The recent judgment of the High Court in Josiya & Ors v British American Tobacco PLC & Ors  EWHC 1743 (QB) is the latest in a series of cases in which the English Courts have refused to strike out novel claims against UK companies in respect of alleged unethical conduct in their overseas business operations.
The High Court has refused the applications of British American Tobacco ("BAT") and Imperial Brands ("Imperial") to strike out a group action against them by Malawian tobacco farmers who claim to be part of the defendants' supply chains (or "value chains"). Josiya is the latest of several recent decisions in which the Supreme Court and Court of Appeal have refused to dismiss similar claims alleging responsibility of UK-domiciled companies for harms connected with their overseas business operations, including in respect of the operations of third parties in defendants' broader global value chains.
So far, these decisions have all concerned preliminary challenges to the novel claims (being jurisdiction challenges and/or strike out applications). None of these cases have gone to trial, and the ultimate prospects of success of the novel claims alleged is far from certain. However, a common feature of the judgments in Josiya and other recent decisions is that the Courts have repeatedly emphasised that on such preliminary challenges, the Court should only look behind a claimant's pleadings in limited circumstances, and have held that it is not permissible for a Court to conduct a "mini trial" assessing the strength of the evidence in support of the claims. This approach means it is becoming increasingly difficult for these types of novel claim to be disposed of at an early stage without progressing to a full trial. By allowing these novel claims to proceed, these recent decisions have significant implications for the scope of litigation risk faced by UK-domiciled companies with overseas business operations.
1. The Josiya Claim
This group action has been brought by 7,263 Malawian tobacco farmers, over 3,000 of whom are children, claiming damages against certain UK-domiciled companies in the BAT and Imperial groups for negligence, unjust enrichment and conversion. The Claimants allege that they have had to work in unlawful, exploitative and dangerous conditions on farms which produce tobacco leaves acquired and used by the Defendants. These conditions are said to have included widespread use of unlawful child labour, unlawful forced labour and systematic exposure of the workers to extremely hazardous working conditions.
The Defendants are alleged to be liable in tort and for unjust enrichment on the basis that they knew of the unlawful, exploitative and dangerous working conditions in which the tobacco they acquired was produced, and they facilitated, assisted and/or encouraged such conditions in order to acquire tobacco leaves at the lowest possible cost and to maximise their profits. The Defendants are alleged to owe the Claimants a duty of care (giving rise to the claim in negligence), and to have been significantly enriched at the expense of the Claimants as a result of the unjust exploitation of their circumstances (giving rise to the claim in restitution for unjust enrichment).
2. The "Nexus Issue" and the Strike Out Applications
The Claimant tobacco farmers do not have a direct contractual relationship with the Defendants or any of their subsidiaries. Rather, the Claimants allege that they are part of the Defendants' global supply chains, on the basis that tobacco crops grown by them are alleged to have been ultimately acquired by the Defendants via intermediary and US-headquartered tobacco leaf buyers (the "Leaf Buyers").
The fact that there was no direct relationship between the Claimants and the Defendants makes it challenging for the Claimants to establish causation. This has been referred to in the proceedings as the "nexus issue" or "nexus allegation", and it sat at the heart of the strike out applications. To summarise it:
- As pleaded, the Claimants are said to be tenants of contract farmers, who in turn sell the tobacco crops grown by the Claimants to the third-party Leaf Buyers, who process the tobacco and on-sell it to various customers, including the Defendants.
- The Claimants acknowledge that they have not been able to identify exactly which of the Defendants or their subsidiaries acquired tobacco crops grown by each individual Claimant during the tobacco growing seasons relevant to the claim.
- Most of the Claimants are said to know which Leaf Buyer purchased the tobacco crops from the farms on which they worked, but they have no means of discovering themselves to whom their tobacco crops were eventually sold by the Leaf Buyers.
- To overcome this, the Claimants are seeking disclosure of information relating to the source of the Defendants' tobacco leaf. The Claimants seek to prove at trial that the Defendants acquired the actual tobacco leaf grown by each Claimant.
