Parent companies: English Courts can try Zambian pollution litigation

United Kingdom

On 10th April 2019, the UK Supreme Court gave judgment in a procedural dispute over whether litigation relating to pollution in Zambia could be tried in the English Courts. The judgment is significant for multinational UK parent companies with operating companies in the most underdeveloped countries. The case is Vedanta Resources Plc and another v Lungowe and others [2019] UKSC 20. The two corporate defendants are Konkola Copper Mines plc (“KCM”) and Vedanta Resources Plc (“Vedanta”). This issue of jurisdiction only arises because Vedanta is a company incorporated in England and is the parent company of KCM which operates, and is incorporated, in Zambia.

Whilst this judgment is purely about jurisdiction, commercially it is nonetheless potentially very significant in terms of assessment of liability and (if the claimants succeed) quantum of damages. The dispute before the Supreme Court was about whether this pollution litigation (if it goes all the way to trial) could be tried in the courts of England, or be restricted to the courts of Zambia.

Background

The claimants are a group of very poor rural Zambian citizens (currently numbering 1,826) living in the Chingola district of Zambia. They allege that from 2005 there have been repeated discharges of toxic materials from the Nchanga Copper Mine into local watercourses. They say that they rely on these watercourses as their only source of drinking water (for themselves and for their livestock) and for irrigation. They say that these discharges have harmed their health and their farming activities.

The copper mine is owned and operated by KCM. Vedanta is the ultimate parent company of KCM. Vedanta does not own 100% of KCM. The Zambian government has a significant minority stake. However, “materials published by Vedanta state that its ultimate control of KCM is not thereby to be regarded as any less than it would be if wholly owned”.

The Zambian citizens’ claims are pleaded in common law negligence and breach of statutory duty; against KCM, as owner and operator of the mine, and against Vedanta, by reason of the “very high level of control and direction [that it] exercised over the operations of KCM, including its compliance with applicable health, safety and environmental standards”.

The claimants chose to make their claims, against both corporate defendants, in the English courts. At least by the time of this appeal it was “common ground that the claims against KCM have a real prospect of success”. In terms of Vedanta a major issue was whether the claims disclosed a real triable issue. As this was a dispute over jurisdiction, the courts at this stage perform a kind of screening process. They do not look at the evidence in the detail that would apply at trial (the courts are not determining liability at this stage), but rather look at the case in sufficient depth to determine if there is a real issue to try and in what jurisdiction.

The claimants were keen that the matter be tried in England against both defendants. At least at face value, there appeared to be some obstacles to this. Most indicators firmly suggested that the Zambian courts were the proper place to try the case against KCM (but see further below). Also Vedanta had indicated that it would submit to the jurisdiction of the Zambian courts.

Clearly in an endeavour to have the cases heard in English courts, the fact of Vedanta being a defendant was very important for the claimants but not the only factor. As a finding of fact, the judge in the first appeal found that although the prospect of attracting jurisdiction against KCM was a substantial reason why the claimants sued Vedanta in England, it was not their only reason.

From the outset, KCM and Vedanta challenged very rigorously the jurisdiction of the English courts to hear these claims. The proceedings were issued in 2015. The two defendants’ first challenge against jurisdiction was heard by Mr Justice Coulson in the High Court in 2016. Having lost on all grounds, the defendants appealed to the Court of Appeal, where in 2017 again they lost on all grounds. In this appeal to the Supreme Court, they again lost.

Parent company liability

The judgment of the Supreme Court is 38 pages and is extremely interesting for lawyers with an interest in jurisdiction disputes. However, for the purposes of this article we restrict ourselves to aspects relating to potential UK parent company liability for an overseas operating subsidiary.

A critical question to determine was whether Vedanta sufficiently intervened in the management of the mine to have incurred a common law duty of care to the claimants, or a fault-based liability under Zambian environmental, mining and public health legislation in connection with the discharges of toxic materials.

KCM and Vedanta argued that the claimants’ case would involve a novel and controversial extension of the boundaries of the tort of negligence which in turn required a detailed investigation of the claimants’ case, which neither the High Court nor the Court of Appeal had carried out. The Supreme Court rejected both parts of this argument. In terms of the allegation that the claimants were effectively seeking an extension of the tort of negligence, the Supreme Court held that parent company liability in relation to the activities of their subsidiaries is not of itself a distinct category of liability in common law negligence; “Direct or indirect ownership by one company of all or a majority of the shares of another company (which is the irreducible essence of a parent/subsidiary relationship) may enable the parent to take control of the management of the operations of the business or of the land owned by the subsidiary, but it does not impose any duty on the parent to do so. ..Everything depends on 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. All that the existence of a parent subsidiary relationship demonstrates is that the parent had such an opportunity”.

