Is a UK parent liable for the conduct of its foreign subsidiary?


Author: Sarah Charig


In a landmark decision in Lungowe v Vedanta Resources Plc[1] the Court of Appeal has ruled that a number of claimants can pursue their claim against a Zambian mining company and its English parent in the English courts despite the claim’s limited connection to England. The decision has widened the scope of potential claims against a UK parent company to include claims by those affected by a subsidiary’s operations. The decision should be on the radar of UK companies with foreign operations.

The claim was brought by 1,826 local residents of the Zambian city of Chingola against Konkola Copper Mines Plc (KCM) and its English parent company, Vedanta Resources Plc (Vedanta) for personal injury, damage to property and loss of income caused by waste discharged from the Nchanga copper mine (owned and operated by KCM). The mine was in Zambia, the claimants and KCM were domiciled in Zambia and the harm occurred in Zambia. However, as Vedanta was an English company (and perhaps also as a result of the greater efficiency and powers of an English court when compared to the local courts), the claimants brought proceedings in England. Vedanta and KCM challenged the English court’s jurisdiction arguing that: (a) the English courts did not have jurisdiction to hear the claim against Vedanta; and (b) the appropriate place to bring the claims against KCM was Zambia.

The court at first instance dismissed the jurisdictional challenge. It determined the claimants had a real issue to be tried against Vedanta and consequently, as Vedanta is an English company, the English court could not decline jurisdiction (as per Article 4 of the Recast Brussels Regulation). KCM qualified as a “necessary or proper party to the claim” so proceedings against both parties could proceed in England. The defendants appealed the decision and Vedanta agreed to submit to the jurisdiction of the Zambian courts if the application succeeded.

The Court of Appeal upheld the first instance decision and dismissed the jurisdictional challenge. The key issue was whether there was a “real issue” to be tried between the claimants and Vedanta (specifically, whether there was a good arguable case that Vedanta had a duty of care to the Chingola residents). The court determined that a parent company would owe a duty of care to those directly affected by its subsidiary in circumstances where the claimants could show “additional circumstances”, for example if the parent took direct responsibility for drafting policies, the adequacy of which was the subject of the claim; or they controlled the operations which gave rise to the claim. The court also stressed a duty of care was more likely to arise where the parent had “superior knowledge” or expertise about the operations of its subsidiary. A parent company would be far less likely to owe a duty of care where it merely held shares in its subsidiary.

Even though Vedanta neither owned the mine licence nor controlled the “material operation” of the mine, the court said the claimants’ case on duty of care was arguable. Vedanta had, amongst other things: exercised control over KCM; was obligated by way of a management agreement to provide certain services to KCM; provided financial support to KCM; and provided health, safety and environmental training to employees.

Whilst Vedanta may be found not to owe a duty of care when full evidence is heard at trial, the decision of the court in this jurisdictional challenge should be noted by UK companies with foreign operations as the decision clearly demonstrates a willingness of the English courts to hold English parent companies to account for the actions of their foreign subsidiaries.


[1]Lungowe and others v Vedanta Resources Plc and another [2017] EWCA Civ 1528

 

Sarah Charig, Associate, Fladgate LLP (scharig@fladgate.com)

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