A number of significant and recent decisions in the English courts highlight the developing trend for environmental claims, or claims engaging a broader range of ESG issues, against UK parent companies on the basis of alleged acts or omissions by overseas subsidiaries. With some exceptions, the English courts have been reluctant to dispose of these claims at an early stage in the proceedings. In particular, following jurisdiction challenges, the Supreme Court has found it at least arguable that UK parent companies owed a common law duty of care and/or a statutory duty to the claimants for environmental damage allegedly caused by overseas subsidiaries.
Most recently, the Court of Appeal ("CoA") held that a claim commenced by Municipio de Mariana (a municipal authority in Brazil) and 202,599 other claimants in relation to the 2015 collapse of the Fundão Dam in Brazil (the "Fundão Claim") can proceed in the English courts. In particular, the CoA held that it should not be struck out as an abuse of process, or stayed in favour of proceedings already underway in Brazil, thereby overturning the judgment of the High Court ("HC").1 That decision is subject to an application for permission to appeal to the Supreme Court, but in the meantime an eight-week trial of liability issues in the Fundão Claim has been fixed for April 2024, following a hearing in the High Court in December 2022.
In this article we first explore some of the key recent decisions, before discussing the Fundão Claim and its implications in more detail.
Overview of key decisions
The CoA's judgment in the Fundão Claim (the "Appeal Judgment") is an important decision in a recent line of cases commenced in the English courts seeking redress for the actions of overseas subsidiaries that allegedly caused environmental damage in developing countries. Such cases generally rely on establishing that a duty of care (generally in tort, but potentially also as a result of statute) is owed by the parent company to the claimants, such that the parent is said to be liable for the damage caused by their subsidiaries.
For example, in Vedanta Resources Plc and anor v Lungowe & Ors2 the claimants sought damages from Vedanta (the UK-domiciled parent company) for environmental damage to farmland in Zambia allegedly caused by Vedanta's Zambian subsidiary, KCM. In determining the jurisdiction challenge brought by Vedanta, the Supreme Court decided in 2019 that it was at least arguable that Vedanta owed a common law duty of care to the claimants. The decision proceeded on the basis that, among other things, Vedanta had exercised control over the activities of KCM, publicly stating on a number of occasions its oversight of its subsidiaries and commitment to addressing environmental risks in KCM's mining infrastructure.3 For similar reasons, the claim for breach of duties owed under Zambian statute was also held to be arguable.4
Similar issues came to the fore again in the 2021 Supreme Court decision concerning a jurisdiction challenge in Okpabi & Ors v Royal Dutch Shell plc & Anr.5 In that case, over 40,000 claimants alleged that numerous oil spills had occurred from Shell oil pipelines and associated infrastructure operated in the vicinity of the claimants' communities. It was alleged that these oil spills had caused widespread environmental damage, including serious water and ground contamination. The Supreme Court reaffirmed the guidelines set down in Vedanta, holding that there was a serious issue to be tried as to whether the parent company (Royal Dutch Shell plc) owed a duty of care to the claimants because it exercised a high degree of control, direction and oversight of its Nigerian subsidiary's pollution and environmental compliance, as well as the operation of its oil infrastructure.6
Both Vedanta and Okpabi were brought on behalf of a large number of individual claimants who claimed to have suffered loss as a result of the alleged environmental damage. However, in England a true 'class' action, where claimants with certain characteristics are automatically included in the claim and damages are assessed on an aggregated class-wide basis, can only be brought in relation to competition law claims.7 The importance of this distinction is evident in the Court of Appeal's decision in the case of Jalla & Anr v Shell International Trading & Anr8 in which two individuals attempted to bring a 'representative' action under Civil Procedure Rule ("CPR") 19.6(1) on behalf of over 28,000 Nigerian individuals and communities who had allegedly suffered loss as a result of an oil spill. The Court of Appeal held that such an action could not proceed on a representative basis unless all of the claimants had the "same interest" in the claim. In Jalla, it was held that the claimants did not have the "same interest" in the claim as they may each have been affected by the oil spill in different ways and the principle of mitigation would likely require an assessment of the individual circumstances of each claimant.9
Against this emerging backdrop of ESG-related group litigation, we focus below on the Fundão Claim, which is the most recent example of the English court being prepared to entertain such a claim against a UK parent company. We then offer some views on the implications of the Appeal Judgment and the outlook for this emerging type of group litigation.
