Corporate Responsibility for Human Rights Violations: UK Supreme Court Allows Zambian Communities to Pursue Civil Suit Against UK Domiciled Parent Company

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On 10 April 2019, the UK Supreme Court held unanimously, in Vedanta Resources PLC and another v Lungowe and others [2019] UKSC 20, that Vedanta Resources, a UK company, arguably owes a duty of care to villagers living in the vicinity of its Zambian subsidiary, Konkola Copper Mines Plc (KCM). Ruling on a procedural appeal, by upholding the jurisdiction of the UK courts, this landmark judgment allows the claimants, 1826 Zambian villagers, to pursue their case against both the parent and subsidiary companies in the UK. The core legal question, whether a parent company can be held accountable under civil law for human rights violations and environmental harm caused by its foreign subsidiary, is central to the ability of many victims of corporate human rights violations worldwide to access justice. The case provides an example of how public international law principles (such as those on corporate responsibility espoused in the United Nations Guiding Principles on Business and Human Rights (UNGPs)) can be realised and achieved though domestic civil law.

Readers may be aware that three inter-related pillars underpin the UNGPs: first, the State duty to protect human rights; second, the corporate responsibility to respect human rights; and third, access to remedy. Relevantly, Guiding Principle 25, in Pillar III, reminds States to “take appropriate steps to ensure” that those affected by business-related human rights abuses within their territory and/or jurisdiction “have access to an effective remedy”. Principle 26 further identifies the need for States to ensure the effectiveness of these remedies, including by removing barriers that can lead to a denial to access to justice.

Two of the intervenors in this case (Corporate Responsibility Coalition Ltd (CORE) and the International Commission of Jurists) wrote a joint submission that sought to support the notion that Vedanta arguably owed a duty of care to the affected communities with reference to international standards and jurisprudence regarding corporate responsibility in relation to human rights and environmental protections. They pointed out that the UK Government explicitly:

stresses the importance of victims being able to secure access to justice in respect of wrongdoing by UK-based business enterprises both domestically and overseas, and indicates that such persons should have access to remedies through the judicial mechanisms of the UK itself.”

In particular, the Government publication Good Business: Implementing the UN Guiding Principles on Business and Human Rights (through which the UK advocates for the implementation of the UNGPs) notes that civil law claims are one remedial avenue in relation to human rights abuses committed overseas by corporations. The interveners further refer to a number of other international standards that aim to increase corporate accountability for human rights and environmental abuses. Robert McCorquodale, counsel representing the intervention of in the case, notes here of his disappointment that the Court did not refer to these international standards in its decision. But even without explicit reference, this case can surely be viewed as a step towards implementing the UNGPs with respect to access to justice, through its removal of obstacles for redress. The specifics of the court’s consideration of access to justice are canvassed in the sections below.

The circumstances of the case

In 2015, the group tort claim was filed in the UK on behalf of a number of rural farming communities in Zambia, for negligence in tort and breach of statutory duty against both Vedanta and KCM. They claimed that their health and farming activities had been damaged by the discharge of toxic matter from the Nchanga copper mine – owned and operated by KCM – into waterways that provide their only source of drinking and irrigation water.

In 2017, the UK Court of Appeal dismissed the companies’ jurisdictional objections. On appeal before the Supreme Court, Vedanta and KCM continued to argue that England is not the proper place to bring the claim and, inter alia, the lack of an arguable case against Vedanta. A thorough analysis of that decision has been undertaken previously in this forum.

Assessing jurisdiction

In order to bring the case against both companies in the UK, the claimants rely on Article 4.1 of the Recast Brussels Regulation for the claim against Vedanta, and on the “necessary or proper party” gateway for service out of jurisdiction in Practice Direction 6B in the Civil Procedure Rules (CPR) for the claim against KCM.

In deciding whether the English courts are the “proper place in which to bring the claim”, as required by CPR 6.37(3), the Court of Appeal found that the claimants were in any event likely to pursue the claim against Vedanta in England, and that the risk of irreconcilable judgments arising from separate proceedings in different jurisdictions against each defendant was decisive in identifying England as the proper place for both. The court relied heavily on the reasoning in OJSC VTB Bank v Parline Ltd [2013] EWHC 3538.

Crucially, the Supreme Court found that the Court of Appeal made an error of principle in regarding the risk of irreconcilable judgments as a decisive factor when the parent company had offered to submit to the Zambian jurisdiction. Finding that the risk accordingly stemmed from the claimants’ own choice to nevertheless bring the claim in the UK, the Supreme Court reasoned that the risk of irreconcilability could not be decisive, overruling Leggatt J in OJSC VTB Bank. The Court clarified that Vedanta’s submission to the jurisdiction of the Zambian courts does not prevent the claimants from continuing in England, nor does it displace Article 4.1 as conferring a right to do so. But the risk must “cease to be a trump card” [84].

