Legal briefing | Corporate & Commercial Disputes |

"Value chain" negligence claims: the door has been opened

"Value chain" negligence claims: the door has been opened

Overview

A recent Court of Appeal judgment (Hamida Begum v Maran (UK) Limited [2021] EWCA Civ 326 ("Maran")) may have significant ramifications for the scope of corporate risk faced by UK companies conducting business overseas.

Despite the Court of Appeal's doubts as to the arguments advanced by the Claimant as to duty of care, it refused to strike the claim out, ruling that the novel allegations as to the Defendant's alleged duty of care were sufficiently substantial to be heard.

This judgment is one of a number of recent cases in which the English Courts have permitted ambitious claims in negligence to proceed in this jurisdiction.  While the ultimate prospects of success of such claims at trial is by no means certain and this is a rapidly developing area of the law, Maran is another example of the growing litigation risk (and associated costs) faced by UK domiciled defendants for alleged harms connected with their global "value chains".

Maran concerned a UK domiciled shipping agent ("the Defendant") which, acting on behalf of the owner of a defunct oil-tanker ("the Vessel") that had reached the end of its working life, sold the Vessel to a third party intermediary ("the Buyer").  Under the terms of sale, the Buyer was required by the contract for sale to find a breaking yard to dispose of the ship 'in safe conditions'.  Ultimately the ship was broken on the notoriously dangerous beaches of Chattogram in Bangladesh. While working on the Vessel a shipbreaker (and the deceased husband of the Claimant), fell to his death. The Defendant did not know the identity or location of the breaking yard, having left its identification to the Buyer.  The Claimant sued the Defendant shipping agent in England in negligence, and did not sue the Buyer, the owner of the Vessel, the breaking yard or her husband's employer – none of which were domiciled in the UK or therefore automatically subject to the jurisdiction of the English Courts .  The Court of Appeal decided that while the Claimant's case on negligence faced "formidable hurdles", nevertheless the allegation that the Defendant owed the Claimant a duty of care was more than "fanciful", and the claim should not be struck out.[1]

The Court of Appeal's decision in Maran expressly reflected guidance given recently by the Supreme Court in the so-called "parent company liability" cases of Vedanta Resources Plc v Lungowe [2019] UKSC 20 and HRH Emere Okpabi v Royal Dutch Shell [2021] UKSC 3, which also involved novel allegations that UK-domiciled parent companies owed a duty of care to claimants overseas who alleged they had been harmed by the operations of the parents' foreign subsidiaries.  The Supreme Court made clear in its judgments in both these cases that liability in negligence is not confined to the parent/subsidiary relationship, and Maran is a very good example of how it can be alleged in other, even more novel, "value chain" contexts.  Moreover, the Court of Appeal in Maran paid close attention to the Supreme Court's comments in Okpabi which made it clear that lower Courts should only look behind a claimant's pleadings in limited circumstances when considering whether or not to strike out a claim; and that because Maran involved "an unusual argument in a rapidly-developing area of law, it would also be wrong in principle to strike it out at this stage".[2]  Through these claims we are seeing an obvious willingness by the English Courts to contemplate a broader scope of corporate liability, and a policy-based approach towards testing the extent of corporate accountability in the UK for alleged harms connected to global operations and value chains. 

For more on this topic, see our article on recent developments in the landscape of corporate risk in the 2021 Dispute Resolution Yearbook.

The Maran decision chimes with regulatory and policy developments globally, in particular in relation to "supply chain" (or, in current parlance, "value chain") due diligence.  Globally, we are seeing pressure for mandatory human rights, environmental and governance due diligence ("mHRDD") regimes to be implemented.  These regimes are directed towards holding businesses accountable for human rights and environmental impacts further down their "supply chain" or "value chain", usually in emerging markets.  These regimes work by requiring businesses to (i) carry out supply chain or value chain due diligence and (ii) identify and assess human rights infringements and/or environmental risks flowing from their operations.     

While the UK has introduced due diligence requirements for forest risk commodities and anti-trafficking legislation via the Modern Slavery Act, it has not introduced (or announced) its own comprehensive mHRDD regime which would otherwise seek to address the type of issues raised by Maran.  Nevertheless, certain international regimes, notably that currently under consideration by the EU, contemplate transnational effect which may well have substantial ramifications for UK-domiciled business.  Moreover, if "value chain" negligence claims become more common in this jurisdiction, there may be increased pressure on the UK government to introduce its own mHRDD regime and/or for UK businesses to develop their own voluntary human rights due diligence processes as a way of mitigating this type of litigation and global regulatory risk. 

