Vedanta v Lungowe & Others: liability of a UK parent company
The Supreme Court has handed down a significant judgment in Vedanta Resources Plc and Konkola Copper Mines Plc v Lungowe and Ors, finding an arguable case that the UK parent could be liable for the operations of its overseas subsidiary.
The liability of a UK parent company has been a high profile topic in recent cases. In Okpabi & Ors v Royal Dutch Shell plc and Shell Petroleum Development Company of Nigeria Ltd and AAA & Others v Unilever Plc & Unilever Tea Kenya Ltd, proceedings were issued in England against the UK parent company for events which occurred in Nigeria and Kenya respectively.
To show that the English Courts had jurisdiction in these cases, the claimants had to demonstrate that there was a real issue to be tried. This required the claimants to show that there was a good arguable case that they were owed a duty of care by the UK parent company.
In both Shell and Unilever, it was found that there was no good arguable case that a duty of care existed.
In the Shell case, the Court of Appeal found that there was insufficient proximity between the UK parent company and the Nigerian claimants given the lack of control by the UK parent over the Nigerian subsidiary’s operations. As such, the second limb of the Caparo Industries v Dickman test for imposing a duty of care could not be met by the claimants.
The Court of Appeal in Unilever suggested that the circumstances in which a duty of care is owed would usually fall into two basic scenarios:
- where the parent has in substance taken over the management of the relevant activity of the subsidiary in place of or jointly with the subsidiary’s own management; or
- where the parent has given relevant advice to the subsidiary about how it should manage a particular risk.
In that case, the Court of Appeal found that neither of those two scenarios applied and there was insufficient proximity between the UK parent and the claimants to fulfil the second limb of the Caparo test. The subsidiary’s management was responsible for the conduct of its affairs and the subsidiary had not received risk management advice from the UK parent.
The Vedanta case
In Vedanta, a claim was brought by 1,826 Zambian villagers against Vedanta Resources Plc, a UK mining company, and its Zambian subsidiary, KCM, for the discharge of toxic matter from a mine operated by KCM into waterways used for drinking and irrigation.
Examples of the ways Vedanta was involved in the management of KCM included:
- publishing a sustainability report which stated the Vedanta board had oversight of its subsidiaries;
- entering into a management services agreement with KCM; and
- releasing public statements emphasising its commitment to addressing environmental risks and technical shortcomings in KCM’s mining infrastructure.
The Supreme Court again had to consider whether there was a real issue to be tried in order to establish whether the English Courts had jurisdiction. The key question for the Supreme Court was, therefore, whether the claimants could show a good arguable case that Vedanta had sufficiently intervened in KCM’s management of its mine so as to owe a duty of care to the claimants.
Vedanta and KCM argued that Unilever and Shell provided a general principle that a parent could never incur a duty of care in respect of the activities of a subsidiary simply by providing group-wide policies and guidelines. However, this was rejected by the Supreme Court which stated a parent company may assume a duty of care where group-wide policies are implemented and administered by the parent.
The Supreme Court was also reluctant to limit parent company liability to the two scenarios which were highlighted in Unilever above. Instead it seems that the Court should carry out an analysis of the degree of management and control of the parent company over the subsidiaries’ activities on a case by case basis.
In Vedanta, the Supreme Court found that the claimants did have a good arguable case that Vedanta owed them a duty of care.
Lord Briggs stated (in the unanimous judgment) that “I regard the published materials in which Vedanta may fairly be said to have asserted its own assumption of responsibility for the maintenance of proper standards of environmental control over the activities of its subsidiaries, and in particular the operations at the Mine, and not merely to have laid down but also implemented those standards by training, monitoring and enforcement, as sufficient on their own to show that it is well arguable that a sufficient level of intervention by Vedanta in the conduct of operations at the Mine may be demonstrable at trial…”
The Vedanta case may be of concern for multinational companies as demonstrating a widening of the circumstances in which the English Courts are prepared to find a good arguable case that a UK parent company may owe a duty of care for the activities of its overseas subsidiaries. While the risks were highlighted in Shell and Unilever, Vedanta shows greater scope for a duty of care to be imposed.
In light of this, it is now even more important for commercial groups to maintain (as far as practicable) a clear operational division between the activities of a parent company and its subsidiaries. There are a number of ways in which the risk of a successful claim can be reduced:
- it is still possible for groups to apply risk policies across its whole group. However the parent company should take care not to administer those policies on behalf of the subsidiaries;
- public statements by a parent company as to group-wide policies and standards should be considered carefully so as to not constitute an assertion of responsibility for their implementation; and
- decision making revolving around a particular subsidiary should be taken by that subsidiary’s board, independently of the parent company.
Whether a duty of care will be imposed is highly fact-sensitive and must be assessed on a case by case basis. As ever, a UK parent company should take early advice when faced with such a claim.