On 4 July 2018, the Court of Appeal handed down judgment in AAA & Ors. v Unilever PLC and Unilever Tea Kenya Limited [2018] EWCA Civ 1532, dismissing an appeal by victims of the 2007 post-election violence in Kenya.  It is the latest in a series of recent judgments on jurisdiction over parent company liability for overseas human rights impacts (see our previous posts on Vedanta and Shell) and has important ramifications for UK domiciled multinationals, particularly those with operations in unstable or conflict affected states.

The Facts

Following the contested election of 2007, a wave of violence swept across Kenya. Over 1300 people were killed, many more were injured and there was widespread damage to property.  Amongst the victims were employees and former employees of Unilever Tea Kenya Ltd (“UKTL”) along with other people present on their plantation in Kericho.  213 of these victims brought a claim in the English courts against Kenyan domiciled UKTL and its English parent, Unilever Plc (“Unilever”), alleging that the companies failed to discharge a duty of care to take adequate steps to protect them from the violence.

The High Court Judgment

In February 2017, Laing J in the High Court found in favour of Unilever and UKTL.  Under English law, a duty of care arises where there is proximity, foreseeability and where it is fair, just and reasonable to impose such a duty.  She found that there was no arguable case that two of these ingredients (foreseeability and fairness, justice and reasonableness) could be made out against Unilever.  Absent a good arguable claim against Unilever, there was no UK domiciled defendant to anchor the claims in the English courts and jurisdiction over the claims against UKTL was rejected.  Obiter, she stated that there was sufficient evidence of proximity between the claims and Unilever and that, if a viable claim against it could be made out, England would be the appropriate forum.

The Claimants appealed the question of whether a duty of care arose while Unilever submitted a respondent’s notice on the question of proximity and cross-appealed a previous decision declining a stay on case management grounds.  Both Unilever and UKTL also challenged the judge’s finding on appropriate forum.

The Court of Appeal Judgment

On the basis that there was insufficient proximity between the Claimants and Unilever, the Court of Appeal (Sales, Gloster and Newey LLJ) dismissed the Claimants’ appeal stating that the Claimants were “nowhere near” being able to show that they had a good arguable claim against Unilever.  The Court declined to address issues of foreseeability and whether it was fair, just and reasonable to impose a duty of care, not only stating that this was unnecessary in light of its findings on proximity but that it would be inappropriate to do so.  They reasoned, “if there is to be a trial, it will have to take place in Kenya”.  In such circumstances, the Kenyan courts would be better placed to determine issues of foreseeability and what was fair, just and reasonable in a Kenyan context.  Permission to appeal to the Supreme Court has been granted.

The Court did not adopt the formulation for parent company liability adopted by a differently constituted bench of the same court in Vedanta and Shell.  Instead, it noted that there were two types of case in which a parent company duty of care might arise:

1. where the parent has in substance taken over the management of the relevant activity of the subsidiary; and
2. where the parent has given relevant advice to the subsidiary about how it should manage a particular risk.

After reviewing several UKTL and Unilever policies and hearing evidence from UKTL’s senior management, the Court held that: UKTL did not receive relevant advice from Unilever; and UKTL understood that it was responsible for devising its own risk management policy and handling the crisis in 2007 and did so.

Comment

A different formulation on parent company duty of care muddies the waters

The formulation adopted in Unilever is not necessarily inconsistent with the formulation adopted in Vedanta and Shell (which noted that a parent company duty of care might arise, inter alia, where the parent had devised a policy material to the harm or where it controlled the operations that gave rise to the harm).  However, it is regrettable that businesses seeking to understand a possible duty of care and manage risk accordingly must now reconcile these different formulations.

A parent company is in the same position as any other third party – what does this mean in the context of non-equity relationships?

Sales LJ stated that:

“There is no special doctrine in the law of tort of legal responsibility on the part of a parent company in relation to the activities of its subsidiary, vis-à-vis persons affected by those activities. Parent and subsidiary are separate legal persons, each with responsibility for their own separate activities. A parent company will only be found to be subject to a duty of care in relation to an activity of its subsidiary if ordinary, general principles of the law of tort regarding the imposition of a duty of care on the part of the parent in favour of a claimant are satisfied in the particular case.” [36]

This is relatively uncontroversial and consistent with well-established principles of English law, as articulated in a long line of previous cases, including Chandler v Cape, Lungowe v Vedanta and Okpabi v Shell.  Absent a radical departure from this position by the Supreme Court, we do not appear to be moving towards a doctrine of enterprise liability (whereby a company is automatically liable for the actions of its subsidiaries or other actors in its value chain).  Nevertheless, he went on to add:

“The legal principles are the same as would apply in relation to the question whether any third party (such as a consultant giving advice to the subsidiary) was subject to a duty of care in tort owed to a claimant dealing with the subsidiary.”

This brings into focus the question of which other third parties might owe a duty of care to people affected by the operations of a company with which it has a non-equity relationship.  Could the same principles be extended to, for example, a UK bank in circumstances where it finances and exercises some control over an overseas project which is associated with an adverse human rights impact?  What are the implications for a business’s supply chain management?  Could, for example, a purchaser which requires that its suppliers comply with a code of conduct owe a duty of care to someone harmed in that supplier’s operations?  In both instances, it would turn on whether the ingredients of foreseeability, proximity and “fair, just and reasonable” could be made out on the specific facts.  In many circumstances, it will be more difficult to establish this in the context of a relationship between bank and client or purchaser and supplier than in the context of a parent – subsidiary relationship, where there is likely to be greater scope to intervene in the operations of the subsidiary. However, there is no legal reason that such a duty could not arise.  In light of this risk, all businesses should be alive to human rights risk in their operations and supply chain and how this interacts with their legal risk profile.

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