Parental Controls: Supreme Court holds that claims can be brought against a parent company domiciled in England, in respect of the activities of its overseas subsidiaries
By Natalie Burton, Associate, Fenwick Elliott
The Supreme Court handed down a much-anticipated judgment on 10 April 2019, holding that parent companies domiciled in England (known as “anchor defendants”) can be sued in the English courts for alleged torts committed overseas by their international subsidiaries (“foreign defendants”).
The potential liability of a parent company will depend upon the degree of involvement or influence that it has over the operations of its international subsidiary. This judgment offers useful guidance as to what may constitute a sufficient degree of involvement and in particular considers the effect of group-wide policies and training.
The decision in this 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.1
This judgment has also diluted the irreconcilable judgments “trump card” relied upon by claimants to facilitate bringing claims against foreign subsidiaries in the English courts.
Background to the Supreme Court hearing
In July 2015, 1,826 Zambian citizens commenced a claim against two defendants: Konkola Copper Mines Plc (“KCM”) and its ultimate parent company, Vedanta Resources Plc (“Vedanta”). KCM is a public company incorporated in Zambia. Vedanta is KCM’s ultimate parent company and is incorporated and domiciled in the UK. The claim against KCM and Vedanta arose from the alleged toxic emissions from the Nchanga Copper Mine in Zambia, owned and operated by KCM.
Vedanta and KCM challenged jurisdiction unsuccessfully in the English High Court. They then appealed to the Court of Appeal, and finally to the Supreme Court, to challenge the jurisdiction of the English courts to hear this claim against Vedanta and KCM.
This 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. It made no determination with regard to liability of Vedanta or KCM which will be dealt with at a substantive hearing.
Decision of the Supreme Court
The Supreme Court unanimously upheld the decisions of the lower courts, dismissing the appeals of Vedanta and KCM. This means that the claimants’ case can now proceed to a full hearing to determine the substantive issues in the English courts.
Importantly, and of relevance to international organisations domiciled in the UK, the judgment considered circumstances in which parent companies may be liable for the actions of their international subsidiaries – see issue ii below. The judgment also considered several interesting points regarding jurisdiction of the English courts, which will be of interest to legal practitioners.
The following four key issues were considered in the judgment:
i) Would it be an abuse of EU law to permit the claimants to sue Vedanta, as the anchor defendant, for the sole purpose of attracting jurisdiction over KCM, the foreign defendant?
ii) Was there a real issue to be tried against Vedanta, as anchor defendant?
iii) Are the English courts the proper place to hear the claims?
iv) Would the claimants have access to substantial justice outside of the English courts?
1. Abuse of EU law?
The jurisdiction of the English courts over an “anchor defendant” is derived from Article 4.1 of the Recast Brussels Regulation which states:
“Subject to this Regulation, persons domiciled in a member state shall, whatever their nationality, be sued in the courts of that member state.”
It is well established in English case law that Article 4.1 of the Recast Brussels Regulation confers a right on any claimant (regardless of their own domicile) to sue an English-domiciled defendant in England.
The Supreme Court upheld the decisions of the lower courts and ruled that bringing the claims against Vedanta and KCM in England did notconstitute an abuse of EU law.
2. Real issue to be tried as against Vedanta: liability as a parent company.
The key question here was whether Vedanta had sufficiently intervened in the management of the Zambian copper mine, owned by its subsidiary KCM, to have incurred either a common law or statutory duty of care to the claimants. The Supreme Court held that there wasa real issue to be tried against Vedanta, both under common law and under Zambian statutory law. This is of practical importance to all UK-domiciled organisations that have subsidiary operations overseas.
Whether Vedanta had sufficiently intervened in the management of the mine to incur a duty of care (under Zambian law) was a question of fact for the Supreme Court to consider in this case. The Supreme Court noted that the question of parent company liability turns upon the “extent to which, and the way in which, the parent availed itself of the opportunity to take over, intervene in, control, supervise or advise the management of the relevant operations (including land use) of the subsidiary”.
The Supreme Court was reluctant to categorise all potential cases of parental liability, acknowledging that there is “no limit to the models of management and control which may be put in place within a multinational group of companies”.
