Category: Corporate Goverance

Climate Change litigation update (2). The UK.

So far, 2023 has seen three claims in the English courts involving the treatment of scope 3 greenhouse gas (GHG) emissions, two involving judicial review, and one involving a derivative action against the board of directors of Shell. Scope 1 concerns direct emissions from sources that are fully or partly owned or controlled by the organisation (such as a refinery). Scope 2 is for indirect emissions from third-party sources from which the organisation has purchased or acquired electricity, steam, or heating for its operations. Scope 3 includes all other indirect emissions resulting from activities of the organisation, but occurring from greenhouse gas sources owned or controlled by third parties such as other organisations or consumers, including emissions from the use of third-party purchased crude oil and gas. 

1. R (Friends of the Earth Limited) v. The Secretary of State for InternationalTrade/UK Export Finance [2023] EWCA Civ 14 

The main issue before the Court of Appeal was whether the UK Government acted unlawfully in deciding to approve UKEF’s £1.15 billion investment in a liquified natural gas project in Mozambique. UKEF’s final climate change report on the project (the CCR) concluded after a detailed analysis that “[g]as from the [project] is … considered by the Government of Mozambique to be an important contributor to the energy transition of Mozambique in line with its NDC [nationally determined contribution] and its Paris Agreement commitments” and that “[t]his aligns with the UK Government’s commitment to support developing countries to respond to the challenges and opportunities of climate change as part of its own Paris Agreement obligations”. The CCR concluded that the project’s Scope 3 emissions would significantly exceed its Scope 1 and Scope 2 emissions. The case involved three issues:

i) Was the UK Government required to adopt the correct, rather than merely a tenable, meaning of the Paris Agreement?

ii) Had the UK Government behaved irrationally in concluding that the decision was compatible with article 2(1)(c) of the Paris Agreement?

iii) Had the UK Government breached its duty of enquiry by failing to quantify the project’s Scope 3 emissions? These are all indirect emissions from the gas extracted by a project not included in Scope 1 (direct emissions) and Scope 2 (indirect emissions from the generation of purchased electricity).

On the first two issues the Court of Appeal found that the Paris Agreement was pre-eminently an unincorporated international treaty that did not give rise to domestic legal obligations. The respondents here chose, but were not compelled by domestic law, to take into account the UK’s obligations under an unincorporated treaty. The question of whether funding the project was aligned with the UK’s international obligations under the Paris Agreement was accepted to be justiciable. The Paris Agreement was, however, only one of a range of factors to which the respondents decided to have regard in reaching the decision.

The Court held that there had been no error of law in that it was tenable for UKEF to reach the view that funding the project was aligned with the UK’s obligations under the Paris Agreement. Article 2(1)(c) contains the aims and purposes of the Paris Agreement, including “holding the increase in the global average temperature” and “making finance flows consistent with a pathway towards low greenhouse gas emissions”. However, it did not create an obligation on the UK to demonstrate that its overseas funding was was consistent with a pathway towards limiting global warming to well below 2°C and pursuing efforts to 1.5°C. The CCR’s view was that on balance it appeared more likely than not that, over its operational life, the gas from the Project would at least replace some and/or displace some more polluting fuels, leading to some net emissions reduction. Therefore, it could not possibly have been irrational for the respondents to decide to provide finance for the project, when they were being advised that the project could, in some scenarios, align with the UK’s obligations under the Paris Agreement. That was at least a tenable view.

On the third issue the Court of Appeal held that the UK Government  had not breached its duty  of inquiry because it was not possible to say that it was irrational to take the funding decision without quantifying the Scope 3 emissions. UKEF’s decisions as to the quantification of the Scope 3 emissions and the adequacy of the Climate Change Report it had obtained were well within the substantial margin of appreciation allowed to the decision-makers.

2. Greenpeace Ltd v (1) Secretary of State for Business, Energy and Industrial Strategy and (2) the Oil and Gas Authority; and Uplift v (1) SSBEIS and (2) the OGA (North Sea oil and gas licensing)

In October 2022 the NSTA, pursuant to its powers under Part 1 of the Petroleum Act 1998, launched the 33rd Offshore Oil and Gas Licensing Round. This is expected to result in the grant of a further 100 licences. In December 2022 separate claims for judicial review were launched by environmental charities Greenpeace and Uplift. In April 2023 both claims were granted permission to proceed to trial.  Both challenges include arguments on the assessment of end-use emissions, i.e. from when the oil and gas is ultimately used, for example in fuelling cars.

The challenges will potentially be impacted by outcome of the appeal in R (Finch on behalf of the Weald Action Group & Others) v. Surrey County Council (& Others) which the Supreme Court will hear on 21 June 2023. In 2019 Surrey County Council’s granted planning permission to Horse Hill Developments Limited to expand an existing site to add four new wells for the production of crude oil hydrocarbons over a 20 year period. The developer’s environmental statement provided an assessment of the direct (scope 1 and 2) greenhouse gas (GHG) emissions associated with the project but not its scope3 emissions, those  would subsequently be produced as a result of using the product.  The claimant argued that SCC’s failure to consider these emissions in determining whether to approve the project was a breach of the UK’s obligations under European Union Law (Directive 2011/92/EU, the EIA Directive) as implemented in domestic law by the EIA Regulations, and also that scope 3 emissions should have been considered in relation to the UK’s net zero target.  At the end of 2020 the High Court dismissed the case on the basis that the assessment of scope 3 emissions was as a matter of law incapable of failing with the scope of the EIA. In February 2020 the Court of Appeal by a 2-1 majority upheld the dismissal, finding that the decision maker had a discretion whether or not to include scope 3 emissions in the EIA.

