UK: Business And Human Rights - Are Parent Companies Liable For Violations By Overseas Subsidiaries?

Last Updated: 16 August 2018
Article by Kieran Laird

There have been several cases in recent years in which the courts have considered whether it is permissible to bring a tort claim against a UK parent company in relation to alleged human rights breaches by its overseas subsidiary.

The Court of Appeal has again considered the issue in AAA & Ors. v Unilever PLC and Unilever Tea Kenya Limited in which the claimants sought to argue that Unilever plc (the UK parent) was responsible along with Unilever Tea Kenya Ltd (UKTL - the foreign subsidiary) for the latter's failure to protect the claimants and their families from the risk of extreme ethnic violence endured after the 2007 Kenyan presidential election.

Following the election, members of the ethnic group which had supported the losing candidate invaded UKTL's plantation and attacked UKTL employees (including the claimants) who were members of an ethnic group associated with the winner. UKTL employees were violently assaulted, with several being killed or raped, and there was widespread damage to their property.

The claimants' case was that both defendant companies had failed to take adequate steps to protect them from the foreseeable risk of attack, specifically by not identifying the risk of post-election violence or putting in place sufficient crisis management plans to handle or mitigate that risk. The claimants alleged that, despite being employees of UKTL but not Unilever and having no direct contact with the latter, Unilever owed a duty of care to protect them which it had failed to discharge.

In this insight we look at the Court of Appeal's judgment regarding whether a parent company is liable for human rights failings on the part of its subsidiary in a foreign country and, if so, when liability may arise.

The High Court Judgment

The defendants took the preliminary point that the English courts did not have jurisdiction to hear the claims.

In order to determine the preliminary issue, the High Court considered whether the claims had arguable merit, in particular, whether it could reasonably be argued that there was a claim against Unilever. Given that UKTL is a Kenyan company, and the actions complained of took place in Kenya, if there was no claim against Unilever to which UKTL could be joined, the claim against the latter would fall away as it could not be sued in England on a standalone basis.

Following Caparo v Dickman, three criteria must be satisfied for a duty of care to be established -

  • the damage suffered must have been foreseeable,
  • there must be sufficient proximity exists between the party who owes the duty of care and the party to whom the duty is owed, and
  • it must be fair, just and reasonable for the law to imposes such a duty.

The High Court accepted that there was sufficient proximity between Unilever and the claimants. Following Chandler v Cape, a parent company may be responsible for the health and safety of the employees of its subsidiary, even if it does not exercise complete control over the operation of that subsidiary. Following an examination of various centrally imposed policies and procedures around risk management, the Court held that Unilever exerted sufficient control over its subsidiaries for it to be arguable that proximity was established.

However, it disagreed that the damage suffered by the claimants had been foreseeable. Although there had been previous inter-ethnic violence around elections, the violence in 2007 had been unprecedented.

Also, the Court did not consider it arguable that it would be fair, just and reasonable to impose on Unilever the duty argued for by the claimants. Essentially, the claimants' position would have seen Unilever act as a surrogate police force. However, it was not unreasonable for UTKL to rely on the Kenyan police - particularly as prior to the election the Kenyan Government publicly stated that it would be responsible for security during the election. It was considered unlikely that a Court would impose a duty on Unilever that was more onerous than the duty imposed on UTKL which actually managed the plantation.

Although she held that there was no arguable case against Unilever, Laing J stated that, if she was wrong in that, England would be an appropriate forum for the claims as the claimants were unlikely to achieve justice in Kenya given the nature of the case and issues with the Kenyan court system.

The Court of Appeal judgment

The Court of Appeal agreed that there was no arguable claim, albeit for different reasons.

This was because, in contrast to the High Court, the Court of Appeal found that the claimants were unlikely to be able to establish the requisite proximity with Unilever.

It held that although Unilever did provide broad policies for all companies within its group, including a risk management policy and an operating framework, it did not enforce specific rules at individual company level.

The relevant Unilever policy expressly stated that it was the responsibility of managers at national and regional level to have in place crisis management plans covering the operating units within their jurisdiction. UKTL's managers were therefore expected to ensure that the appropriate procedures were in place to manage crises. UTKL had carried out its own crisis management training programme and neither that training, nor the drafting of its relevant policies, was subject to direct control or specific advice from Unilever.

The claim was therefore doomed to fail on the issue of proximity, and the Court declined to comment on the remaining issues in view of the fact that any trial of the issues must now proceed in Kenya.

In its analysis, the Court highlighted that parent companies and their subsidiaries are separate legal entities. This means that a parent company will be subject to a duty of care on the basis of activities of its subsidiary only if the Caparo criteria are satisfied. The test is no different to that applied when determining whether any third party owed such a duty.

There will of course be circumstances in which a parent company is liable on the basis of the actions of its subsidiary and the court gave the following two examples:

  • Where a parent company has in substance taken over the management of the relevant activity in place of, or jointly with, the subsidiary's own management; or
  • Where the parent company has given relevant advice to its subsidiary about how it should manage a particular risk.

Neither applied in this case.

Discussion

Unilever follows on from the recent judgments in the cases of Lungowe v Vedanta1 and Okpabi v Shell in which the Court of Appeal has considered the jurisdiction of English courts to hear tort claims against UK parent companies arising out of alleged human rights failures by subsidiaries in other countries.

Two out of the three sets of claimants failed to convince the court that it had jurisdiction, with each case determined on the basis of a close examination of the particular context including, importantly, the degree of control that the parent company had over the actions of its subsidiary.

Unilever builds on the finding in Shell that the requisite degree of control will not be established simply by the parent company putting in place a system of policies and procedures. Parent companies should not therefore be dissuaded from putting in place central risk management and human rights policies. From a practical point of view such policies and procedures will usually be more effective where operational decisions are made by managers at local level who have a better understanding of local context.

As shown by Unilever, the localisation of decision-making with respect to risk management may also help insulate the parent company from liability.

Footnote

1 Vedanta has been granted permission to appeal to the Supreme Court

Read the original article on GowlingWLG.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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