the finding of control or proximity. Looking
by analogy at the Chandler case, Briggs
said it was “difficult to see” why making a bad practice part of group-wide
policy would diminish the responsibility of a parent “if the unsafe system of
work, namely the manufacture of asbestos in open-sided factories, had formed
part of a group-wide policy and had been applied by asbestos manufacturing
subsidiaries around the world. [52]”
In Okpabi, while dismissing the claimant’s
appeal, Lord Justice Simon endorsed the warning of Justice Cardozo in Ultramares Corpn v Touche (1932) 174 NE 441 against the danger of exposing defendants to “a liability in an
indeterminate amount for an indeterminate time to an indeterminate class (p.
44).” According to the first instance judge in the Okpabi case, applying Cardozo’s reasoning meant that the sheer size of Royal Dutch Shell mitigated
against finding liability: “In my judgment, that is the antithesis to proximity
or neighbourhood. There are 1,366 other companies in the Shell Group, and the
service and operating companies amongst that number perform activities in 101
different countries [114].” However, Lord Justice Sales dissented on this
point:
“I do not
think that the simple matter of the sheer size of the Shell group can be an
answer to the present claim: why should the parent of a large group escape
liability just because of the size of the group, if the criteria for imposing a
duty of care are satisfied for a number of companies in the group, while the
parent of a smaller group (e.g. with one subsidiary) has a duty of care imposed
on it when precisely the same criteria are satisfied in relation to its
subsidiary? [172]”
This point links with the next
concerning how much stock should be placed in publicly accessible group-wide
policies and guidelines.
4. Public-facing group-wide policies and
guidelines alleging group control are potentially sufficient as a basis to
argue a case of parent company control
At paragraph [61], Briggs pointed to Vedanta’s
published documents concerning their standards of environmental control over
the actions of subsidiaries, and how they implemented these standards, as
sufficient evidence that a duty of care may be demonstrable at trial. There has been dissent in past cases
regarding the evidentiary importance of public-facing group-wide policies and
guidelines, including policies making CSR-style promises of environmental and
human rights compliance.
Lord Briggs firmly rejected the
suggestion that there was a general principle that group-wide policies and
guidelines would never cause a parent to incur a duty of care in respect of the
activities of a particular subsidiary [52]. He gave the example of group
guidelines that may contain systemic errors, which in turn cause subsidiaries
to cause environmental damage when implemented.
Perhaps the most interesting part of
this judgment is the potential Briggs explicitly pointed out of parent companies
being held to their public commitments of social and environmental
responsibility:
“Similarly, it seems to me that the parent may
incur the relevant responsibility to third parties if, in published materials,
it holds itself out as exercising that degree of supervision and control of its
subsidiaries, even if it does not in fact do so. In such circumstances its very
omission may constitute the abdication of a responsibility which it has
publicly undertaken. [53].”
This is a strong turn away from Lord
Justice Simon’s finding in Okpabi, which relegated evidence from this style of public-facing document
as only “published for the purpose of informing
shareholders and regulators about the Shell Group businesses. Such statements
must be read in their proper context [120]… All this
is as one might expect of best practices which are shared across a business
operating internationally [121],” and so dismissing their evidential value
as to finding a duty of care.
Briggs now has re-defined that ‘proper
context’. The implications of this passage for future litigation is potentially
massive. Parent companies in many jurisdictions have made soft, PR-friendly
commitments to environmental and social standards. On the face of this passage,
communities impacted by the subsidiary of a UN Global Compact signatory
could potentially sue them for failing to honour the public commitments made to
undertake effective due diligence.
B.
Access to justice as the jurisdictional hook
The Court made it clear that the issue
of access to justice for the claimants was not due to any deficiencies with the Zambian courts, which the Court considered
completely capable of ensuring a just trial and handling a large group claim.