3. ClientEarth v Shell Plc and others [2023] EWHC 1137 (Ch))

On February 9, 2023, ClientEarth filed a derivative action against Shell’s Board of Directors alleging mismanaging of material and foreseeable climate risk and breach of company law. The claim alleged that Shell’s 11 directors had breached their legal duties under the Companies Act by failing to adopt and implement an energy transition strategy that aligns with the Paris Agreement. Shell claims that its “Energy Transition Strategy,” which includes a net zero emissions plan with a 2050 target, is consistent with the 1.5°C temperature goal of the Paris Agreement. ClientEarth, based on a third-party assessment done by Climate Action 100+, claims that the strategy excludes short to medium-term targets to cut the emissions from scope 3 emissions despite these accounting for more than 90% of the company’s overall emissions.

The High Court has now refused ClientEarth permission to bring a derivative action against Shell’s directors, and found that ClientEarth had not demonstrated a prima facie case that either Shell’s directors had breached their duty of care to the company or the remedy sought from the court – mandatory injunctions specifying actions to be taken by the directors – would serve a useful purpose. It was for the company’s directors, acting in good faith, to determine how best to promote the success of a company for the benefit of its members as a whole. A court would not generally look behind this unless there is a prima facie case that the directors could not reasonably have determined that their decision was in the best interests of the company as a whole.

What’s coming in 2023?

What’s coming in 2023?

Nearly two weeks into the New Year and the IISTL’s version of ‘Old Moore’s Almanack’ looks ahead to what 2023 is going to have in store us.

Brexit. EU Retained EU Law (Revocation and Reform) Bill will kick in at end of the year. It will be a major surprise if the two Conflicts Regulations, Rome I and Rome 2 aren’t retained, but not the Port Services Regulation.

Ebury Partners Belgium SA/NV v Technical Touch BV, Jan Berthels [2022] EWHC 2927 (Comm) is another recent decision in which an ASI has been granted to restrain proceedings in an EU Member State (Belgium) in respect of a contract subject to English jurisdiction.

Electronic bills of lading. Electronic Trade Documents Bill. Likely to become law in 2023 and to come into effect two months after getting Royal Assent. The Law Commission will publish a consultation paper “Digital assets: which law, which court?” dealing with conflicts of law issues in the second half of 2023.

Autonomous vessels. The Department for Transport consultation on MASS and possible amendments to the Merchant Shipping Act 1995 closed in November 2021. Maybe some results in 2023?

Supreme Court cases

Okpabi v Royal Dutch Shell. The case may well go to trial in 2023, although in May 2022 the High Court EWHC 989 (TCC), held it was premature to grant a  Group Litigation Order and directed that each individual claimant should specify additional details to formulate a proper cause of action for the defendants to respond to.

In similar proceedings in the Netherlands in which the Court of Appeal in the Hague gave judgment in January 2021 relating to multiple oil pipeline leaks in the Niger Delta, it was announced just before Christmas 2022 that Shell will pay 15 million euros ($15.9 million) to the affected communities in Nigeria in full and final settlement on a basis of no admission of liability.

The Eternal Bliss appeal to the Supreme Court is likely to be heard in 2023, with possibility of judgment given in 2023.

But there must be a question mark over London Steam-ship Owners’ Mutual Insurance Association Ltd (Respondent) v Kingdom of Spain (Appellant), Case ID: Case ID 2022/0062 where it is stated “This appeal has been adjourned by request of the parties.”

Climate Change

IMO  Two measures aimed at reducing shipping’s contribution to GHG emissions,   EEXI and Cii, both came into force as from 1 January 2023 and will be in the forefront of the minds of those negotiating new time charters.

EU. Shipping is likely to come into the ETS system with the amendments to the 2003 ETS Directive with phasing in from 1 January 2024. Here and here.

BIMCO has produced time charter clauses to deal with all three of these measures.

Ewan McGaughey et al v. Universities Superannuation Scheme Limited is a case involving whether the investments in fossil fuels by a large pension fund in the UK breach the directors’ fiduciary duties and duties towards contributors of the pension fund. On 24 May 2022, the High Court refused permission to bring a derivative action against USSL, but the Court of Appeal gave permission to appeal in October 2022, so a hearing in 2023 is “on the cards”.

European Union

On 15 July 2022, the EU Taxonomy Complementary Climate Delegated Act covering certain nuclear and gas activities came into force on 4 August 2022 and has applied from 1 January 2023. A legal challenge against the Commission before the CJEU by various NGOs and two member states, Austria and/or Luxembourg has been threatened in connection for the inclusion of nuclear energy and natural gas in the Delegated Act. Climate mitigation and adaptation criteria for maritime shipping, were included in the EU Taxonomy Climate Delegated Act adopted in April 2021.

Previous requests from other NGOs asking the Commission to carry out an internal review of the inclusion of certain forestry and bioenergy activities in the EU green taxonomy had already been rejected by the Commission in 2022.

The Corporate sustainability reporting directive came into effect on 16 Dec, 2022

For EU companies already required to prepare a non-financial information statement, the CSRD is effective for periods commencing on or after 1 January 2024. Large UK and other non-EU companies listed on an EU regulated market (i.e. those meeting two of the three following criteria: more than €20 million total assets, more than €40 million net turnover and more than 250 employees) will be subject to the CSRD requirements for periods commencing on or after 1 January 2025. 

UK and other non-EU companies that are not listed in the EU but which have substantial activity in the EU will be subject to the CSRD for periods commencing on or after 1 January 2028.

