UK Supreme Court clarifies issues on parent company liability in Lungowe v Vedanta

Summary

Case reference: Vedanta Resources Plc and Konkola Copper Mines Plc (Appellants) v Lungowe and Ors. (Respondents) [2019] UKSC 20

This landmark judgment from the UK Supreme Court means that the claim brought by 1,826 Zambian villagers against UK-based Vedanta and its Zambian subsidiary KCM can proceed to a trial of the substantive issues in the English courts. One of the issues that now falls to be examined is the controversial question of whether a parent company can be liable for the operations of its subsidiary, in the English courts.

We set out below the background to the case, a summary of the Supreme Court’s reasoning and an explanation of what this decision means for UK companies with international operations.

Background

Residents of the Zambian city of Chingola brought proceedings in the English courts against Vedanta Resources Plc (Vedanta), a UK incorporated parent company, and Konkola Copper Mines Plc (KCM), its Zambian subsidiary, claiming that waste discharged from the Nchanga copper mine - owned and operated by KCM - had polluted the local waterways, causing personal injury to the local residents, as well as damage to property and loss of income. The claims are founded in negligence, although the allegations also relate to breaches of applicable Zambian environmental laws.

Both Vedanta and KCM challenged jurisdiction.

In 2016, the High Court held that the claimants could bring their case in England, despite the fact that the alleged tort and harm occurred in Zambia, where both the claimants and KCM are domiciled. This decision was upheld on appeal by the Court of Appeal in October 2017.

This week, the Supreme Court has unanimously dismissed a further appeal by the defendants, upholding the Court of Appeal’s ruling in all but one respect.

Issues for the Supreme Court

In considering the appeal, the Supreme Court addressed the following issues:

• Whether there had been an abuse of EU law by the claimants in relying on Article 4 of the Brussels Regulation Recast to establish jurisdiction over Vedanta as anchor defendant for the purpose of attracting the English courts’ jurisdiction over the claim against KCM, “the real targets of the claim”;
• Whether the claimants’ pleaded case and supporting evidence disclosed no real triable issue against Vedanta;
• Whether England is the proper place in which to bring the claims; and
• Even if Zambia would otherwise be the proper place, whether there was a real risk that the claimants would not obtain access to substantial justice in Zambia.

No abuse of EU law

The majority of the Court of Appeal followed existing authority (Owusu v Jackson and Others, C-281/02¹) that the court of an EU member state cannot decline jurisdiction where the defendant is a company domiciled in that member state (in this case, the UK). In delivering the Supreme Court’s unanimous judgment, Lord Briggs recognised it would be an abuse of this rule² to allow claimants to sue an English domiciled “anchor” defendant solely to pursue a foreign co-defendant (a “real” target) in the English courts but that this exception should be applied strictly. Both the High Court and the Court of Appeal found on the facts that the claimants had a bona fide claim and a genuine intention to seek a remedy in damages against Vedanta, even though establishing the English courts’ jurisdiction over KCM was also a key factor in their decision to litigate in England.

This was a sufficient basis for finding that there was no abuse of EU law. The Supreme Court found no need to refer to the Court of Justice for the European Union. In reaching the conclusion that the claimants intended to pursue a genuine claim against Vedanta, the lower courts considered on a summary basis evidence put forward by the claimants that KCM may be unable to pay a judgment debt. Consistent with its usual practice the Supreme Court declined to revisit these factual findings, having found no error of law.

Real issue against Vedanta

The Supreme Court then turned to assess whether the lower courts had erred in determining that there was a real triable issue against Vedanta. Given the substance of the claim, the key question was whether Vedanta had sufficiently intervened in the management of the mine owned by KCM such that it assumed a duty of care to the claimants and/or to establish statutory liability under applicable Zambian environmental, mining and health laws.

Although it was common ground between the parties that the defendants’ liability would be assessed under Zambian law, the extent of Vedanta’s involvement in the operation of KCM’s mine was a factual issue relevant to both the negligence and statutory liability claims. In this regard, the lower courts held (on a summary assessment) that it was arguable Vedanta did owe a duty of care to the claimants given that it had

• Published a sustainability report which emphasised how the Board of the parent company had oversight over its subsidiaries.
• Entered into a management and shareholders agreement under which it was obligated to provide various services to KCM, including employee training.
• Provided health, safety and environmental training across its group companies.
• Provided financial support to KCM.
• Released various public statements emphasising its commitment to address environmental risks and technical shortcomings in KCM’s mining infrastructure.
• Exercised control over KCM, as evidenced by a former employee.

Please see our November 2017 briefing on the Court of Appeal’s judgment for a more detailed analysis of the court’s reasoning.