The ‘proper place’ test requires a summary examination of connecting factors between the case and the jurisdictions in which it could be litigated. However, the Court acknowledged that even if a foreign jurisdiction is found to be the proper place, the Court can still permit service of English proceedings if cogent evidence shows there is a real risk that substantial justice would not be obtainable [88]. In this regard, the Court identified two key issues, bearing in mind the situation of extreme poverty of the claimants. First, the practical impossibility of funding in Zambia due to the claimants being unable to obtain legal aid or conditional fee agreements, and second, that Zambia lacks legal teams with sufficient experience and resources for the claim. This led to the Court’s finding of a lack of substantial justice in Zambia.

Two comments can be made regarding this logic. First, it is clear that the Court attributed great importance to access to justice, for it agreed with the claimants that it would “be hard to imagine stronger connecting factors [to Zambia] than those in this case” [78], and acknowledged that it would otherwise “have concluded that the claimants had failed to demonstrate that England is the proper place” [87]. In emphasising that the Zambian connections would have been insurmountable, the Court airs a note of caution to future claimants.

Second, it is notable that the Court found a lack of substantial justice despite accepting that the Zambian judiciary is sufficiently independent to ensure a just trial. It undertook a detailed review of the Court of Appeal’s reasoning in concluding that the judge did not misdirect himself in law, satisfying itself that he did not address the question by way of a comparison between litigation in England and Zambia [95]. The Court had due to regard to authority in Connelly v RTZ Corp Plc (No 2) [1998] AC 854 and Lubbe v Cape Plc [2000] 1 WLR 1545, by identifying that the Court of Appeal had not treated the absence of particular forms of funding as conclusive, also having regard to considerations of comity and the requirement for cogent evidence [96]. For example, the Court noted, with particular concern, two key pollution claims brought in Zambia, both of which had failed on causation because the claimants could not fund the necessary expert evidence, thus supporting the judge’s finding that funding and legal resources were insufficient to enable the claimants to obtain substantial justice. Overall, the Court took a pragmatic and thorough approach to the issue.

Approaching the duty of care

The case presents significant implications for future questions on parent company responsibility for the negligent actions of subsidiaries. Part of the jurisdictional challenge involved a determination of whether the claimants had raised a triable issue, or whether their case had no real prospects of success. Vedanta asserted the latter, arguing that nothing it had done gave rise to a duty of care and that it was “merely an indirect owner of KMC, and no more than that” [17]. The parent company further asserted that the imposition of a duty would involve a “novel and controversial extension” of the existing law of negligence, which would require deeper scrutiny than that performed by the lower courts. The Court disagreed on both points and found that the claimants did have prospects of success.

Firstly, it noted that there was nothing special in and of the parent/subsidiary relationship itself, and nor did Chandler v Cape plc [2012] 1 WLR 3111 establish a special category of tortious liability for parent companies. Instead, the Court reasoned the prospects of establishing a duty “by reference to basic principle” [56]. It is a coincidence of the parent/subsidiary relationship that it creates an opportunity for the parent to “take over, intervene in, control, supervise or advise the management of the relevant operations” of the subsidiary [49]. The extent to which this occurs will inform the existence of a parental duty of care to people impacted by those operations. Accordingly, there was no novel area of law for the lower courts to have neglected.

Examined through this lens, the Court had particular regard to Vedanta’s public material that “may fairly be said to have asserted its own assumption of responsibility for the…environmental control over the activities of its subsidiaries” [61]. Vedanta had published reports stressing that oversight of its subsidiaries rested with the Vedanta Board itself; one such report made reference to specific environmental issues concerning the KCM mine. Further, the Court found that Vedanta both laid down and actively implemented the operational standards through training, monitoring and enforcement. The sum of Vedanta’s actions meant it may be demonstrable at trial that the sufficient level of intervention was present.

What next?

The claimants will now be able to proceed to the merits of the case, but the issue of jurisdiction was only one of many hurdles they must overcome. The judgment does, however, begin to align with emerging comparative jurisprudence on the matter of the duty of care of parent companies. As raised by CORE and the International Commission of Jurists, the courts in Canada and the Netherlands have already recognised the potential existence of such a duty in relation to human rights and environmental protection.

Importantly, two other cases brought on similar grounds are currently pending on appeal before UK courts (Okpabi v Royal Dutch Shell Plc [2018] Bus L.R. 1022 and AAA and others v Unilever Plc [2018] EWCA Civ 1532) and this judgment will undoubtedly be significant for their outcome. Throughout the proceedings the appellants had raised “floodgates” concerns with this type of claim, yet on the Court’s reasoning, such claims were already actionable under the existing scope of tort law. The decision may have widespread implications for corporate practice however, as the Court has indicated that high levels of parental interference in subsidiaries will leave the former more vulnerable to liability. This will be the case even though such a degree of control and influence is often expected by shareholders and investors, or influenced by domestic regulatory reporting requirements. Overall, we consider that this judgment represents a major development for communities impacted by the global operations of multinationals, and an equally significant confirmation of the relevance of domestic remedies in realising and advancing public international law standards.

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Pedro Walpole says

April 24, 2019

Much appreciate this documentation of the process which is helpful in working with the NICC process of the Philippines.