Finally, a very happy 2023 to all our readers.

One more move: Decentralised Autonomous Organisations (DAOs)

Over the last couple of years, the Law Commission for England and Wales has successfully launched several law reform projects related to digital assets, smart contracts, and electronic trade documents. With the UK’s target of becoming a tech leader, yesterday, on 16 November 2022, the Commission published a public call for evidence to be delivered by stakeholders on the characterisation and legal regulation of decentralised autonomous organisations (DAOs) – emerging organisational entities.

A DAO, a concept first developed in 2016, is a legal structure without any central governing body that enables the members with a common target to manage the entire entity on the basis of blockchain technology, smart contracts, software systems, and the Ethereum network. As automated and decentralised bodies functioning without human intervention, DAOs serve for transparency and efficiency. Indeed, the use of DAOs is dramatically expanding in today’s financial markets, banking, and corporate governance. With this increasing significance and progressive application amidst to inevitable practical uncertainties and ambiguities, it is getting a more crucial task than ever to seriously ponder upon their operation under the existing legal systems. That is the precise target of the Government asking the Commission to investigate what exactly constitutes a DAO and what are encompassed by their structure.

The Commission has drafted the following questions encouraging everybody with relevant expertise to respond, but not necessarily to all of them:

  • “When would a DAO choose to include an incorporated entity into its structure?
  • What is the status of a DAO’s investors / token-holders?
  • What kind of liability do or should developers of open-source code have (if any)?
  • How does / should the distinction between an incorporated company (or other legal form or incorporated entity) involved in software development and an open-source smart contract-based software protocol operate as a matter of law?
  • How do DAOs structure their governance and decision-making processes?
  • How do money laundering, corporate reporting and other regulatory concepts apply to DAOs, and who is liable for taxes if the DAO makes a profit?
  • Which jurisdictions are currently attractive for DAOs and why?”

The Law Commission aims at reaching a final report which will define the relevant issues under the existing laws of England and Wales as well as determine the potential for further legal reforms.

The call for evidence will last for 10 weeks from 16 November 2022 with the closing date of 25 January 2023. Further details of the project are available at Decentralised Autonomous Organisations (DAOs) | Law Commission.

US Companies win aiding and abetting ATS case in US Supreme Court; but ATS not dead yet.

Nestle Inc v Doe & Others. Certiorari to the US Court of Appeals for the Ninth Circuit. 17 June 2021. Slip opinion.

Six individuals from Mali claimed that they were trafficked into Ivory Coast as child slaves to produce cocoa. They sued Nestlé USA and Cargill, U.S.-based companies that purchase, process, and sell cocoa. The companies did not own or operate farms in Ivory Coast, but did buy cocoa from farms located there as well as provided those farms with technical and financial resources—such as training, fertilizer, tools, and cash—in exchange for the exclusive right to purchase cocoa. The plaintiffs alleged that this constituted a violation of the law of nations under the Alien Tort Statute, in that the companies had thereby aided and abetted slavery in that they “knew or should have known” that the farms were exploiting enslaved children yet continued to provide those farms with resources and also had economic leverage over the farms but failed to exercise it to eliminate child slavery. Although the resource distribution and the alleged slavery occurred outside the United States, it was argued that suit under the ATS was possible because the companies allegedly made all major operational decisions from within the United States.

Justice Thomas gave the majority opinion in Part I & II of his judgment. Even if all these disputes were resolved in respondents’ favour, their complaint would impermissibly seek extraterritorial application of the ATS. Nearly all the conduct that they say aided and abetted forced labor—providing training, fertilizer, tools, and cash to overseas farms—occurred in Ivory Coast. Although the Ninth Circuit let the suit proceed because respondents pleaded as a general matter that “every major operational decision by both companies is made in or approved in the U. S.” allegations of general corporate activity—like decision making—cannot alone establish domestic application of the ATS.

Justice Thomas also gave an alternative reason for his judgment in Part III by finding federal courts should not recognize private rights of action for violations of international law beyond the three historical torts identified in Sosa. He was joined by Justices Gosruch and Kavanaugh.

 Justices Sotomayor, Breyer, and Kagan agreed with Justice Thomas in Parts I & II of his judgment but not as regards Part III.

Justice Alito agreed with Part I of Justice Soyomayor’s judgment that if a particular claim may be brought under the ATS against a natural person who is a United States citizen, a similar claim may be brought against a domestic corporation. dissented because the complaint sought extraterritorial application of the ATS, a question tied to the question whether the plaintiffs should be allowed to amend their complaint so as to reach the question of extraterritoriality. Justice Alito would vacate the judgment below, and remand these cases for further proceedings in the District Court.

The creditor in the looking glass. ‘Reflective loss’ principle confined to shareholder claims.

 

In July 2013 Marex Financial Ltd (“Marex”), obtained judgment for over US$5.5 million, plus costs of£1.65 million against various companies. Subsequently, one Mr Sevilleja allegedly procured the offshore transfer of over US$9.5 million from the Companies’ London accounts into his personal control and by the end of August 2013, the Companies’ assets were just US$4,329.48, such that Marex could not receive payment of its judgment debt and costs. The Companies were then placed into liquidation in the BVI with alleged debts in excess of US$30m.

