Mass torts case alert: Court of Appeal hands down judgment in AAA v Unilever

Chris Owen and Adam Bristow examine the recent Court of Appeal judgment in AAA v Unilever, a case examining the liability of UK-headquartered multinationals for the acts of their overseas subsidiaries.

The Court of Appeal has confirmed that the English court does not have jurisdiction to hear mass tort claims against Unilever and its Kenyan subsidiary. This is the third in a line of recent decisions by the Court of Appeal examining the liability of UK-headquartered multinationals for the acts of their overseas subsidiaries.

Although the Court refused jurisdiction, this was very much on the basis of the specific facts of the case. The case does not narrow the scope of parent company liability and the English court’s door is still open to hear mass tort claims, where the fact pattern allows.

Background

218 Kenyan nationals brought mass tort claims against Unilever Plc (Unilever) and its Kenyan subsidiary, Unilever Tea Kenya Limited (UTKL), which was the owner of a tea plantation in Kenya. The claimants were all employees or residents of the plantation. Following the 2007 Kenyan elections, the claimants suffered ethnic violence carried out by third party criminals at the plantation. The claimants alleged that (i) the risk of this violence was foreseeable by the defendants; (ii) the defendants owed them a duty of care to protect them from the risks of such violence; and (iii) the defendants breached that duty of care.

At first instance, the High Court granted the defendants’ applications to strike out the claim on the basis that the there was no arguable duty of care as between Unilever and the claimants. The claimants appealed this decision.

The Unilever decision follows the Court of Appeal’s recent decisions in Vedanta and Shell. In Vedanta it was held that environmental tort claims could proceed in the English courts on the basis that it was sufficiently arguable that the UK parent company owed a duty of care to the overseas claimants (in that case, 1,826 Zambian villagers living in proximity to its subsidiary’s Zambian copper mine) (see our article).

By contrast, in Shell the Court found that the claimants were unable to demonstrate a properly arguable duty of care (see our article).

The relevant law

The Court of Appeal emphasised that there is no separate or special doctrine in English tort law regarding parent company duties of care. Parent companies and their subsidiaries are separate legal persons, each with responsibility for their own operations. While the guidance given in Chandler v Cape is helpful, it does not lay down a separate test for the imposition of a duty of care in relation to a parent company.

Accordingly, the legal principles for establishing a duty of care as between the parent company and the claimants are the same as they would be for any third party: in order to establish a duty of care the claimants need to satisfy the three-part test in Caparo v Dickman: (foreseeability, proximity and reasonableness).

In the High Court, Laing J held that the first (foreseeability) and third (reasonableness) limbs of the Caparo test were not made out; she did however hold that there was a sufficient connection between the activities of Unilever and the damage suffered by the claimants to satisfy the second limb (proximity).

Unilever put in a respondent’s notice submitting that there was no proximity between Unilever and the claimants in respect of the damage suffered by the claimants. The Court of Appeal’s decision focussed solely on this issue.

The Court Of Appeal drew on the decisions in Vedanta and Shell to identify two types of case in which a parent company duty of care might arise: (i) where the parent company has effectively taken over the management of the subsidiary’s operations in place of, or jointly with, the subsidiary’s own management; or (ii) where the parent company has given specific advice to the subsidiary about how it should manage a particular risk.

The decision

The claimants argued that their claim fell within the second category (specific advice given by parent company to subsidiary). They argued that Unilever had given specific risk management advice and supervision to UTKL in relation to the political unrest in Kenya.

The Court analysed the guidance and advice given by Unilever to UTKL. The claimants contended that UTKL would have received advice about the political risks in relation to the presidential election from external risk consultants retained by Unilever pursuant to its group risk management policy. However, this information related to the position in Kenya at a national level and was very general; it did not contain any precise advice that could have enabled UKTL’s management to manage local risks to the plantation.

The Court did identify a number of groupwide Unilever policies regarding risk and crisis management. However, UTKL had its own distinct governance structures, including bespoke crisis management policy and training programme. UTKL had sole responsibility and autonomy when devising these policies; while Unilever did seek and receive assurance from UTKL that appropriate policies were in place, it did not dictate or advise upon the terms of that policy.

In this way, the relevant expertise regarding the risks of the local political situation and how this could be effectively handled was located solely within UTKL and nowhere else within the Unilever group. UTKL and its Crisis Management Team prepared for and handled the crisis without Unilever’s assistance. Sales LJ, giving the leading judgment, therefore concluded that “the appellants are nowhere near being able to show that they have a good arguable claim against Unilever.”

All three judges (Gloster, Sales and Newey LJJ) unanimously agreed that the appeal should be dismissed on the basis that there was not sufficient proximity to satisfy the second limb of the Caparo test. This meant that Unilever could not act as an anchor defendant for the claimants to bring their claim in the English courts.

Observations

Unilever serves as a further, helpful example of the English courts’ approach to the issue of proximity. It confirms that the existence of groupwide operational and HSSE standards, policies and practices does not, on its own, constitute sufficient control to satisfy the proximity limb of the Caparo test. This is consistent with the Shell case, in which the Court of Appeal identified a primary distinction between (i) instances where a parent company exercises control over the material operations of a subsidiary and; (ii) instances where a parent company issues mandatory policies and standards which are intended to apply throughout a group of companies in order to ensure conformity with particular standards.

The significance of this case should not be overstated: it is simply an application of existing law to particular facts and does not represent a narrowing of the scope of parent company liability. The decisions of the Court of Appeal in Unilever, Shell and Vedanta have made it clear that the English courts have discretion to establish a parent company duty of care as and when the Caparo test is met: this is a fact-specific inquiry. Indeed, in Vedanta the Court of Appeal held that the facts of that case were sufficient to give rise to an arguable parent company duty of care.

As such, this case is unlikely to reduce the number of these types of claims being brought in the English courts. UK-headquartered multinational companies should remain mindful that non-UK claimants may be able to bring claims against them in the English courts in relation to the overseas operations of their non-UK subsidiaries. Indeed, this is an increasing trend with a number of claimant law firms now targeting mass tort litigation, actively identifying potential claims and commencing actions before the English courts. We expect to see a number of further cases brought in the future.

It is also important to note that this area of law remains subject to potential further developments on the basis that the defendants in Vedanta have been granted permission to appeal to the Supreme Court, and the claimants in Shell have applied for permission to appeal to the Supreme Court. It may be that the claimants in Unilever also seek permission to appeal this latest decision.

Simmons & Simmons LLP is tracking developments in this area and is acting in several major mass tort claims. We will be hosting a breakfast panel discussion on mass tort litigation at the firm on 11 September 2018. The panel will include solicitors from Simmons & Simmons, leading counsel, a senior in house corporate litigator and the head of a communications agency specialising in crisis and reputation management. All of the panellists have recently been involved in mass tort claims and will share their insights on issues including parent company liability, reputational risk, jurisdiction and access to justice, litigation funding and settlement mechanisms. They will also discuss the potential steps that can be taken to minimise this growing litigation risk.

Please contact Chris Owen on chris.owen@simmons-simmons.com if you would like to attend.

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.