UK parent company liability to parties affected by operations of a UK or foreign subsidiary
13 November 2017
The Court of Appeal confirmed that a UK parent company’s duty of care may, in certain circumstances, extend to employees of a subsidiary and it was arguable that such a duty could also be owed to third parties affected by a subsidiary’s operations. This includes subsidiaries which are not wholly owned. The Court of Appeal confirmed that England is an appropriate jurisdiction for claims by a group of Zambian citizens against a Zambian company and its English majority parent company. It also confirmed that the English courts cannot decline jurisdiction over a claim against a defendant company domiciled in England and Wales, on the basis of forum non conveniens: Dominic Liswaniso Lungowe & ors v Vedanta Resources Plc and Konkola Copper Mines Plc  EWCA Civ 1528.
Konkola Copper Mines Plc (KCM) was a Zambian company which owned and operated the Nchanga copper mine in Zambia. KCM’s majority (79.42%) parent company is UK registered Vedanta Resources Plc (Vedanta). In July 2015, a group of Zambian citizens (claimants) started English proceedings against Vedanta and KCM (defendants), alleging personal injury, loss and damage due to alleged pollution and environmental damage caused by the copper mine.
The defendants challenged the English court’s jurisdiction.
The claimants argued that, following the ECJ decision in Owusu v Jackson,1 the English courts cannot decline jurisdiction conferred by ‘domicile’ under Article 4 of the Recast Brussels Regulation on forum non conveniens grounds. The English court, therefore, had to take jurisdiction, the claimants argued, against Vedanta (a company domiciled in England Wales) and KCM (as a ‘necessary and proper party’ to that claim). Vedanta argued that Owusu v Jackson did not apply and should not be followed.
Owusu does not preclude merits based dismissal of claim
The Court of Appeal confirmed the effect of Owusu v Jackson was that Article 4 of the Recast Brussels Regulation prevents the English courts from declining its mandatory jurisdiction where the defendant is a company domiciled in England and Wales. Nevertheless, the English courts may dismiss the claim on the merits.
The Court of Appeal acknowledged that a party may, in principle, argue that the invocation of the jurisdictional rules in the Recast Brussels Regulation amounts to an abuse of EU law. Vedanta had argued that the sole purpose of the claim against it was to bring the claim against KCM within the jurisdiction of the English courts. However, the Court of Appeal warned that this would require sufficient evidence to show that the invoking party had acted “to distort the true purpose of that rule of jurisdiction”. In this case, that high threshold was not met.
Parent company may owe duty to employees of subsidiary
In establishing whether there was a “real issue to be tried between the claimants and Vedanta” and a “necessary or proper party” jurisdiction gateway against KCM, the Court of Appeal had to consider whether it was arguable that a duty of care was owed by Vedanta to KCM’s employees and third parties.
The Court of Appeal clarified that a duty of care may be owed under English law by a parent company to the employees of a subsidiary in certain circumstances, subject to the three-part Caparo test2 (requiring foreseeability, proximity and reasonableness). Such circumstances may arise if, for example, the parent company has taken direct responsibility for devising the subsidiary’s health and safety policy and it is the adequacy of that policy which is the subject of the claim, or controls the operations which give rise to the claim.
Following Chandler v Cape Plc and Thompson v The Renwick Group Plc,3 circumstances which may meet this test include the following:
- The business of the parent and subsidiary are, in a relevant respect, the same, and the parent is well placed, because of knowledge or expertise, to protect the subsidiary’s employees. If both companies have similar knowledge and expertise, and jointly take decisions which the subsidiary implements, both may owe a duty of care to those affected by those decisions.
- The parent has, or ought to have, superior knowledge of some relevant aspect of health and safety in the particular industry.
- The subsidiary’s system of work is unsafe as the parent company knew, or ought to have known.
- The parent knew or ought to have foreseen that the subsidiary or its employees would rely on the parent company using that superior knowledge for the employees’ protection, eg where the parent has a practice of intervening in the trading operations of the subsidiary.
The parent company does not need to have absolute control over the subsidiary for a duty of care to arise. This was argued for, and specifically rejected by the Court of Appeal, in Chandler v Cape Plc. Vedanta owned 79.42% of KCM, the rest was owned by a Zambian state-owned company.
Parent company may also owe duty to third parties affected by subsidiary
The Court of Appeal concluded that “such a duty may be owed in analogous situations, not only to employees of the subsidiary but to those affected by the operations of the subsidiary”. The court said that the fact that there had never been a reported case in which a parent company had been held to owe a duty of care to a person (not an employee) affected by the operations of a subsidiary did not make such a claim unarguable.
On this basis, it accepted that the claim against Vedanta was properly arguable. There was a serious question to be tried and, although it related to jurisdiction, the Court considered that it should not be summarily dismissed. It was reasonable for the English court to try the issue between the claimants and Vedanta: not only was it subject to the mandatory jurisdiction rule, but the claimants had a clear interest in suing Vedanta as a company with sufficient funds to meet an English order (rather than merely as a hook to pursue KCM in England).
Jurisdiction of English courts over foreign subsidiary
The Court of Appeal ruled that Coulson J was entitled to conclude that KCM was a necessary and proper party to the claim against Vedanta, and that parallel proceedings based on the same facts, witnesses and documents would be inappropriate (given that the claim against Vedanta would continue in England, it was the most appropriate place for the claim against KCM). Coulson J was entitled to find that there was a real risk, which was almost certain, that the claimants would not obtain justice in Zambia.
Accordingly, the Court of Appeal dismissed the jurisdictional challenges, finding no proper grounds for re-opening Coulson J’s decision.
Businesses using an English-incorporated holding company to conduct their foreign operations may subject the actions of both holding company and foreign subsidiary to the jurisdiction of the English courts. In this case, it means that the English courts can determine whether the UK parent company’s tortious duties could extend potentially to employees of a Zambian subsidiary and also those affected by the Zambian operations. This provides a stark contrast to the High Court’s refusal, earlier this year, of jurisdiction over claims brought against Royal Dutch Shell and its Nigerian subsidiary, by claimants affected by oil pollution in the Niger delta, discussed here which is due to be heard on appeal on 21 November 2017.
It remains to be seen how these claims will be determined on the merits, a matter which the Court of Appeal took great care not to assess. Remember that the Court of Appeal’s finding on whether a parent company could owe tortious duties to third parties affected by a subsidiary’s operations (not just employees) was simply that it was ‘arguable’. This is very different from a finding that such a duty was owed. Any claim will also be very fact dependent, particularly as regards the intricacies of the relationship between a parent and subsidiary, and the resultant extent of duties owed by the parent. However, against a backdrop of heightened public attention on parent company responsibility, and anti-globalisation sentiment, these proceedings will no doubt be closely scrutinised both by those in UK parent companies who assess risk (and insurers) and those who are affected by the operations of subsidiaries owned by UK companies.
1. Owusu v Jackson (Case C-281/02)  QB 801.
2 Caparo Industries Plc v Dickman  2 AC 605.
3 Chandler v Cape Plc  EWCA Civ 525; Thompson v The Renwick Group Plc  EWCA Civ 635.
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