On 10 April 2019, the UK Supreme Court handed down its judgment in Vedanta Resources PLC and anor. v Lungowe and others  UKSC 20; a long awaited decision on parent company liability and the jurisdiction of English courts over transnational torts. This blog sets out the key findings and practical implications of the judgment, with a particular focus on what it means for human rights related claims against multinationals and the policies and procedures which they adopt to address the risk of adverse human rights impacts associated with their overseas subsidiaries and supply chains.
Factual and procedural background
In July 2015, the victims of alleged toxic emissions from a mine in Zambia brought claims under common law negligence and for breach of Zambian statutory duty in the English courts against the Zambian owner of the mine, Konokola Copper Mines plc (“KCM”), and its (then UK domiciled) parent company, Vedanta Resources plc. KCM and Vedanta challenged jurisdiction on a number of grounds which were dismissed, first, by the High Court and then, in October 2017, by the Court of Appeal (see our previous blogs for further details). Vedanta and KCM appealed to the Supreme Court.
The Supreme Court’s judgment
The Supreme Court unanimously dismissed Vedanta and KCM’s appeals, meaning that the case can proceed to a full trial on the merits. The judgment contains several points of practical significance for future cases and the way in which multinationals manage human rights related risk in their value chains. Two of these: in relation to a parent company’s duty of care; and the appropriate forum for such claims, are discussed below.
“Parent company liability”
The law on jurisdiction over an English domiciled “anchor” defendant (for example, an English parent company) is, for as long as the UK remains subject to the European rules on jurisdiction, settled. According to the Recast Brussels Regulation, and as applied by the ECJ and UK courts (including the Supreme Court), a claimant has the right to sue a defendant in their home courts, irrespective of whether England is otherwise an appropriate forum. The Supreme Court dismissed Vedanta and KCM’s appeals that the claims were an abuse of process and should be thrown out as a matter of European law. As Vedanta was, at the time, domiciled in England, the claimants had the right to sue it in the English courts. Accordingly, where an anchor defendant wants to throw out a weak case against it, it should apply for summary judgment on the merits rather than challenge jurisdiction.
Jurisdiction over a foreign domiciled defendant (for example a non-EU subsidiary of the anchor defendant) who the claimants seek to join to the proceedings against the anchor defendant is more controversial and it is in this area that the Vedanta judgment is most significant. In order to establish jurisdiction over a foreign defendant, it is necessary for claimants to surmount a number of hurdles set out in the English Civil Procedure Rules so as to the bring the claim into the jurisdiction of the English courts through what is known as the “necessary and proper party gateway”.
One of these tests requires that the claimants can show that there is a “real issue to be tried” against the anchor defendant. This requires an evaluation of the merits of the case, albeit that the threshold is low, akin to the test for summary judgment. The lower courts in Vedanta concluded that the claimants had adequately surmounted this threshold.
The Supreme Court did not overturn this conclusion. It reaffirmed that there is no special doctrine of parent company liability in English negligence law. The equity relationship between a parent and subsidiary may enable the parent to take on the control of the management of the operations of the business, or land owned by the subsidiary, but it does not impose a duty upon the parent to do so. Everything will depend on the extent to which and the way in which the parent avails itself of the opportunity to take over, intervene in, control, supervise or advise the management of the relevant operations or land of the subsidiary. All that the existence of a parent subsidiary relationship demonstrates is that the parent had, prima facie, an opportunity to do so.
The Supreme Court is dismissive of attempts by the Court of Appeal to categorise or in any way limit the circumstances in which a parent will owe a duty of care to persons affected by a subsidiary. It expresses reluctance about seeking to “shoehorn” the categories of parent company liability into the typology of “management” or “advice” devised by the Court of Appeal in Vedanta and describes the four indicia in the earlier case of Chandler (relating to superior knowledge of systems of work) as imposing an “unnecessary straightjacket” on claimants and courts. In practice, this will have the effect of widening the circumstances in which a parent can be said to owe a direct duty of care to persons affected by a subsidiary and may precipitate more claims like this one.
In a passage which is likely to be heavily relied upon in future cases, the Supreme Court suggests, without limitation to other circumstances, that a duty of care may arise, according to established principles of negligence, where: in published materials, a parent holds itself out as exercising a degree of supervision and control of its subsidiaries, even if it does not in fact do so; and, perhaps more problematic from a policy perspective, where a parent company takes active steps, by training, supervision and enforcement, to see that a group policy is implemented by subsidiaries.
This second situation is problematic, taken in isolation, it could have a dissuasive effect on businesses implementing group wide sustainability or environmental policies or respecting human rights according to Pillar II of the UN Guiding Principles. The Guiding Principles set out the expectation that, amongst other things, business enterprises publically adopt human rights policies and seek to implement these throughout their value chain through effective and transparent due diligence. However, for as long as this remains voluntary (to date only France has adopted legislation making this mandatory and, even there, only with respect to a small number of large companies), there will be an understandable concern that voluntarily taking steps to respect human rights will increase the scope for a duty of care arising under English negligence law.
