November 13, 2019

UK Parent May Be Liable for Pollution by Zambian Subsidiary

Lois G. Paine

Can an English holding company be held liable for the actions of its overseas subsidiaries that cause harm to third parties? A year ago, my answer would have been that third parties had never succeeded in such a claim, and that even employees of such a subsidiary would have found it very difficult to win an action against the parent company.

This changed with a new case, Vedanta Resources Plc v. Lungowe [2019] UKSC 20. The Supreme Court judgment (the highest court in the United Kingdom (UK), replacing the House of Lords) was given on April 10. It was the culmination of four years of dispute over the jurisdiction of the courts of England and Wales to hear the claims against Vedanta (V), the English registered holding company of a multinational group. From about 2005, 1,826 impoverished villagers in Zambia alleged that a subsidiary of V, Konkola Copper Mines (K), had discharged toxic matter into their only source of water, causing injury to them, their livestock, and farms. They brought an action against V and K.

Although the case concerned jurisdiction, the most important issue related to parent company liability. Until now, the most widely cited case on this issue was Chandler v. Cape Plc [2012] EWCA (Civ) 525, where a parent company (Cape) was found to be liable to the employees of its subsidiary. The employees had been exposed to asbestos, and a duty of care was owed by Cape to those employees due to an omission to advise on precautionary measures. This was because of Cape’s “state of knowledge” about the factory where the employees worked and “its superior knowledge about the nature and management of asbestos risks” associated with its subsidiary’s operations. But 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. 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.” Id. at ¶37.

Lord Briggs gave the written judgment of the Supreme Court in Vedanta. He stated that the negligence claim did not raise any novel issue of law. A parent company might owe a duty of care to those living nearby its subsidiary and affected by the subsidiary’s operations or use of the land on which the operations were conducted. It all depended on the extent to which, and the way in which, the parent company availed itself of the opportunity to take over, intervene in, control, supervise, or advise the management of the relevant operation, including land use of the subsidiary.

He stated that parent and subsidiary were separate legal persons, each with responsibility for their own separate activities. A parent company would only be found to be subject to a duty of care in relation to an activity of its subsidiary if ordinary, general principles of the law of tort regarding the imposition of a duty of care on the part of the parent in favor of a claimant were satisfied in the particular case.

V had published material in which it asserted its own assumption of responsibility for maintaining proper standards of environmental control over the activities of its subsidiaries and, in particular, the operations at this mine. It laid down and implemented those standards by training, monitoring, and enforcement. That was sufficient on its own to show that a sufficient level of intervention might be demonstrable at trial to find the relevant duty of care.

Two previous recent cases, AAA v. Unilever plc [2018] EWCA Civ 1532 and HRH Emere Godwin Bebe Okpabi v. Royal Dutch Shell plc [2018] Bus LR 1022, had, at first sight, similar facts to the Vedanta case, but the judgments both went against the African claimants. They followed the earlier cases of Chandler and Thompson, mentioned above. In the Unilever case, the English Court of Appeal dismissed an appeal against a decision that the English court did not have jurisdiction to hear a tort claim against an English company (Unilever) and its Kenyan subsidiary (UTKL). It found that the claimants, Kenyan employees of UTKL, had no arguable claim against either Unilever or UTKL, because neither company owed them a duty of care in tort to take effective steps to protect them from post-election violence in Kenya, which had spilled from the surrounding area to the relevant tea plantation. The employees said that the parent had given relevant advice to the subsidiary about how it should manage the risk, so a duty of care existed. However, the court held that the evidence did not support this duty of care. It found that evidence showed that UTKL carried out its own crisis management training program. UTKL had sole responsibility for devising its relevant policies and for deciding what to do when the crisis arose. Because the claimants did not have a good arguable tort claim against Unilever, they could not establish that the court had jurisdiction to hear the claim.

In the second case, Okpabi, Nigerian claimants appealed against a decision, also on jurisdiction, that the parent company (RDS) did not owe them a duty of care regarding pollution and environmental damage caused by oil leaks from pipelines and associated infrastructure operated by its subsidiary company (SPDC). The Nigerian claimants lost, but by a 2:1 majority decision of the Court of Appeal judges. The appellants were Nigerian citizens and inhabitants of the areas affected by the leaks. RDS was incorporated in the UK and was the parent company of the Shell group. SPDC was an exploration and production company incorporated in Nigeria. SPDC was involved in a joint venture with Nigerian oil companies and operated the pipelines and oil-pumping facilities alleged to have been managed negligently. The appellants brought actions for damages for negligence against RDS and SPDC. They claimed that RDS owed them a duty of care either because it controlled the operation of the pipelines and infrastructure, or because it had assumed a direct responsibility to protect the appellants from the environmental damage caused by the leaks.

The court concluded that there was no arguable case that RDS owed the appellants a duty of care. Their reason included the following findings:

RDS was not operating the same business as SPDC. RDS was the ultimate holding company, and did not operate any business other than holding shares, and dealing with the financial matters that affected it as the ultimate holding company. SPDC was the company in Nigeria that was licensed to carry out the relevant operating activities. RDS did not have superior or specialist knowledge compared to the subsidiary SPDC. SPDC had all the specialist knowledge relevant to an operating company licensed by the relevant Minister in the Nigerian government under the relevant legislation. RDS could not be said to know that SPDC was relying upon it to protect the claimants. SPDC was a wholly autonomous subsidiary with considerable income and sizeable assets of its own.

