This landmark Supreme Court ruling paves the way for claims against English-domiciled parent companies for the conduct of their overseas subsidiaries.
Overseas claimants have increasingly sought to pursue claims in the English courts which arise out of the conduct of overseas subsidiaries of multinational companies. The Supreme Court’s recent jurisdictional ruling in Vedanta Resources PLC and another (Appellants) v Lungowe and others (Respondents)  UKSC 20 on 10 April 2019 marks a key development in this trend: for the first time, and as we predicted earlier in the year (see here), the English courts have upheld jurisdiction to hear such claims.
The Supreme Court decided two important points:
- it is, on the facts of the case, reasonably arguable that the English-domiciled parent company (Vedanta) owed a duty of care to the overseas claimants for the acts of its Zambian subsidiary (here, 1,826 Zambian villagers living in proximity to a copper mine owned and operated by Vedanta’s overseas subsidiary, Konkola Copper Mines (KCM), and
- even though the Court recognised that Zambia would logically have been the proper place for the claim to be heard, the claim had to proceed in England because there was a real risk that the claimants would not obtain substantial justice in Zambia on access to justice grounds.
Although not a final decision as to the existence of a parent company duty of care (given that the case was only at the stage of challenging jurisdiction), the Supreme Court’s decision will have significant consequences for the future landscape of parent company liability in mass tort claims. There is now an increased risk that individuals affected by the overseas operations of an English-headquartered multinational company’s overseas subsidiary will target the English courts as the place to bring their claims, marshalled to action by specialist claimant firms and human rights groups and frequently backed by third party litigation funding.
(1) An “arguable” duty of care
The Supreme Court’s jurisdictional analysis turned on whether there was an “arguable” duty of care between the parent company (Vedanta) and the Zambian villagers affected by the actions of its Zambian subsidiary (KCM), such that there was a real issue to be tried between the claimants and Vedanta.
No special category of negligence for parental liability
The Supreme Court confirmed that there was nothing legally novel about the parent/subsidiary relationship that requires a special test or set of factors for determining parent company liability for the acts or omissions of a subsidiary. The determinative principles of parent company liability in these circumstances are the same as for any other question of common law negligence liability (and may be traced back to the House of Lords decision from 1970 in Dorset Yacht v Home Office). This meant that the issue was capable of being dealt with summarily in the usual way, without the need for extensive disclosure or a detailed and rigorous investigation of the claimants’ case. The Supreme Court concluded that, since this was not a case concerning a potential new category of negligence, it was not necessary (as the first instance judge had done) to perform an analysis under the Caparo v Dickman test (ie to analyse whether there was foreseeability, proximity and reasonableness such as to impose a duty of care).
As this was a jurisdictional challenge and not a full trial on the merits, the Supreme Court held that the claimants needed only to show that a duty of care was “arguable”, which meant persuading the judge that “a sufficient level of intervention by Vedanta in the conduct of operations at the mine may be demonstrable at trial, after full disclosure of the relevant internal documents of Vedanta and KCM, and of communications passing between them”. The parent/subsidiary relationship in itself only demonstrates that the parent had the opportunity to take over, intervene in, control, supervise or advise the management of the relevant operations of the subsidiary. More is needed to establish an arguable duty of care, by showing that the parent company in fact availed itself of that opportunity.
Supreme Court declined to lay down prescriptive principles or test
The Supreme Court refused to be drawn on laying down prescriptive principles or an exhaustive list of factors and circumstances in which an arguable parent company duty of care might arise, pointing out the futility of confining the Court’s enquiry too narrowly. Given the typical complexity of modern corporate structures, and that there is “no limit to the models of management and control which may be put in place within a multinational group of companies”, the Court stated that cases on parent company liability are highly fact-specific. Creating any legal presumption would therefore be counter-productive.
