This blog is by Lois Aldred of 12 King’s Bench Walk.
The Court of Appeal recently handed down its judgment in AAA & Others v Unilever PLC and Unilever Tea Kenya Limited. This is the latest in a series of Court of Appeal considerations of the extent of corporate liability of parent companies for acts or omissions pertaining to the operations of subsidiaries.
The Claimants were employees of Unilever Tea Kenya Limited (‘UTKL’) who lived and worked on UTKL’s tea plantation in the southern Rift Valley of Kenya. They claimed against both Unilever and UTKL in tort for failing to protect them from the harm they suffered as a result of inter-tribal violence in the immediate aftermath of the 2007 Kenyan presidential election.
The Claimants had to establish a good arguable claim against UTKL’s parent company Unilever PLC (‘Unilever’) the proposed ‘anchor defendant’. This was the jurisdictional prerequisite since UTKL was not registered within the English and Welsh jurisdiction.
Laing J dismissed the claims at first instance finding that:
No duty of care was owed by either Unilever or UTKL due to
- Insufficient foreseeability of harm; and
- It would not be fair just and reasonable to impose a duty of care as it would impose the duty to act as a surrogate police force, when the Kenyan police force could be relied upon;
However she also found there was a sufficient degree of connection between the activities and omissions of Unilever and the damage suffered by the Claimants to satisfy the Chandler v Cape EWCA 525 test of proximity; accordingly if there had been viable claims, England would be the proper forum to hear the claims.
There was an array of appeals from both sides, the most significant being:
- The judge was wrong to find no duty of care;
- The judge was right that Unilever owed no duty of care to the Claimants but she should have found so for an additional reason, namely absence of proximity between Unilever and the Claimants;
- The judge was wrong to find that if there were viable claims against the Defendants, England is the appropriate forum to try the claims.
The only issue that the Court of Appeal resolved was 2, since its conclusions on this point were determinative of the claims and the Claimants could not succeed.
The judgment of the Court of Appeal
The court stressed that parent companies and subsidiaries are separate legal entities so that the parent company would have to have to be shown to owe a duty of care to the Claimants in line with general principles of the law of tort.
It was reiterated that relevant considerations to the imposition of duties on parent companies were set out in Chandler v Cape but that is not to be seen as a separate test distinct from general principles.
The Court of Appeal recognised that cases where a parent company might have a duty will usually be of two basic types, namely:
a. Where the parent company has in substance taken over the management of the relevant activity of the subsidiary in place of or jointly with the subsidiary (e.g. as in Lungowe v Vedanta Resources PLC  EWCA Civ 1528) ;
b. Where the parent company has given relevant advice to the subsidiary as to how a particular risk is to be managed.
It was ultimately only this second category that was relied upon by the Claimants in that it was said that Unilever gave advice to UTKL in relation to the management of risk in respect of political unrest and violence in Kenya.
In an economically reasoned conclusion, the Court of Appeal gave extremely short shrift to the Claimants’ argument going so far as to say that the appellants were ‘nowhere near being able to show they have a good arguable claim on this basis’ ( per LJ Sales at para 40) as the evidence showed that UTKL did not receive relevant advice from Unilever on the management of the 2007 crisis and further that UTKL understood that it was responsible itself for devising its own risk management policy, for handling the 2007 crisis, and that it did so.
As to the relationship between the Defendants the following pertinent facts were noted in the judgment of Lord Justice Sales:
- Unilever owned the vast majority of the shares (88.2%) of UTKL, therefore having control over UTKL
- Unilever and UKTL are separate legal persons
- UTKL was managed locally by its Manging Director who denied Unilever were ever referred to for advice in the running of UTKL and Unilever did not have superior knowledge to UTKL of local political and ethnic matters
- The consolidated Unilever Group Accounts for 2007 explain the parent companies and other group companies operate as a single economic entity. In that document the framework for the group’s risk management strategy was stated to be the responsibility of the Board(s) of the parent company (i.e. Unilever and another parent company). It was also stated that the ‘ultimate responsibility for the management, general affairs, direction and performance of the business as a whole’ was with the board of the parent companies.
- The group has an audit committee to assist in the board’s functions including oversight of risk management. ‘Unilever policies’ were stated to be universally applicable within the Unilever Group which were stated to cover operational and functional matters and given how the business is run to comply with applicable laws and regulations.
- A document entitled ‘The Governance of Unilever’ stated that the group was in effect a single economic entity with an executive team responsible for running the Unilever Group;
- In 2007 ‘The One Unilever Operating Framework’ was in place, which explained the move within the group to ‘more globally led processes across geographies’.
- Unilever’s corporate relations department issued a crisis management policy in March 2003 which set out a procedure whereby a crisis management was undertaken locally and centrally. However a crisis management process policy was in place at regional level within the group which indicated that it was the responsibility of national managers ie the manager of UTKL to ensure appropriate procedures were in place.
- The evidence of UTKL’s director was accepted, in the absence of evidence suggesting otherwise, that in effect UTKL made all the decisions regarding how to manage the crisis without actually or having needed to consult Unilever. Unilever further did not advise on risk management plans devised by UTKL.
I consider the Court of Appeal’s approach to this case demonstrates that for Claimants to succeed in establishing proximity where the parent company has given relevant advice to the subsidiary as to how a particular risk is to be managed that the advice given is likely to have to be more than generic guidance but rather specific and potentially mandatory advice.
Accordingly, Claimants should be extremely cautious where they rely solely on general advice provided by a parent company to establish proximity. It must be remembered however that the Court of Appeal was not limiting the finding of sufficient proximity of parent companies to just those where a parent has taken over management of a subsidiary or where a parent has provided specific and mandatory advice. In claims in which access to justice dictates an attempt to establish an anchor Defendant to sue in English courts careful consideration should be given by Claimant lawyers to the corporate relationships between the parent company and subsidiary and any specific link to the Claimants. Such relationships are extremely fact-sensitive and require strong and consistent documentary evidence to gainsay the inevitable witness evidence deployed by Defendants’ management refuting the existence of specific advice, control or other factors militating in favour a relationship of proximity to the Claimant.
While the possibilities are never closed, it is clear the corporate veil remains a tightly woven garment.