UK: Forum Shopping Possibility Confirmed

Last Updated: 21 June 2016
Article by Toby Scott

The recent judgment in Lungowe v Vedanta Resources [2016] EWHC 975 has confirmed the position regarding the applicability of the principle of forum non-conveniens and how and when defendants will be able to utilise it as a means of disputing the English courts' jurisdiction.

Facts

In Vedanta, Zambian residents commenced proceedings in England against various Defendants for alleged loss and personal injury arising from environmental damage caused by a copper mine in Zambia.

One of the Defendants, Vedanta Resources, is the parent company of one of the mining companies, KCM. It is an English domiciled company and so, relying on the ECJ decision of Owusu v Jackson [2005], proceedings were commenced against the parent company and its Zambian subsidiary in England.

Vedanta applied for a declaration that the court did not have jurisdiction to try the Zambian Claimants' actions on the basis that it was not the most appropriate forum to hear the case.

Forum non-conveniens

The forum non-conveniens exception requires that a stay of English proceedings will be granted if there is another available forum in which the case may be more suitably tried, in the interests of the parties and the administration of justice. The court must consider which factors point towards the other forum, including convenience, expense, governing law and the location of the parties.

Article 4 of the recast Brussels Regulation provides that: "Subject to the Regulation, persons domiciled in a Member State shall, whatever their nationality, be sued in the courts of that Member State."

Owusu decided that if an English court is seised of proceedings against a defendant domiciled in England, it cannot stay proceedings in favour of a non-Member State court on the ground that the non-Member State court is the more appropriate forum to hear the case, i.e. on forum non-conveniens grounds.

Coulson J was invited by the Defendant to find that Owusu is a case on its particular facts and had no application in this case. He declined to do so. He agreed that there was force in the submission that the ECJ's reasoning is "suspect": "Whilst the principle of certainty is understood, reliance upon it here appears to ignore the fact that, in these cases, it is the Defendant himself who would prefer not to be sued in the courts of his domicile".

However, the fact that the reasoning in Owusu might be said to be capable of sustained criticism did not mean it was not binding. Coulson J said he was bound to follow the decision.

English courts were given discretion in January 2015 to stay English proceedings in cases where foreign proceedings are brought first (subject to certain conditions). In those circumstances, the potential for forum shopping by claimants has decreased, provided the defendant acts quickly enough.

Vedanta confirms that Owusu remains good law, notwithstanding the 2015 changes. Although potentially hard to reconcile, particularly given Coulson's "suspect" concerns, if the EU had wanted to override the position in Owusu, it could have recast the Regulation to also include cases first seised in the defendant's home state when making the changes in 2015.

Accordingly, the courts' lack of discretion in deciding whether English courts are the most appropriate jurisdiction to hear the claim, will impact on a defendant parent company's ability to dispute claims brought in English Courts, in those cases when a foreign court is not first seised.

Types of claim

A claimant has three avenues in which to bring a claim against a parent company in England:

  1. Piercing the corporate veil The 'corporate veil' is a fundamental principle of company law that companies in a group have separate legal identities, meaning that a parent company will not be liable for the actions of its subsidiaries. Adams v Cape Industries plc [1990] Ch 433 is the leading authority on this issue. Cape Industries plc was a UK company that was head of a group and its subsidiaries mined asbestos in South Africa. Following this decision, English law has suggested a court will only lift the corporate veil when a company is a "mere façade" concealing the true facts or when a subsidiary company was acting as an agent of its parent; neither of which occurred in Adams. Lubbe v Cape Plc [2000] UKHL 41 also found that in these circumstances, in principle it is possible to show that a parent company owes a direct duty of care in tort to anybody injured by a subsidiary company in a group; thus entitling a claim to be brought in the parent company's jurisdiction.
  2. Common law duty In order for a common law claim in negligence to be brought, the three ingredients of foreseeability, proximity and reasonableness set out in Caparo Industries Plc v Dickman [1990] 2 AC 605 need to be satisfied. This will allow a claimant to bring a claim directly against the parent company if these criteria can be satisfied. However the circumstances in which this test will be fulfilled will be limited in claims brought against English domiciled parent companies of foreign registered subsidiaries.
  3. Primary liability against parent company In Chandler v Cape [2012] EWCA Civ 525 the Court emphasised that it was not concerned with piercing the corporate veil and that there was no assumption of responsibility solely by virtue of the fact that one company is the parent of another. However, the case was the first time that an injured employee of a subsidiary company established that the parent company owed him a duty of care. Four factors were identified in the case which indicated the existence of a duty on the parent company, namely:
    1. The companies were operating the same businesses
    2. The parent had superior or specialist knowledge compared to the subsidiary
    3. The parent had knowledge as to the subsidiary's systems of work
    4. The parent knew that the subsidiary was relying on it to protect the claimants

    Where these four factors are satisfied, liability will be imposed upon a parent company despite the fact that the parent company is a legal entity separate from that of its subsidiary.

The effect

In Vedanta, the courts confirmed that Owusu remains good law and English parent companies will not be able to advance forum non-conveniens arguments as Article 4 of the recast Brussels Regulation has been interpreted to prevent Courts being able to exercise their discretion in order to deny jurisdiction.  

Unless the foreign proceedings have been brought first and the defendant has acted in a timely manner, English courts will be unable to exercise their discretion in determining whether there is a more appropriate jurisdiction to hear the case.

Corporates and their insurers must be mindful of the effect of this confirmatory judgment and its potential detrimental impact on managing litigation risk between corporate entities. Accordingly parent companies should be taking steps to minimise the risk of being found liable for the acts or omissions of their subsidiaries, regardless of where they are based.

Forum Shopping Possibility Confirmed

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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