Rights as Usual

It is a pleasure to welcome back Lucas Roorda as a guest poster on “Rights as Usual”. M. Roorda is a Ph.D. candidate at Utrecht University, in the Institute of International, Social and Economic Public Law. He specializes in extraterritorial jurisdiction over corporate human rights violations. This post is his.

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On 10 April 2019, the Supreme Court of the United Kingdom delivered its highly-anticipated decision in the case of Vedanta v. Lungowe (Lungowe v. Vedanta in the lower courts). The Supreme Court unanimously decided the case should proceed in English courts, dismissing the appellants’ arguments against English courts assuming jurisdiction. This marks an important next step in an ongoing series of cases, wherein foreign victims of human rights and environmental harms sue corporations and their foreign subsidiaries in the domestic courts of the companies’ European home States. Next to Lungowe, the series includes Okpabi v. Shell that I discussed previously on this blog, AAA v. Unilever and Akpan v. Shell, discussed here.

This post examines how the Supreme Court has provided some important clarifications on both the substantive and jurisdictional rules that govern these cases, thus making it somewhat easier for claimants to argue duties of care on parent companies. It also shows the Court’s emphasis on access to justice compared to the lower courts may be laudable in the abstract, but is unlikely to increase access to justice in practice.

Background

Lungowe concerns a lawsuit brought by over 1,800 Zambians who allege that toxic discharge from the Nchanga copper mine into nearby rivers has damaged their health and livelihood. They have brought their case against Kongola Copper Mines, Ltd (KCM) which is the owner and operator of the mine, and its UK-registered parent company Vedanta Resources Plc. The main thrust of the claim is that Vedanta had a large degree of control over KCM, and committed a common law tort of negligence against the claimants by failing to take precautions against the toxic runoff; KCM was argued to be a ‘necessary and proper party’ to that claim. The defendant companies disputed the claims, as well as the jurisdiction of English courts to deal with the case. They argued that the claimants had no arguable claim against parent company Vedanta to which KCM could be ‘anchored’. Even if there was such a claim, the case should be continued in Zambia as this was the more natural forum.

The High Court and the Court of Appeal sided with the claimants on the jurisdiction issue, as detailed more extensively here. Both courts found that the claimants had sufficiently argued their case that Vedanta may have committed a tort of negligence with regard to the claimants, pursuant to the degree of control it had exercised over its subsidiary KCM. According to both courts, that degree of control may be sufficient to satisfy the Chandler v. Cape criteria for proximity, necessary to incur a duty of care. The courts also agreed with the claimants that KCM should be joined with that claim through the ‘proper party’ gateway, in order to avoid the risk of irreconcilable judgments.

The Supreme Court’s decision

The Supreme Court was asked to deal with a number of questions relating to both the substantive legal basis for the claim, and jurisdiction. The case was argued extensively over two days, and subject to two interventions. The Supreme Court’s decision delivered by Lord Briggs focused primarily on the jurisdiction issue and the appropriateness of England as a forum. As a preliminary point, Lord Briggs commented unfavorably on the size of the parties’ submissions and the disproportionate engagement with the jurisdiction issue, which he argued should be dealt with in summary judgment (paras. 12-14).

On the question of whether the claimants had committed abuse of EU law by solely filing a claim against Vedanta to anchor jurisdiction against KCM, Lord Briggs answered negatively (para. 31 ff). He did so on the assumption that there was a real triable issue against Vedanta and a genuine desire of the claimants to have a judgment issued against Vedanta. This was a factual finding of the lower courts which should not be overturned by the Supreme Court, even if it was clear that the claim against Vedanta was also filed to get KCM within the jurisdiction of English courts (paras. 26-27).

The case against Vedanta could however still be summarily dismissed if the Supreme Court had found that there was no ‘real issue to be tried’. This boiled down to the question of whether the claimants had convincingly argued that Vedanta was under a duty of care. On this issue, Lord Briggs also sided with the lower courts, with two points standing out. First, he confirmed that parent company liability for acts of subsidiaries is not a new category of negligence liability, as the claimants had argued (para. 49); second, a duty of care can exist when a parent company intervened with its subsidiary’s operations as in Chandler, but that may also be the case if it proclaims itself to exercise supervision without actually doing so (para. 53).

These findings implied that the lower court’s analysis for finding whether the claimants had demonstrated an arguable case was done on the correct legal basis. That the claimants indeed had such an arguable case was again a finding of fact by the lower courts which the Supreme Court did not wish to revisit; it restricted itself to concluding that the lower courts had applied the correct principles and the right level of scrutiny (paras. 60-62).

The main issue of the case, however, was the jurisdiction of English courts over foreign subsidiary KCM, through the ‘necessary and proper party’ gateway. The main issue here was whether England was the ‘proper place to bring the claim’, as per the third part of the necessary and proper party test (para. 66). This requires Courts to balance the factors that connect the case with England – i.e., the case against the parent company over which English courts have mandatory jurisdiction – against the factors that connect the case to Zambia – i.e., the domicile of the claimants, the defendants and the locality of the harmful acts.