For more on the development of the EU's proposed mHRDD regime, please refer to our recent briefing on the subject

The facts of Maran

The highly ambitious and novel nature of the alleged duty of care in Maran illustrates many of the points made above, and the facts of the case merit close consideration.  The Vessel, having reached the end of its useful life, was sold by the Defendant the Buyer in August 2017. In accordance with standard practice, the sale agreement provided that the Buyer would assume the credit risk and would be responsible for delivering the Vessel to a "ship breaker's yard that is competent…[to] perform the demolition and recycling of the vessel in an environmentally sound manner and in accordance with good health and safety working practices".

In September 2017, the Buyer took delivery of the Vessel in Singapore.  At the Buyer's election, the Vessel was subsequently rebranded and transported to the beaches of Chattogram, Bangladesh, to be demolished using the "beaching" method. This method involved the demolition of the Vessel on tidal beaches without, according to the Claimant's evidence, the appropriate infrastructure or adequate occupational health and safety measures. In March 2018, Mr Mohammed Mollah ("the Deceased") fell from a considerable height whilst dismantling the Vessel and died from his injuries. In April 2019 the Claimant, represented by a UK solicitor, commenced UK proceedings against the Defendant claiming damages for negligence under Bangladeshi law.  

The High Court Judgment



On 28th February 2020 the Defendant filed an Application Notice to strike out the claim and/or for summary judgment under CPR Part 24.2, primarily on the basis that the Defendant could not owe the deceased a duty of care to take all reasonable steps to ensure that it negotiated and sold the Vessel in a manner that did not endanger human health and/or the environment. 

Mr Justice Jay refused the Defendant's application to strike out the claim and/or for summary judgment on the basis that the Claimant made two viable propositions of law, advanced in the alternative, which were held to have a real prospect of success, as follows:

  1. Firstly, that the Defendant owed the Deceased a general duty of care, using the Donoghue v Stevenson [1932] A.C. 562 test to avoid reasonably foreseeable acts or omissions which could harm the Deceased on the basis that deceased was closely or directly affected by the Defendant's act that the Defendant ought to have had him in contemplation ("Route 1" or the "General Duty").

  2. Secondly, that the Defendant owed the Deceased a duty of care on the basis that it (i) negligently caused or permitted to be created a "source of danger" (that is to say, that the Vessel was inherently dangerous) and (ii) in relation to which it was reasonably foreseeable that neither the Buyer, the Shipyard nor the Deceased's employer would interfere so as to break the chain of causation and (iii) thereby causing harm to the Deceased ("Route 2" or the "Creation of Danger Exception").

In addition, the Defendant raised questions regarding whether the claim was time-barred under Bangladeshi law, which imposed a strict one-year limitation period from the date of the accident for personal injury claims. Jay J concluded that although the claim was notionally time-barred (13 months having passed between the date of the injury and the issuing of the claim in the UK), the claim was subject to Article 7 and Article 26 of the Rome II Regulation ("Rome II").   Article 7 creates an exception to a limitation period where there is a type of "environmental damage" while Article 26 creates a "public policy" exception.  Jay J considered that these limitation issues could not be resolved at the interim application stage and declined to strike the claim out on the grounds of limitation.

The Court of Appeal Judgment



The Appeal was heard before Coulson, Bean, and Males LJJ, with Coulson LJ giving the leading judgment. Coulson LJ began his judgment by echoing the recent dictum of the Supreme Court in Okpabi v Royal Dutch Shell [2021] UKSC 3, namely that when confronted with contested factual allegations a court should not conduct a mini trial of the issues. Following Okpabi, Coulson LJ determined that for the purpose of the application the Court should accept the Claimant's case as it highest and not look behind or challenge the pleaded case unless it was unless demonstrably unsupportable. Coulson LJ expressed, at multiple points throughout the judgment, clear reservations around the nature of the pleaded case and the viability of both the "Route 1" and "Route 2" claims.  Ultimately, however, he determined that, based on the clear direction from the Supreme Court in Okpabi, it was not the Court of Appeal's role to look beyond the pleaded case, particularly given that it related to an unusual alleged duty of care.

