A key case comes to the Supreme Court on UK parent company liability for the actions of overseas subsidiaries, as mass tort claims increase.
- Mass tort litigation refers to claims involving numerous claimants where there is very significant harm, often in the form of environmental damage, breach of health and safety or allegations of human rights infringements by a corporate.
- There is limited case law on the jurisdiction of English courts to hear claims against English parent companies relating to the alleged overseas acts of an overseas subsidiary. However, the English courts have examined this issue in three ongoing cases: Okpabi and others v Royal Dutch Shell plc and another, AAA & Ors v Unilever & Ors and Lungowe and Ors v Vedanta Resource Plc and Konkola Copper Mines Plc.
- In both Okpabi and Unilever the Court of Appeal upheld the High Court’s decisions to decline jurisdiction. However, in the potentially landmark Vedanta judgment the Court of Appeal upheld the High Court’s decision to accept jurisdiction. All three cases are at various states of appeal, with Vedanta listed in the Supreme Court in January 2019.
Vedanta is listed to be heard by the Supreme Court on 15 and 16 January 2019. Our commentary on the Court of Appeal decision is available here. In Okpabi, the claimants have applied for permission to appeal to the Supreme Court. That application has been put on hold pending a decision in Vedanta. Our commentary on the Court of Appeal decision is available here.
In Unilever, the claimants are understood to have applied to the Supreme Court for permission to appeal. Such application is likely to be treated similarly to the application in Okpabi. Our commentary on the Court of Appeal decision is available here.
The relevant law
For the English parent company, the relevant jurisdictional gateway is Article 4 of the Brussels Recast Regulation, which precludes the English Court from declining jurisdiction where a defendant is a company domiciled in England and Wales (applying Owusu v Jackson). The English parent company can then act as an anchor defendant for the claimants to bring their claim against the foreign subsidiary in the English Courts, as a “necessary and proper party” (paragraph 3.1(3) of CPR Practice Direction 6B).
It is necessary to establish that the parent owed an arguable duty of care to the claimants, through the application of normal tortious principles. The primary test is the test in Caparo v Dickman, requiring foreseeability, proximity and reasonableness. The English courts have never previously established a parent company duty of care in relation to third parties, but are open to this possibility in the right circumstances. In Vedanta, the Court of Appeal held that those circumstances would arguably be met if the case proceeded to trial.
Our view is that, on balance, the Supreme Court is likely to uphold the Court of Appeal’s decision in Vedanta that the English courts had jurisdiction over the claims.
It is important to remember that even if the Supreme Court does uphold the Court of Appeal’s decision, this is not a final decision as to the existence of a parent company duty of care. The threshold question is whether there is a reasonably arguable duty of care on the basis of the facts presently available. The Supreme Court is not making a final determination on liability in this appeal..
The Supreme Court may set out additional factors that militate for or against a parent company of duty of care. Indeed, in each of the three cases the Court of Appeal condemned the English courts’ current, mini-trial approach to such issues. In response, the Supreme Court may attempt to provide a more streamlined interim approach to determining jurisdiction in such claims.
At present, the main source of guidance for establishing a parent company duty of care is Chandler v Cape, in which the Court of Appeal upheld parent company liability to a subsidiary’s employees, identifying four circumstances in which a parent company duty of care may be established. The Supreme Court may take the opportunity to give further guidance regarding parent company liability to third parties (non-employees). If so, we would envisage a clarification and expansion of the control test that was applied, somewhat inconsistently and unclearly, in the three Court of Appeal decisions.
The challenges for the Supreme Court
The complexity of modern corporate structures means that cases on parent company liability tend to be highly fact-specific. This is evident, for example, from the numerous and highly granular comparisons made by the Court of Appeal in Okpabi between the facts of that case and the facts of Vedanta on the issue of proximity. The Supreme Court may hesitate to provide prescriptive factors or guidance on parent company liability on the basis that in such fact-specific circumstances, it would be counter-productive to create any legal presumption.
A major concern expressed by corporates has been the perceived risk of a floodgates moment if parent company liability to third parties is established in any of these cases. Conversely, a number of human rights activists and specialist claimant firms have advocated for a generous application of the law: as a matter of public policy, why shouldn’t multi-national parent companies be held to account for the operations of their subsidiaries, particularly where justice is hard to obtain in the country where their subsidiary, which has caused the alleged harm, is located? The Supreme Court is likely to have these divergent public policy concerns in mind.
What it means for you
Whatever happens, it is unlikely that the Supreme Court will rule out the possibility of parent company liability altogether. Instead, the Supreme Court will consider whether the Court of Appeal has applied the existing law correctly to the specific facts in issue.
The impact of these cases cannot be overstated. There is an increasing trend of non-UK claimants bringing claims against UK-headquartered parent companies in the English courts in relation to the overseas operations of their non-UK subsidiaries. We expect to see a number of further cases brought in the near future.
If Vedanta is upheld this will only serve to encourage further such claims.
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.