On 10 April 2019, the UK Supreme Court handed down judgment in the case of Vedanta Resources PLC and another v Lungowe and others [2019] UKSC 20 (Vedanta).

In this update we consider the applicability of EU law in establishing jurisdiction in this case, and the potential implications of Brexit. As the UK gains another extension on Brexit, narrowly avoiding a no-deal exit, we reflect on how the UK's withdrawal from the EU could affect the legacy of the Vedanta decision on parent company liability. Would a hard Brexit limit the exposure of UK-based multinationals to similar claims relating to the actions of their overseas subsidiaries?

The Case So Far

The Claimants are a group of Zambian villagers who pleaded negligence and breaches of statutory duties by a UK-domiciled parent company (Vedanta), and its Zambia-based subsidiary (KCM), relating to alleged environmental pollution caused by mining activities in Zambia. The Defendants, Vedanta and KCM, appealed to the UK Supreme Court on issues of jurisdiction. The Supreme Court unanimously dismissed the appeal (see our related publication: Supreme Court rules Vedanta case can proceed to trial). The matter will now be heard by English courts. It will be the first trial in this jurisdiction concerning alleged environmental damage on foreign soil by an overseas subsidiary of a UK-domiciled company.

The Applicability of EU Law

With respect to the claim against Vedanta as the ultimate parent company, the Supreme Court's reasoning turned on key jurisdictional rules within EU law. The Defendants argued that allowing the case against Vedanta to be heard in the English courts would constitute an 'abuse of EU law'. The Court conclusively dismissed this ground of appeal and found that the Claimants have a right to sue Vedanta, as a UK-domiciled company, in the English courts on the basis of Article 4.1 of the Regulation (EU) 1215/2012 of the European Parliament and of the Council on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast) (Recast Brussels Regulation).

Article 4.1 provides:

“Subject to this Regulation, persons domiciled in a member state shall, whatever their nationality, be sued in the courts of that member state.”

Jurisdiction against Vedanta derives directly from this rule. The Court reasoned that, since Owusu v Jackson (Case C-281/02) [2005] QB 801, Article 4 of the Recast Brussels Regulation sets the 'primary rule' and any possible exceptions (such as 'abuse of EU law') should be narrowly construed. Following Owusu, the Court also made clear that the English forum conveniens principle could not derogate from the rule in Article 4. As there was a real issue to be tried against Vedanta, as the UK-based 'anchor', use of the English courts was not considered to be an abuse of EU law.

Breaking Away from the Brussels Regime

The potential implications of Brexit for the jurisdictional issues raised in Vedanta will depend on the deal agreed (or not agreed). Brexit on the basis of the current draft Withdrawal Agreement would make little difference in the short-term, as the UK will enter a transition period whereby EU law shall continue to apply (including provisions relating to jurisdiction) until the end of 2020. The effects of a no-deal scenario, however, in which EU law is fully revoked, would be significant.

If a no-deal Brexit eventuates, then new litigation which has a nexus with an EU Member State will not be able to benefit from some of the procedural mechanisms which have facilitated the conduct of such litigation in recent years (see our related publication: Civil procedure in a post-Brexit landscape). Without a deal, the relevant cross-border provisions of the Recast Brussels Regulation (see Article 89 of the current Civil Jurisdictions and Judgments (Amendment) (EU Exit) Regulations 2019) will cease to apply in the UK. This will require substantial amendment to primary UK legislation such as the Civil Jurisdiction and Judgments Act 1982.

Where disputes before the English courts concern contracts with exclusive jurisdiction clauses, the courts will apply the Hague Convention on Choice of Court Agreements 2005 (which the UK will accede to on the date of a no-deal Brexit) or English common law, obviating the need to rely on Article 4 of the Brussels Recast Regulation to determine jurisdiction. For all other cases, the relevant UK statutory and English common law rules of private international law will apply. This applies to all proceedings "commenced" after Brexit (noting the Brussels regime continues to apply to proceedings commenced but not concluded prior to the exit date).

Following a no-deal Brexit, most of the case law from the European Court of Justice (CJEU) would be persuasive, but no longer binding on UK courts (see Article 6(1) and (2) of the European Union (Withdrawal) Act 2018). Questions on the meaning of the limited "retained" EU law would be determined by reference to relevant EU case law in effect before exit day; even so, this retained EU case law would not bind the UK Supreme Court.

The UK statutory and common law framework that would endure a no-deal Brexit would be markedly different from the Brussels regime on jurisdiction. For example:

  • The Recast Brussels Regulation sets mandatory rules on jurisdiction. English courts, in contrast, could exercise discretion to decline jurisdiction.
  • As Vedanta confirms, Article 4 is regarded as a primary rule under EU law. Forum conveniens arguments could not be used to deny the Article 4 right to sue. Under English law, on the other hand, forum conveniens (or proper place as put more simply in the Civil Procedure Rule 6.37(3)) would take precedence.
  • The Recast Brussels Regulation contains provisions to prevent parallel proceedings in the courts of EU Member States.
  • The Brussels regime does not permit anti-suit injunctions to restrain court proceedings in other EU Member States; there would be no such restriction under English law.

These differences would change the landscape of the English law on jurisdiction and the enforcement of judgments.

Potential Impact of a No-Deal Brexit on the Vedanta Legacy

The Vedanta ruling relies on Article 4.1 of the Recast Brussels Regulation which would cease to apply following a no-deal Brexit. New claims brought after a no-deal Brexit would not have the benefit of Article 4.1; instead the English law principle of forum conveniens would take precedence. English courts could decline to exercise jurisdiction on the basis that England is not the proper place for trying the case. It would be significantly harder to bring claims against multinational companies domiciled in the UK in cases similar to Vedanta, where the connecting factors point to the alternative foreign jurisdiction as the more convenient and appropriate forum.

However, this is not the end of the story. The deciding factor in the Vedanta case was the issue of whether the Claimants lacked access to justice in Zambia. It was on this basis that the claim against KCM as a foreign company in English courts passed the 'necessary or proper party gateway' (as defined in the Civil Procedure Rules (Part 6 Practice Direction B) and established English common law). The Court determined that, even if England were not the proper place for trying the case, the Claimants could establish jurisdiction by showing a real risk that they would not obtain substantial justice in Zambia. Relying on the lower court's finding of a lack of appropriate legal fee arrangements in Zambia and that "the Zambian legal profession lacked the resources and experience with which to conduct such litigation successfully", inhibiting access to justice, the Supreme Court ruled in favour of the Claimants.

Irrespective of EU law, the Court's reasoning on the substantial justice point would continue to apply post-Brexit. The jurisdictional gateway that must be passed to bring a foreign subsidiary before English courts is well established in the common law, including the exception on substantial justice (see, for example, The 'Vishva Ajay' [1989] 2 Lloyd’s Rep 558 (QB) [560]).

That means, regardless of the Brexit outcome, the UK Supreme Court's decision in Vedanta will retain its significance as English courts continue to grapple with mass claims against UK multinationals in relation to their foreign subsidiary's activities abroad.