- At this preliminary stage, the Claimants' case on the nexus issue is based in part on statistical analysis that, given the volume of tobacco purchased by the Defendants from the particular Leaf Buyers who sold the Claimants' crops, it is more likely than not that the Defendants acquired tobacco grown by each of the Claimants during one or more of the tobacco growing seasons relevant to the claim.
- The Claimants also point to public statements from the Defendants relating to the "traceability" of their tobacco leaf as evidence that the Defendants do, in fact, have documents that may prove the link between the Claimants and the Defendants.
Accordingly, at the time the strike out applications were heard, the Claimants could not categorically link each individual Claimant to either or both of the Defendants.
The Defendants issued applications seeking that the claims be struck out under CPR 3.4(2)(a) and (b), i.e., on the basis that the Particulars of Claim disclosed no reasonable grounds for bringing the claim (subparagraph (a)), and/or because the Particulars of Claim were an abuse of the Court's process (subparagraph (b)). The applications focused squarely on the nexus issue (rather than the particulars of the legal claims in tort and unjust enrichment). The Defendants argued that the Claimants had issued the claims without any evidence to support the foundational allegation that they had each grown tobacco that was ultimately acquired by one of the Defendants, and that the claims were therefore baseless and should be struck out.
3. The High Court Decision
The High Court dismissed the applications. On the first ground, that the Particulars of Claim disclosed no reasonable grounds for bringing the claim, the Court said that its role on the applications was confined to considering the coherence and validity of the claim as pleaded, assuming that the facts pleaded are true. The Court emphasised that it is not permissible for the Court to consider and weigh the evidence supporting the pleaded claim in conducting that exercise. The Defendants' attacks on the Claimants' lack of evidential basis for pleading the nexus allegation were therefore not relevant. The Court was satisfied that the claims were pleaded in such a way that the Defendants knew the case they have to meet and the issues raised, and held that this was all that was required of the Claimants.
The Court accepted that the strength of the evidence on which the pleadings are based was, however, relevant in considering the application to strike out on the second ground, that the Particulars of Claim were an abuse of the Court's process. The Court said the fundamental question on this ground was whether, on the information available to them, the Claimants had any business pleading the nexus allegation in the way that they did as a primary fact, rather than as an inference. On this point, the Defendants had argued that the signatory to the statement of truth (the Claimants' solicitor) had merely had a basis for asserting that the nexus allegation might be true, rather than the necessary information or foundation for belief that the Particulars of Claim were in fact true.
The Court held that the Claimants were not required to have evidence sufficient to prove the nexus allegation at trial in order to plead to it in their Particulars of Claim. The Court was critical of the Defendants' applications in failing to make this distinction, finding that "what is required in order to plead a matter and sign a statement of truth at the start of proceedings, and what is required to prove an allegation at trial are separate and distinct things and an elision of these two fundamentally different concepts lies at the basis of the misconception which has led to the making of these applications".
On that basis, the Court refrained from assessing the veracity of the statistical reasoning on which the Claimants' nexus allegation was based and said that it would not be appropriate to undertake that exercise on applications of this nature. The Court found it was sufficient that the Claimant's solicitor asserted a firm belief in the truth of the nexus allegation and it accepted that he was justified in that belief. The Court was satisfied that "there is a clear pathway to be seen for the claimants' tobacco leaves to end up in the hands of the defendants", meaning the nexus allegation was not wholly speculative and that, accordingly, the Particulars of Claim were not an abuse of the Court's process.
This judgment is the latest in a series of recent cases in which the English Courts have declined to dismiss claims alleging novel duties of care against UK companies for alleged harms connected with their overseas business operations.
