For the second time in 2017, a UK-domiciled parent company and its African subsidiary have successfully challenged the jurisdiction of the English High Court to hear claims concerning the liability of a parent company for acts of its subsidiary abroad. (Links to both judgements are below and our discussion of the first of these cases, Shell, can be found here.)

Background

In Unilever (the most recent of the two cases) an action was brought in England against Unilever PLC (the UK-domiciled parent company) and Unilever Tea Kenya Limited (its Kenyan-incorporated subsidiary, which owned and operated a tea plantation in Kenya) (the “Defendants”) concerning acts of the Kenyan subsidiary. The claimants (employees of the subsidiary and residents of the plantation) were victims of violence carried out by criminal third parties on the plantation following the 2007 Kenyan Presidential election.

The claimants argued that the risk of violence was foreseeable, that the Defendants had a duty to take reasonable steps to protect the claimants against this violence, and that the Defendants breached this duty. The claimants argued that the Court had jurisdiction over both Defendants via the necessary and proper party gateway, which relied on establishing that the parent company owed the claimants a duty of care.

Decision

To establish whether a duty of care existed, the Court applied the three-stage test as set out in Caparo Industries v Dickman [1990] 2 AC 605, which requires the satisfaction of the following elements:

  1. The particular harm suffered is foreseeable;
  2. There exists a relationship of proximity between the parties; and
  3. It is fair, just and reasonable to impose a duty of care.

In relation to foreseeability, the Court found that it was insufficient to show that post-election violence was foreseeable generally. Instead, the question was whether the particular harm was foreseeable, which the Court answered in the negative, noting (among other things) that violence on that scale had never occurred on the plantation before.

Since the claim had failed to overcome the first hurdle, the Court was not bound to consider elements two and three of the Caparo test. However, perhaps the most helpful lesson to be gleaned from the case comes from the Court’s consideration of stage two (proximity) (which was a non-binding part of the judgement and discussed only in passing), where the Court noted the non-exhaustive list of factors employed in Chandler v Cape [2012] 1 WLR 3111 as to the establishment of proximity, asking whether:

  1. the parent and subsidiary were carrying on the same business (in relevant respects);
  2. the parent (in comparison with the subsidiary) has (or ought to have) superior knowledge or expertise;
  3. the parent had knowledge of the subsidiary’s system of work; and/or
  4. the parent knew (or should have foreseen) that the subsidiary would rely on it to prevent injury to the claimants.

The Court noted that, in contrast to Chandler (where the Court of Appeal held that a parent company was responsible for the health and safety of the employees of the subsidiary), the subsidiary was not a direct subsidiary of the parent and the parent and subsidiary did not share close geographical links. However, the relationship between the present Defendants appeared to be different from the relationship between the parent and the subsidiary in Shell and the claimants argued that, in this case, the parent exercised greater control over the management and policies of the subsidiary via numerous policy and procedure documents. It was concluded that a real issue was raised on this point.

In relation to element three of the Caparo test (that it would be fair, just and reasonable to impose a duty of care on the parent company) the Court concluded that the pleaded duty to protect the claimants against the loss of all law and order (and from the violent acts of criminal third parties during this period) was “bound to fail.”

Practical Lessons

Establishing that a duty of care is owed by the parent is key in cases of this kind. This case, along with Shell, highlights that a parent is more likely to owe a duty of care if some of the following factors are present:

  • the parent engages in the management and daily operational decisions in respect of the subsidiary (i.e. the parent does not simply hold shares in the subsidiary);
  • the subsidiary is a direct subsidiary and it is one of only a few subsidiaries of the parent (with the Court noting in Shell that imposing a duty of care on a parent where there are a large number of indirect subsidiaries would be the “antithesis to proximity”);
  • the subsidiary and the parent have a close geographical connection; and/or
  • the acts in question are carried out by the subsidiary and not by criminal third parties.

As an English decision, the case will not be binding in Scotland, but it may provide persuasive authority in Scottish courts.

Both Unilever and Shell are subject to appeal and both judgements can be found here:

Okpabi and others v Royal Dutch Shell plc and Shell Petroleum Development Company of Nigeria Ltd ([2017] EWHC 89 (TCC)

AAA and others v Unilever plc and another ([2017] EWHC 371 (QB)