Fundão Dam: background to the Claim
When the Fundão Dam in Brazil collapsed on 5 November 2015, it released around 40 million cubic metres of tailings from iron ore mining, killed 19 people, destroyed entire villages, and impacted numerous individuals and communities.10 The dam was owned and operated by Samarco Mineração SA ("Samarco"), a Brazilian joint venture between Vale SA ("Vale") and BHP Brasil Ltda ("BHP Brazil"). BHP Brazil was itself ultimately owned by two BHP holding companies, BHP Group (UK) Ltd ("BHP England", domiciled in England) and BHP Group Ltd ("BHP Australia", domiciled in Australia, together "BHP").
Following the disaster, a number of claims were commenced in Brazil and a compensation programme was established by Samarco, Vale and BHP Brazil, which was administered by the Renova Foundation.11 However, the Claimants in these proceedings argue that they were unable to obtain sufficient or timely redress in Brazil for the losses that they have suffered and/or will give credit for any compensation they receive in Brazil.
Unlike other parent company liability claims which have been brought primarily as tort claims pursuant to an alleged duty of care owed under English law,12 the Fundão Claim was brought against BHP solely on the basis of a breach of statutory duty under Brazilian law.13
The Fundão Claim was served on BHP England and BHP Australia in November 2018. Jurisdiction over BHP England arose by virtue of its domicile in England under Regulation (EU) No 1215/2012 ("Brussels Recast"); jurisdiction over BHP Australia was established by it carrying on business at offices in England, where the proceedings were served.14
Following service of the Fundão Claim, BHP applied:
- to strike out or stay the Fundão Claims against both BHP entities pursuant to CPR 3.4(2)(b) as an abuse of process, alternatively for them to be stayed on case management grounds pursuant to CPR 3.1(2)(f), in each case because they are pointless, wasteful and duplicative of the collective and individual proceedings and/or judgments in Brazil and/or the work of the Renova Foundation (the "Abuse Application" and the "Case Management Stay Application", respectively) or, alternatively;
- to stay the Fundão Claim against BHP England pursuant to Article 34 of Brussels Recast on the grounds that there are pending proceedings in Brazil giving rise to a risk of irreconcilable judgments (the "Article 34 Application"); and
- to stay the Fundão Claim against BHP Australia pursuant to CPR 11(1) on the grounds that Brazil was clearly and distinctly the more appropriate and available forum (the "FNC Application").15
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Footnotes
1 Re Fundão Dam Disaster: Município de Mariana (and the claimants identified in the schedules to the claim forms) v BHP Group UK Ltd (formerly BHP Group plc) and another company [2022] EWCA Civ 951. The appeal was heard by Lord Justice Underhill (Vice-President of the Court of Appeal (Civil Division)), Lord Justice Popplewell and Lady Justice Carr.
2 [2019] USKC 20.
3 Vedanta, paragraphs 55-62.
4 Vedanta, paragraphs 63-65.
5 [2021] UKSC 3.
6 Okpabi, paragraphs 29 & 153.
7 In all other types of claims, each individual claimant is required to prove its loss on the balance of probabilities and defendants may raise defences specific to each claimant.
8 [2021] EWCA Civ 1389.
9 This is in contrast to the specific statutory provisions permitting class actions in competition law claims – see Competition Act 1998, Section 47B and our client alerts on the UK Government's reforms of collective redress and on the Supreme Court's decision in Mastercard Incorporated and others v Walter Hugh Merricks CBE [2020] UKSC 51.
10 Appeal Judgment, paragraph 1.
11 Appeal Judgment, paragraph 6.
12 See, for example, AAA v Unilever and Okpabi v Shell.
13 Appeal Judgment, paragraph 11(1)-(4) and 12.
14 Appeal Judgment, paragraph 5.
15 Appeal Judgment, paragraph 7.
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