Marex claimed damages from Mr Sevilleja in tort for (1) inducing or procuring the violation of its rights under the July 2013 judgment and orders, and (2) intentionally causing it to suffer loss by unlawful means. The Court of Appeal had found that the claims were barred by the rule against recovery of ‘reflective loss’ in Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204, noted here https://iistl.blog/2018/06/26/midsummer-blues-if-youre-a-judgment-creditor/ This laid down a rule of company law that a diminution in the value of a shareholding or in distributions to shareholders, which is merely the result of a loss suffered by the company in consequence of a wrong done to it by the defendant, is not in the eyes of the law damage which is separate and distinct from the damage suffered by the company, and is therefore not recoverable.. The Supreme Court in Sevilleja (Respondent) v Marex Financial Ltd (Appellant) [2020] UKSC 31, has now overturned that decision.

The majority concluded that the rule did not apply to claims brought by creditors of the company. Lord Reed concluded that the rule in Prudential seemed to be expanded in Johnson v Gore Wood & Co [2002] 2 AC 1, in which Lord Millett treated the “reflective loss” principle as a wider principle of the law of damages, based on the avoidance of double recovery. After reviewing subsequent cases, Lord Reed concluded that it was necessary to distinguish

“(1) cases where claims are brought by a shareholder in respect of loss which he has suffered in that capacity, in the form of a diminution in share value or in distributions, which is the consequence of loss sustained by the company, in respect of which the company has a cause of action against the same wrongdoer, and (2) cases where claims are brought, whether by a shareholder or by anyone else, in respect of loss which does not fall within that description, but where the company has a right of action in respect of substantially the same loss” [80].

Case one is barred by the rule in Prudential, regardless of whether the company recovers its loss in full, but in case two recovery is permissible in principle, although it may be necessary to avoid double recovery. The rule in Prudential did not apply to Marex, which was a creditor of the Companies, not a shareholder.

The minority also decided in favour of Marex but took a different view of the effect of Prudential. Lord Sales stated that the case did not lay down a rule that would exclude a shareholder’s recovery where, factually, the loss was different from that of the company.  The governing principle was avoidance of double recovery, as was the view of the Law Lords in Johnson (contrary to the view expressed by Lord Reed).

Although there was necessarily a relationship between a company’s loss and the reduction in share values that it causes, “the loss suffered by the shareholder is not the same as the loss suffered by the company” and there is no one-to-one correspondence between the two [132].” A shareholder ought not to be prevented from pursuing a valid personal cause of action; double recovery can be prevented by other means Even if the Prudential principle were accepted, it should not be extended to cover a case involving loss suffered by a creditor of the company.

 

Parent company duties of care. Hearing date set for Okpabi appeal to Supreme Court.

I have been informed by Leigh Day, acting on behalf of the appellants, that their appeal will be heard by the UK Supreme Court on 23 June 2020

These observations of Lord Briggs in Lungowe v Vedanta [61] may prove to be significant in the forthcoming appeal.

“[I]t seems to me that the parent may incur the relevant responsibility [for the
tort of a subsidiary] to third parties if, in published materials, it holds itself out as exercising that degree of supervision and control of its subsidiaries, even if it does not in
fact do so.   In such circumstances its very omission may constitute the
abdication of a responsibility which it has publicly undertaken.”

Most shareholders hold no shares — official. But it doesn’t matter.

Relief all round in the Square Mile today, courtesy of Hildyard J in SL Claimants v Tesco Plc [2019] EWHC 2858 (Ch).

Something over two years ago Tesco was fined a whopping £129 million for publishing misleading profit figures which bent the market in its shares. A number of institutions, market makers and others who had relied on these figures sued Tesco under s.90A and Sch.10A of FSMA 2000, saying they had bought or retained its shares on the basis of the figures. At this point, however, Tesco raised a classic pettifogger’s point (to be fair, one previously raised by, among others, Profs Gullifer and Benjamin).

To qualify for compensation under FSMA you have by Sch.10A to have bought, disposed of or retained “any interest in securities”. Tesco said two things. First, they argued that where shares were dematerialised and the custody chain included more than one layer of custodianship, no ultimate beneficiary investor ever held an interest in any securities so as to trigger liability under FSMA. If shares were vested (legally) in A who held them on trust for B who held them for investor X, X had an interest in B’s interest in the shares, but no interest in the shares themselves. Secondly, Tesco contended that intermediated securities were fungible; that when they were dealt with the whole transaction was effectuated by a combination of electronic credit and debit book entries and netting arrangements between custodians; and therefore that one could simply not talk in the old-fashioned way about shares being acquired or disposed of by anyone. True, they admitted, their plea would leave the relevant parts of FSMA largely like Cinderella — all dressed up with nowhere to go — and largely emasculate the whole UK scheme of investor protection as regards dematerialised securities (meaning these days almost all securities); but, in effect, that was tough. Fiat justitia ruat coelum, as they might have put it.

Hildyard J was having none of it. He accepted that where there were two or more custodians in a securities daisy-chain the ultimate investor technically had an interest in his immediate custodian’s interest, and not in the actual shares in which the custodian had an interest. But he rejected the idea that juridico-metaphysical niceties of this sort affected FSMA. “Any interest”, he said, could and should be interpreted as including any proprietary interest in shares or interests in shares. True it was, too, that technically a transfer of shares these days involved no transfer of anything at all, but rather a stream of electrons signifying juridical suppression of one equitable claim in X and its co-ordinated supersession by another in Y. But this did not prevent concepts like disposal being given their popular, rather than their technical equity lawyers’, meaning.

So the big claim against Tesco goes ahead. Relief, one suspects, not only in the City but in government. Had the result gone the other way there would have been a need for urgent corrective legislation. And in these fraught times we know just how hard it can be to get that kind of thing through.

From Borstal boys to Parent Companies. Tort liability for the acts of third parties.

