How Should English Domiciled Multinationals Manage their Human Rights Risk in Light of the Judgment in Lungowe v Vedanta?
This post originally featured on the Oxford University Law Faculty’s blog on the 25th October 2017.
Conventionally, the doctrines of separate corporate personality and forum non conveniens insulated English domiciled parent companies from liability for the actions of their foreign subsidiaries. However, developments in English and European law have progressively undermined the foundations of these doctrines. Recent years have seen a succession of cases in the English courts against an English parent and its foreign subsidiary in relation to extra-territorial human rights impacts.
Last week, the Court of Appeal handed down its judgment in Lungowe and Ors. v Vedanta Resources Plc and Konkola Copper Mines Plc. This will come to be seen as a landmark case in relation to parent company liability and jurisdiction and has deep significance for how English domiciled multinationals manage their human rights risk.
Strictly speaking, parent company liability does not exist. The Court confirmed that a parent company does not automatically owe a duty of care to someone affected by the actions of its subsidiary. The Claimant must do more to prove that a duty of care arises, including by demonstrating that the parent control the operations of the subsidiary, takes direct responsibility for devising a policy relevant to the claim or that the four indicia in Chandler v Cape can be made out. The Court expressly confirmed that the law has developed so that a parent company’s duty of care can extend to non-employees affected by the operations of the subsidiary. Together, this expands the scope of parent company liability and will likely encourage more claims of this kind.
At a jurisdictional hearing it is not necessary that claimants prove a duty of care exists, only that there is a ‘real issue to be tried’ between the claimants and the parent (and, strictly speaking, this is only relevant to jurisdiction over the subsidiary). This is a low threshold and was satisfied in Vedanta by evidence (amongst other things) of a global sustainability report which stressed that oversight of the subsidiaries ultimately rests with the parent.
This creates a ‘Catch 22’ for English domiciled multinationals. In order to fulfil their responsibilities under soft law instruments, such as the UN Guiding Principles, they are required to take responsibility for human rights risks throughout their group and supply chain. The judgment in Vedanta suggests that, if they do this, it will increase the likelihood of a duty of care arising for extra-territorial human rights impacts. One way to resolve this may be to push responsibility for human rights due diligence down to the operating subsidiary level – not only will this reduce the risk of a duty of care arising, it will likely be more effective in reducing the risk of an adverse human rights impact in the first place. Operating companies will often understand the human rights risk better than someone at HQ and be better placed to effectively mitigate against them.
It may be a tonic to parties seeking to resist jurisdiction that the Court chose not to sanction the first instance judge’s view that, where there is a real issue to be tried between claimants and the parent, this will ‘virtually decide’ the issue of forum non-conveniens over the subsidiary in favour of the English courts. While it did not reject the judge’s reasoning outright, it certainly did not sanction it. The Court cited without criticism submissions made by Vedanta’s counsel before coolly finding that the judge was entitled to reach his conclusion. In future jurisdictional hearings of this nature, this may result in a refocusing of attention away from the parent company liability issue and back on to forum non-conveniens. As to which, the Court offered an interesting policy statement: ‘There must come a time when access to justice in this type of case will not be achieved by exporting cases, but by the availability of local lawyers, experts, and sufficient funding to enable the cases to be tried locally’. It is arguable that the ends of justice require that the English courts do not accept jurisdiction over claims against foreign subsidiaries and that states such as Zambia should be entrusted to develop their own legal infrastructure and to try these cases locally.