Court of Appeal confirms jurisdiction over Zambia environmental damage claims against UK-domiciled parent and local subsidiary

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The Court of Appeal last week upheld jurisdiction over claims by Zambian citizens arising from discharges from a copper mine.  In Lungowe & Ors v. Vedanta Resources Plc & Anor [2017] EWCA Civ 1528, Jackson, Simon and Asplin LJJ dismissed appeals by Vedanta Resources Plc (a UK-domiciled company) and Konkola Copper Mines (KCM), its Zambian subsidiary, against a decision of Coulson J allowing the claims to proceed.

The judgment demonstrates the potential for parent companies to be held liable for environmental and human rights claims by local communities in respect of their foreign subsidiaries' projects.  This is particularly prevalent where they assist the subsidiary in relation to the issue underlying the claim. Where such proceedings are brought, the English courts will not have discretion to refuse to hear them. The courts may well also accept jurisdiction over claims against the foreign subsidiary, even where those claims have little other connection with the UK beyond the parent company's nationality.  

UK companies with foreign subsidiaries operating projects giving rise to a high risk of human rights violations will see the decision as yet another reminder of the need for preventative measures to avoid such violations on the part of their subsidiaries.

Jurisdiction over Vedanta pursuant to the Brussels Recast Regulation

The claims against Vedanta, a major global mining company listed on the LSE, are based in negligence. The claimants allege that Vedanta owed them a duty of care on the basis of the close connection between Vedanta and KCM, and Vedanta's assumed knowledge and superior expertise regarding health, safety and environmental protection, upon which it should have known KCM would rely.  KCM is separately accused of negligence, trespass and liability under various Zambian statutes. 

The claimants argued the English courts had jurisdiction over the claim due to Vedanta's nationality: Article 4 of the Recast Brussels Regulation gives the courts of an EU Member State jurisdiction over claims against persons "domiciled" in that Member State. In the 2005 case of Owusu v. Jackson, the ECJ held that, where a court has jurisdiction under this article, it has no discretion to stay proceedings. This was the case even if the courts of another (non-EU) state were clearly more appropriate to hear the case (the doctrine of forum non conveniens). Thus, the claimants in this case argued, the English courts could not refuse to hear their case against Vedanta on the basis that the claims were more closely connected with Zambia. 

Vedanta argued that the ECJ's reasoning in Owusu was flawed and should not be followed. Moreover, it was not intended to apply where non-EU claimants use the existence of a claim against an EU-domiciled party as a device to ensure their real claim (i.e. against a subsidiary) is litigated in that jurisdiction. 

The Court of Appeal, like Coulson J, dismissed Vedanta's objections. It reaffirmed the binding nature of Owusu (a decision considered by many, including Coulson J in this case, to be "suspect"), and allowed the claims against Vedanta to proceed. 

Jurisdiction over KCM as a "necessary and proper party"

The claimants argued that KCM is a "necessary and proper party" to the claim against Vedanta. Under the Civil Procedure Rules, the court may grant permission to serve a claim on a foreign entity where: (1) there is a real issue between the claimant and the (primary or "anchor") defendant which it is reasonable for the court to try; (2) the other person on whom the claimant wants to serve the claim form is a "necessary and proper party" to that claim; and (3) England and Wales is the proper place to bring the claim. 

On the first point, the Court of Appeal agreed there was a real issue to be tried between the claimants and Vedanta. It rehearsed the three-part test of foreseeability, proximity and remoteness in Caparo Industries v. Dickman to determine whether Vedanta owed the local citizens any duties.  The fact that Vedanta is KCM's holding company would not alone make it arguable that Vedanta owed such duties. The claimants had to establish "additional circumstances" to show this was appropriate. Simon LJ reviewed the key authorities and considered it may be appropriate to impose such a duty of care where:

  • the parent has taken direct responsibility for devising a material health and safety policy the adequacy of which is the subject of the claim, or controls the operations which give rise to the claim;
  • the businesses of a parent and subsidiary are in a relevant respect the same and  the parent has or ought to have superior knowledge on some relevant aspect of health and safety in the particular industry; or
  • the subsidiary's system of work is unsafe as the parent knew or ought to have known, and the parent knew or ought to have foreseen the subsidiary would have relied upon that superior knowledge.

The Court of Appeal held Coulson J had been entitled to conclude there was a real issue to be tried. The claimants had relied upon inter alia the following factors:

  • a report issued by Vedanta, entitled "Embedding Sustainability", stressed that the oversight of all Vedanta's subsidiaries rests with the board of Vedanta itself and expressly referred to problems with discharges into water, and to the particular problem at the mine in Zambia;
  • under a management and shareholders' agreement, Vedanta was under a contractual obligation to provide KCM with various services of relevance to the issues that had arisen;
  • Vedanta provided environmental and technical information and health, safety and environmental training across the corporate group; 
  • Vedanta's financial support for KCM amounted to approximately US$3 billion; and
  • Vedanta had made various public statements emphasising its commitment to address environmental risks and technical shortcomings in KCM's mining infrastructure. 

The Court of Appeal also concluded that, on balance, England and Wales was the proper place to hear the claims against KCM. The court had no difficulty in concluding (as Coulson J had) that, absent the claim against its parent, Zambia would have been the proper place to sue KCM, since all of the underlying events occurred in Zambia and there was no other connection with England.  However, the fact that the claim against Vedanta was to be heard in England meant the English courts were the correct place for the claim against KCM also. This was because it would be inappropriate for the two claims – involving virtually identical facts, witnesses and documents – to be conducted in parallel. 

Conclusion

This decision provides useful clarification of the relevant factors determining when parent companies may be found liable for environmental and human rights violations caused by their foreign subsidiaries. While parents will not automatically owe duties of care towards those affected by their subsidiaries' activities, courts will scrupulously examine the relationship between the companies and the role played by the parent in relation to the issues underlying the claim.

The fact-specific nature of this question has given rise to varying outcomes in proceedings currently before the English courts. For instance, in Okpabi and others v. Royal Dutch Shell Plc and Shell Petroleum Development Company of Nigeria Ltd (also under appeal), jurisdiction was refused on the basis that there was no close relationship between parent and subsidiary. As such, and particularly due to the uncertainty this causes, UK companies with subsidiaries operating in high-risk jurisdictions will be well advised to take strong actions to avoid and mitigate the risk of adverse human rights impacts by their foreign subsidiaries.   

The case also demonstrates the likely frequency with which the English courts will exercise jurisdiction over such claims against both UK- and foreign-domiciled companies. It does not appear to be open to UK parent companies to rely on Owusu to avoid jurisdiction, irrespective of the merits of the claims against them. This in turn may open the door to the English courts' jurisdiction over an increasing number of claims against foreign subsidiaries, even where the facts have little or no connection with England and Wales.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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