Lungowe & Ors v Vedanta Resources Plc v Konkola Copper Mines Plc [2017] EWCA Civ 1528: Anchoring defendants, and suing the parent for the sins of their subsidiaries

This blog is by John-Paul Swoboda of 12 King’s Bench Walk.

Chandler v Cape [2012] EWCA Civ 525 was described in the Economist as “A little-noticed court case with big implications”[1]. That was because it was the first time a parent company had successfully been sued for, as the Economist put it, the sins of their subsidiary. The prediction that there would be big implications appears, with the Lungowe case, to be coming to pass. The Lungowe case concerns 1,800 claimants, all of them Zambians alleging personal injury and property damage in Zambia whilst in the employment of a Zambian company (‘KCM’) due to an alleged toxic discharge from KCM’s mine into the water table. In other words, the Lungowe case concerns the export of huge group litigation, from a country with little access to justice, to the English Courts. The export of this group litigation was made possible, in this author’s opinion, by the Court of Appeal’s decision in Chandler and the European Court of Justice’s decision in Owusu v Jackson (Case C-281/02) [2005] QB 801 which allows claimants to anchor jurisdiction in English courts where one of the proposed defendants is domiciled in England. In this case the first defendant or ‘Vedanta’ was the anchoring defendant and the parent company of KCM.

When proceedings were served on Vedanta and KCM, Vedanta and KCM reacted in a predictable manner; both challenged the jurisdiction and the justiciability of the English court. When those applications came before Coulson J, both Vedanta and KCM took almost every conceivable point when seeking to persuade Coulson J either that the court had no jurisdiction or that the claims were not justiciable. The appeal in the Court of Appeal proceeded on a similarly wide basis but Simon LJ, giving the lead judgment, dismissed what I perceive to be the weaker arguments relatively swiftly.

Vedanta sought to challenge the jurisdiction of the court not on the basis that they did not have jurisdiction to hear the claims but rather that they should not exercise their jurisdiction to hear the claims. In order to do that, it was necessary for Vedanta to persuade the Court of Appeal that the decision in Owusu ought to be dulled, distinguished or reversed. Those arguments were swiftly rejected as unmeritorious; as Professor Briggs stated in Briggs, Civil Jurisdiction and Judgments (6th edition) at 2.304, “the argument has moved on”. Lady Hale PSC described the decision in Owusu in A v A (Children: Habitual residence) [2014] AC 1 in the following terms: when English courts are dealing with a claim against a defendant domiciled in England “…the courts of that state had to assume jurisdiction, even though there was a third country which also had jurisdiction and even though that country was, on the face of it, the more appropriate forum in which to bring the action. Thus, the English court was not only empowered but obliged to assert and exercise jurisdiction rather than leave the parties to the jurisdiction of a state (Jamaica) which was not party to the Convention.”

Vedanta’s second line of argument was that there was no real issue to be tried between Vedanta and the claimants. Clearly if there was no real issue between Vedanta and the claimants then there could be no basis for the claims and the use of Vedanta as the ‘anchor defendant’ to be able to bring a claims against KCM could be said to be nothing more than a sham (as had occurred in the Red October case [2015] EWCA Civ 379). Alternatively, Vedanta argued that there was insufficient evidence to establish there was a duty owed by the parent to the subsidiaries employees as in Thompson v The Renwick Group Plc [2014] EWCA Civ 635. The claimants in turn relied on the decision in Chandler in arguing that there was a real case against Vedanta.

As Arden LJ put it in Chandler “The question is simply whether what the parent company did amounted to taking on a direct duty to the subsidiary’s employees”.  The Court of Appeal were unwilling to interfere with Coulson J’s finding that there was a serious and real issue to be tried as to whether Vedanta owed KCM’s employees a duty. The Court of Appeal’s judgment on this issue was influenced by the fact that a) the decision of Coulson J on this issue was evaluative and therefore should not readily be interfered with and b) because there was substantial evidence for the submission that Vedanta had in fact assumed a duty in respect of KCM’s employees as set out at para. 84 of the judgment.

KCM’s arguments were much less powerful once the Court of Appeal concluded that Vedanta’s appeal should not succeed (albeit that Simon LJ dealt with both KCM and Vedanta’s applications simultaneously in his judgment). KCM argued that they were neither a necessary nor proper party to the action pursuant to para. 3.1 of PD 6B (Service out of the jurisdiction) on the basis that (1) the claimants’ claim against KCM did not have a real prospect of success; (2) there was no real issue between the claimants and Vedanta and therefore no anchor to bring them into the claim; (3) it was not reasonable for the court to try the issue between the claimants and Vedanta so that there should be no anchor to bring them into the claim; (4) KCM were not a necessary and proper party to the claim against Vedanta; and (5) England was not a proper place in which to bring the claim.