 

Route 1: the General Duty

In relation to the General Duty argument, the Claimant primarily sought to demonstrate that the duty of care existed by focussing on foreseeability (that is to say that the risk of injury to the Deceased was foreseeable, and therefore a duty of care arose, at the time the Defendant negotiated the sale agreement).  Coulson LJ considered this argument to be insufficient: at trial the Claimant would need to demonstrate some proximity of relationship between the Defendant and the Deceased.  On the issue of proximity, the Claimant's counsel had attempted to show sufficient proximity between the Defendant and the Deceased (i.e. that the Defendant ought to have had the Deceased in reasonable contemplation at the time of negotiating the sale agreement) by relying on the proposition that the Vessel was an inherently dangerous product which was destined, due to the actions of the Defendant, to end up in a shipyard where working practices were unsafe. Coulson LJ did not accept the assertion that the Vessel was inherently dangerous.  His Lordship saw a distinction between danger associated with the Vessel itself, and danger associated with the activity of shipbreaking or demolition in an unsafe shipyard.  In his Lordship's view, this distinction probably moved the present case outside the scope of Donoghue v Stevenson principles. Nevertheless, both Coulson and Males LJJ (in the latter's brief judgment) declined to find that the Claimant's Route 1 case was so fanciful or unconnected to existing principles of negligence to strike out the claim, expressly following the principles laid down by the Supreme Court in Okpabi in relation to strike out applications in complex and unusual cases of this nature.

 

Route 2: the Creation of Danger Exception

Coulson LJ also expressed scepticism around the Creation of Danger Exception although he considered that it had a greater chance of success that the Claimant's Route 1 arguments.  Coulson LJ acknowledged that the general rule in the law of negligence, that there is no liability in tort for the harm caused by the intervention of third parties, is developing rapidly.  Most of the recent authority in this area of the law relates to the actions of public bodies, rather than corporate entities, and there were conceptual differences between the type of harm in Maran and the type of harm in these public body cases.  Coulson LJ considered there to be fundamental questions as to whether this line of case law was applicable in the circumstances alleged in Maran.  The Court acknowledged, and was sympathetic to the Defendant's argument, that the Court could not be the "shipbreaking world's policeman".  It recognised that a Creation of Danger Exception, as sought by the Claimant, could have far reaching practical implications.  However, the very fact that Route 2 arguable expanded established principles of law, or at least tested their applicability to the facts of this case, was enough to render the case unsuitable for strike out.  The Court was clear that, if the duty of care alleged in Maran were to be found to fall outside established categories of negligence, policy questions regarding whether it would be fair, just and reasonable could not be decided at an interim stage and declined to strike out the claim.

 

Limitation

While the Claimant was successful in persuading the Court that her arguments in relation to duty of care were arguable, the claim now faces substantial difficulties in relation to limitation as a result of the Court of Appeal decision.  In contrast to the High Court, the Court of Appeal did consider that the claim is likely to be time barred.  Coulson and Males LJJ reached the view that, as a matter of construction, the Claimant has no realistic prospect of successfully relying on Article 7 of Rome II (which would require some link between "environmental damage" and the claim). They did not consider there to be a sufficient link between the claim and any type of environmental damage (the harm suffered being personal injury). 

In relation to Article 26 of Rome II (the public policy ground), the court held that while the issue could not be determined by the Court of Appeal, it could be determined at a preliminary issue hearing.  Evidence came to light, between the High Court decision and the Court of Appeal's hearing, which suggested that the Claimant's solicitors may have known (or should have known) that the claim would be time barred prior to issuing the claim.  The Court of Appeal has ordered that a preliminary issues hearing to be held to determine what information and which documents were available to the Claimant's solicitors between the issuing of the claim form and the expiration of the 12 month limitation period.

Conclusion

Whether the Claimant will succeed in bringing this claim to trial remains to be seen: the Court of Appeal has strongly indicated that the Claimant is likely to have serious difficulties in demonstrating that the claim is not time barred, although of course this will be determined at the preliminary hearing on the point.  Nevertheless, Maran is another example of the boundaries of corporate liability being tested, against a regulatory backdrop which is increasingly emphasising value chain accountability.  The decision also underlines the fact that, even where these types of negligence claims appear not only ambitious but potentially deeply flawed, it can be difficult for defendants to dispose of them at an early stage

It is also clear from Maran that UK domiciled corporates cannot necessarily rely on commonly-used or "industry standard" contractual protections to insulate them from this kind of litigation risk, as increasingly ambitious attempts to widen their scope of tortious liability are made and as the regulatory landscape increasingly focusses on human rights due diligence requirements throughout the value chain.

REFERENCES

[1] See paragraph 116.

[2] Ibid.

 

 

GET IN TOUCH

Read Doug Bryden's Profile
  • Doug Bryden

  • Head of Risk & Operational Regulatory
Read James Danaher's Profile
  • James Danaher

  • Senior Associate
Read Heather Gagen's Profile
  • Heather Gagen

  • Partner
Read Anthony O'Driscoll's Profile
  • Anthony O'Driscoll

  • Associate
Back to top