Summary: Claims are being brought in England and Wales against UK Parent companies in relation to their overseas subsidiaries’ performance on environmental and human rights issues. This article looks at the factors at play as parent companies respond to this threat.

Four large multi claimant environmental/human rights claims in the courts of England and Wales have received a lot of press coverage recently.

They are:

  • Okpabi and others v Royal Dutch Shell plc and Shell Petroleum Development Company of Nigeria Ltd [2018] (the “Shell case”), a claim for damages from claimants in the Niger delta in connection with oil pollution;
  • Lungowe and others v Vedanta Resources Plc and Konkola Copper Mines Plc [2017] (the “Vedanta case”), a claim for damages by Zambian citizens in connection with pollution from a copper mine;
  • AAA and others v Unilever Plc and Unilever Tea Kenya Limited [2018] (the “Unilever case”), a claim for damages from tea plantation employees in Kenya in connection with violence by third parties; and
  • AAA and others v Gemfields Plc and Montepuez Ruby Mining Limitada (the “Gemfields case”), a human rights claim by miners and members of the local communities in respect of the actions of security personnel at a mine in Mozambique.

In basic terms, these claims have nothing to do with the UK.  The claimants live overseas, the alleged injury and damage took place overseas, and the entity alleged to be most directly connected to the injury and damage is a foreign registered entity.  As a general rule, the courts in England and Wales will not hear what is essentially an overseas claim.

How then did these cases manage to get off the ground?  In short, the claimants are taking advantage of a rule that the courts will hear a claim against a foreign registered company where it is a necessary and proper party to a claim against another company over which the court will take jurisdiction, as long as it is satisfied that there is a “real issue” to be tried against that other company.

In all four cases, the claimants have satisfied the need for a claim against a company over which the court will take jurisdiction by suing the UK registered parent company of the foreign registered entity for breach of duty of care. As a general rule, the courts of England and Wales will take jurisdiction over a claim against a UK registered company, even where factual links between the claim and the UK are lacking.

Defendants’ response to these cases

The press coverage in respect of these cases has resulted from the defendants’ efforts to stop the cases in their tracks.

To stop the cases, defendants have to bring an early challenge to the idea that there is a “real issue” to be tried in respect of the UK registered parent company.  If there is no such issue, and the claim against the parent is therefore bound to fail, then, in addition to there being no possible claim against the parent, the court has no jurisdiction to hear the claim against the overseas subsidiary.  In other words, the entire claim collapses.  

The defendants’ task is not easy, however.  Demonstrating convincingly that there is no “real issue” to be tried against the UK registered parent company, and that a claim against the parent is bound to fail, is a high hurdle.  As long as the claimants can convince the court that the claim against the parent is not clearly and obviously flawed, the claim against the parent, and therefore the claim against the overseas registered subsidiary, will proceed.

In the cases listed above, the defendants’ challenges to the idea that there is a “real issue” to be tried against the parent have had mixed success. 

  • In the Shell and the Unilever cases, the defendants were able to convince the Court of Appeal that the parent was too far removed from the activities of their overseas subsidiaries to owe the claimants a duty of care.   
  • Conversely, in the Konkola Copper Mines case, the possibility of a duty of care being owed could not be excluded. 

At least some of these cases will be appealed to the Supreme Court.  No jurisdiction challenge has yet been brought in the Gemfields case, which is at a much earlier procedural stage.

Risk to UK parented multinationals

Multinationals with parent companies based in the UK need to be aware that damage and injury connected to subsidiaries abroad could be the subject of a claim in England and Wales, unless it is very clear at the outset that the parent owes no duty of care directly to overseas claimants who have suffered loss alleged to result from subsidiary activities overseas.

When they gain momentum, group claims of this nature are not straightforward or routine to defend.  In particular:

  • the numbers of claimants and the damages claimed can be very significant.  The Shell and Vedanta cases indicate that large numbers of claimants from developing nations (often well into the thousands) can come forward to join environmental/human rights cases, with many more waiting in the wings.  Together their claims can amount to multi-millions of pounds in damages; 
  • the legal costs on both sides are usually very high, partly as a result of the claimants and factual circumstances being some distance from the UK (decisions have been taken by the court to travel to and undertake hearings over some weeks in the overseas jurisdiction); and
  • the claimants’ lawyers are usually acting under a conditional fee agreement and supported by After-the-Event insurance and use these tools to manage claimants’ costs risk as they move the claims forward.           

The dilemma

The obvious response to this threat is for multinational companies with UK registered parents to take steps to ensure that, when the relevant tests of foreseeability, proximity and reasonableness are applied, the UK parent will be found to owe no duty of care to overseas claimants in connection with the local activities of their overseas subsidiaries.  

Doing so, however, must be very carefully thought through.  Steps that ostensibly distance the parent from its subsidiaries, and erode the level of control which they exert, or might exert, may limit the full ambit of the potential litigation risk before the English courts but it may not quarantine it entirely – and with less certainty over time as authoritative international standards, such as the UN Guiding Principles on Business and Human Rights, continue to influence or lead the development of “hard law”, as has occurred in France.

Also, given that multinational companies are also increasingly subject to regulatory disclosure and reporting obligations concerning their approach to and management of social and environmental risk issues; listing and/or exchange membership requirements concerning responsible supply chain practices (which may include a group subsidiary); an increasing number of accountability mechanisms, such as human rights benchmarks and indexes, or sector specific Ombudsperson and administrative review processes which also provide forums to examine the consequences associated with parent companies’ overseas activities, it is critical to ensure that a coherent legal and risk management approach and strategy is adopted concerning human rights/social and environment risks.  These factors, individually and collectively, require nuanced and balanced assessment because they drive potential accountability for the parent company in terms of group-wide operational performance, potential loss in shareholder value, adverse impacts on stakeholder relationships (particularly with many investors placing increased importance on ESG issues), and enhanced reputation risk. 

It is equally important to not lose sight of the prudential objective and value of group policies in managing social and environment risk. If such policies, processes and management approaches are appropriately drafted, and clearly delineated implementation, resourcing and management approaches are adopted by the relevant parent company across its group relationships, they offer a powerful means of mitigating risks and operational costs arising from often complex, sensitive issues that typically cause very costly delay, disruption and significant damage to important stakeholder relationships and reputation.

Multinational companies therefore need to consider and respond to the litigation threat in a manner that does not have an adverse impact on a range of other factors.  Doing so will be complex but, with careful thought and guidance, these competing issues can be identified and successfully navigated.