On July 24, lawyers appealing the Okpabi decision announced that they had been granted permission to take their legal claim against Shell to the UK Supreme Court. It will be interesting to see the result of this appeal.

The next issue in Vedanta relates to why the villagers could bring the claim in England. Lord Briggs confirmed that the villagers had an unfettered right to sue V in its country of domicile under Article 4.1 and 8.1 of Regulation (EU) 1215/2012 (Brussels Recast Regulation), which provides that claimants may sue EU-domiciled defendants in their home country courts. This right was recognized, despite V and K arguing that the Article 4.1 and case law on it meant that an English incorporated company could be sued in England by claimants around the world. Such actions could lead to irreconcilable judgments (duplication of proceedings in different countries and the risk of inconsistent judgments) if V and K could not be sued in the same court. The judge stated that Article 4.1 was blind to considerations of that kind.

The villagers also relied on the rules for joinder of an additional non-EU defendant, as contained in the English Civil Procedure Rules (Rules). Under the Rules, the villagers had to demonstrate (1) that the claims give rise to a real issue to be tried against V (which they did, as discussed above in relation to parent company liability); (2) that V was a necessary and proper party to the claims against K; (3) that the claims against K had a real prospect of success; and (4) that either England was the proper place to bring the claims or that there was a real risk that the villagers would not obtain substantial justice in Zambia. The villagers prevailed on all points except the first part of (4); the Supreme Court concluded that England was not the proper place to bring the claims.

The Judge stated that despite this, the court may permit service in England, out of jurisdiction, if satisfied that the villagers would not obtain substantial justice in Zambia. The lower court was so satisfied, but was at pains to avoid any hint of English justice being any better than Zambia’s, or any colonialist or imperialistic reasoning. Lord Briggs stated as follows:

In the present case, the [lower court] judge described this as an “access to justice” issue. By this he meant that the real risk (in his view a probability) that substantial justice would be unavailable in Zambia had nothing to do with any lack of independence or competence in its judiciary or any lack of a fair civil procedure suitable for handling large group claims. Rather, it derived essentially from two factors: first, the practicable impossibility of funding such group claims where the claimants were all in extreme poverty; and secondly, the absence within Zambia of sufficiently substantial and suitably experienced legal teams to enable litigation of this size and complexity to be prosecuted effectively, in particular against a defendant [K] with a track record which suggested that it would prove an obdurate opponent.

Vedanta, [2019] UKSC 20 at ¶89.

Lord Briggs gave weight to a similar Zambian case (Nyasulu [2015] ZNSC 33), explaining that action was also against K (Konkola Copper Mines, the subsidiary in the Vedanta case) where 2,000 claimants joined in group litigation about a discharge from the copper mine in 2006 into nearby streams and local river. Medical reports evidencing personal injuries were put in evidence only for 12 claimants. The trial judge found in favor of the claimants on liability, and awarded general damages to all 2,000 claimants on the basis of medical evidence regarding only 12 of them. In the Zambian Supreme Court, the judge was upheld on liability, but the claim by the remaining 1,989 claimants was dismissed for want of medical evidence to prove that they had suffered any loss. This would have required funding from the claimants that they could not afford for disbursements that the claimants’ lawyers would not have been able to pay.

Brexit may affect later cases, because part of the Vedanta case was decided on the basis that the villagers had an unfettered right to sue V in its country of domicile under Article 4.1 of the Brussels Recast Regulation. This may or may not apply in the future because that regulation is currently directly applicable in the UK. The regulation should continue to apply post Brexit until it is repealed or amended by the UK Parliament. Because later courts are likely to follow the Supreme Court’s ruling in Vedanta, another Supreme Court decision may be necessary to overturn this part of the case.

Holding companies in the UK with subsidiaries overseas will be looking at their policies and practices relating to environmental issues in light of the Vedanta case. They should first thoroughly review potential liabilities and seek to mitigate any risks, and also ensure that if they do take responsibility for environmental policies and practices throughout the world, these responsibilities are implemented properly by subsidiaries. Before purchasing a subsidiary abroad, a company should undertake a full and comprehensive due diligence process in the relevant country. If there is any risk of a claim by either employees or third parties, the purchasing company should be aware that it may be taken to court and be held responsible. There is also potential exposure to human rights–based litigation in the purchasing company’s home jurisdiction.

As for Brexit, it is a question of “watch this space.” The stated aim of the government is to make all existing EU environmental legislation continue to apply in the UK upon its exit from the EU, but there will be divergence eventually. This will raise all sorts of legal questions, ensuring the jobs of environmental lawyers in the UK for many years to come.

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Lois G. Paine

Mrs. Paine is a Senior Environmental and Charity Lawyer at British Telecommunications plc in London, United Kingdom. She may be reached at lois.paine@bt.com.