However, before tearing up a human rights or sustainability policy, it is important to put this development into context. First, it is axiomatic that the best way to reduce legal (never mind reputational) risk is to identify a human rights risk and take effective measures to stop it materialising in the first place. Second, depending on the wording of the relevant policy or public pronouncement, any duty could be discharged by adequately implementing a policy according to the relevant standard of care (i.e. what would be expected of an ordinary, reasonable and prudent person in the same circumstances). A policy does not, unless it is drafted to do so, establish some form of strict liability over outcomes which are not within the company’s control. Third, in any event, in circumstances where a parent company lacks the ability to control the operations of an overseas subsidiary, it will be difficult for claimants to establish the necessary degree of causation. So the legal risk remains remote, notwithstanding the possible existence of a duty of care. But perhaps more significantly, stakeholders, including consumers and investors, increasingly expect companies to have policies and procedures in place that deal with human rights and the law, to a lesser or greater degree, is developing to reflect this requirement (see for example the French Law of Vigilance and the UK and Australia Modern Slavery Acts). As such, it is unlikely that the decision on parent company liability in Vedanta will lead responsible businesses to withdraw policies or suspend engagement in human rights or sustainability issues in their value chain. However, it is clear is that businesses must do what they say they do in their policies and should take care not to make commitments in policies or public statements which are aspirational or practically impossible to uphold. This approach ought to apply by extension to statements which qualifying UK businesses make in their Modern Slavery statements.
It should also be noted that the Supreme Court cites with approval a passage from the Court of Appeal’s judgment in Unilever that “the legal principles are the same as would apply in relation to the question whether any third party […] was subject to a duty of care in tort […]” This means that any policy or public statement which applies to non-equity business relationships, in particular, suppliers could, in principle, also give rise to a duty of care to take measures to prevent human rights impacts in the context of that business relationship, including in the supply chain (see our previous blog post on this point).
Where is the appropriate place, or forum conveniens, to bring a claim?
Another of the jurisdictional hurdles which a claimant must surmount in order to bring a foreign defendant into the English courts through the necessary and proper party gateway is that they must be able to demonstrate that England is the proper place (historically referred to as forum conveniens) to bring the claim. This involves consideration of a number of connecting factors, including: accessibility to courts for parties and witnesses; language; applicable law; the place where the wrongful act and harm occurred; and the risk of a multiple proceedings about the same issue in different jurisdictions.
In Vedanta, the High Court treated this last, connecting factor, as decisive. Although all of the other factors pointed to Zambia as being the appropriate place for the litigation, it was held that the prospect of parallel proceedings in the UK and Zambia and the risk of irreconcilable judgments was “unthinkable” and therefore that the existence of an arguable case against Vedanta in England “virtually conclude[d]” the issue of appropriate forum. The Court of Appeal did not overturn this finding, although neither did it enthusiastically endorse it.
Apparently agreeing with KCM and Vedanta’s submission that such a finding would have the “almost inevitable effect that, providing a minimum triable issue can be identified against an English incorporated parent, then litigation […] all around the world can be carried on in England, wherever the immediate cause of the damage arises”, the Supreme Court proposed an adjustment to the English forum non-conveniens jurisprudence. This is the one issue on which the Supreme Court overruled the lower courts and created new law. Where a UK parent company is willing to submit to the jurisdiction of the domicile of the foreign defendant (in this instance, Vedanta was willing to submit to the jurisdiction of Zambia), the risk of parallel proceedings and irreconcilable judgments will no longer be a “trump card” for claimants seeking to establish jurisdiction in the English courts. In Vedanta, this led the Supreme Court to find that, notwithstanding the existence of claims in the UK against the parent company, Zambia, rather than England (as the lower courts had found) was the appropriate place for the case to proceed.
However, the relevant procedural rules give claimants a second bite at the cherry. Where they can provide cogent evidence (a higher threshold than required for the other connecting factors) that access to substantial justice will be denied in the alternative, more appropriate, forum, the English courts may still accept jurisdiction over the claims against the foreign company. In Vedanta, despite an intervention by the Zambian Attorney General, the Supreme Court upheld the High Court’s finding that there was a real risk that the claimants would not access substantial justice in Zambia on the basis that it was practically impossible to obtain funding for such a claim in Zambia and that there was an absence of sufficiently substantial and suitably experienced legal teams to enable litigation of the scale and complexity of the present case.
What does this mean in practice? Until now, a finding that there was a real issue to be tried against an anchor defendant practically concluded the issue of jurisdiction over the foreign defendant, ensuring that a claim could proceed in England against both companies. This was the case even where there was an alternative, and otherwise more appropriate, forum in which the case should proceed. This is no longer the case. Where a parent is willing to submit to the jurisdiction of the courts of an alternative forum, it may be possible for the foreign subsidiary to resist the jurisdiction of the English court notwithstanding the existence of a real issue to be tried against the parent. In principle, this could incentivise anchor defendants to submit to the jurisdiction of the local courts and result in fewer such claims being exported to England. The reality, however, is that where multinational companies have overseas operations (and suppliers) in weak rule of law jurisdictions, there will generally be sufficient evidence, even to meet the higher “cogency” threshold, of the deficiencies of the local legal system so as to enable claimants to demonstrate that they will not be able to access substantial justice in the alternative forum.
Accordingly, the decision in Vedanta is likely to increase the flow of transnational tort claims in England regarding underlying human rights impacts. Businesses should take steps now to ensure that relevant policies, systems and processes are up to scratch and properly implemented.
Julianne Hughes-Jennett, Partner and Peter Hood, Consultant, Hogan Lovells Business and Human Rights practice