2018 will see at least two appeal decisions on whether UK parent companies can be sued for the actions of their overseas subsidiaries.

In brief

  • There is limited case law on the jurisdiction of English courts to hear claims against English parent companies relating to the alleged overseas acts of an overseas subsidiary.
  • However, the English courts have examined this jurisdiction in three recent cases: Okpabi and others v Royal Dutch Shell plc and another (Okpabi), AAA & Ors v Unilever & Ors (Unilever) and Lungowe and Ors v Vedanta Resource Plc and Konkola Copper Mines Plc (Vedanta).
  • In both Okpabi and Unilever the High Court declined jurisdiction. However, in the potentially landmark Vedanta judgment the Court of Appeal upheld the High Court’s decision to accept jurisdiction.
  • Each of the three cases is ongoing: the outcome of these cases may clarify the ability for such claims to be brought in the English courts.

The cases

In Okpabi, Unilever and Vedanta both the parent companies and the subsidiaries made applications challenging the jurisdiction of the English courts to hear the claims. The court adopted a generally consistent approach to determining these applications: the court’s jurisdictional analysis turned on whether there was an arguable duty of care between the parent company and those affected by the actions of its subsidiary, such that there was a real issue to be tried between the claimants and the parent company.

In each of the three cases the court identified the relevant law for establishing a parent company duty of care as follows:

  • In order to establish a duty of care the claimants need to satisfy the three-part test in Caparo v Dickman (foreseeability, proximity and reasonableness).
  • Depending on the facts, a parent company may be liable for the operations of its subsidiary. Chandler v Cape provides four descriptive factors that may indicate the presence of a duty of care owed by the parent company, which are relevant to the proximity and reasonableness limbs of the Caparo test.
  • Such a claim is more likely to succeed if advanced by former employees, but claims made by residents are still arguable (eg Lubbe v Cape).

This is a factual analysis which turns on the particular circumstances in each case.

In Okpabi, the High Court declined jurisdiction to hear environmental tort claims brought by two Nigerian communities against Shell and its Nigerian subsidiary, arising from the subsidiary’s Nigerian operations. In his decision, Fraser J focused on the second (proximity) and third (reasonableness) limbs of the Caparo test, and held that neither limb could be satisfied on the basis of the available evidence. See our article Mass torts and parentco liability for more details.

In Unilever, 218 Kenyan nationals brought claims against Unilever Plc and its Kenyan subsidiary (which was the owner of a tea plantation in Kenya). Following the 2007 Kenyan elections, the claimants suffered ethnic violence carried out by third party criminals at the plantation. The claimants alleged that (i) the risk of this violence was foreseeable by the defendants; (ii) the defendants owed them a duty of care to protect them from the risks of such violence; and (iii) the defendants breached that duty of care.

The High Court granted the defendants’ applications to strike out the claim on the basis that the first (foreseeability) and third (reasonableness) limbs of the Caparo test were not made out.

In Vedanta, the Court of Appeal held that the case could proceed in the English courts, as it was sufficiently arguable that the UK parent company owed a duty of care to the overseas claimants (here, 1,826 Zambian villagers living in proximity to the subsidiary Konkola’s copper mine). The Court of Appeal held that, on a preliminary basis, the specific facts of the case satisfied the Caparo test; in particular, the court identified multiple circumstances which indicated that Vedanta had superior knowledge and expertise to its subsidiary regarding Konkola’s operations. See our article Mass torts and parentco liability for more details.

Upcoming appeals

An appeal against the decision in Okpabi was heard in November 2017. Judgment is awaited.

An appeal against the decision in Unilever is due to be heard in April 2018.

The defendants in Vedanta have recently applied to the Supreme Court for permission to appeal the Court of Appeal’s decision.

What it means for you

This area of law is far from settled and will continue to be the subject of intense scrutiny. If jurisdiction is upheld in Vedanta (and depending on what happens in the Okpabi and Unilever cases), this may lead to an increase in parent companies being sued in the English courts for the acts of their overseas subsidiaries.

Further, these cases raise the possibility that the scope of potential claimants for such claims could be expanded to third parties affected by the operations of a subsidiary. If (in any of these cases) the court finds at trial that a duty of care was owed by a parent company to the claimants, this would be the first reported case in which a parent company has been found to owe a duty of care to a third party/non-employee affected by the operations of a subsidiary (overseas or domestic).