In the "parent company liability" cases Vedanta Resources Plc v Lungowe  UKSC 20 and HRH Emere Okpabi v Royal Dutch Shell  UKSC 3, the Supreme Court dismissed jurisdictional challenges to claims alleging that UK-domiciled parent companies owed duties of care to overseas claimants who had allegedly been harmed by the operations of the parents' foreign subsidiaries. The Supreme Court found in both cases that the claims overcame the "real triable issue" jurisdictional threshold. In Begum v Maran (UK) Ltd  EWCA Civ 326, the Court of Appeal refused an application to strike out a claim alleging a duty of care in the context of an even less direct relationship between the claimant, the spouse of a deceased shipbreaker, and the UK-domiciled defendant, a shipping agent which had acted on the sale of a vessel to a third party, which had then arranged for the ship to be destroyed at the breaking yard where the deceased worked. The Claimant did not sue either the purchaser of the vessel, the breaking yard, the deceased's employer or the owner of the vessel. Although the Court of Appeal said in Maran that the case on negligence faced "formidable hurdles", it found that the alleged duty of care was more than "fanciful" and declined to strike out the claim.
The judgment of the High Court in Josiya makes only passing reference to Vedanta, and does not refer to Okpabi or Maran at all. Notwithstanding that, the influence of these decisions is apparent in two respects. First, a common thread of the Vedanta, Okpabi and Maran decisions was that in refusing to dismiss the alleged novel duties of care, the Supreme Court and Court of Appeal emphasised that on such preliminary challenges (jurisdiction challenges in Vedanta and Okpabi, an application for strike out in Maran), the Court should only look behind a claimant's pleadings in limited circumstances, and held that it is not permissible for a Court to conduct a "mini trial" assessing the strength of the evidence in support of the claim. This approach was reflected in Josiya, where the High Court said its role in assessing the first ground of the applications (no reasonable grounds to bring the claim) was confined to assessing the coherence and validity of the claim as pleaded, and not the supporting evidence. Even though the Court accepted in principle that the strength of the evidence in support of the pleadings was relevant to the second ground (whether the pleadings were an abuse of process), the Court went on to find that it was sufficient that the Claimants had an evidential basis for their pleadings on the nexus issue, in the absence of any allegation of bad faith, and expressly refused to scrutinise that evidential basis further. The High Court's decision therefore aligns with these preceding decisions, and appears to be reflective of a trend in the Courts' approach to early stage applications to dispose of these types of novel claims.
Second, the influence of the Vedanta, Okpabi and Maran decisions may also be reflected in the fact that in Josiya, the Defendants' applications for strike out focused squarely on the nexus issue, and not the specific novel causes of action alleged against them (duties of care, conversion and unjust enrichment). Although this is not addressed in the judgment, it may be that the Josiya Defendants were dissuaded from seeking strike out of the causes of action directly, given the permissive approach to novel duties of care taken by the Supreme Court and Court of Appeal in the preceding decisions.
Also important is the fact that although the Vedanta and Okpabi cases concerned the responsibility of parent companies for their subsidiaries' operations, the Supreme Court made clear in its judgments in both cases that liability in negligence is not confined to the parent / subsidiary relationship. Maran and now Josiya both demonstrate the English Courts' apparent willingness to allow novel claims to proceed here against UK domiciled companies in respect of the operations of third parties in their global value chains.
Ultimately, the collective effect of this growing body of case law is that UK domiciled defendants face growing litigation risk in respect of alleged harms connected with their global value chains, particularly in relation to business ethics and human rights and environmental practices. This must now necessarily be considered as part of corporates' management of their ESG-related risk. Many of these claims would appear to face formidable difficulties in ultimately succeeding, and not one of these types of claim is yet to reach trial; nevertheless, these decisions illustrate the cost and potential reputational pressure that this type of litigation can pose, and the difficulty of drawing a line quickly under such claims, even though they may well be fundamentally flawed on their merits. Indeed, it is the very novelty and ambition of these claims in stretching established boundaries of law which appears to be playing a role in their ability to survive early attempts by defendants to dispose of them. That said, it is important to consider closely the grounds on which those applications have been brought and the specific reasons why they have failed, rather than assuming that any attempt to strike out a novel claim of this nature would be doomed to failure. Moreover, the post-Brexit developments regarding the UK's jurisdictional regime is likely to be critical in shaping how matters unfold in this area, given that these claims require – and are indeed constructed around – a jurisdictional nexus with the UK which allows them to proceed before the English Courts.