In the lower courts, that balance was tipped in favor of England as the place to bring both claims, to prevent parallel proceedings with the risk of irreconcilable judgments, especially considering that there was no room to stay the entire case in favor of Zambia (paras. 71-72). Lord Briggs was however not persuaded that this risk was a decisive factor in deciding that England was the appropriate forum, in particular as Vedanta had agreed to submit to the jurisdiction of Zambian courts (para. 75). Thus, the claimants could avoid irreconcilable judgments by bringing the entire case there, where it was evidently more strongly connected; according to Lord Briggs, the risk of parallel proceedings and conflicting judgments thus existed mostly as a consequence of the claimants’ choices, and this could not be the deciding factor in favor of English jurisdiction (para. 87). This meant that in principle, England was not the proper place to try the case against KCM.

However, Lord Briggs also noted that such considerations could be set aside if it was found that there is a real risk that no substantial justice can be done in the foreign forum (para. 88). In this case, he found that lower courts had identified the main risk in bringing the case in Zambia as the unavailability of legal aid, and of proper legal representation (paras. 90-92). Given the ‘unavoidable complexity’ of the case, Lord Briggs asserted that the lower courts were entitled to conclude that these factors would stand in the way of the claimants obtaining substantial justice in Zambia (para. 100). The Court thus concluded that in spite of the stronger connections with Zambia, the risk of no substantial justice meant that the case should continue in England (para. 102).

Discussion

There is a lot to unpack in this decision, and here I will focus on the issues of particular relevance to establishing jurisdiction. The first point, however, is of substantive law: duty of care litigation based on Chandler is still very much alive in English courts. In para. 53 the Court even appears to extend the situations where a parent company may be under a duty of care. Whereas under Chandler claimants need to demonstrate that parent companies actually exercised control over their subsidiaries, Lord Briggs mentions that duties of care can also exist when parent companies claim they have control, but do not exercise it in practice. This is also easier to argue in a preliminary stage of the proceedings, before disclosure proceedings give claimants access to internal company documents. Such statements of control could for example be derived from company statements to shareholders.

This is important, as the two other main duty of care cases (Okpabi v. Shell and AAA v. Unilever) failed on the basis that claimants could not convincingly make a case that the respective parent companies exercised sufficient control, and that foreign subsidiaries relied on that control. Similarly, had the Supreme Court restricted duty of care litigation, this would also have impacted the Dutch case of Akpan v. Shell, where common law forms part of the applicable law and the claimants’ arguments are also based on Chandler. Had it become harder to argue the existence of a duty of care, it would also have become correspondingly harder to argue cases against foreign subsidiaries. After all, the feasibility of these cases taking place in home State domestic courts still depends on an arguable claim against the parent under the ‘necessary and proper party’ doctrine.

On that aspect of the case, however, the decision of the Supreme Court is a double-edged sword. Of course, it is positive news for the claimants and their representatives that the case is allowed to continue and that they still have the prospect of getting access to remedy. But the Court also erects a new hurdle in the ‘necessary and proper party’ test that may affect future cases. Previously, courts had generally assumed that avoiding conflicting judgments was a strong, if not decisive factor in deciding that England was the appropriate forum for a joint claim against parent and subsidiary companies, but no more. Instead, claimants will have to argue either that there are more factors that link the case to the home state or that a fair trial is not possible in the more natural forum. As also mentioned by the Court, this makes the test akin to how forum non conveniens was applied in early English foreign direct liability cases such as Connelly v. RTZ and Lubbe v. Cape. Not coincidentally, the relevant factors for deciding whether substantial justice can take place in the alternate forum are comparable: financial hurdles and inadequate legal representation.

From an academic perspective, more emphasis on access to justice as a relevant issue in these cases is positive. At the end of the day, inadequate access to justice in host states is what drives cases like Lungowe to European domestic courts. It makes sense that this gets emphasized in jurisdictional decisions – even if the Court stops short of actually mentioning access to justice as a human right, or the UN Guiding Principles. In practice, claimants may face an uphill battle in convincing courts that there is no substantial justice in the alternate forum. Moreover, the access to justice question is still only the final part of a long and elaborate test to determine whether cases can proceed in English courts, which still predominantly hinges on the existence of an arguable case against the parent company. In that respect, the Court may complain of disproportionate litigation on jurisdiction, but it has itself made this litigation only more complex.

Instead of doing this balancing act at the very end of what is still a meaty jurisdiction test, English courts could in future cases go one of two ways. Either a more marginal test for assessing a ‘good, arguable case’ of parental negligence could be adopted, such as argued by Sales LJ in his dissent in Okpabi; that case has also been appealed to the Supreme Court, which might choose to engage more extensively with this test. Or, access to justice could be put front and center, and jurisdiction should be asserted on the basis of forum necessitatis.

Conclusion

It remains to be seen how Lungowe will proceed from now. From the perspective of an academic observer, it would be good to finally see another case litigated on the merits. The case may also get settled before it moves on to the merits. Even if that happens, the Supreme Court decision in Lungowe will remain important for future foreign direct liability cases.