Parham Kouchikali Laura Martin April 23 2019 Duty of care can exist between parent company and third parties affected by subsidiaries' actions RPC | Litigation - United Kingdom Parham Kouchikali, Laura Martin Litigation IntroductionFacts of claimSupreme Court decisionCommentIntroductionVedanta(1) is one of three similar cases progressing through the English courts concerning jurisdiction, mass tort claims and the potential liability of an English parent company for the actions of its foreign subsidiaries,(2) the others being Unilever and Dutch Shell. Vedanta is the first of the three to reach the Supreme Court(3) and the only one in which, at present, the court has found that the claimants have an arguable case against the English 'anchor' defendant.Although the Supreme Court found that England was not the proper place in which to bring the claim, it decided that the English courts would nonetheless exercise jurisdiction over the claim as the parties were unable to secure substantial justice in Zambia.Facts of claimThe claim concerned 1,800 Zambian citizens who brought a claim in the English High Court in negligence against a copper mine operator, Konkola, and its English parent, Vedanta. The claim related to personal injury, property damage and loss of income arising from pollution allegedly caused by the activities at the copper mine in Zambia.Supreme Court decision The Supreme Court considered the defendants' appeal on the following issues.Abuse of EU lawThe defendants argued that there was no triable issue against Vedanta (see below). However, even if there was, it should be stayed as it was an abuse of EU law to use Article 4 of the recast EU Brussels Regulation (1215/2012) (the general rule that defendants should be sued in the courts of their domicile) to bring a claim against Vedanta in England purely for the collateral purpose of attracting English jurisdiction against Konkola, the real target of their claim.In Owusu v Jackson the European Court of Justice (ECJ) decided that a claimant has the right to sue an English domiciled defendant in England free from the challenge that the court of another state was a more appropriate forum, even if that state was a non-EU state. The ECJ decision causes difficulties in considering the appropriate forum in such cases. In practice, the English proceedings inevitably continue and the need to avoid irreconcilable judgments has, thus far, effectively disabled the English courts from concluding that any other jurisdiction is the forum conveniens (see below).However, leaving aside circumstances where a claimant has no genuine intention to seek a remedy against the 'anchor' defendant,(4) the fact that Article 4 "fetters and paralyses" English forum conveniens in this way in a "necessary and proper party" case cannot be said to be an abuse of EU law:to allow those concerns to serve as the basis for an assertion of abuse of EU law would be to erect a forum conveniens argument as the basis for a derogation from article 4, which is the very thing the court of Justice held in Owusu to be impermissible.(5)Accordingly, the Supreme Court held that there was no abuse of EU law and the claimants were entitled to rely on Article 4.Real issue against VedantaThe critical question was whether Vedanta sufficiently intervened in the management of the mine by its own subsidiary to have incurred itself (rather than by vicarious liability) a common law duty of care to the claimants and a separate liability under Zambian law.The defendants argued that this would involve a novel and controversial extension of the boundaries of the tort of negligence beyond any established category, which would require detailed investigation of the claimants' case, something which neither the High Court nor the Court of Appeal had carried out. The Supreme Court did not accept that argument. It commented that the liability of parent companies in relation to the activities of their subsidiaries is not, of itself, a distinct category of liability in common law negligence. Rather, everything will depend on the extent to which, and the way in which, a parent company avails itself of the opportunity to take over, intervene, control supervision or advise the management of the relevant operations. All that the corporate relationship demonstrates is that the parent company had such an opportunity.In Unilever, the Court of Appeal identified the following basic types of case where a parent company might incur a duty of care:where the parent has in substance taken over the management of the relevant activity of the subsidiary in place or jointly with the subsidiary's own management; orwhere the parent has given relevant advice to the subsidiary about managing a particular risk.The Supreme Court was reluctant to confine possible cases into these two categories. It also suggested that the factors in Chandler(6) were no more than particular examples of how a parent company might incur a duty of care and did not establish a separate test distinct from the general principles. In doing so, the Supreme Court acknowledged that there is no limit to the models of management and control which may be put in place in multinational groups of companies, from a parent being no more than a passive investor to a group of companies being vertically reorganised so its business is, in management terms, carried on as if it was one single undertaking.The Supreme Court was also reluctant to extract from Unilever and Dutch Shell(7) a limiting principle that a parent company could never incur a duty of care simply by laying down group-wide policies and guidelines and expecting the management of each subsidiary to comply with them. However, it did find that group-wide policies may give rise to a duty of care to third parties where the parent does not merely proclaim them, but takes active steps by training, supervision and enforcement, to see that they are implemented by subsidiaries. Similarly, a parent may incur liability if, in published materials, it holds itself out as exercising