The Supreme Court went on to describe the various factors set out in Chandler v Cape plc  1 WLR 3111 (where the Court of Appeal upheld parent company liability to a subsidiary’s employees) as helpful guidance, but not a stand-alone test to be met in each case. It provided a similar treatment of the guidance set out by the Court of Appeal in the concurrent Shell and Unilever cases (both of which remain the subject of active permission to appeal applications):
- Referring to Okpabi v Royal Dutch Shell plc  EWCA Civ 191 (see here for our previous commentary on this case), the Supreme Court cast doubt on the idea that, as a general limiting principle, a parent could never incur a duty of care in respect of the activities of a particular subsidiary simply by establishing group-wide policies and expecting the management of each subsidiary to comply with them. The potential for such policies, relating often to inherently dangerous activities, to contain systemic errors is an example of why this should be doubted as a reliable rule of thumb.
- The Supreme Court suggested that, despite being helpful for the purpose of analysis, it would be “reluctant to seek to shoehorn all cases of the parent’s liability into specific categories” of the kind postulated by the Court of Appeal in AAA v Unilever plc  EWCA Civ 1532 (see here for our previous commentary on this case). These two categories were: (i) where the parent has in substance taken over the management of the relevant activity of the subsidiary in place of or jointly with the subsidiary’s own management; and (ii) where the parent has given relevant advice to the subsidiary about how it should manage a particular risk.
Specific fact-pattern of Vedanta and KCM’s parent/subsidiary relationship
Although Vedanta did not have material control of the mine’s operations, the Supreme Court held that the claimants’ case on Vedanta’s duty of care was arguable. The claimants had identified multiple circumstances which indicated that Vedanta had superior knowledge and expertise regarding, and control over, KCM’s operations. In particular Vedanta had:
- published a public sustainability report which stressed that the oversight of all Vedanta’s subsidiaries rests with the board of Vedanta itself, and made express reference to the particular problems at the mine in Zambia
- entered into a management and shareholders agreement by which Vedanta had a contractual obligation to provide KCM with various support and supervisory functions
- provided detailed and specific health and safety and environmental training across the Vedanta group
- provided extensive financial support for KCM
- made various public statements regarding its commitment to address environmental risks and technical shortcomings in KCM’s mining infrastructure, and
- exercised a high degree of control over KCM’s operational affairs.
Arguable that Vedanta owed a duty of care
The Supreme Court weighed up these various factors to determine whether the alleged duty of care was reasonably arguable. In this regard, the Supreme Court noted that Vedanta’s assertion in published materials of its own assumption of responsibility over the activities of KCM and the operations of the mine was particularly damning. So too was the fact that Vedanta had not simply laid down proper standards of environmental control over the activities of its subsidiaries and, in particular, over the operations at the mine, but that it had gone further by implementing those standards through training, monitoring and enforcement. Conversely, the Supreme Court downplayed the significance of the management and shareholders agreement between Vedanta and KCM, along with evidence that Vedanta had sought to impose sweeping changes in the management of the mine after it had acquired KCM.
The Supreme Court emphasised that it would not engage in a mini-trial regarding the actual existence of a duty of care. It ruled that a trial judge’s decision - a summary finding of fact derived from a limited body of available evidence at the pre-disclosure stage - cannot be overturned by appellate courts. No further fact-finding or analysis beyond that conducted by the trial judge was necessary in order to uphold his summary decision:
“It matters not whether this court would have reached the same view as did the judge about triable issue. It is sufficient that […] there was material upon which the judge could properly do so, and that his assessment was not vitiated by any error of law.”
This could prove to be a sticking point for the claimants in deciding whether to discontinue their pending permission to appeal applications in Shell and Unilever. We understand that the parties in Shell and Unilever will be allowed time to submit further submissions in their current permission to appeal applications in response to the Vedanta decision.
(2) Access to justice
The only issue on which the claimants lost before the Supreme Court was how the Court should exercise its discretion under the jurisdictional requirement at CPR r.6.37(3): was England or the Zambia the “proper place” for the claims against Vedanta and KCM to be brought? This meant asking which single jurisdiction should the claim as a whole, including both defendants, be tried based on an assessment of all relevant factors connecting the case to a particular jurisdiction.
