A cautionary tale for companies with subsidiaries operating overseas
The Supreme Court has recently held that a parent company based in the UK may assume liability for the acts or omissions of a subsidiary in another country, and the English courts may have jurisdiction over the resulting litigation, in circumstances where the claimants have limited access to substantial justice in that country. The case turned on a technical point of EU law concerning jurisdiction but has important implications for all parent companies whose subsidiaries are engaged in overseas projects.
It depends on the extent to which the UK parent company avails itself of the opportunity to intervene in the management of the foreign subsidiary
In the case of Vedanta Resources plc & Another vs Lungowe & Others  UKSC 20, a claim was made by 1,826 Zambian citizens against Konkola Copper Mines plc (KCM), the local operator of a copper mine in Zambia, and Vedanta Resources plc (Vedanta), KCM’s UK-based parent company, for alleged negligence and breach of statutory duty resulting in the discharge of toxic emissions from the mine, resulting in personal injury, damage to property, loss of income and enjoyment of land.
Vedanta was joined as a respondent on the basis that it had a significant level of control over the operations of KCM, as demonstrated by its efforts to ensure that KCM complied with its group-wide environmental policies. Vedanta and KCM contested the jurisdiction of the English courts to hear the claims, and the Supreme Court was concerned solely with the issue of jurisdiction, not whether the allegations of negligence and breach of statutory duty had been proven against KCM and Vedanta.
The Supreme Court held that a parent company does not automatically assume a duty of care to third parties for the acts or omissions of its subsidiary overseas, and that where it does have such a duty, the English courts do not necessarily have jurisdiction over the resulting litigation. However, in this case the Supreme Court held that the original trial judge was entitled to conclude that Vedanta did owe a duty of care to the claimants for the acts or omissions of KCM, and that the English courts had jurisdiction to hear the claims. This was based on the following important findings by the Supreme Court.
(i) It all depends on the facts
Whether a duty of care is owed depends on the extent to which the UK parent company avails itself of the opportunity to take over, intervene in, control, supervise and/or advise the management of the relevant operations of the foreign subsidiary. In this case, the Supreme Court found that the original trial judge was entitled to hold that Vedanta owed a duty of care to the claimants because Vedanta:
- Intervened in the conduct of the operations of the mine
- Exercised a high level of control and supervision over the activities of KCM
- Published group-wide environmental and sustainability policies, and assumed responsibility by ensuring that these policies were implemented by KCM, by carrying out training, monitoring and enforcement.
(ii) Claimants will not obtain substantial justice in Zambia
The Supreme Court decided that the claims against Vedanta and KCM could be heard in the English courts because there was a real risk that the claimants would not obtain substantial justice in Zambia, for the following reasons:
- It was impossible to fund mass tort claims where the claimants were in extreme poverty
- Legal aid was not available, and conditional fee arrangements were illegal in Zambia
- There was a lack of legal experience and resources in Zambia to manage a case of this complexity.
UK-based parent companies of international groups should not be deterred by this case from acting as global good citizens in upholding high standards of environmental and social responsibility throughout their groups. However, the case of Vedanta shows that a high level of parental control and supervision cannot guarantee compliance with such standards.
In light of this case, it would be prudent for parent companies of international groups to consider taking steps to ensure that their subsidiaries’ management teams and personnel are sufficiently highly qualified, experienced and resourced to comply with group-wide standards without the need for a high level of interventionist supervision and control by the parent company.
Tom Pemberton is a partner and Volkan Palanci an associate at law firm Goodman Derrick