Parent company liability: the Vedanta case

Parent company liability: the Vedanta case

Overview

The parent companies of global organisations are increasingly facing attempts to hold them to account before the English Courts for human rights, environmental or other violations of ethical business practices allegedly committed by their overseas subsidiaries.  These claims often take the form of mass tort group actions, carrying substantial potential financial liability.  The English Courts have, over recent years, been prepared to accept jurisdiction over such claims, which is a concerning development for multinationals, private equity funds and financial instructions with parent companies in the UK.

The Vedanta case

Of particular note is the Supreme Court's ruling in Vedanta Resources. The claim was brought by 1,826 Zambian villagers in relation to damage allegedly resulting from pollution emanating from a copper mine owned by Konkola Copper Mines Plc ("KCM"), the Zambian subsidiary of UK company Vedanta Resources PLC ("Vedanta").  The Supreme Court found that KCM could be brought within the jurisdiction of the English Courts for the purposes of trying the claim.  This was because the Supreme Court found that there was a "real triable issue" as to whether Vedanta had sufficient control over KCM's operations to make Vedanta liable in negligence for the alleged pollution.

Developments in a similar jurisdictional challenge brought in the case of Okpabi and others (Appellants) v Royal Dutch Shell Plc and another (Respondents) are also watched with close interest.  This litigation is brought against Royal Dutch Shell Plc ("RDS") and its Nigerian subsidiary Shell Petroleum Development Co of Nigeria Ltd ("SPDC") by members of Nigerian communities who allege that their livelihoods have been extensively affected by oil pollution for which they say RDS and SPDC are responsible.  The Claimants had failed in their attempts at first instance and before the Court of Appeal to bring SPDC under the jurisdiction of the English Courts.  This was because they were unable to establish that there was a real issue to be tried as to whether RDS owed them a duty of care, either because it exercised significant control over material aspects of SPDC’s operations and/or assumed responsibility for SPDC’s operations.   The appeal before the Supreme Court was argued in June 2020 and, particularly given the decision reached in Vedanta on jurisdiction, its outcome is keenly awaited.

It is important to note that both Vedanta and Okpabi have so far only addressed the question of "parent company liability" at an early procedural stage and at a necessarily high level, because these judgments concerned hard-fought procedural battles on jurisdiction. These jurisdictional assessments of whether there was a "real triable issue" against the parent company were conducted by the Courts at a preliminary level, and not on the basis of the detailed evidence and cross-examination of witnesses which would be available at the trial of the substantive disputes.  The English Courts have long made clear that so-called "parent company liability" claims (which in fact fall to be determined on the usual legal principles of negligence) demand highly fact-specific analysis, on evidence.  How and to what extent the English Courts will continue to develop concepts of parent company liability following trial of these types of claims therefore remains to be seen, and this is a fast-evolving area of the law.  In the meantime, developments will continue to be closely scrutinised by all UK parent companies, against a backdrop of increasing regulatory, commercial and stakeholder pressure to hold corporates responsible for all aspects of their supply chains and operations, whether in the UK or overseas.  

 

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