The claimants tried to argue that its decision to pursue Vedanta before the English courts under Article 4 of the Brussels Recast Regulation meant that it would be unfairly exposed to the risk of their obtaining irreconcilable judgments in England and Zambia if both defendants were not brought before the English courts. The Supreme Court roundly rejected this argument. The risk of the claimants obtaining irreconcilable judgments was an important factor, but it was not in itself a “trump card” in determining England as the proper place. It was one of many factors, together with the language in which trial will be conducted, the need to economise costs, the applicable law, the location of the claimants, factual and expert witnesses and the place of the alleged wrongful act and harm.
Importantly, the trial judge and the Court of Appeal failed to pay proper attention to Vedanta and KCM’s decision to agree to submit to the jurisdiction of the Zambian courts. The Supreme Court concluded that, by deciding instead to pursue Vedanta before the English courts under Article 4, the claimants were making a positive choice to take the risk of irreconcilable judgments upon themselves. This left the claimants with two choices: (i) either they could opt to avoid this risk altogether by suing both Vedanta and KCM in Zambia; or (ii) they could choose to accept this risk by exercising their right to sue Vedanta alone in England, and KCM separately in Zambia.
The Supreme Court recognised Zambia, instead, as the proper place. Indeed, the risk of irreconcilable judgments was the only connecting factor identified to suggest that England was the proper place and not Zambia. Reducing the weight attached to this one factor could be seen as an attempt to shift the focus away from the English courts as a default jurisdiction for future claims, where the connecting factors in the round point overwhelmingly to a foreign jurisdiction as the proper place, provided there are no overriding access to justice concerns.
Access to justice concerns enough to show real risk that the claimants cannot obtain substantial justice in Zambia
The immense challenges faced when conducting full-scale mass tort litigation of the size and complexity envisaged by the claimants in Vedanta (and in the majority of mass tort claims) invariably raise concerns as to the ability of overseas courts to deliver substantial justice. In the present case, access to justice arguments persuaded the Supreme Court that there was not only a real risk, but a probability, that the claimants would be unable to obtain substantial justice before the Zambian courts.
The Court focused on two points: (i) the practical difficulties involved in funding mass tort claims being brought by claimants unable to fund their claims themselves in the absence of legal aid, conditional fee arrangements (which are unlawful in Zambia) and other funding mechanisms which are at the disposal of claimants before the English courts; and (ii) the lack of legal practices in Zambia with the requisite level of experience and resources to mount and sustain mass tort claims against defendants which, on the other hand, are sufficiently resourced to instruct such firms.
Interestingly, the Supreme Court’s closing remarks suggested that, had it not been for Vedanta and KCM’s failure on this access to justice issue, it may have been minded to allow their appeal (following its finding that Zambia was the proper place for the claim to be heard).
What this means for you
The impact of this decision cannot be overstated. There is an increasing trend of individuals bringing claims against English-headquartered parent companies before the English courts in relation to the overseas operations of their overseas subsidiaries. This Supreme Court decision makes clear that the English Courts can have jurisdiction to hear mass tort claims in particular circumstances. Although this is a decision turning on the specific facts of the case, those facts are by no means unique: we anticipate that this decision could encourage equivalent claims to be brought.
The Supreme Court’s ruling on the existence of an arguable duty of care and on the access to justice issue will do little to assuage the Court of Appeal’s apparent reluctance for English courts to become a long-term forum for this type of case: “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”. With Vedanta’s success in arguing that England is not the proper place for this sort of claim being effectively moot, the Supreme Court’s decision underscores the prominence which access to justice arguments will have in future cases.
That said, this area of law is far from settled and will continue to be the subject of intense scrutiny. These decisions are highly fact-specific and are only responding to jurisdictional challenges at this stage. The real appeal of the English courts to overseas claimants is likely to depend far more on how the claims are treated once they fall to be considered on their merits.
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.