However, the Supreme Court offered useful insight into the effect of group-wide policies. It was held that a parent company could incur a duty of care in respect of the activities of its subsidiaries in a number of ways, including:
- implementing group-wide policies or guidelines and by expecting each subsidiary to comply with them;
- taking active steps by training, supervision or enforcement of group policies;
- holding itself out as exercising a degree of supervision and control, even if it does not actually do so.
In this case, Vedanta had, amongst other things:
- published materials in which Vedanta assumed responsibility for the maintenance of proper standards of environmental control over the activities of its subsidiaries, and in particular with regard to the copper mine;
- implemented those standards by training, monitoring and enforcement.
It was held that these demonstrated a sufficient level of intervention by Vedanta, for the purpose of bringing a claim against Vedanta in the English courts.
3. Is England the “proper place” to bring a claim against KCM?
This question generally requires consideration of connecting factors between the claim and the jurisdictions in which it could be litigated. These factors may include issues of practical convenience such as accessibility to courts, availability of a common language or the place where the act or omission occurred. Another important factor is the risk of irreconcilable judgments arising from parallel proceedings in different jurisdictions, which was a key consideration in this case. Prior to this judgment, following Owusu v Jackson,2 if a claim is to be pursued against an anchor defendant in England regardless of the claim against the foreign defendant, the risk of irreconcilable judgments was sufficient for the English courts to accept jurisdiction in respect of the claim against the foreign defendant too. This argument was often a trump card for claimants pursuing claims in the English courts against foreign defendants.
In this case, Vedanta had in fact offered to submit to the jurisdiction of the Zambian courts, so that the whole case against Vedanta and KCM could be heard in Zambia. However, the claimants still sought to pursue the claim against both Vedanta and KCM in the English courts, whilst simultaneously claiming that a risk of irreconcilable judgments would be prejudicial to the claimants.
The Supreme Court overruled the decision of the lower courts and held that the claimants had failed to demonstrate that England was the proper place for the trial of their claims against Vedanta and KCM. The Supreme Court instead held that if substantial justice was available in Zambia (see Point 4 below), there was in fact good reason why the claimants should have to choose between England and Zambia to bring their claims, including the avoidance of irreconcilable judgments.
Although the risk of irreconcilable judgments remains a relevant factor in considering whether England is the proper place to bring a claim, following this judgment that risk “ceases to be a trump card” for prospective claimants.
4. If the English courts do not accept jurisdiction, could the claimants obtain substantial justice?
Even if a foreign jurisdiction may be the proper place to bring a claim rather than England, the English courts can permit service of English proceedings on a foreign defendant if they are satisfied that there is a real risk that substantial justice may be denied in that jurisdiction.
In this case, although there was no doubt as to the independence or competence of the Zambian judiciary, the Supreme Court found that there was still a risk that substantial justice would be unavailable in Zambia. This was due to:
- the practical impossibility of funding group claims, where the claimants were in extreme poverty, where there was no legal aid available to them and where Conditional Fee Agreements are unlawful in Zambia;
- the absence of sufficiently substantial or experienced legal teams to handle litigation of this size and complexity.
How does this judgment affect your organisation?
This judgment is of significance to parent companies domiciled in England, with international subsidiaries operating overseas. A parent company, with little day-to-day involvement with the operations of its international subsidiaries, may nonetheless leave itself open to litigation in the English courts from overseas claimants. As seen in this case, this may be on the basis of publicly available group-wide policies and/or group-wide training programmes.
If your organisation has subsidiaries operating overseas, particularly in countries which may not offer sufficient access to justice (as described in Point 4 above), 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 public statements, inadvertently or otherwise, convey an assumption of responsibility for the actions of subsidiaries.
This judgment is particularly important when set against the backdrop of the current rise of activism relating to environmental, climate change and human rights issues. It paves the way for more such claims against international organisations to be commenced in London. The willingness of UK-based law firms to represent overseas claimants in this jurisdiction offers a mechanism through which to bring claims in the English courts which may be otherwise unavailable to claimants in their home countries.
This judgment also highlights that when faced with a claim of this nature, there could be tactical advantages in submitting to the local jurisdiction that are worth exploring with your legal team.