Update - African Insights: UK parent company liability

In an article published last month (see link below), we discussed two cases (the Shell case and the Unilever case) in which claimants sought to pursue UK-domiciled parent entities in the English Courts for the acts or omissions of their overseas subsidiaries.

In the article, we noted that the first instance decision in the Unilever case had been appealed and that the Court of Appeal’s judgment was awaited.

That judgment has now been handed down. The claimants’ appeal has been dismissed, with the Court of Appeal unanimously finding that no duty of care was owed by Unilever to the claimants. As a result, the claimants will not be able to pursue their claims here as there is no “anchor defendant” to bring the claims within the jurisdiction of the English Courts.

Although the judgment has not created new law in this area, it is of particular interest due to its reasoning which differs to that of the first instance judgment.

At first instance, the judge found that there was sufficient proximity between Unilever and the claimants (following the principles in Chandler v Cape, as discussed in our previous article) such that the second limb of the three-fold test in Caparo v Dickman was fulfilled. However, as the other two limbs were not fulfilled, no duty of care would be imposed between Unilever and the claimants.

The Court of Appeal also determined that no duty of care should be imposed. However, in contrast to the first instance decision, the Court of Appeal found that there was insufficient proximity between Unilever and the claimants to support the imposition of a duty of care. This sole finding was sufficient to prevent the imposition of a duty of care. The Court of Appeal was at pains to make clear that this was the only matter on which it was expressing any opinion, as it is possible that the claims may yet be heard before the Kenyan Courts.

The Court of Appeal provided helpful guidance about the circumstances in which a duty of care may be found to be owed by a UK-domiciled parent company in respect of the actions of its subsidiary:

Although the legal principles are the same, it may be that on the facts of a particular case a parent company, having greater scope to intervene in the affairs of its subsidiary than another third party might have, has taken action of a kind which is capable of meeting the relevant test for imposition of a duty of care in respect of the parent. The cases where this might be capable of being alleged will usually fall into two basic types: (i) where the parent has in substance taken over the management of the relevant activity of the subsidiary in place of (or jointly with: see Vedanta Resources, at [83]) the subsidiary's own management; or (ii) where the parent has given relevant advice to the subsidiary about how it should manage a particular risk.

In reaching its decision on proximity between Unilever and the claimants, the Court of Appeal relied upon witness evidence given by the managing director of Unilever’s subsidiary, as well as undertaking a detailed review of the relevant documentary evidence (including group accounts and reports). The evidence showed that the risk management policy, together with the risk assessments and the strategic and operational plans to deal with local crises were framed and / or prepared at local level in Kenya and that Unilever’s Kenyan subsidiary understood that it was responsible for devising its policies and implementing them without assistance or advice from its UK-domiciled parent.

This finding reinforces the views expressed in our previous article that, from a practical perspective, the risk of a successful claim against a UK-domiciled parent can be reduced by ensuring a clear division between operational activities within the group, including ensuring, where possible, that policies and procedures to support those operational processes are produced and implemented at local level, even if such policies necessarily flow from group-wide principles.