Allen & Overy partner Suzanne Spears assesses the implications of last month’s dramatic Supreme Court decision that an environmental harm lawsuit against the UK copper company in Zambia can be heard by the English courts

In a seminal decision, Vedanta Resources PLC and another v Lungowe and others [2019] UKSC 20 April 2019, the UK Supreme Court last month decided that a lawsuit against a Zambian mining company and its English parent for environmental harm in Zambia can be heard by the English courts. The decision comes as a jolt for British multinationals, whose subsidiaries and suppliers operate abroad, particularly in regions where there is a higher risk of adverse environmental and human rights impacts, and claimants face practical barriers to accessing effective judicial remedies. It is likely to embolden more potential claimants to seek access to judicial remedies against multinational corporations in their home jurisdictions.

The claimants in this case are 1,826 villagers from the Chingola District of Zambia, home to a copper mine operated by Zambian company Konkola Copper Mines plc (KCM). In 2015, these villagers lodged a claim in the English courts against KCM and its English parent company, Vedanta Resources PLC (Vedanta), alleging that their health and farming activities had been damaged by toxic water pollution caused by the mine. KCM and Vedanta challenged the jurisdiction of the English courts to hear this claim, but the Supreme Court has held that the English courts may hear the claim against both of them. It made three important findings:

First, the Supreme Court affirmed the potential liability of parent companies in relation to the activities of their subsidiaries. The court noted that everything depends on the extent to which, and the way in which, the parent company takes over, intervenes in, controls, supervises or advises on the relevant operations of the subsidiary.

The Supreme Court found that Zambia was not the proper forum for this claim as the claimants would have been unlikely to obtain substantial justice there

The Supreme Court agreed with the High Court that certain materials showed that there was a triable issue as to whether Vedanta had intervened sufficiently in the conduct of the operations of the mine to have assumed a duty of care. The Supreme Court focused on a report (entitled “Embedding Sustainability”) in which it found Vedanta to have asserted its own assumption of responsibility for the maintenance of proper standards of environmental control over the activities of its subsidiaries, including their implementation by training, monitoring and enforcement.

The Supreme Court’s second important finding related to whether the English courts were a convenient forum for hearing claims against KCM. The Court found that connecting factors, such as practical convenience, the system of law that will be applied to decide the issues, the place where the wrongful act or omission occurred and the place where the harm occurred, all pointed towards Zambia as the proper place for the claim against KCM to be tried.

It also found that these connecting factors should not be “trumped” by a concern to avoid a situation in which a case went ahead against Vedanta in England, while another case went ahead against KCM in Zambia. As Vedanta had offered to submit to the jurisdiction of the Zambian courts, the inconvenience and risk of irreconcilable judgments being handed down by two different legal systems was a risk of the claimants’ own making.

Villagers in Zambia's Chingola District allege copper mining has polluted their waters. (Credit: Leigh Day)
 

However, in a final, dramatic finding, the Court held that the claim against KCM should proceed together with that against Vedanta in England because the Zambian claimants faced serious practical barriers to obtaining substantial justice in Zambia. The Supreme Court cited two principal factors:

  • legal aid was unavailable and conditional fee arrangements are illegal in Zambia, meaning that, even if lawyers were willing to act pro bono, the claimants would still have had to partially fund the litigation, which would have made it impossible for the villagers to bring their claims to court;

  • the claimants would have been unlikely to find a Zambian legal team with suitable expertise and resources to manage an environmental case of this scale and complexity against a well-resourced opponent.

The Supreme Court found that, overall, Zambia was not the proper forum for this claim as the claimants would have been unlikely to obtain substantial justice there. The claims against both Vedanta and KCM can now proceed to a review of their merits in the English courts.

Reluctant to interfere with the High Court findings, the Supreme Court emphasised that the standard of proof is very low at this stage; it is merely designed to root out cases that are not fit for trial. The case can now proceed to full trial and focus on the resolution of factual disputes.

It is no longer an option for companies to avoid adopting such policies and practices

Within hours, commentators raised concerns about the Supreme Court’s finding that Vedanta’s group-wide sustainability policy and method of implementing it suggested that there was a triable issue as to whether Vedanta had assumed a duty of care to the claimants. Some fear that the decision will lead companies to scrap their environmental and social policies and become “hands-off” towards risk.

This concern seems overblown. Most companies will realise that the legal risks associated with not adopting such policies far outweigh the legal risks of being seen to have assumed a duty of care. Even if the English courts are unwilling to impose such a duty, it is no longer an option for companies to avoid adopting such policies and practices, as regulators, legislators, shareholders, contractual counterparties, lenders and insurers demand that they do so and exercise penalties.

The potential existence of a duty of care is not the end. Even if none can be established, no finding of negligence will be made unless it can also be shown that the parent company breached that duty, causing harm to a claimant.

The mining activities of subsidiaries could land English parent companies in court. (Credit: Leigh Day)
 

Most companies recognise that an important way to mitigate the risk of being sued successfully in England is to take positive steps to ensure compliance with group-wide policies. The imperative is to avoid any breach, but the ancillary effect may be to ensure that, if there is a breach, the parent company can show that it discharged its duty of care to the required standard.

“Another concern arises from the Supreme Court’s comments that the legal principles that apply to whether a duty of care is owed by a parent for the actions of a subsidiary “are the same as would apply in relation to the question whether any third party ... was subject to a duty of care in tort owed to a claimant dealing with the subsidiary”.

This might be taken to suggest that a company could have a duty of care in relation to the actions of, for example, its suppliers, if it requires those suppliers to comply with its environmental and social policies and enforces such compliance.

This decision suggests English courts may be more willing to hear claims against English parent companies in respect of activities undertaken by subsidiaries

A few companies may be relieved by the one definitive change in the law; more parent companies are likely to submit to the jurisdiction of the courts where the subsidiary is located when being sued jointly with their subsidiaries in England.

This change will be of little comfort to companies operating in the world’s poorest countries, where similar arguments as to what the court termed “access to justice” are likely to be relevant. This decision suggests that the English courts may be more willing to hear claims against English parent companies of multinationals in respect of activities undertaken by their subsidiaries. Consequently, there is likely to be an increase in such cases before the English courts. This is a reminder to ensure that the highest standards of environmental behaviour are applied when operating internationally. Companies must now devise robust environmental and human rights policies and ways to enforce them without taking control of the day-to-day activities of their subsidiaries.

Suzanne Spears is a partner in Allen & Overy suzanne.spears@allenovery.com

Main picture credit: Foil Vedanta
 
Konkola Copper Mines  Supreme Court  Human rights  mining industry 

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