The Supreme Court has handed down its highly-anticipated judgment in Lungowe v Vedanta, a claim brought in the English courts by individuals allegedly harmed by the operations of a Zambian copper mine. The Court largely affirmed the previous decision of the Court of Appeal, ruling that whether the UK parent company owed a duty of care to the relevant individuals was a triable issue. The decision is only a preliminary ruling on the jurisdiction of the English courts to hear the claim, but nonetheless has potential implications for corporate sustainability policies, which played a key role in the Supreme Court’s reasoning. 

Background

In a previous blog post, we discussed how evolving English jurisprudence on parent company liability – particularly a series of recent Court of Appeal judgments on jurisdiction in cross-border claims – might impact on the way companies develop group policies on matters such as sustainability, the environment and human rights. These issues have now been considered by the UK Supreme Court in the case of Lungowe v Vedanta Resources Plc & another [2019] UKSC 20.

The claimants in the case are a group of 1,826 Zambian citizens who allege they were harmed by pollution from a mine operated by Konkola Copper Mines Plc (KCM), a Zambian subsidiary of UK-listed Vedanta Resources Plc (Vedanta), and seek damages on the basis of common law negligence and breach of Zambian statutory duty. The claimants initiated the claim in the English High Court, arguing that Vedanta constitutes a UK “anchor defendant”, with KCM a “necessary and proper party” to the litigation, and that England is the “proper place” for the claim to be tried.

The defendants challenged the jurisdiction of the English courts to try the case. The High Court and Court of Appeal both rejected the challenge, and so the defendants appealed the issue to the Supreme Court. The Court was asked to rule on three main issues: whether the claims amounted to an abuse of EU jurisdictional rules; whether England (rather than Zambia) was the proper place in which to hear the claim; and whether the claims against Vedanta, and in particular the assertion that the UK parent owed the claimants a duty of care, constituted a “real issue to be tried”.

In this blog post, we examine the Court’s assessment of the third issue – the existence of a duty of care – and how its analysis might shape how multinationals approach the design and implementation of their sustainability, environment and human rights policies.

A duty of care?

While it was uncontroversial that KCM, as operator of the mine, should owe a duty of care to the claimants, it was less clear that Vedanta, the UK parent, could do so. The claimants contended that the duty flowed from Vedanta assuming a ‘very high level of control and direction’ over KCM’s activities; whereas Vedanta argued that this would entail the creation of a new category of common law negligence, and an inappropriate expansion of the boundaries of liability.

Lord Briggs, delivering the unanimous judgment of the Court, disagreed that the claim rested upon a novel expansion of established concepts of a duty of care. He found that there is “nothing special or conclusive” about the relationship between a parent and its subsidiary: they are separate legal entities, with separate responsibilities for their actions, and the ordinary principles of negligence will apply in determining whether a parent company may owe a duty of care to those affected by the actions of its subsidiary.

Accordingly, the judge cautioned against any attempts to formulate rigid categories of circumstances where such a duty might arise; but (obiter) he was prepared to give several examples. These include where the parent company:

  • conducts a “group’s business so that they are, in management terms, carried on as if they were a single commercial undertaking”;
  • issues “[g]roup guidelines about minimising the environmental impact of inherently dangerous activities […] contain[ing] systemic errors which, when implemented as of course by a particular subsidiary, then cause harm to third parties”;
  • “takes active steps, by training, supervision and enforcement, to see that [group-wide policies] are implemented by relevant subsidiaries”; and
  • publishes materials in which it holds “itself out as exercising [a] degree of supervision and control of its subsidiaries, even if it does not in fact do so”.

Applying his analysis to the facts, Lord Briggs noted that “[t]he essence of the claimants’ case against Vedanta is that it exercised a sufficiently high level of supervision and control” of the relevant mining activities, and commented that to a large extent, the claimants’ proof of such control consisted of “material published by Vedanta in which it asserted its responsibility for the establishment of appropriate group-wide environmental control and sustainability standards, for their implementation throughout the group by training, and for their monitoring and enforcement.

On the basis of this material, the Court found that the claimants’ case on the duty of care was sufficient to meet the “real issue to be tried” test. Lord Briggs commented:

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 at the Mine may be demonstrable at trial

Implications of the judgment

Whilst some commentators may be inclined to interpret Lord Briggs’ comments as indicative of a more expansive approach to parent company liability, it is important to put them in their proper context. The Court did not need to consider whether Vedanta actually had a duty of care to the claimants; only whether their claim disclosed a real issue to be tried in that respect. This is a significantly lower bar, and – as the Court was keen to stress – whether a duty of care actually existed “is a pure question of fact” which would “depend heavily upon the contents of documents internal to each of the defendant companies, and upon correspondence and other documents passing between them”.

Nonetheless, the Vedanta claim and the Supreme Court’s recent judgment illustrate the need for multinational companies to consider the potential legal implications of group-wide policies on matters such as the environment and human rights.

The Vedanta claim – like the Okpabi v Shell  and AAA v Unilever claims on which we have previously blogged – demonstrates that specialist claimant-side lawyers are paying ever closer attention to group policies in attempting to construct human rights and environmental claims against multinationals in the UK. On their own, these policies and procedures may not be sufficient to ground a duty of care; but claimant lawyers will likely use the Supreme Court’s comments in Vedanta to argue they are sufficient to overcome key preliminary hurdles (including jurisdiction challenges and applications for strike-out or summary judgment) and push cases towards full trial.

Lord Briggs’ analysis also demonstrates a judicial willingness to interrogate the nature of control and responsibility within corporate groups, and how relevant policies are implemented across the group structure (including whether that implementation accords with the company’s public statements). Further, his judgment articulates an expectation – where such cases proceed to trial – that internal documents and communications evidencing such matters should be disclosed.

Those considerations might militate in favour of a more cautious approach to the drafting of relevant policies and procedures, the decentralisation of their implementation, and the imposition of tight controls over relevant internal communications (particularly where a company is investigating a potential issue which might conceivably result in litigation). Yet at the same time, governments, consumers, investors and civil society are increasingly pressurising corporate groups (and particularly their senior leadership) to take group-wide action on human rights and sustainability issues; and there is a growing proliferation of mandatory reporting requirements, such as the Modern Slavery Act, and other transparency initiatives, such as the Corporate Human Rights Benchmark, which push multinationals to put more and more information in the public domain.

It is clearly a challenge for businesses to find an approach which balances, on one hand, aspirational and effective sustainability initiatives, good corporate governance and transparency; and on the other, emerging legal risks and the possibility of claimant and court scrutiny of relevant materials. No company can simply ignore one side of this equation. This has been the case for some time, and Vedanta breaks little new ground in this regard; but the case underlines the interrelationship between these competing considerations, and the need for company lawyers, senior management and sustainability teams to work together to develop policies and procedures capable of striking the right balance.