that degree of supervision and control of its subsidiaries, even if it does not do so. The Supreme Court went on to comment that, in those circumstances, its omission may constitute the abdication of a responsibility which it has publicly undertaken.The Supreme Court considered that in the published material that the claimants relied on, Vedanta could fairly be said to:have asserted its own assumption of responsibility for the maintenance of proper standards or environmental controls, particularly the operations at the mine; andnot merely have laid down but also implemented those standards by training, monitoring and enforcement.This was sufficient to show that it is well arguable that a sufficient degree of intervention by Vedanta could be demonstrable at trial, after full disclosure of Vedanta and Konkola's internal materials, and those passing between them.Proper placeVedanta had, by the time of the jurisdiction hearing, offered to submit to the jurisdiction of the Zambian courts, so that the whole case could proceed in Zambia. That being the case, any risk of parallel proceedings and irreconcilable judgments would arise from the claimants' choice, rather than Zambia not being an available forum for the claims against both defendants.In OJSC VTB(8) the court concluded that there was no reason why the claimant should be expected or required to give up its right to sue the anchor defendant in England in order to avoid duplication of proceedings. However, the Supreme Court found there was a good reason why the claimants should have to make that choice. If this case only concerned member states, the claimant would have the choice to pursue separate proceedings or bring one set of proceedings in one defendant's domiciled member state. The Supreme Court asked why the right to sue in England under Article 4 should not give rise to the same choice where an alternative jurisdiction is available by reason of the defendants all agreeing to submit to it; if the Article 4 right is not a trump card within the confines of the member states, it should not be so outside.The High Court had found that, setting aside the risk of irreconcilable judgments, Zambia was overwhelmingly the proper place for the claim to be tried.(9) Accordingly, the Supreme Court concluded that if substantial justice was available to the parties in Zambia as it was in England:it would offend the common sense of all reasonable observers to think that the proper place for this litigation to be conducted was England, if the risk of irreconcilable judgments arose purely from the claimants' choice to proceed against one of the defendants in England rather than, as is available to them, against both of them in Zambia.(10)On that basis, the Supreme Court concluded that, subject to the issue of substantive justice, England was not the proper place for the claim to proceed.Substantial justiceEven if the court concludes that England is not the proper place for the claim to be tried, it can still permit service of English proceedings on a foreign defendant if satisfied by cogent evidence that there is a "real risk that substantial justice will not be obtainable in that foreign jurisdiction".(11)The High Court had found that substantial justice would not be available for the following reasons:a practical impossibility of funding such group claims where claimants are in extreme poverty; andthe absence within Zambia of sufficiently substantial and suitably experienced legal teams to enable litigation of this size and complexity to be prosecuted effectively.The Supreme Court approved the High Court's approach to this issue and its analysis of the position. This was a decisive factor and so the Supreme Court found that the claim should be permitted to proceed in England.CommentWhile this decision confirmed that a duty of care can exist between a parent company and third parties affected by the actions of its subsidiaries, the Supreme Court was reluctant to place limits on the types of case where a parent company might incur a duty of care. While this creates some uncertainty, it also allows flexibility and demonstrates that the existence of any duty of care is likely to be a question of fact in each case. In some circumstances, it might be possible to determine the existence of such a duty on a summary basis, although this will again depend on the facts of the case.Where defendants agree to submit to a more appropriate forum, claimants are now likely to find it more difficult to establish England as the proper place to proceed, absent being able to demonstrate that the other jurisdiction in question cannot provide substantial justice.It is also striking that the Supreme Court's judgment opens with a discussion on maintaining proportionality in jurisdiction disputes. While many decisions comment on proportionality it is noteworthy that the Supreme Court has taken this opportunity to draw parties' attention to the issue. It suggests costs consequences may await litigants and legal professionals who ignore the warning.For further information on this topic please contact Parham Kouchikali or Laura Martin at RPC by telephone (+44 20 3060 6000) or email ([email protected] or [email protected]). The RPC website can be accessed at www.rpc.co.uk.Endnotes(1) Vedanta Resources PLC v Lungowe  UKSC 20.(2) AAA v Unilever PLC, Unilever Tea Kenya Limited  BCC 959 and Okpabi v Royal Dutch Shell Plc and Shell Petroleum Development Company of Nigeria Ltd  EWCA Civ 191.(3) The Supreme Court has specifically directed that any decision for permission to appeal the Court of Appeal decision in Okpabi be taken after judgment has been handed down in Vedanta.(4) The High Court had found that the Vedanta claimants had a genuine intention to seek a remedy from Vedanta and the Supreme Court's practice was not to revisit such factual findings absent an error of law.(5) .(6) Chandler v Cape plc  EWCA Civ 525.(7) Okpabi.(8) OJSC VTB Bank v Parline Ltd  EWHC 3538 (Comm).(9) See  for a summary of those connecting factors.(10) .(11) .