Expanding the Scope of Parent Company Liability – Lungowe and others v Vedanta Resources Plc and another  EWCA Civ 528
The recent Court of Appeal judgement delivered in Lungowe and others v Vedanta Resources Plc and another  EWCA Civ 528 has expanded the scope of parent company liability and demonstrates the Courts are now more willing to allow a wider class of claimants to bring claims against parent companies domiciled in England for the actions of their foreign subsidiaries.
Background Facts of Lungowe
Vedanta Resources Plc (Vedanta) is a company domiciled in England and it is the parent company for the mining company Konkola Copper Mines Plc (KCM) based in Zambia, who operate the Nchanga Copper Mine. It was alleged by a group of Zambian farmers that discharges from this mine had caused environmental damage and pollution, which resulted in damage to their property and personal injury amongst other related claims. They brought proceedings against both Vedanta and KCM who they argued was a ‘necessary and proper party’ to the claim.
The technical point of law, arose as to whether Vedanta, as the English domiciled parent company of KCM, could be held liable in the negligence action brought by the Zambian claimants for the mining operations of KCM, it’s foreign based subsidiary.
KCM and Vedanta unsuccessfully challenged the jurisdiction of the English Courts to deal with his claim.
Default Position on Parent-Subsidiary Liability
Parent companies domiciled in England are usually protected from liability for the actions of their foreign subsidiaries through the principle of forum non conviens, where the court can refuse to accede jurisdiction over a matter if there is considered to be a more appropriate forum available to the parties, and also through the doctrine of separate corporate personality.
In light of the default position on parent-subsidiary liability, the two interrelated issues the court had to consider in Lungrove were:
- How should the issue of jurisdiction be treated when the claim concerned the actions of a parent company’s foreign subsidiary; and
- The duty of care owed by the parent company in respect of the operations of its subsidiary.
1. JURISIDICTION ISSUE
The obligations imposed by EU Law on its signatory states (such as England) and Paragraph 3.1 of Practice Direction 6B of the Civil Procedure Rules, demonstrates that the principle of forum non conveniens is not absolute.
Impact of EU Law on Jurisdiction – The Brussels Regulation and The Owusu Principle
Article 4 of the recast Brussels Regulation (1215/2012/EU) gives claimants the right to bring a claim against a company which is registered in a signatory state before that state’s courts.
In Owusu v Jackson (Case C-281/02) the European Court of Justice confirmed that, under Article 4, the court of a contracting state will not be able to decline jurisdiction on the basis that a non-contracting state would be the more appropriate forum.
Practice Direction 6B of the Civil Procedure Rules – The Relevance of the ‘Necessary and Proper Party’ Gateway
Where one of the defendants (as in this case the subsidiary KCM) resides outside of the UK, the ‘necessary and proper party’ gateway in paragraph 3.1 of Practice Direction 6B of the Civil Procedure Rules in England, can provide claimants with permission to serve the foreign defendant with an English claim form.
Paragraph 3.1 of Practice Direction 6B states:
“The claimant may serve a claim form out of the jurisdiction with the permission of the court …where
(3) A claim is made against a person (‘the defendant’) on whom the claim form has been or will be served (otherwise than in reliance on this paragraph) and –
(a) there is between the claimant and the defendant a real issue which it is reasonable for the court to try; and
(b) the claimant wishes to serve the claim form on another person who is a necessary or proper party to that claim”.
The Court in Lungrove therefore accepted jurisdiction because:
- The Brussels Regulation and the Owusu Principle meant that the English courts could not decline jurisdiction just because the subsidiary company KCM was not in the UK.
- It decided that there was a ‘real issue’ to be tried between the Zambian claimants and the parent company Vedanta. The existence of a global sustainability report amongst other evidence, showed oversight of the subsidiary company, KCM, rested with the parent company Vedanta.
- In light of Vedanta’s control over KCM, KCM could be considered a ‘necessary and proper party’, along with its parent Vedanta to the action brought by the Zambian claimants.
2. DUTY OF CARE ISSUE
Whilst it has been established that EU law and the English Civil Procedure Rules provide a route for claimants to bring parent-foreign subsidiary claims within jurisdiction, this does not answer whether a parent company owes a duty of care for the effect of its’s subsidiary’s operations.
To determine the liability of the parent company for the effects of its subsidiary’s operations on other people, such as the Zambian farmers in Lungrove, it was necessary for the Court to ask in what circumstances will a parent company owe a duty of care for the actions of its subsidiary.
The court in Lungrove looked at both the common law duty of care and indicia from Chandler v Cape  EWCA and then compared it to the parent-subsidiary relationship in Lungrove.
Common Law Duty of Care
Caparo Industries Plc v Dickman  2 AC 605 established the three-stage test for a duty of care, namely foreseeability, proximity and reasonableness.
Chandler v Cape
The court in Chandler explained some of the situations in which the three-stage test for a duty of care may be satisfied, in order to establish parent company responsibility for the health and safety of a subsidiary’s employee.
The relevant factors the court identified were:
- The parent and subsidiary operate the same business;
- The parent had, or should have had, knowledge of the subsidiary’s systems of work;
- The parent has, or should have, relevant superior or specialist knowledge compared to the subsidiary;
- The parent knew, or should have foreseen, that the subsidiary or its employees would rely on it using that superior knowledge to protect the claimants.
How the Chandler Indicia established a duty of care in Lungrove
Using the Chandler indicia identified above, the Court in Lungrove stated that the law has developed so that a parent company’s duty of care can extend to non-employees affected by the operation of its subsidiary.
The Chandler v Cape indicia will be important for future parent company liability issues given that it was used by the Court in Lungrove to establish if a duty of care existed in parent-subsidiary situations.
Implications of the Lungrove decision
The Court of Appeal reaffirmed it was in accordance with the law when it dismissed the challenges by Vedanta and KCM to the jurisdiction of the proceedings, highlighting parent companies registered in the UK will not escape liability for the actions of their foreign subsidiaries by advancing the jurisdictional argument. The Brussels Regulation, the ‘necessary and proper party’ gateway and the decision in Lungrove puts this to bed.
The Lungrove decision has paved the way for a wider class of claimants against parent companies for the actions of their subsidiary.