Duty of care – parent company liability for actions of foreign subsidiaries
There have been a number of cases in which individuals have sought to bring proceedings in tort in England, against an English parent company and its foreign subsidiary, in respect of certain events occurring in the foreign country, where that subsidiary carries out its operations. As Harrison Small discusses, on 10 April 2019, the Supreme Court handed down a much-anticipated judgment, in the case of Lungowe v Vedanta Resources Plc, holding that parent companies domiciled in England can be sued in the English courts for alleged torts committed overseas by their international subsidiaries.
Lungowe v Vedanta Resources Plc
In July 2015, 1,826 Zambian citizens (“Claimants”) commenced a claim against two defendants: Konkola Copper Mines PLC (“KCM”) and its ultimate parent company, Vedanta Resources PLC (“Vedanta”). The Claimants are poor members of the community who rely heavily on the watercourses for themselves, their livestock and irrigation for farming, and allege that the toxic matter from the mine has been repeatedly discharged and therefore both their health and farming activities have been significantly harmed since approximately 2005.1 The appeal dealt solely with the issue of jurisdiction – that is, the ability of the English courts to hear the claims brought by the Claimants against Vedanta and KCM.
The following four key issues were considered in the judgment:
- Would it be an abuse of EU law to permit the Claimants to sue Vedanta, as the anchor defendant?
- Real issue to be tried against Vedanta: liability as a parent company?
- Is England the “proper place” to hear the claims?
- If the English courts do not accept jurisdiction, could the Claimants obtain substantial justice?
The key question
The critical question, which will have practical importance to all UK-domiciled organisations that have subsidiary operations overseas, is whether Vedanta sufficiently intervened in the management of the mine, owned by its subsidiary KCM, to have incurred either a common law or statutory duty of care to the Claimants.
The question was a matter of fact, not law.
In this case, Vedanta had, amongst other things, the following:
- Sustainability Report – A report produced by Vedanta entitled “Embedding Sustainability”, which identified that the oversight of all of Vedanta’s subsidiaries rests with the Board of Vedanta. More importantly to the mine and issues identified above facing the Claimants, the report discussed problems with discharges of water and made express reference to the particular problem at the mine stating: “we have a governance framework to ensure that surface and ground water do not get contaminated by our operations”.2
- Management/Shareholders Agreement – A management agreement, which covered a number of contractual obligations for Vedanta to provide to KCM, including undertaking or procuring feasibility studies into various large-scale mining projects in accordance with acceptable mining, metal treatment and environmental practices.3
- Witness statement – A witness statement from a former employee that gives evidence that Vedanta exercised control over KCM. Specifically, once Vedanta took over affairs, working practices changed significantly, and the existing management and operational policies became irrelevant.4
- Other – Other material evidence such as Health, Safety and Environmental training, Vedanta’s financial support of KCM and various public statements made by Vedanta, including commitments to address environmental risks and technical shortcomings in KCM’s mining infrastructure.5
This demonstrated a sufficient level of intervention by Vedanta, to bring a claim against Vedanta in the English courts.
Cases with a similar duty of care issue
The decision in the above judgment contrasts with two recent Court of Appeal judgments dealing with similar issues, and which both held that the English courts did not have jurisdiction:
- AAA and others v Unilever PLC and Unilever Tea Kenya Limited  EWCA Civ 1532
The first defendant, Unilever PLC (“Unilever”), is an English-domiciled holding company. The second defendant, Unilever Tea Kenya Limited (“UTKL”) is a subsidiary of Unilever, which operated a tea plantation in the Republic of Kenya. The claimants/appellants were 218 Kenyan nationals who were all employees or residents of UTKL’s plantation in Kenya. Following the 2007 presidential election, there was widespread violence and disorder throughout Kenya. The violence and disorder spread onto UTKL’s plantation where murders and other violent assaults were committed on employees or residents at UTKL.