 

2017 saw three ‘anchor defendant’ cases before the High Court involving tort claims against a UK parent corporation in respect of the activities of its overseas subsidiary. The claimants sought leave to serve the subsidiary out of the jurisdiction under the ‘necessary and proper party’ gateway for service out of the jurisdiction in paragraph 3.1 of Practice Direction 6B in the Civil Procedure Rules (“CPR”). In two cases, AAA v Unilever and Okpabi v Shell, leave was refused but was granted in the third case, Vedanta Resources PLC and another v Lungowe. The key issue was whether there was a triable issue against the UK parent corporation. Lungowe involved alleged pollution from toxic emissions from a copper mine in Zambia owned by a Zambian company, KCM, whose ultimate parent company is Vedanta Resources Ltd which is incorporated and domiciled in the UK.

The Supreme Court, [2019] UKSC 20, in which Lord Briggs gave the lead judgment, has upheld the findings at first instance and in the Court of Appeal that there was a triable issue as regards Vedanta on the basis of a plausible case that its involvement in the activities of KCM gave rise to a duty of care to those affected by those activities.

There were four issues before the Supreme Court on which the claimants succeeded on 1,2, and 4 but not on 3.

(1) whether it is an abuse of EU law to rely on article 4 of the Recast Brussels Regulation for jurisdiction over Vedanta as anchor defendant so as to make KCM a “necessary or proper party”.

The EU case law suggests that the abuse of law doctrine is limited to situations where EU law is invoked collusively to subvert other EU provisions. In light of the decision in Owusu v Jackson (C-281/02) [2005] QB 801 (CJEU), arguments based on forum conveniens cannot justify derogating from the primary rule of jurisdiction in article 4.1 The concern about the wide effect of article 4.1 in this case is best addressed under the domestic law on the “necessary or proper party” gateway.

(2) whether the claimants’ pleaded case and supporting evidence disclose no real triable issue against Vedanta

The assertion that the negligence claim against Vedanta raises a novel and controversial legal issue was misplaced, as the liability of parent companies in relation to the activities of their subsidiaries is not, in itself, a distinct category of negligence unsuited to summary determination. The relevant principles for determining whether A owes a duty of care to C in respect of the harmful activities of B are not novel and can be traced back to the decision of the House of Lords in Dorset Yacht Co Ltd v Home Office [1970] AC 1004, the case involving Home Office responsibility for damage caused by absconding borstal boys when they boarded a yacht and collided with the plaintiff’s yacht. The duty  would arise from a sufficiently high level of supervision and control of the activities  at the mine with sufficient knowledge of the propensity of those activities to cause toxic escapes into the surrounding watercourses. This was a question for Zambian law, which it was agreed followed English tort law, but the question what that level actually was is a pure question of fact. On the facts, there was sufficient material identified by the judge in support of the view that the claimants’ case was arguable and the judge made no error of law in assessing this issue, so his decision on the negligence claim must stand.

The Judge had identified the following evidence as establishing that there was an arguable case that Vedanta owed a duty of care. There was part of the published material, namely a report entitled “Embedding Sustainability” which stressed that the oversight of all Vedanta’s subsidiaries rested with the board of Vedanta itself, and which made particular reference to problems with discharges into water and to the particular problems arising at the Mine. There was the management services agreement between Vedanta and KCM , and a witness statement of Mr Kakengela.

Lord Briggs stated[61]:

“For my part, if conducting the analysis afresh, I might have been less persuaded than were either the judge or the Court of Appeal by the management services agreement between the appellants, or by the evidence of Mr Kakengela. But I regard the published materials in which Vedanta may fairly be said to have asserted its own assumption of 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 not merely to have laid down but also implemented those Page 23 standards by training, monitoring and enforcement, as sufficient on their own to show that it is well arguable that a sufficient level of intervention by Vedanta in the conduct of operations at the Mine may be demonstrable at trial, after full disclosure of the relevant internal documents of Vedanta and KCM, and of communications passing between them.”

(3) whether England is the proper place in which to bring the claims;

The domestic law ‘proper place’ test requires a search is for a single jurisdiction in which the claims against all defendants may most suitably be tried. The courts have treated the risk of irreconcilable judgments as a decisive factor in favour of England as the proper place for the claim against the non-EU defendant as well. The judge in this case applied that approach but that was a legal error in circumstances where Vedanta had by the time of the hearing offered to submit to the Zambian jurisdiction, so that the whole case could be tried there. The risk of irreconcilable judgments would be the result of the claimants’ choice to exercise their article 4 right, rather than because Zambia is not an available forum for all the claims. The risk of irreconcilable judgments was still a relevant factor but was no longer a trump card such that the judge made an error of principle in regarding it as decisive. Looking at the relevant connecting factors in the round, Zambia would plainly have been the proper place for this litigation as a whole, provided substantial justice was available to the parties in Zambia

(4) if Zambia would otherwise be the proper place, whether there was a real risk that the claimants would not obtain access to substantial justice in the Zambian jurisdiction.

Even if the court concludes that a foreign jurisdiction is the apparently the proper place, the court may still permit service of English proceedings on the foreign defendant if cogent evidence shows that there is a real risk that substantial justice would not be obtainable in that foreign jurisdiction. In this case, the judge identified two “access to justice” issues in Zambia First, the practicable impossibility of funding such group claims where the claimants are all in extreme poverty, because they could not obtain legal aid and because conditional fee agreements (CFAs) are unlawful in Zambia. Secondly, the absence within Zambia of sufficiently substantial and suitably experienced legal teams to enable effective litigation of this size and complexity, in particular against a well-resourced opponent like KCM.