The Court of Appeal dismissed KCM’s arguments, upholding Coulson J’s decision and finding there was no basis for interference with his evaluative judgments. In relation to argument (1) it was noted that Zambian law was the applicable law, that Zambian law appeared to impose strict liability for discharge of toxic substances, and that there was no challenge to the claimants’ case that there were discharges of toxic substances. In those circumstances it is not hard to understand why the Court of Appeal and Coulson J were able to find a real prospect of success against KCM.

KCM’s argument (2) was dismissed on the basis already discussed in respect of the position under English law. KCM argued that the position was different under Zambian law – the applicable law – but the Court of Appeal refused to interfere with Coulson J’s finding that it was arguable that Zambian law was the same as English law having heard from two eminent Zambian lawyers who took diametrically opposed views.

KCM’s argument (3) – that it was not reasonable for the court to try the issue between Vedanta and the claimants – was made on the basis that the claims against Vedanta were a sham, as per the Red October case. This argument was dismissed on the basis already discussed and because it was accepted that Vedanta were not sued only to serve the purpose of being an anchor for the claim against KCM but also because the claimants had reasonable grounds to show KCM may be unable or unwilling to meet any judgments made against them. Again the Court of Appeal said there was no proper basis for interfering with Coulson J’s evaluative judgment.

KCM’s argument (4) – that they were neither a necessary nor proper party to the claim against Vedanta – was swiftly dismissed as Coulson’s J judgment was evaluative and there was no reason to interfere. Further given the facts and arguments against both defendants were broadly the same there was a compelling argument that KCM was in fact a proper party to the claim.

As to argument (5) – whether England was a proper place to bring the claim – the Court of Appeal first concluded that Coulson J was entitled to find that it was inappropriate for the claim against KCM to be in a different jurisdiction to the claim against Vedanta given the virtually identical facts, witnesses and documents and the possibility of inconsistent judgments, and secondly because the judge’s finding that access to justice could not be obtained in Zambia was unimpeachable.

Concluding Remarks and Comments

In conclusion it can be stated that the Court of Appeal was not interested in disturbing the evaluative judgments of Coulson J as there was no good reason to do so. In challenging Coulsons J’s decision, the defendants in this case have entrenched the principle that foreign litigation can be imported if a) a defendant is domiciled in England and b) the domiciled defendant is a parent company and there is, at least, an arguable case that the parent company owed a direct duty to the employees of the subsidiary.

When considering whether access to justice could be had in Zambia for the claimants in this case, Simon LJ made this comment in his judgment, “There must come a time when access to justice in this type of case will not be achieved by exporting cases, but by the availability of local lawyers, experts, and sufficient funding to enable the cases to be tried locally.” It is not clear which audience Simon LJ had in mind (the Zambian government, foreign defendants, or claimant firms who undertake this type of work) but in my view it is telling that Simon LJ did not seek to put a timescale on this comment as to do so would be to assert that the global geo-political situation would be such that access to justice would be achievable globally at some given date in the future, which would surely be a foolish prediction.

Perhaps a more realistic challenge to the status quo than a change in geo-politics is an energetic attack by parent companies and their insurers on Chandler or Owusu. Owusu is, of course, an ECJ decision, which means in theory that the English courts and legislature may be able to do away with it post-Brexit. That in turn depends upon the Brexit agreement with the EU (assuming there is one). However, if the government’s position paper on the jurisdiction and enforcement of judgments is to be believed then the UK will continue to adopt European rules and regulations in relation to jurisdiction via the Lugano Treaty or an equivalent. If that were to be the case, even if the CJEU were not to be the final arbiter, it is difficult to see how Owusu could be overturned. Perhaps parent companies and their insurers will raise the most energetic challenge against the line of authority being developed by reliance on Chandler. It still remains controversial that a parent company should be liable for the ‘sins’ of their subsidiaries but in my view the real argument lies not in whether a parent can assume a duty of care in relation to the employees of a subsidiary but in determining the threshold for finding that the parent has assumed such a duty.

[1] ‘Corporate Liability; the sins of the sons’

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