Whilst jurisdictional challenges relating to ‘real triable issues’ invariably involve a summary assessment of the issues, on appeal the defendants suggested that the claimants’ case raised a “novel and controversial extension of the boundaries of the tort of negligence”, and that, accordingly, a more detailed analysis of the claimants’ case ought to have been undertaken. The Supreme Court disagreed, holding that “there is nothing special or conclusive about the bare parent/subsidiary relationship… 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”. In this respect, Lord Briggs commended the summary by Sales LJ in AAA v Unilever plc [2018] EWCA Civ 1532, para 36 (another challenge to jurisdiction on similar issues) that “A parent company will only be found to be subject to a duty of care in relation to an activity of its subsidiary if ordinary, general principles of the law of tort regarding the imposition of a duty of care on the part of the parent in favour of a claim are satisfied in the particular case”. On that basis, the lower courts had applied the law correctly, and the Supreme Court refused to revisit the lower courts’ factual findings on a triable issue.

Whilst this case was limited to the issue of jurisdiction, Lord Briggs made a number of interesting comments on the substantive issue of parent company liability which will be before the court for determination when this matter eventually goes to trial.

He observed that that the test for duty of care in Caparo Industries plc v Dickman [1990] 2 AC 605³ was not necessarily the starting point in establishing whether a duty of care is owed by a parent company as this was not a “novel category of common law negligence liability”, but rather had already been considered in previous cases.

In relation to Sales LJ’s finding in Unilever that cases where the parent company might incur a duty of care to third parties harmed by the activities of a subsidiary would usually fall into two basic types: (i) where the parent has effectively taken over management of the subsidiary’s actions and (ii) where the parent has given relevant advice to the subsidiary about how it should manage a risk, Lord Briggs said that, in his view, “there is no limit to the models of management and control which may be put in place within a multinational group of companies”. Similarly he rejected the submission that there was any general limiting principle that a parent company could never incur a duty of care merely by issuing group-wide policies and guidelines and expecting the subsidiary to comply. These comments will no doubt be of concern to multinationals wishing to understand in exactly what circumstances a parent company might attract liability for its subsidiaries’ activities.

Lord Briggs’ commentary will no doubt play into how the High Court will assess the question of duty of care in the trial on the substantive issues in this case.

England as the proper place

Whilst the lower courts concluded that parallel proceedings against a UK company in the English courts and a Zambian company in the Zambian courts would be unthinkable, making England the proper place for the claims against both defendants (given the similarity of facts and legal principles at issue), the Supreme Court took a different view.

Specifically, the Court said it would have been open to the claimants to either sue both companies in Zambia (as Vedanta had agreed to submit to the jurisdiction of the Zambian courts) or to sue Vedanta in England and KCM in Zambia, recognising that the risk of irreconcilable judgments “mainly concerns the claimants”. In reaching this view, the Court referenced Article 8 of the Brussels Recast Regulation, which gives claimants in intra-EU disputes the choice (but not the obligation) to consolidate proceedings in order to avoid the risk of irreconcilable judgments, and concluded that the same principle should apply where the claimants are domiciled outside the EU (as in this case).

Substantial justice in Zambia

The Supreme Court acknowledged that most reasonable observers would conclude that Zambia would, in the ordinary course, be the proper place for the proceedings, given the location of the claimants, the alleged damage, the evidence and KCM’s personnel. The Zambian courts were also equipped to interpret the Zambian laws which would be applied in the case.

However, following the lower courts, the Supreme Court was persuaded by two primary factors in concluding that claimants would be denied access to justice if they were not permitted to serve English proceedings on KCM out of jurisdiction. First, the claimants were living in poverty and could not obtain legal aid and would be prohibited from entering into conditional fee agreements under Zambian law. Secondly, the claimants would be unable to procure the services of a legal team in Zambia with sufficient experience to effectively manage litigation of this scale and complexity.

This was, in fact, the deciding factor for the Supreme Court in dismissing the defendants’ appeal. Notwithstanding that it found for the claimants on issues (1), (2) and (4), the Court confirmed that, were it not for the claimants’ inability to access substantial justice in Zambia, it would have allowed the appeal.

Implications

Third party liability

In 2018, two similar cases were heard by the Court of Appeal. Like Lungowe, the cases concerned the English courts’ jurisdiction for hearing claims brought by non-UK claimants against UK companies and their non-UK subsidiaries for acts taking place abroad. These cases were Okpabi and others v Royal Dutch Shell Plc and another [2018] EWCA Civ 191 and the Unilever case cited above.

In both cases, the Court of Appeal concluded that the English courts did not have jurisdiction to hear the claims against the defendants (by contrast with Lungowe). We understand that both sets of claimants have applied for permission to appeal to the Supreme Court but the decision on permission in both cases was suspended pending the judgment in Lungowe.

The trial of the substantive issues in Lungowe has not yet been listed but will be eagerly awaited. In the meantime, this Supreme Court judgment highlights the need for multinational companies to be aware of the possibility that non-UK claimants may be able to bring claims against them in the English courts where they have an English parent company.

Jurisdiction challenges

The Supreme Court also took the opportunity to repeat that appeals on matters of jurisdiction should be kept to a minimum and that parties should not lose sight of the requirement for proportionality when presenting their cases. Citing Lord Templeman’s judgment in Spiliada Maritime Corpn v Cansulex Ltd (“the Spiliada”) [1987] AC 460, 465, the Court stated that “[a]n appeal should be rare and the appellate court should be slow to interfere.”