Rather, the Court still found that access to justice in Zambia was jeopardised
for a group tort claim for two reasons: the claimants had no prospect of
funding the claims in Zambia because Zambian law does not permit conditional
fee agreements, and (according to the evidence available to the first instance
judge) no law firms in that jurisdiction have the requisite resources or
experience to properly represent the group claim.
The Supreme Court
differed from the lower courts concerning the importance of Article
4.1 of the Recast Brussels Regulation (which confers a right on any
claimant to sue an English domiciled defendant in English courts) when it comes to settling the jurisdictional
question.[1]
In these cases, to avoid the risk of conflicting judgements England will
usually be a proper place to bring a claim for both the parent and the
non-domiciled subsidiary.
The lower courts,
including the first instance judge, considered this mandatory provision a
‘trump card’ to which all other considerations regarding forum should cede,
however the Supreme Court found this was not the case, rather it is one
consideration among others to be considered [82]. Claimants have a choice when contemplating
which jurisdiction they ought to bring a claim: whether to run the risk of
irreconcilable judgements by having parallel proceedings in England and Zambia,
or avoiding that risk by suing both defendants in the same proceedings and
jurisdiction [83].
In this case,
Vedanta agreed to submit to the jurisdiction of the Zambian courts, and all the
other connecting factors (the location of the harm, nationality of claimants,
location of documents and other evidence, competency of the courts and their
knowledge of the applicable Zambian law) point to Zambia being “overwhelmingly
the proper place for a claim to be tried”
[85]. If this were the whole story then Article 4 would not be a trump card to
anchor the case in England, and the weight would fall to Zambia being the most
appropriate forum. If this were the whole story, the Court would have granted
the appeal and declined jurisdiction to the claimants. However, because of the
fore-mentioned overriding issues of access to justice, in this case England was
determined to be the appropriate forum. This stance is consistent with previous
positions of the court and English common law: the same exception to the forum non conveniens principle
was demonstrated in The Vishva Ajay [1989] 2 Lloyd’s Rep 558 (QB) [560] in which the
court denied to stay proceedings in England because of the possibility of substantial
injustice in the natural forum (India).
This is significant, because it shows the cognisance of the Court to
the importance of material access to justice. This is a fundamental hurdle to
claims by communities without the resources necessary to launch expensive,
prolonged suits. Without appropriate fee-arrangements, these claims would not
be brought, and accountability for harms perpetrated against the poorest
communities would continue to be denied.
Conclusion
Today the UK’s
highest court drew a bright red line between (ostensibly) soft CSR commitments
and a company’s duty of care to abide by those commitments. Whether courts take full advantage of
the opportunity provided by the Supreme Court in this case remains to be seen,
however on a number of fronts, there is now more reason for optimism for those
seeking to hold parent companies accountable for extraterritorial harms.
The previous restrictive approach
taken by the courts regarding finding a ‘triable’ case during initial
jurisdiction proceedings appears to have been broadened. The Court has however
made it clear that the EU regulations regarding jurisdiction are not the
catch-all previously envisioned, but rather the courts must weigh all the
relevant issues before determining jurisdiction. This is not necessarily a bad
thing for potential claimants: group tort claims are being brought to the UK
not because of its sunny weather, but often rather because of the availability
of fee arrangements that would allow for
high-magnitude group claims (such as conditional fee agreements, as discussed
in Lungowe and Ors. v Vedanta Resources
Plc and Konkola Copper Mines Plc [2017] EWCA Civ 1528 at [125], [179]) against
defendants capable of meeting the financial penalty. The Court has made it
clear that even if the natural forum is capable of handling a claim in every
other way, claimants may seek the service of English courts for the appropriate
fee arrangements alone.
Next is the real test, as for the
first time a UK company will face trial and potentially accountability in the
UK for the environmental harms associated with operations of its foreign subsidiary.
[1]
Article 4.1: “Subject to this Regulation, persons domiciled in a Member State
shall, whatever their nationality, be sued in the courts of that Member State”