The claims will now proceed against the parent company and its Zambian subsidiary in the English High Court.

A fair cop? Transnational torts and trouble at the mine.

 

Kalma v African Minerals Ltd and others [2018] EWHC 3506 (QB) is an interesting recent decision involving transnational tort claims against a UK company in respect of events at and around its mine in Sierra Leone. It is, I believe, the first of these type of claims brought by London solicitors, Leigh Day, to go to trial.

 

The claims arose out of violent police suppression of protests in 2010 and 2012 by a local community in Sierra Leone against a mine created and operated by the defendant, a UK company, and its two Sierra Leonean subsidiaries. The protests prompted a significant overreaction from some members of the Sierra Leone Police (“SLP”) whose response to disruptive protests and threats against the personnel, property and business of AML soon degenerated into violent chaos during the course of which many villagers were variously beaten, shot, gassed, robbed, sexually assaulted, squalidly incarcerated and, in one case, killed.

 

The claimants alleged that they were among the victims of these abuses and contend that, although the SLP perpetrated the worst of these excesses, the defendants were nevertheless liable to compensate them by the application of a broad range of distinct common law remedies to the facts of this case.

 

It was accepted that the law of Sierra Leone applied to the issues both of liability and quantum. In respect of liability, it was agreed that the law of Sierra Leone could be treated, for all practical purposes, as being identical to that of England and Wales. Turner J dismissed the claims having considered seven possible grounds on which the defendants might incur liability for the acts of the Sierra Leone police towards the claimants.

 

  1. EMPLOYEE VICARIOUS LIABILITY

 

It was alleged, for example, that one employee of the defendant directly and violently assaulted some of the claimants and that others encouraged members of the SLP to use excessive force. Two criteria are involved.

(i)    as regards the sort of relationship which must be found to exist between an individual and a defendant before the defendant can be found to be vicariously liable in tort for the conduct of that individual; That was clearly satisfied here as the individuals concerned were employees

(ii)    as regards concerns the scope of the conduct of such an individual in respect of which vicarious liability is to be imposed on the defendant.

 

Applying Muhamud v Wm Morrison Supermarkets plc [2016] AC 677 if any claimants could prove that they were the victims of torts perpetrated directly upon them by an employee or employees of the defendant then the means deployed, even if seriously criminal, remain sufficiently closely connected to their employment to give rise to vicarious liability on the part of the defendant. However on the facts the claimants had not made out that the employees against whom such allegations have been raised were, themselves, guilty of free-standing tortious conduct.

 

  1. NON-EMPLOYEE VICARIOUS LIABILITY

 

The claimants contended that the defendant was vicariously liable for the torts of the SLP. Various Claimants v Catholic Welfare Society [2013] 2 AC 1 established that the relevant test is whether or not the non-employment relationship is, upon analysis, one that is “akin to that between an employer and employee”. The most important factors tending to establish a relationship akin to that between employer and employee in this context arise in the following circumstances:

(i)             the tort will have been committed as a result of activity being undertaken by the tortfeasor on behalf of the defendant;

(ii)           the tortfeasor’s activity is likely to have been part of the business activity of the defendant; and

(iii)         the defendant, by engaging the tortfeasor to carry on the activity, will have created the risk of the tort committed by the tortfeasor.

 

This claim was unsustainable. Save for the six officers permanently stationed at the mine, in respect of whom there is no evidence of wrongdoing, the officers involved were performing duties which extended far beyond the narrow parameters of the business activity of the defendant. The defendant did not exercise any significant degree of control over the SLP. The communications between employees and the police did not amount to orders or direction but comprised, at their highest, encouragement to do a robust and thorough job.

 

  1. ACCESSORY LIABILITY

 

It was alleged that the SLP’s use of unlawful force on the protesters was part of a common plan between the defendant and the SLP the execution of which rendered the defendant liable for the entirety of the injuries and harm caused.  The principle of accessory liability was reviewed and clarified by the Supreme Court in Fish & Fish v Sea Shepherd UK [2015] AC 1229 in which Lord Toulson observed at paragraph 21:

“To establish accessory liability in tort it is not enough to show that D did acts which facilitated P’s commission of the tort. D will be jointly liable with P if they combined to do or secure the doing of acts which constituted a tort. This requires proof of two elements. D must have acted in a way which furthered the commission of the tort by P; and D must have done so in pursuance of a common design.”

 

The central issue was whether or not the defendant was at the material times assisting the police in their tortious conduct to a more than minimal degree in pursuance of a common design. Where the parties to an alleged common design include corporate bodies, the requisite design must be common to individuals whose acts and knowledge are legally attributable to such bodies by the application of the approach of Lord Hoffmann in the Privy Council decision of Meridian Global Funds Management Asia Limited v Securities Commission [1995] 2 AC 500.

 

Here the defendant’s provision of vehicles and drivers to the SLP was sufficient to facilitate the tortious conduct of the SLP to an extent that was more than de minimis. However, it was not the case that the defendant intended the police to act tortiously at any stage. Those in authority in the defendant’s organisation were understandably concerned that the disruptions to their undertaking were potentially extremely damaging to their prospects of commercial success. However, at all relevant times the solutions they proposed were directed at conciliation and not at the deployment of unlawful means. In particular, it would have been perfectly possible for the SLP to deploy the defendants’ vehicles lawfully and it was no part of the defendant’s plans that they should do otherwise. Similarly, the provision of cash, food, accommodation and drink although alien to what would be expected in the UK were pragmatic incentives and not bribes to achieve tortious ends.