In terms of a proper assessment by the lower courts, the Supreme Court, dismissed the defendants’ contention: “I regard the published materials in 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 as the Mine may be demonstrable at trial, after full disclosure of the relevant internal documents of Vedanta and KCM and of communications passing between them”.

KCM and Vedanta also sought to extract from previous case law a general principle that a parent could never incur a duty of care in respect of the activities of a subsidiary simply by putting in place group-wide policies and guidelines and expecting the management of each subsidiary to comply with them. The Supreme Court again dismissed this, and was reluctant to support laying down any principles such as this. Instead such policies and guidelines have to be looked at in all the circumstances. For instance the Court made the point that “Group guidelines about minimising the environmental impact of inherently dangerous activities, such as mining, may be shown to contain systemic errors which, when implemented as of course by a particular subsidiary, then cause harm to third parties”. Also 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” or from another perspective, “if in published materials, it [the parent] 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”.

KCM: jurisdiction and substantial justice

This was the only legal issue which the Supreme Court found difficult. The Supreme Court came to the same conclusion as the lower courts (the English Courts have jurisdiction to try the case against KCM), but its legal reasoning in doing so differed from that of the lower courts. The reasoning of the Supreme Court contains factors which parent companies might wish to bear in mind.

Having determined that there was a real triable issue against Vedanta to be heard in the English courts, and as most of the indicators pointed to Zambian courts being the proper place to hear the case against KCM, there would exist a real prospect of irreconcilable judgments if the case against KCM is heard in Zambia. The UK courts generally abhor the risk of irreconcilable judgments. The High Court and Court of Appeal ruled that this risk of irreconcilable judgments was enough reasoning in itself to accept jurisdiction in England of the claims against KCM.

The Supreme Court overruled the lower courts on this point. The UK courts could no longer legally use this risk as reason for accepting jurisdiction. Moreover, as Vedanta had indicated that it would accept the jurisdiction of the Zambian courts but nonetheless the claimants insisted that the claims against Vedanta be tried in England, the claimants had brought the risk of irreconcilable judgments upon themselves. Having overruled the legal reasoning of the lower courts, the Supreme Court examined whether there was a risk of denial of substantial justice if the case against KCM remained to be tried in Zambia. This concept of substantial justice was part of assessment of the proper place rule: “Even if the court concludes (as I would have in the present case) that a foreign jurisdiction is the proper place in which the case should be tried, the court may nonetheless permit (or refuse to set aside) service of English proceedings on the foreign defendant if satisfied, by cogent evidence, that there is real risk that substantial justice will not be obtainable in that foreign jurisdiction”.

In this regard, no criticism was made of the independence or competence of the Zambian judiciary, nor of the civil law procedures in Zambia. However, the Supreme Court (agreeing with the High Court) found that nonetheless the claimants would not obtain substantial justice in Zambia. This was for two reasons. One reason was that the claimants did not have access to funds for the litigation and were too poor to provide the funding themselves. Another reason was that the claimants were not likely to retain a Zambian legal team with the expertise, experience and resources to undertake the litigation. Thus the Supreme Court ruled that the case against KCM could continue in the English courts.

Comment

In an increasingly globalised world, and at a time when global environment and human rights related litigation is increasing at an unprecedented rate, it might be easy to think that UK parent companies might be better off refraining from adopting group-wide policies or asserting any control over subsidiaries abroad, or indeed from influencing other third parties such as its overseas supply chains. That would not be sensible reading of this case. This case is essentially about risk management. It provides a sound reminder that good risk management is an active process that will provide the parent company and subsidiaries (and their insurers) with security not only against financial risk, but also brand, investment and regulatory (etc.) risk.

For UK parent companies with subsidiaries in the poorest of countries which are active in operations that may give rise to environment, health & safety or human rights claims, and are concerned that such claims may be brought in the UK, the capabilities of the foreign domestic legal sector to handle such claims is a factor worth considering in risk management terms. Indeed in assessing this risk, a factor worth considering is how long such claims have existed. If the claims have merit, and have been made over extended periods of time without legal redress, this may be an indicator that the foreign domestic legal sector does not have the required capabilities.

Co-authored by Rachel Macrae.