Liability for an Overseas Subsidiary – Supreme Court Allows case to Proceed to Trial

16 May 2019

On 10 April 2019 the Supreme Court handed down its judgment upholding the Court of Appeal ruling that 1,826 Zambian citizens can bring a group action against UK-based Vedanta and its Zambian subsidiary Konkola Copper Mines plc (KCM) in the UK courts.

This has been a much anticipated judgment due to the potential liability of UK incorporated parent companies in respect of the actions of their foreign subsidiaries.

The claimants allege that the toxic discharges of a copper mine owned by KCM in Zambia caused considerable personal injury and pollution, and claim that KCM, and its English parent Vedanta, are liable for negligence and breach of duty. 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.

As reported in our earlier Alerter (here) the Court of Appeal upheld the High Court’s decision that the case could be heard in England. In considering the appeal, the Supreme Court addressed the following issues:

  1. Whether it was an abuse of EU law to rely on article 4 of the Recast Brussels Regulation for jurisdiction over Vedanta as anchor defendant;
  2. Whether there was a real triable issue as against Vedanta;
  3. Whether England was the proper place to bring the claims; and
  4. Whether there was a real risk that substantial justice would not be obtained in Zambia.

The Supreme Court held as follows:

  1. Abuse of EU law – Although it would be an abuse to allow claimants to sue an English domiciled ‘anchor’ solely to pursue a foreign co-defendant, this was an exception that should be interpreted strictly. Here, even though attaching English jurisdiction to KCM was a key factor for bringing proceedings in this jurisdiction, the claim against Vedanta was for a genuine and additional purpose.
  2. Real triable issue – The claimants alleged that Vedanta’s intervention in the running of the KCM mine established a duty of care to the claimants and/ or was sufficient to establish statutory liability under Zambian law. The Supreme Court agreed with the Court of Appeal in that there was a real triable issue as against Vedanta based upon currently available evidence.
  3. England as the proper place – The Court of Appeal had made an error in deciding that England was the proper place to hear the case. This was because, by the time of the hearing, Vedanta had offered to submit to Zambian jurisdiction to allow the whole case to be heard there. It was held that Zambia would have been the appropriate place for the case, had substantial justice been available to the parties there.
  4. Substantial justice in Zambia – There was significant concern with regards to access to justice in Zambia. It found that the lack of legal aid and litigation funding (taking into account the extreme poverty of the claimants) as well as the size and complexity of the litigation meant there was a real risk that substantial justice could not be achieved in that jurisdiction.

In short, the Supreme Court held that the English courts had jurisdiction. However, and although this case was about the question of jurisdiction, the judgment will also be of great interest to multinational parent companies based in the UK. In particular, the Supreme Court has made it clear that parent companies will not necessarily be insulated from liability for the actions of their foreign subsidiaries simply by virtue of them being separate legal entities. A parent company could find itself liable for the actions of its subsidiary if there is sufficient evidence that the parent took a sufficient part in the running of that subsidiary. Of course, whether there was involvement sufficient to attach liability to the parent is necessarily fact sensitive, and we await the final judgment at trial of this case with interest.

Leigh Callaway Author
Leigh Callaway
Senior Associate
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Maddy McAra Author
Maddy McAra
Trainee Solicitor
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