 

  1. PROCUREMENT LIABILITY

Procurement liability is a further manifestation of joint liability whereby a defendant might incur liability by procuring the commission of a tort by, for example, “inducement, incitement or persuasion” of the primary tortfeasor. If the torts, including battery and false arrest, perpetrated by the SLP were pursuant to “some direction, or procuring or direct request, or direct encouragement” from the defendant then the defendant would be liable as a joint tortfeasor for the loss and damage sustained as a result.

 

On the facts here, the defendant neither incited or procured the SLP to act tortiously. Its employees on the ground were anxious that the police should deal with the protesters robustly and not tolerate the construction and manning of unlawful roadblocks or any other form of unlawful protest. However, they had not exhorted them to unlawful behaviour including false arrest, battery or tortious damage to property.

 

  1. MALICIOUS PROSECUTION

 

The ingredients of the tort of malicious prosecution are set out in Clerk and Lindsell on Torts 22 nd Ed. (2018) at paragraph 16-12:

“In an action for malicious prosecution the claimant must show first that he was prosecuted by the defendant, that is to say, that the law was set in motion against him by the defendant on a criminal charge..; secondly, that the prosecution was determined in his favour; thirdly, that it was without reasonable and probable cause; fourthly, that it was malicious. The onus of proving every one of these is on the claimant. Evidence of malice of whatever degree cannot be invoked to dispense with or diminish the need to establish separately each of the first three elements of the tort.”

Following the incident in 2010, members of the local population were rounded up and later prosecuted for various criminal offences alleged to have been committed during the disturbances. The claimants in this case fell at the first hurdle as those who were prosecuted in the aftermath of the 2010 incident faced charges which were set in motion by the police.

 

  1. NEGLIGENCE

 

The claimants alleged the defendant owed them a duty of care in three ways.

 

(i)                   There was an obligation on the Defendants when operating in a country such as Sierra Leone to ensure clear protocols and procedures were adopted and implemented so as to ensure the use of public and private security forces did not lead to abuses of the rights of those affected by the Defendants’ operations;

(ii)                 Further or alternatively, there was an assumption of responsibility by the Defendants towards the Claimants via their commitments to abide by the international standards and in the course of their use and control of the Claimants’ land and their coordinated response to the protests;

(iii)               Alternatively, if and in so far as the Defendants were operating as a separate entities, in the case of the First Defendant, there was an assumption of responsibility towards the Claimants via its commitments to abide by the international standards and its full effective control over the subsidiaries in respect of operational risk management and health and safety, to advise and direct its subsidiaries to take steps to prevent human rights abuses by their servants, agents and/or the police did not lead to abuses of the rights of those affected by the Defendants’ operations.

Turner J found that no duty of care arose on any of these pleaded grounds.

 

The defendant at senior management level was aware both in 2010 and 2012 that there was a risk that the police might react to protest with disproportionate violence. The generic danger of the police causing injury and loss was not, however, one which was “created” by the defendant. The proclivities of the police were, unhappily, an institutional fact long before the arrival of the defendant and, although not mitigated by the defendant’s failures to follow the active steps advocated by the relevant international standards, were not thereby exacerbated.

 

Nor could it be said that the defendant created the danger simply by calling the police. In both 2010 and 2012, dangerous situations were already developing which called for an effective response. In particular, the defendant undoubtedly owed a duty of care to its own employees to take reasonable care for their safety. The only sense in which it could realistically be argued that the defendant created the danger is with respect to the provision of vehicles, food, and financial or other support to the police. But the defendant was providing no more than that which the Sierra Leonean state, itself, ought to have provided to maintain an efficient police force in the first place. Suitable vehicles, proper remuneration, food and water are prerequisites to the proper functioning of any force.

 

The defendant exercised no supervision or control over the SLP. Individual employees did not give directions to the police and the responses of the police to the incidents which they were called upon to deal with were operationally entirely of its own choosing.

 

The claimants were members of the general public who lived near the mine and were policed by officers who, for the most part, would not have been there but for the activities of the defendant. This fell far short of establishing that the defendant had assumed a responsibility for the actions of the police. The circumstances in which the police are to be held to have assumed responsibilities for the acts of third parties is heavily circumscribed. The circumstances in which a party ought reasonably to be found to have assumed a responsibility for the police could hardly be less so. A finding to the contrary would open up the defendant to almost unlimited liability to a broad swathe of potential claimants within a class almost impossible to define or circumscribe with any clarity.

 

 

  1. BREACH OF A NON-DELEGABLE DUTY

 

The claimants sought to amend their pleadings to allege that if the SLP were operating, not in a relationship akin to employment but as independent contractors to the defendant, then they were engaged in an extra-hazardous activity the negligent performance of which exposed the defendant to liability As a general rule, liability does not generally attach to a defendant in respect of the tortious conduct of his independent contractors, although there is an exception which concerns extra-hazardous activities. In Honeywill & Stein Ltd v Larkin Bros (London’s Commercial Photographers) Ltd [1934] 1 KB 191. The scope of this exception was severely restricted by the Court of Appeal in Biffa Waste Services Ltd v Maschinenfabrik Ernst Hese GmbH [2009] QB 725.

 

The claimants needed to prove (i) that the police officers who caused them injury, loss and damage were acting as independent contractors for the defendant and (ii) that the activities they were undertaking were exceptionally dangerous whatever precautions were taken.