The claimants/appellants tried to argue that a duty of care was established as the parent company had given relevant advice to its subsidiaries about how it should manage certain risks. However, in this case, the Court of Appeal dismissed the appeal as there was minimal proximity, finding Unilever had a high level set of policies that was applicable to all entities of the Unilever group and it was the responsibility of the national/regional management to ensure appropriate crisis management plans. Thus, subsidiaries of Unilever had their own crisis management policies. In addition, nothing like the event (attack on the plantation) had happened on the plantation in question before.
The UK Court of Appeal handed down its judgment, declaring that Unilever did not owe a duty of care in relation to the operations of UTKL. On 17 July 2019, the Supreme Court refused the claimants’ application for permission to appeal the decision to the Court of Appeal.
- Okpabi v Royal Dutch Shell Plc  EWCA Civ 191
The first defendant, Royal Dutch Shell (“RDS”), is a company incorporated in the United Kingdom and is the parent company of the Shell group of companies. Shell Petroleum Development Company (“SPDC”) is an exploration and production company incorporated in Nigeria, and is a subsidiary of RDS. The claimants are citizens of Nigeria and their claim was brought on the basis that RDS owed the claimants a duty of care as RDS controlled the operations of the pipelines and infrastructure, and leaks from these pipelines and associated infrastructure caused serious, ongoing pollution and environmental damage.
Similar to the Unilever case, in Okpabi Simon LJ noted that the policies in question were mandatory across all of the parent company’s subsidiaries, and were not drafted/implemented in any way to the subsidiary in question. In particular, the claimants did not demonstrate an arguable case that the parent company controlled the subsidiary’s operations, or that it had direct responsibility for the failures, which are the subject of the claim. In addition, the Okpabi pipeline is owned by a joint venture, in which SPDC is only a minority stakeholder.6 In July 2019, the UK Supreme Court granted permission and will hear an appeal to allow the claimants to pursue their claim.
The Vedanta case differs from Unilever and Okpabi because of the level of control (witness statement and financial support in Vedanta case) and awareness of the issue at hand (Sustainability Report in Vedanta case). The Sustainability Report specifically discussed problems with the discharges of water, the issue affecting the Zambian citizens and the fact that they had a framework to ensure that this would not happen. Comparing this with the Unilever/Okpabi cases, the parent companies had a broad set of policies to ensure crisis management plans were implemented by subsidiaries.
How might this judgment affect your organisation?
There may be concerns for parent companies as the decisions above could potentially suggest taking a static approach when dealing with environmental and other risks of their subsidiaries in third world countries. However, parent companies must realise that the Supreme Court seemed reluctant to interfere with the lower court findings (Vedanta case) and thus the standard of proof was low at this time. Additionally, parent companies should understand that the legal risks associated with not implementing policies far exceed the risk of potentially owing a duty of care.
The success of proceedings will depend on the facts of each case and the level of control established by the parent company over the relevant subsidiary. If your organisation has subsidiaries operating overseas, particularly in countries which may not offer sufficient access to justice, this judgment serves as a useful reminder to review the wording and implementation of group-wide policies and training programmes. It will also pay to be mindful as to whether statements, inadvertently or otherwise, convey an assumption of responsibility for the actions of subsidiaries.
- 1. Vedanta Resources PLC and another (Appellants) v Lungowe and others (Respondents)  UKSC 20, paragraph 1.
- 2. Lungowe & Ors v Vedanta Resources Plc & Anor  EWCA Civ 1528, paragraph 84(1).
- 3. Ibid., paragraph 84(2).
- 4. Ibid., paragraph 84(5).
- 5. Ibid., paragraphs 84(3), 4 and (5).
- 6. Okpabi & Ors v Royal Dutch Shell Plc & Anor (Rev 1)  EWCA Civ 191 (14 February 2018), paragraph 127.
Download our latest Annual Review
Or Read Online
Subscribe to our newsletters
We regularly produce newsletters, articles and papers to keep our clients and other stakeholders up to date with the latest developments and debates in construction and energy law. You can browse some of our most recent materials Here, or sign up to our monthly publications below to receive them directly to your inbox.