UK: Supreme Court Confirms Zambia Environmental Group Claims Can Proceed Against Parent Company

Last Updated: 2 May 2019
Article by Liz Tout and Catherine Gilfedder

The Supreme Court last week handed down its long-awaited judgment in Vedanta Resources PLC and another v. Lungowe and others [2019] UKSC 20. It confirms the right of Zambian citizens to proceed in the English courts with claims relating to alleged toxic emissions from the Nchanga Copper Mine, owned and operated by Vedanta's subsidiary, Konkola Copper Mines plc (KCM). The case is one of three recently decided by the Court of Appeal relating to the level of control required by a parent company over its foreign subsidiary's operations for a duty of care to arise towards those affected by the operations.1 The Supreme Court's judgment has potentially important consequences for similar tort claims against parent companies.

Agreeing with the Court of Appeal and Coulson J, the Supreme Court unanimously held that the claims, brought in negligence and for breach of statutory duty, could proceed against both Vedanta and KCM because:

  • there was a triable issue as to whether Vedanta had a common law duty of care in favour of the claimants or a statutory liability for breaches of Zambian environmental protection, mining and public health legislation;
  • the claims were not an abuse of EU law, specifically Article 4.1 of the Brussels Recast Regulation that confers a right for any claimant to sue an English-domiciled defendant in England;
  • KCM was a necessary or proper party to the claim against Vedanta; and
  • although Zambia was the "proper place" for the litigation, there was a real risk that substantial justice would not be obtained there due to the practical impossibility of funding and unavailability of suitable legal representation.

Whether there was a triable issue that Vedanta owed a duty of care

Of greatest interest to English-domiciled companies with foreign operations are the Court's comments regarding when a parent will owe a duty of care to those affected by the subsidiary's operations, such that environmental or human rights violations may give rise to liability in tort for the parent. Coulson J and the Court of Appeal had held that Vedanta's public statements regarding KCM's activities at the mine, a management services agreement between the two companies and witness evidence of a KCM manager together established that Vedanta had a sufficient level of control over KCM's operation of the mine potentially to give rise to a duty of care.

The Supreme Court agreed. Noting first that the level of intervention in the management of the mine needed to give rise to a duty of care was a question of Zambian law, Lord Briggs (with whom all the other Justices concurred) observed that the question of whether that level was reached in Vedanta's case was one of fact. He rejected Vedanta's argument that to find a duty of care would involve a "novel and controversial extension" of the tort of negligence. Rather, Lord Briggs considered that parent company liability for the activity of subsidiaries is not, of itself, a distinct category of liability in negligence. The existence of a duty of care would depend on "the extent to which, and the way in which, the parent availed itself of the opportunity to take over, intervene in, control, supervise or advise the management of the relevant operations (including land use) of the subsidiary".

Thus, the Supreme Court confirmed, ordinary tort principles governing duties upon third parties (such as consultants) apply to a parent dealing with its subsidiary. Lord Briggs was "reluctant to seek to shoehorn all cases of the parent's liability into specific categories", noting the limitless models of management and control which may be put in place within multinational groups of companies. This approach, which appears more flexible than that suggested by the Court of Appeal, will be argued by some to leave open the possibility of parent liability in a greater range of circumstances.

On the facts, while Lord Briggs indicated he might have been less persuaded than Coulson J or the Court of Appeal by the management services agreement or witness evidence, Vedanta's published materials alone were sufficient to show it was arguable that a sufficient level of intervention in the operations of the mine may be demonstrable at trial. In particular, the Claimants had relied upon a Vedanta report entitled "Embedding Sustainability" which stressed that the oversight of all subsidiaries lay with Vedanta's board and made particular reference to the problems with discharge at the mine which gave rise to the claims. Thus, it was fair to say Vedanta had by its policies "[assumed] responsibility for the maintenance of proper standards of environmental control over the activities of its subsidiaries, and in particular the operations at the mine" and had "not merely laid down but also implemented those standards by training, monitoring and enforcement".

Notably, Vedanta had suggested that there was a general principle that a parent could not incur a duty of care "merely by laying down group-wide policies and guidelines and expecting the management of each subsidiary to comply with them". This argument drew upon the Court of Appeal's decisions in AAA v. Unilever and Okpabi v. Shell (in neither of which were the claims allowed to proceed before the English courts). Lord Briggs disagreed, considering that even where a parent plays no role in implementation or oversight of its policies at subsidiary level, those policies may nevertheless in particular circumstances give rise to parent company liability, for instance if they contain "systemic errors" that then result in harm to third parties.

Whether England was the proper place and whether refusing jurisdiction would cause substantial injustice

The Supreme Court held that considering all of the relevant factors, Zambia would plainly have been the proper place for the litigation – the acts complained of primarily occurred there, the mine was operated under a Zambian licence and Zambian legislation, most of the evidence was therefore in Zambia and the claimants would have real difficulty travelling to England to give evidence.

Additionally, Vedanta had indicated its willingness to submit to the Zambian courts, meaning there was a forum in which the claimants could proceed against both defendants (avoiding the risk of irreconcilable judgments). Thus, if substantial justice were available to all the parties in Zambia, the Supreme Court considered the English courts should decline jurisdiction in favour of the Zambian courts.

However, the Supreme Court agreed with Coulson J's assessment that there was a real risk substantial justice would not be available in Zambia. First, it would have been practically impossible for the claimants to fund their claims given they were all in "extreme poverty", legal aid would not be available and conditional fee agreements are unlawful in Zambia. Second, there were not "sufficiently substantial and suitably experienced legal teams" in Zambia to handle effective litigation of this size and complexity, particularly against a well-resourced opponent like KCM. In considering this issue, Lord Briggs noted Coulson J's detailed examination of other environmental group claims before the Zambian courts, including apparent failings in case preparation (perhaps due to insufficient funding) which meant that save for a small minority the claimants were "almost routinely unsuccessful".

Key takeaways

The judgment will be of acute interest to multinationals seeking to balance the need to ensure their subsidiaries' operations are conducted safely and with respect for human rights with the risk of opening up parents to litigation in the jurisdiction of their headquarters. The Court of Appeal's decisions in Unilever and Shell had led many to take the view that, provided subsidiaries were themselves responsible for implementing group environmental and human rights policies, the fact that these were designed and applied at group level would not lead to parent company responsibility. But the Supreme Court's comments mean this can no longer be presumed to be the case.

Moreover, the confirmation that there are no special restrictions upon the circumstances in which a duty of care can be imposed upon a parent for its foreign subsidiaries' actions may pave the way for claims against parent companies in a broader range of circumstances than previously thought.

It is therefore likely that the best way to mitigate the risk of group claims of this nature will be for English-domiciled companies to conduct thorough due diligence, adopt and implement effective group-level policies and work with their subsidiaries to effectively mitigate risks in domestic and overseas operations.

On the other hand, the Supreme Court's confirmation that Zambia was the proper place for the claim may deter future claimants from coming to the English courts where the only connecting factor is the domicile of the relevant parent company. Moreover, the relevance of the availability of funding and appropriate legal expertise in claimants' home jurisdictions demonstrates the English courts' determination of jurisdiction questions may vary significantly depending on where the claim originates.

Footnote

1 The other two recent Court of Appeal decisions in this area are HRH Emere Godwin Bebe Okpabi and others v. Royal Dutch Shell plc and another [2018] EWCA Civ 191 (Okpabi v. Shell) and AAA & Others v. Unilever PLC and Unilever Tea Kenya Limited [2018] EWCA Civ 1532 (AAA v. Unilever).

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