On 10 April 2019, the UK Supreme Court
gave its much anticipated decision in Vedanta
v Lungowe
as to whether English tort law meant a parent company can have a duty of care to victims of the actions
by a foreign subsidiary. In a unanimous decision, the Court determined that a
parent company can have a duty of care in such circumstances and that the
English courts had jurisdiction over the case. See the decision here.

The case is
based on a claim by 1,826 Zambians who live near to the
Nchanga copper mine in Zambia.  They allege that their health and
farming activities have been damaged by repeated discharges of toxic matter
from the mine, from 2005 to date, into
the rivers which provide their only sources of potable water and irrigation.
They base their claim on the common law of negligence and breach of statutory
duties.

Their claim is
against both Konkola Copper Mines plc (KCM, a Zambian
company) and Vedanta Resources Plc (its UK parent company).  The claim against Vedanta relies on its level
of control and direction over KCM’s mining operations, health and safety
compliance and environmental controls. The claim against KCM relies on it being
a necessary or proper party for
service out of the English jurisdiction. . In the Supreme Court, there were two interveners: the government of
Zambia; and a joint submission by the International Commission of Jurists and
The Corporate Responsibility Coalition (CORE), of which I was a member of the
legal team.

The issue before
the Supreme Court was solely one about jurisdiction: did an English court have
jurisdiction over a claim against a parent company and a foreign subsidiary in
such instances. It was not a decision on the merits of the claim – that would
only happen if the English courts had jurisdiction. The judge at first instance
and the Court of Appeal had held that there was jurisdiction: see the excellent
EJILTalk post
by Gabrielle Holly
.

The Supreme Court’s decision was delivered
by Lord Briggs, with whom the other four judges agreed. In essence, the Court
decided as follows:

  • Existing
    tort law principles mean a parent company can have a duty of care to victims of
    an action by a foreign subsidiary.
  • Accordingly, there is a
    real triable issue against Vedanta concerning whether it has assumed
    responsibility for the actions of its subsidiary.
  • Service out of the
    jurisdiction on KCM was not an abuse of the Recast Brussels I Regulation, and
    confirming Owusu v Jackson.
  • Zambia would have been
    the proper place for the litigation, provided that there was not a real risk of
    the denial of substantial justice there. However, the Claimants are all in
    extreme poverty, cannot obtain legal aid and conditional fee arrangements are
    unlawful in Zambia. Furthermore, there are not sufficiently experienced legal
    teams in Zambia to take a claim of this complexity against a well-resourced
    defendant like KCM, so the claim can be heard in the English courts.

The main focus of this blog is on the
parent company’s duty of care, as there has been no decision by any superior
court in the world directly on this issue. In this instance, Vedanta’s main arguments
were that any duty of care by a parent company would involve a novel and controversial
extension of the boundaries of the tort of negligence, beyond any established
category, and that it would be contrary to fundamental principles of company
law of the separate legal person of each company. The Court rejected these
arguments. It held that [para 54]:

[T]here
is nothing special or conclusive about the bare parent/subsidiary relationship,
it is apparent that the general principles which determine whether A owes a
duty of care to C in respect of the harmful activities of B are not novel at
all.

In reaching this conclusion, the Court
confirmed Chandler v Cape and the
decision of Sales LJ in AAA v Unilever [2018]
EWCA 1532, para 36, yet it made clear that courts should not try to create any
specific categories of company relationships. In fact the Court was pragmatic
about the realities of business in stating [para 51]: “There is no limit to the models of management and control which may be
put in place within a multinational group of companies”.
The Court extended
Chandler v Cape when it held [para
53]:

Even where group-wide policies do not of themselves
give rise to such a duty of care to third parties, they may do so if the parent
does not merely proclaim them, but takes active steps, by training, supervision
and enforcement, to see that they are implemented by relevant subsidiaries.
Similarly, it seems to me that the parent may incur the relevant responsibility
to third parties if, in published materials, it holds itself out as exercising
that degree of supervision and control of its subsidiaries, even if it does not
in fact do so. In such circumstances its very omission may constitute the
abdication of a responsibility which it has publicly undertaken.

This latter statement is crucial as it
encompasses both omissions and representations by a parent company. Indeed, the
Court relied on the various published statements by Vedanta [para 61]

[I]n
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….

In my view, the reliance on published
materials may be of particular importance in future claims. For example, section 414C
of the UK Companies Act
, which clarifies the duties of directors
under section 172, requires that the strategic report of a quoted company must
include information about “environmental
matters (including the impact of the company’s business on the environment)”

and “social, community and human rights
issues”
. Interestingly, this was inserted into the Companies Act in 2013 as
part of a UK government response to the UN Guiding Principles on Business and
Human Rights: Good
Business
, p.7.  

The disappointing aspect of this decision
is that the Court did not refer at all to the international standards or
comparative jurisprudence which was put to it by the two NGO intervenors. Their
submission included the argument that the
international standards indicated that a reasonable and responsible enterprise
will take proper steps to conduct due diligence as to the risks of adverse
impacts on human rights and the environment; to prevent or mitigate the risks
of such adverse impacts; and to remediate such adverse impacts as may occur. In
addition, they submitted that the recognition of a duty of care on the
part of parent companies was consistent with the UK’s obligations under
treaties to which it is a party, such as the ICESCR.  The
lack of reference to this submission was surprising as Vedanta itself had
referred to some of these international standards in its published materials (on
which the Court relied) and, during the oral hearing, Lord Wilson had expressly
referred to this intervention as showing “the direction of travel” of the law.

In future cases, there will still need to be evidence brought by claimants as to what actions a parent company has undertaken to indicate a duty of care and show that there is no substantial justice for the claimants in the host state, as well as other jurisdictional obstacles. There are also potential risks that some companies may change their actions and legal relationships to avoid a common law duty of care, for example, by not seeking to establish appropriate human rights and environmental standards across the business enterprise, even though doing so could undermine its responsibility of human rights due diligence under the UNGPs. Nevertheless, this is a significant decision by the UK Supreme Court, which will have impacts on other cases across the world.

Robert McCorquodale is Professor of International Law and Human Rights at the University of Nottingham UK, a barrister at Brick Court Chambers in London, and is the founder and principal of Inclusive Law, a consultancy which aims to bring together business, law and human rights. He represented the International Commission of Jurists and The Corporate Responsibility Coalition (CORE) in this case.

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