On 13 October 2017, England’s Court of Appeal (Jackson, Simon and Asplin LJJ) unanimously upheld the first instance decision on jurisdiction of High Court Judge Coulson in Lungowe & Ors v Vedanta Resources Plc & Anor [2017] EWCA Civ 1528. In doing so, it held that the court could proceed to assess the merits of a mass claim brought by close to 2,000 Zambian nationals (the “Claimants”) against Zambia-based Konkola Copper Mines Plc (“KCM”) and its London-based parent, Vedanta Resources Plc (“Vedanta”).

This case is one in a series of recent cases (involving Cape, Shell and Unilever among others) brought by foreign claimants against companies based in England arising from the activities of their overseas subsidiaries. It is the only one in which the High Court has decided that there is a case for the English parent company to answer.

Background:

The Claimants are inhabitants of Chingola, Zambia. The dispute arose from environmental pollution in Zambia caused by KCM’s Nchanga mine. KCM’s parent, Vedanta, is a UK-based holding company for the Vedanta group, one of the world’s largest diversified natural resources companies.

The causes of action against KCM include negligence, nuisance, trespass, and liability under Zambian law. The Claimants argue that Vedanta owed them a duty of care and breached it by way of operations by KCM for which Vedanta had assumed responsibility. Following other cases in the series, Vedanta and KCM challenged the jurisdiction of the English courts on forum non conveniens grounds. Vedanta also argued that it did not owe the Claimants a duty of care and that the claims against it were brought illegitimately merely as a hook to obtain English jurisdiction over KCM.

Key Findings:

EU law imposes mandatory jurisdiction on English courts for claims against English companies

The Court of Appeal, agreeing with Coulson J, quickly dismissed Vedanta’s jurisdictional appeal, upholding what is now established law. Under European Union law (Article 4 of the Recast Brussels Regulation) the English courts have “what is a mandatory jurisdiction where the defendant [Vedanta in this case] is a company domiciled in England and Wales.” Forum non conveniens is not available so long as English courts remain bound by EU law and the jurisdiction of the European Court of Justice. While a party could, in principle, argue that a claimant’s invocation of Article 4 was an abuse of law, Vedanta’s illegitimate hook argument had not met this high-threshold.

Determining jurisdiction over a foreign subsidiary 

With jurisdiction settled over the claim against Vedanta, the Court of Appeal turned to assess whether this brought KCM within English jurisdiction (under the “necessary and proper party gateway”).

To satisfy this fact-intensive analysis, the Claimants had presented the High Court with evidence allegedly demonstrating KCM’s untrustworthiness and precarious financial position and Vedanta’s high level of control over KCM’s operations. They pointed to a previous case, U & M Mining Zambia Ltd v Konkola Copper Mines Plc [2014] EWHC 2146 (Comm), in which three English judges had found—in unusually strong terms—that KCM had repeatedly acted dishonestly. KCM, for its part, contested jurisdiction on forum non conveniens grounds, emphasising that the Claimants were Zambian, it was Zambian, Zambian law applied to the events in Zambia and that the Zambian courts could hear the dispute.

At first instance, Coulson J found that KCM could be brought into the English case after evaluating whether: (1) the Claimants’ claim against KCM had a real prospect of success; (2) there was a real issue between the Claimants and Vedanta; (3) it was reasonable for the court to try that issue; (4) that KCM was a necessary and proper party to the claim against Vedanta; and (5) that England was the proper place in which to bring that claim. On that last point, he acknowledged that Zambia would obviously be the appropriate forum for the claims against KCM to be tried, save that it was clear on the facts that the Claimants would almost certainly not receive access to justice if the claims were pursued in Zambia.

One interesting feature is that, before addressing the detailed arguments, the Court of Appeal revisited the “threshold issue” of how an appellate court should approach a first instance court’s evaluative judgment. The Court of Appeal reminded itself that its appellate role was not to substitute its evaluative assessment for that of the first instance judge and that it must respect first instance judgments. Accordingly, how the various matters weighed with Coulson J, either individually or together, were for him to decide and the Court of Appeal should not merely substitute its own views for his. This diversion may reflect a view in the Court of Appeal that Coulson J’s decision did not entirely accord with their views.

The Court of Appeal scrutinised Coulson J’s judgment in detail. It decided that Coulson J had not been “plainly wrong”, particularly in light of the facts presented, and therefore should not re-open his decision.

Commentary:

Most claims in the series of cases have failed on jurisdictional grounds or settled. The Vedanta decision is noteworthy because, with jurisdiction decided in favour of the claimants, the case now will advance to the merits.

It is important to remember that each of the cases has turned on the underlying facts. In the present case, the important underlying facts were that KCM clearly had a bad track record and was in parlous financial straits, while Vedanta was found to control KCM to a large degree. Finally, the courts considered that the Claimants would not have access to justice in Zambia.

In any event, the judgment serves as a warning to parent companies heavily involved in the affairs of their subsidiaries that courts are becoming more open to assuming jurisdiction over transnational tort claims and they should take steps to minimise risk. This includes ensuring that subsidiaries are acting in compliance with local laws and regulations; that adequate procedures and mechanisms are operating throughout the corporate structure to monitor compliance, conduct investigations and address grievances; and that, where appropriate, proper warranties, indemnities and insurance are in place.