UK: UK Supreme Court Considering Parent Company Liability For Environmental Harm Caused By Overseas Subsidiaries

Last Updated: 15 May 2019
Article by Anita Lloyd

In Vedanta Resource PLC and another v Lungowe and others  the UK Supreme Court has held that a claim for negligence and breach of statutory duty against a mining company based in Zambia and its English parent can be heard by the UK courts.

In so doing, this landmark decision has potentially opened the door to tortious claims against UK parent companies by persons based outside of the UK who have been impacted by acts of foreign subsidiaries.

The Facts

A claim was brought by a group of 1,826 farmers living in four rural communities in the Chingola District of Zambia. They brought a claim on the basis that, since 2005, the communities' only source of drinking water, for themselves and their livestock, and for the irrigation of their crops, has been polluted by repeated discharges of toxic matter from the Nchanga Copper Mine.  The claimants launched a negligence claim against both the immediate owner of the mine Konkola Copper Mines (KCM) and its UK parent, Vedanta Resources plc (Vedanta).

The claim was brought in the English courts and, unsurprisingly, the defendants challenged the jurisdiction of the English court to hear this claim. The defendants reasoned that the real focus of the litigation was on the  owner of the mine, KCM, as it was this company who had allegedly committed the negligent act. They argued that if a successful claim was brought against the parent company, this would be imposing a new duty of care on the parent for acts of the subsidiary. The defendant's relied heavily on Chandler v Cape, the first case to hold that a UK parent company could owe a duty of care to a third party because of the actions of its subsidiary. It was asserted that, since the case at hand did not factually fit neatly into a "Chandler type" scenario, this would amount to an attempt at a "novel and controversial extension of the boundaries of the tort of negligence". On the basis that no duty of care was owed by the parent, the defendants' position was that the claim should only be brought against KCM, and in the Zambian courts.

The Decision

Notwithstanding the defendants' arguments, and in line with the decisions of the High Court and the Court of Appeal,  the Supreme Court held that the claim could be heard in England on two grounds:

  1. there was a case to be tried; and
  2. the UK was the most convenient forum to try this case.

First, Justice Briggs found that "the Chandler indicia are no more than particular examples of circumstances in which a duty of care may affect a parent" and should not be used as a "straitjacket" to bar any duty being found against the parent company in cases where the parent/subsidiary relationship do not fit the factual circumstances of Chandler. Instead, a duty of care based on the parent and subsidiary relationship will entirely depend on the factual circumstances of each case, including the degree of control the parent has over the activities of the subsidiary. Lord Briggs emphasised that there is nothing novel in this approach.

Importantly, whilst not determining that a duty of care was present, because this case was "all (and only) about jurisdiction", the court found that certain disclosed materials provided sufficient evidence that it was a triable issue whether Vedanta had sufficiently controlled the operations of KCM to impose a duty of care on the parent. The court placed great weight on Vedanta's environmental control and sustainability standards that were distributed throughout the Vedanta group, and the fact that Vedanta has taken "active steps, by training, supervision and enforcement, to see that they are implemented".

On the question of where the case should be tried, the Supreme Court held that Zambia was the proper place for the claim against KCM to be tried.   This was based on practicalities, including the law and common language to be applied, accessibility of the witnesses and the fact that the wrongful act and harm occurred in Zambia.  Notably the court affirmed that although this led to a risk of irreconcilable judgments, if Vedanta was to be tried in the UK, and KCM in Zambia, this would not act as a "trump card" to necessitate that both defendants must be tried in the UK.

Nevertheless, whilst being careful to conclude that Zambia was the proper place for KCM to be tried, the court then considered  whether the farmers would be able to have access to substantial justice if their claims were pursued in Zambia. Ultimately the court found that they would not, on the basis of a lack of legal aid funding, conditional fee arrangements and suitable legal expertise. It therefore concluded that Zambia was not the convenient forum for bringing the claim against KCM, and instead the case would have to be brought in the UK.

The Implications?

Whether this case opens the floodgates to plaintiffs all over the world claiming that their local environment has suffered at the hands of UK multinationals is yet to be seen. What can be concluded, however, is that it is now harder for UK parent companies to deny that they have a duty of care for the acts of their subsidiaries when the nature of the control they wield over the foreign subsidiary does not fit the precise factual circumstances of Chandler.

This case could act as an important weapon for claimants to mitigate environmental impacts which can be linked to multinational companies' operations. In addition, claimants would no longer be hindered, but potentially helped, by the lack of resource or legal infrastructure in their home countries – as this can add fuel to their arguments that a case can be brought in the UK.

However, the court cautioned against the creation of general principles and confirmed that each case will be based on the facts of any given parent/subsidiary relationship.  It is also important to take a step back and remind ourselves that a duty of care has not yet been found and this question will be tried separately So, before companies rush to scrap any group-wide/global environmental or social policies for fear of creating a duty of care, they should bear in mind that the legal, financial and social costs of not operating comprehensive environmental policies are likely to outweigh the risk of a duty of care being imposed.

With thanks to Alex Paterson for his contribution to this article.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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