 

They failed on both elements. First, with the possible exception of the officers stationed at the mine itself, the police were acting at any time as independent contractors of the defendant. The payments made to the police did not provide the defendant, either in form or substance, with any degree of significant control over what the police did or in what numbers. Similarly, the provision of vehicles, food and water was on an ad hoc basis and brought with it no corresponding contractual obligation on the part of the police to carry out its duties in a particular way which departed from those which they owed to the public at large to maintain the peace.

 

Second, although what many officers did was dangerous in both 2010 and 2012 the task in hand was not inherently and exceptionally dangerous if proper precautions had been taken. Honeywill liability arises where the work is extra-hazardous in itself not where the contractor’s performance makes it so.

 

Who is your neighbour? Corporate social responsibility and the tort of negligence.

In Das v. George Weston Limited, claims were made against a Canadian garment retailer, Loblaws, whose sub-suppliers, New Wave, had occupied premise in the Rana Plaza Building at the time of its collapse on  24 April 2013, and Bureau Veritas who had been employed to audit the corporate social responsibility code that Loblaws had inserted into its contracts with its suppliers and sub-suppliers. On April 23, 2013, cracks were discovered in three pillars of the structure of Rana Plaza. Local police evacuated the site and workers were sent home. Later that day, however, managers at New Wave ordered New Wave employees to return to work the following day. The next morning, April 24, 2013, New Wave advised workers that the building was safe and threatened to terminate their employment if they did not return to work.

That same morning, as a result of a power outage, the large back-up generators on the upper floors of Rana Plaza began to operate, causing substantial vibration. Around 9 a.m., Rana Plaza collapsed, killing 1,130 people and injuring 2,520 others. Those injured or killed included employees of New Wave, employees of other garment businesses operating out of Rana Plaza, and other people who happened to be in or around the building at the time of the collapse. The claimants were workers in and relatives of workers who had been killed or injured in the collapse . the action not only on behalf of employees of New Wave and their survivors, but on behalf of all persons who were in Rana Plaza at the time of the collapse and survived, the estates of all persons who died as a result of the collapse, and the family members and dependents of those who died or were injured. Claims were brought in 2015 shortly before the second anniversary of the collapse.

In 2017 Perell J dismissed the action 2017 ONSC 4129. The claims for death and personal injury were a time barred, save for claimants born after 22 April 1996, under the law of Bangladesh which was the governing law, as the lex loci delecti. There was no plausible case for liability in tort on either party under either the law of Bangladesh (effectively English tort law) and that of Ontario.

Shortly before Christmas 2018 the Court of Appeals in Ontario upheld the decision,  2018 ONCA 1053 (CanLII).

With respect to Loblaws’ liability, the Court found that it was plain and obvious that a negligence claim against Loblaws would fail under Bangladeshi law. The facts did not amount to the type of relationship or control over New Wave’s operations by Loblaws that has been found in English law to be sufficient to establish proximity or assumption of responsibility, and to thereby impose a duty of care to protect against harm by third parties. Loblaws was not directly involved in the management of New Wave, nor in the process of manufacturing the products. Loblaws did not have control over where the manufacturing operation took place. Loblaws’ only means of controlling New Wave was through cancellation of its product orders from Pearl Global for non-compliance with the CSR Standards. Nor was there any pleaded history of Loblaws using that lever to enforce any change in New Wave’s operations. The social audits required by Loblaws the limited social audits did not and were not intended to cover any structural issues in the New Wave factories and there was therefore no basis for any reliance on Loblaws or Bureau Veritas with respect to the structure of the Rana Plaza premises.

Similarly, the Court held that the judge correctly held that it was plain and obvious that the appellants’ pleaded claim in negligence against Bureau Veritas would fail under Bangladeshi law.

The vicarious liability claim also failed. It had not been pleaded that New Wave was acting as agent for, or on behalf of, Loblaws in conducting its operations. The exceptional circumstances in which an enterprise can be vicariously liable for the misdeeds of independent contractors were not present here. Loblaws was a retailer not a garment manufacturer and was not an enterprise engaged in a hazardous or inherently dangerous industry. It had no control over how its supplier and the sub-supplier carried on their manufacturing business or treated their employees.

Two other interesting cases on corporate liability for the acts of third parties were heard last month before the Supreme Court in Canada and the UK.

The former is the appeal in Araya v Nevsun Resources Ltd, 2017 BCCA 401, a claim against a Canadian company in respect of alleged slavery at a mine in Eritrea operated by the Eritrean government under a joint venture with it. The two issues under appeal were (a) whether the claim was barred by the Act of State doctrine and (b) whether there was a cause of action against the company for participating in a violation of customary international law.

The latter is the Vedanta Resources Plc v Lungowe noted here https://iistl.blog/2017/10/20/parent-company-liability-for-subsidiary-operations-abroad/

This involved claims against the UK parent company and its Zambian subsidiary for environmental damage and personal injury in respect of the operation of a copper mine in Zambia. There were five issues: (i)  The proper approach to the “real issue”/”proper party” test under Practice Direction 6B para. 3.1, where a claimant seeks to sue a foreign subsidiary and a UK-domiciled parent company.

(ii) The proper approach to the exercise of discretion under CPR r.6.37(3) in mass tort claims, particularly the weight to be given to the prospect of parallel foreign proceedings as against the prejudice caused to a foreign defendant in defending mass tort claims in England and Wales.

(iii) The proper approach when determining whether there is a real risk that a claimant cannot obtain substantial justice in a foreign jurisdiction.

(iv)  The proper application of EU law principles and cases to claims brought against an English domiciled parent company, where the non-EU claimant sues both an EU-domiciled parent company and its non-EU subsidiary company.

(v) Whether to refer point (4) above to the EU Court of Justice.