New guidance on parent company liability for the actions of foreign subsidiaries

The Court of Appeal has provided further guidance on when a parent company of an international group will be liable for the actions of its foreign subsidiaries.

On July 4, 2018, the Court of Appeal handed down its judgment in AAA & Others v Unilever PLC and Unilever Tea Kenya Limited [2018] EWCA Civ 1532, upholding the High Court’s decision that there is no good arguable claim that Unilever owed a duty of care to individuals affected by violence at a tea plantation operated by its Kenyan subsidiary, UTKL. As a result there is no anchor defendant in England.

This is the third in a line of recent Court of Appeal decisions in which the Court has ruled on whether foreign nationals can bring tort proceedings in England against an English parent company and its foreign subsidiary in respect of events occurring in the foreign country where that subsidiary carries on its operations.

The Supreme Court granted permission to appeal in Vedanta earlier this year and is currently considering an application for permission to appeal in Okpabi.

In the present case individuals based in Kenya brought a claim in England against Unilever Plc (Unilever), the England-incorporated parent company of an international group, and its Kenya-incorporated subsidiary, Unilever Tea Kenya Limited (UTKL). The claimants are employees and former employees of UTKL and residents on a tea plantation run by UTKL in Kenya. The claimants alleged that both Unilever and UTKL owed a duty of care to take effective steps to protect them from the inter-tribal violence which occurred during the 2007 Kenyan presidential election when marauding mobs came onto the tea plantation operated by UTKL (on which they worked and lived) and caused them serious harm.

In assessing whether there was a good arguable claim that Unilever owed the claimants a duty of care (such as to allow jurisdiction to hear the case in the UK), the Court considered the three-part test in Caparo Industries Plc v Dickman [1990] 2 AC 605: (i) proximity; (ii) foreseeability; and (iii) reasonableness.

On February 27, 2017, Laing J held that

• The claimants did not have a good arguable claim that Unilever or UTKL owed them a duty of care because the damage suffered by the claimants was not foreseeable by either of the defendants.
• In relation to Unilever, it would not be fair, just and reasonable to impose a duty of care, since the duty alleged required, in effect, Unilever to act as a surrogate police force to maintain law and order, whereas Unilever had been entitled to rely on the Kenyan authorities to do that.
• There was a sufficient degree of connection between the activities of (and omissions to act by) Unilever, as the ultimate holding company of UTKL, and the damage suffered by the claimants to create proximity in line with the guidance in Chandler v Cape Plc [2012] EWCA Civ 525.
• It was reasonably arguable for the appellants that limitation defences would fail.
• If, contrary to her view, there were viable claims against both Unilever and UTKL, then England would be the proper forum to hear those claims.

The Court of Appeal has upheld the High Court’s judgment, rejecting the claimants’ appeal, albeit on different grounds. The Court of Appeal concluded that, applying the test in Chandler, there is no proximity between Unilever and the claimants in respect of the damage suffered by them. As a result of this, there was no anchor defendant for proceedings in England. The leading judgment in this case was given by Sales LJ who also heard the Okpabi case.

Despite the fact that Unilever had control of UTKL (the company which operated the tea plantation on which the harm to the claimants unfolded) the Court of Appeal held that there is no proximity between the claimants and Unilever on the basis that UTKL

• Prepared its own “Crisis and Emergency Management” policy, which specifically accounted for this sort of situation, with no “direction or … specific or detailed advice from Unilever”.
• Conducted its own crisis management training programme with no input from Unilever.
• Produced its accounts as a separate company, which set out the distinct governance structures which applied within UTKL itself.
• Carried out a different business to Unilever.
• Provided a positive assurance to Unilever’s head office confirming that “business risks have been reviewed, relevant actions have been included in management plans etc.”.

As mentioned above, this decision is the third in a line of recent Court of Appeal decisions addressing the extent of parent company liability for the actions of its foreign subsidiaries.

In October 2017, the Court of Appeal held that 1,826 Zambian villagers could bring a claim in the English courts against UK-based Vedanta Resources Plc (Vedanta) and its Zambian subsidiary Konkola Copper Mines Plc.

Separately, in February 2018, the majority of the Court of Appeal (Sales LJ dissenting) held in favour of English-incorporated Royal Dutch Shell Plc (RDS) and its Nigerian operating subsidiary, Shell Petroleum Development Company of Nigeria Ltd, refusing residents of the Niger Delta region the ability to bring a claim in the RDS) and its Nigerian operating subsidiary, Shell Petroleum Development Company of Nigeria Ltd, refusing residents of the Niger Delta region the ability to bring a claim in the UK on the basis that the claimants had failed to put forward a good arguable case that RDS owed them a duty of care.

In each of the three cases, the Court of Appeal referred to two types of case where the test for duty of care might be made out in respect of a parent company

1. 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; or
2. Where the parent has given relevant advice to the subsidiary about how it should manage a particular risk.

In Vedanta, the Court concluded that (i) had been successfully made out by the claimants on the basis that Vedanta 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; and exercised control over KCM, as evidenced by a former employee.

In Okpabi the Court of Appeal made the opposite conclusion on the evidence. The Court emphasised that the issuance of group-wide mandatory policies by a parent company is not in itself sufficient grounds to establish proximity. It is necessary to show that the parent company had assumed “complete” or “joint control” over the relevant operations, for example by enforcing the mandatory policies.

In the present case, the claimants conceded that (i) (which had been successfully argued in Vedanta) was not applicable and the Court of Appeal found that the claimants were “nowhere near being able to show that they have a good arguable claim” against Unilever on the basis of (ii). While Sales LJ’s dissenting opinion in Okpabi raises questions about the degree of control necessary to establish proximity, the facts and evidence in Unilever seem comparatively unambiguous. UTKL provided enough evidence to convince the Court that it did not rely on Unilever for direction in the design or implementation of its conflict risk management policies.

The current position is that courts will be reluctant to conclude that there is a good arguable case that a UK parent company owes a duty of care to individuals affected by the acts of its foreign subsidiaries unless the claimants can show that the parent took positive steps (i) to manage the relevant activity carried out by the subsidiary and/or (ii) to advise the subsidiary on how it should manage the relevant risk. We await conclusive guidance from the Supreme Court on this issue.