Lungowe v Vedanta appeal highlights important points regarding parent company liability

Publication | November 2017

Summary

Case reference: Lungowe and Ors. v Vedanta Resources Plc and Konkola Copper Mines Plc [2017] EWCA Civ 1528

This landmark judgment from the Court of Appeal means that 1,826 Zambian villagers can bring a claim in the English courts against UK-based Vedanta and its Zambian subsidiary KCM. This decision raises important questions about whether parent companies can be liable alongside their non-UK subsidiaries for adverse human rights impacts occurring abroad, and leaves open the possibility that parent companies could be liable to communities affected by the operations of their subsidiaries.

Background

Residents of the Zambian city of Chingola brought civil proceedings 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 against the subsidiary also relate to breaches of applicable Zambian environmental laws. 

In 2015, 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. The defendants appealed this decision on the grounds that: (a) the English courts do not have jurisdiction to hear the claims against Vedanta; and (b) that the appropriate place to bring the claims against KCM is Zambia. Vedanta agreed that it would submit to the jurisdiction of the Zambian courts if the application succeeded.

On 13 October 2017, the majority of the Court of Appeal dismissed the defendants’ appeal and held that the claimants’ case could proceed before the English courts.

A ‘real issue’ between the claimants and Vedanta

The Court of Appeal addressed whether it is possible for a duty of care to be found between Vedanta and those affected by the actions of KCM, such that there is a real issue between the claimants and Vedanta.

In answering this question, the Court examined a number of cases which applied the three-part test for establishing a duty of care set out in Caparo Industries Plc v Dickman [1990] 2 AC 605 (the three stages being: (i) proximity; (ii) foreseeability; and (iii) reasonableness) and concluded that a parent company would owe a duty of care to those directly affected by its subsidiary if the claimant could demonstrate “additional circumstances”, for example, that the parent company took direct responsibility for drafting and devising the policies the adequacy of which was the subject of the claim; or the parent company controlled the operations which give rise to the claim. Each of the cases stressed that a duty of care was more likely to arise where the parent company had “superior knowledge” or expertise about the operations of its subsidiary. 

The most widely cited case in this area is Chandler v Cape Plc [2012] EWCA (Civ) 525, in which the parent company was found to have assumed a duty of care towards the employees of its subsidiary (who had been exposed to asbestos) because of the parent company’s “state of knowledge” about the factory in which these employees worked and “its superior knowledge about the nature and management of asbestos risks”1 associated with its subsidiary’s operations.

By contrast, in Thompson v The Renwick Group Plc [2014] EWCA Civ 635, no duty of care was found between a parent company and the employees of its subsidiary, as there was no evidence that the parent company in question carried on any business apart from holding shares in its subsidiaries, and so it was not “better placed because of its superior knowledge or expertise, to protect the employees of subsidiary companies”.

In Vedanta, although the parent argued it neither owned the mine licence nor controlled the “material operation” of the mine, it was held that the claimants’ case on duty of care was arguable 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.

The Court stressed that it would not engage in a mini-trial on duty of care. This leaves open the possibility that during the trial on the substantive issues, the court may find that Vedanta did not owe a duty of care to the claimants. This is an example of an English court finding that there is a real issue to be tried between non-UK claimants and a parent company at an early stage, where the evidence may not always be available.

Possibility of widening the scope of a parent company’s duty of care

The Court of Appeal also acknowledged that if a duty of care is found to be owed by Vedanta towards the claimants at trial, this would be the first reported case in which a parent company would have been held to owe a duty of care to a person affected by the operations of a subsidiary who is not an employee of the subsidiary. Responding to the defendant’s submission that there was no prior authority for such a widening of the duty of care, Lord Justice Simon stated: “That may be true, but it does not render such a claim unarguable. If it were otherwise the law would never change”.

Emerging trend in relation to parent company liability cases

Vedanta is the latest in a series of recent high profile cases in the English courts that have examined whether there is jurisdiction for non-UK claimants to bring a claim in England against both the non-UK subsidiary and the English parent company over alleged human rights abuses occurring abroad. In Okpabi and others v Royal Dutch Shell plc and Shell Petroleum Development Company of Nigeria Ltd [2017] EWHC 89 (TCC) and AAA and others v Unilever plc and another [2017] EWHC 371 (QB), the claimants brought tortious claims in the English courts against both the English parent company and the non-UK subsidiary. The English court found it did not have jurisdiction to hear the claims against the subsidiaries in those cases. Permission to appeal has been granted in both Shell and Unilever, so this area of law will be subject to further scrutiny.

At a global level, the Canadian courts have accepted jurisdiction in various cases brought by non-Canadian claimants against Canadian parent companies, particularly where human rights were seen to be at risk.

Applicability of EU law

With regards to the applicability of EU law, the majority of the Court of Appeal followed existing authority (Owusu v Jackson and Others, C-281/02) 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).

Prospect of parallel proceedings: the position with regard to KCM

The Court of Appeal endorsed the High Court’s judgment that parallel proceedings against the UK company in the English courts and the Zambian company in the Zambian courts would be unthinkable, making England and Wales the proper place for the claims against both the defendants (given the similarity of facts and legal principles at issue).

The Court also accepted the claimants’ argument that they were precluded from bringing the claims in Zambia because of issues with access to justice in the Zambian justice system. When dealing with this point, the Court commented that the evidence presented in the first instance proceedings against the Zambian justice system was so “overwhelming” that it was almost certain that the claimants would be unable to obtain justice in the Zambian courts.

Although the Court added that “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”, for now it remains open to claimants to argue that their case should be heard in the English courts because of issues with access to justice in their local courts.

Lessons

Vedanta 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, as well as the possibility that the scope of potential claimants will be widened in the future to communities affected by the operations of a local subsidiary.

Given the human rights dimension of Vedanta, both in relation to the nature of the damage and the access to justice arguments, UK-domiciled companies should take note of this trend and pre-emptively implement measures to ensure that human rights are respected and protected throughout its operations. This involves implementing relevant policies, carrying out thorough human rights due diligence, providing bespoke training and continuing to exercise suitable oversight to ensure that any human rights impacts are effectively managed.


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Ruth Cowley

Ruth Cowley

London
Stuart Neely

Stuart Neely

London
Gal Levin

Gal Levin

London
Maria Kennedy

Maria Kennedy

London