Legal Insight 2019: Lungowe v Vedanta Resources Plc.
22 Oct 2019]
Lungowe v Vedanta Resources Plc is undoubtedly a case worthy of consideration by UK based multinationals, especially those who maintain a close relationship with foreign subsidiaries. In particular, t
The Facts of the Case
The litigation against Vedanta Resources plc and its subsidiary, Konkola Copper Mines plc (“KCM”), arose due to the alleged discharge of toxic emissions from the Nchanga Copper Mine into surrounding watercourses between 2005 and 2015. Over this period, some 1,826 people claim that the negligent operation signifies Vedanta’s failure to honour their duty of care. The affected demographic, primarily agricultural communities of the Chingola District, were reliant on the water supply not only for their personal health, but also for the survival of crops and livestock. They therefore initiated action on the grounds that they had suffered loss of income, amenity and enjoyment of land as a result of KCM failing to prevent mine discharges from contaminating local waterways.
Whilst the plaintiffs’ grievances were based on incidents that occurred in Zambia, they sought to present their case in England, where Vedanta is domiciled, which the High Court duly held in 2016. The UK trail became an ongoing point of contention, the defendants contending that the High Court had facilitated the trial of a case which was not within UK jurisdiction. Furthermore, Vedanta argued that the trial should take place in Zambia, given that the case was against KDM. The latter contention was made on the grounds that their London headquarters had no role in the management of the allegedly negligent operation, thus Vedanta should be precluded from litigation.
During the 2017 appeal proceedings Lord Justice Simon noted that: “KCM was the operator of the Nchanga mine, there had been recorded discharges of toxic effluent from the mine, under some of the Zambian statutes there is strict liability for consequences of toxic discharges and the underlying basis of the claimants’ claim has not been challenged”. Therefore, the appellants did not seek to overturn the claims of negligence against KCM, but rather challenged the scope of Vedanta’s duty of care and the UK’s jurisdiction as separate preliminary issues.
Supervision and control- This is one of the defining features of the case, marking a departure from the approach taken to establishing company liability in such cases as AAA v Unilever (2018). While Vedanta claimed to be a holding company excluded from the “material operation” of the mine, the judge found significant evidence to the contrary, including:
- A report entitled “Embedding Sustainability” explicitly stating that Vedanta’s Board had oversight over its subsidiaries.
- Public statements proclaiming a commitment to addressing environmental safety risks in KCM’s operation.
- Vedanta had taken responsibility for group-wide health, safety and environmental training. This was compounded by a management agreement specific to KCM which obligated them to oversee employee training.
- Davies Kakengela, ex-employee, provided a witness statement outlining the significant degree of control Vedanta had over KCM’s operation.
Based on the above facts, part of the appeal was rejected, the court finding a ‘real issue to be tried’ as Vedanta exercised a “sufficiently high level of supervision and control of the relevant mining activities”. More than a mere shareholder, Vedanta was found to be indirectly involved in the management of the Zambian Copper Mine, opening up the possibility that they owed the affected residents a duty of care.
In view of Chandler v Cape plc (2012), parent companies’ superior expertise, knowledge and resources in a subsidiary’s operation can bolster a case for their duty of care. In this instance, superior expertise did not form the primary basis for the ruling on the ‘real issue to be tried’, though it was considered alongside the evidence of operational control. As a result, the Supreme Court held (In 2019) that there was a ‘real issue to be tried’ between the claimants and Vedanta, who it deemed were in a position to prevent the release of toxic mine emissions.
UK jurisdiction and EU law-
Vedanta was not found to have been sued as an anchor defendant solely to attract a more favourable jurisdiction, an act that would breach EU law. Rather, as Lord Briggs summarised, Vedanta “was sued in England for the genuine purpose of obtaining damages, albeit that attracting English jurisdiction over KCM was an important contributor to that decision”.
Contrary to the 2017 Court of Appeal judgement, the Supreme Court judge found that it would “offend the common sense of all reasonable observers” for England to be considered the proper place for the trial. Examining the ‘proper place’ claim in isolation, Lord Briggs held the appellant’s claim as the case concerned a breach of Zambian statutory duty between two Zambian resident parties.
Substantial Justice- The judge found that the ‘proper place’ ruling was nullified by the fact that it was extremely unlikely that the claimants would access ‘substantial justice’ in their country of residence. Their relative poverty, alongside the fact that Conditional Fee Agreements are unlawful in Zambia, they may have had insufficient resources to fund the litigation. Furthermore, the judge found that the limited legal resources available to the claimants in Zambia may have obstructed their access to justice.
What are the implications for business?
UK based multinationals involved in the operations of their subsidiaries cannot expect to circumvent their responsibility to respect third party human rights on account of the corporate veil. Vedanta represents the first instance of a company held accountable for their duty of care to the people affected by the operations of a subsidiary, rather than the employees of a given subsidiary, implying that the scope of potential claimants is widening. As a result, it is imperative that multinational companies ensure steps are taken to ensure adequate, group-wide environmental safety practices are implemented.
- A UK headquarters’ geographic distance from endangered local environments and populations does not protect English domiciled multinationals. Courts’ increasing willingness to examine the claimant’s needs, as well as the specific function of the parent company, could result in UK based multinationals being afforded less protection from claims initiated against a foreign subsidiary. Based on this trend, appealing such claims may become increasingly futile in the future. UK parent companies should instead focus on taking pre-emptive measures, ensuring their foreign subsidiaries adhere to legally compliant policies.
- Globally, there is a gathering trend towards allowing foreign claimants to bring cases against parent companies. Canada, for example, have accepted numerous human rights cases by non-Canadian claimants. The UK may well be set to follow suit, as it has with other human rights legislation from across the Atlantic.
- This ruling also stresses parent companies’ responsibility to implement policies to match their statements as they will inevitably be disclosed and scrutinised in the event of a trial. Claims of corporate responsibility must be made cautiously, ensuring the reciprocal measures to enforce them are in place, else the parent greatly increases the risk of costly litigation.
- Whilst some expressed a concern that the ruling created a “Catch 22” for UK multinationals, whereby, in developing policies to adhere to UN human rights standards, they created a duty of care for people affected by subsidiaries. In reality, the judgement in Okpabi v Royal Dutch Shell Plc (2018) highlights that the existence of such policies alone does not create a duty of care. In this instance, the precedent set by Vedanta did not apply as Shell did not take “direct responsibility for devising a material health and safety policy”. Therefore, parent companies should not be reluctant to implement the appropriate environmental safety policies on the grounds that it might increase the risk of litigation, but must ensure their group-wide policies are properly implemented in accordance with statements of responsibility.
- The trajectory of rulings in similar cases throughout the last decade, alongside the proliferation of tighter reporting requirements due to legislation such as the 2015 Modern Slavery Act, shows a gathering drive for greater transparency in supply chains and a dwindling tolerance for empty claims.