Parent company liability for subsidiary operations abroad.  

 

An interesting new Court of Appeal decision on transnational litigation in the  English courts concerning alleged torts committed overseas. Lungowe v Vedanta and Konkola Copper Mines [2017] EWCA Civ 1528 involved claims by Zambian citizens against the defendants alleging personal injury, damage to property and loss of income, amenity and enjoyment of land, due to alleged pollution and environmental damage caused by discharges from the Nchanga copper mine since 2005. Konkola Copper Mines (‘KCM’), a Zambian company, owned and operated the mine. Vedanta, a UK company, is a holding company for various metal and mining companies, of which KCM is one.

The claim was served on Vedanta by virtue of its domicile in the UK and permission was granted for the claim form and particulars of claim to be served out of the jurisdiction on KCM. Vedanta and KCM both applied for declarations that the High Court had no jurisdiction to hear the claims. In June 2016 Coulson J dismissed the challenges. The Court of Appeal has now upheld the dismissal.

  1. Vedanta’s position.

Under art. 4 of the Recast Brussels Judgments Regulation 2012 the claimants were entitled to sue Vedanta in the UK by virtue of its domicile. The Court of Appeal held that following the ECJ’s decision in Owusu v Jackson [2005] QB 801, it was clear that there was no scope for staying proceedings on the grounds of forum non conveniens where jurisdiction was established on the grounds of the defendant’s domicile under art. 4. Although in principle it might be possible to argue that invoking the rules in the Recast Regulation amounted to an abuse of EU law, there would have to be sufficient evidence to show that the claimant had conducted itself so as to distort the purpose of that rule of jurisdiction. The present case did not meet the high threshold for an abuse argument to succeed.

  1. KCM’s position

The application to serve KCM out of the jurisdiction in Zambia was based on para 3.1 of Practice Direction 6B on the ground that there was between the claimant and Vedanta a real issue which it was reasonable for the court to try and the claimant wished to serve KCM as a necessary or proper party to that claim. If the claimants could satisfy these conditions, the court still retained a discretion and CPR 6.37(3) provide that: “The court will not give permission unless satisfied that England and Wales is the proper place in which to bring the claim.”

An important issue in this analysis was whether there was a real issue between the claimants and Vedanta. This raised the question of whether a parent company could owe a duty of care to those affected by the operations of a subsidiary. Following the Court of Appeal’s decision in Chandler v Cape such a duty towards the employee of a subsidiary could arise where the parent company (a) has taken direct responsibility for devising a material health and safety policy the adequacy of which is the subject of the claim, or (b) controls the operations which give rise to the claim. The parent must be well placed, because of its knowledge and expertise to protect the employees of the subsidiary. If both parent and subsidiary have similar knowledge and expertise and they jointly take decisions about mine safety, which the subsidiary implements, both companies may (depending on the circumstances) owe a duty of care to those affected by those decisions. This type of duty may also be owed in analogous situations, not only to employees of the subsidiary but to those affected by the operations of the subsidiary. The Judge had decided on the basis of the pleaded case that it was arguable that such Vedanta did owe such a duty of care to those affected by KCM’s operations. The Court of Appeal concluded that the Judge had been entitled to reach that conclusion. There was a serious question to be tried which could not be disposed of summarily, notwithstanding that it went to the Court’s jurisdiction.

The Court of Appeal also upheld the finding that it was reasonable to try the issue between Vedanta and the claimants. Vedanta was sued within the jurisdiction pursuant to a mandatory jurisdictional rule and the claimants had an interest in suing Vedanta other than for enabling them to bring KCM within the jurisdiction. The claimants were suing Vedanta as a company with sufficient funds to meet any judgment of the English court, whereas they had grounds to believe, and evidence to show, that KCM might be unable or unwilling to meet such a judgment. KCM was a necessary and proper party to the Vedanta claim because the claims against the two defendants were based on the same facts and relied on similar legal principles and the Judge was entitled to conclude that Vedanta and KCM could be regarded as broadly equivalent defendants.

As to whether England and Wales was the proper place in which to bring the claim, the Court of Appeal again upheld the Judge’s finding that it was. Although, absent the claim against Vedanta, it would be clear that England would not be the appropriate forum for the claims – that would be Zambia, the position change once the claim against Vedanta was taken into account. It would be inappropriate for the litigation to be conducted in parallel proceedings involving identical or virtually identical facts, witnesses and documents, in circumstances where the claim against Vedanta would in any event continue in England.

The case can be contrasted with the earlier decision of Fraser J in Okpabi and others v. Royal Dutch Shell Plc and Shell Petroleum Development Company of Nigeria Ltd [2017] EWHC 89 (TCC), noted in this blog on 2 February 2017.  Fraser J found that there was no arguable duty of care owed by the parent company Royal Dutch Shell Plc to those affected by the operations of its subsidiary in Nigeria. He declined to follow Coulson J’s decision in the instant case, identifying facts that distinguished the two cases. The decision is under appeal.

One thought on “Parent company liability for subsidiary operations abroad.  

  1. Pingback: Parent company liability for subsidiary operations abroad.   – Inno TankBulk

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