Although arguments focused on early-stage jurisdictional questions over whether English & Welsh courts should allow service abroad of claims issued in England against English companies and their foreign majority-owned subsidiaries, at the heart of two key UKSC decisions (Lungowe v Vedanta Resources plc [2019] UKSC 20; and Okpabi and others v Royal Dutch Shell Plc and another [2021] UKSC 3) were allegations that parent companies were liable in court for losses caused by their subsidiaries.
Vedanta concerned claims issued in July 2015 by Zambian citizens from four communities following damage to health and farming by repeated toxic discharges into local water courses from a copper mine operated by a Zambian company, whose ultimate controlling parent appeared to be UK-listed Vedanta Resources plc. Okpabi involved claims issued in October 2015 by two Nigerian groups after their farming and fishing communities were damaged by oil spills from pipelines and infrastructure operated by a Nigerian company, a subsidiary of UK-listed Royal Dutch Shell (“RDS”), acting through a joint venture with several other companies.
It was argued in both cases that a common law duty of care was owed by the UK-parent because of significant control and direction they allegedly provided over key aspects of the subsidiaries’ operations, including health, safety, and environmental standards. Both made applications to serve the English claims abroad, on the Zambian and Nigerian companies respectively, arguing that as “necessary of proper part[ies]” to the claims against their parents, those companies fell within the relevant jurisdictional gateway. Both also had to show the claims against the foreign companies raised a real prospect of success.
In Vedanta, permission to serve the claims aboard was granted in August 2015, but set aside after a 3-day hearing in April 2016. That decision was upheld by the Court of Appeal in October 2017, and then taken to the UKSC. Okpabi followed the same course, each step just months behind. Vedanta’s appeal in the UKSC was decided in April 2019, and largely dismissed; Okpabi’s in February 2021, and upheld.
The arguments on the jurisdiction in each case were not entirely on foot, but the underlying claims were largely the same and prompted useful guidance on when a duty of care arises under the common law of negligence for parent companies. Indeed, in response to arguments that the cases involved a new category of liability, through which a parent company had a common law duty of care to persons (here, neighbours rather than employees) harmed by the actions of its subsidiary, Lord Briggs in Vedanta (para 49) said not: “the liability of parent companies in relation to the activities of their subsidiaries is not, of itself, a distinct category of liability in common law negligence”
In Okpabi the Court re-iterated that the argument raised no new legal issues and that the question was to be determined on ordinary, general principles of the law of tort regarding the imposition of a duty of care. Quoting Lord Briggs’ comments at para 49 in Vedanta, they went to say that in the context of parent/subsidiary relationships, whether a duty of care arises “… depends on the extent to which, and the way in which, the parent availed itself of the opportunity to take over, intervene in, control, supervise or advise the management of the relevant operations (including land use) of the subsidiary.”
This very much leaves it open for cases to be decided on their particular facts. In Vedanta, and later adopted in Okpabi, four factors were argued to show a duty of care: taking over the management or joint management of the relevant activity of the subsidiary; providing and/or promulgating defective safety/environmental policies which were implemented by the subsidiary as matter of course; promulgating safety/environmental policies and taking active steps to ensure their implementation; and holding out that the parent exercises a particular degree of supervision and control over the subsidiary.
In a particular case, these may well be enough. However, Vedanta also makes clear that there is no special test applicable to the tortious responsibility of a parent company for the activities of its subsidiary, nor is it appropriate “…to shoehorn all cases of the parent’s liability into specific categories”. As Lord Briggs, said in para 51:
“There is no limit to the models of management and control which may be put in place within a multinational group of companies. At one end, the parent may be no more than a passive investor in separate businesses carried out by its various direct and indirect subsidiaries. At the other extreme, the parent may carry out a thoroughgoing vertical reorganisation of the group’s businesses so that they are, in management terms, carried on as if they were a single commercial undertaking, with boundaries of legal personality and ownership within the group becoming irrelevant …”
Although the circumstances of these cases are outside the norm for many commercial operators, the principles are no less relevant to businesses with subsidiaries trading aboard. Mitigating the risk of tortious liability for parent companies in these circumstances requires some consideration. Whilst matters of management and control will in practice often be delicate, and ever-changing, the documentary side of management structure, control, and downward decision making and policy setting will often be key when addressing questions of this nature.
If you have any questions about this article or would like assistance with any aspect of a commercial concern, please contact our Dispute Resolution group via enquiries@bpcollins.co.uk or on 01753 889995.
