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Parental responsibility: why directors may have to consider other group companies

24th Oct, 2017 / Legal & Law Firm, News

The Court of Appeal has recently considered whether English proceedings can properly be commenced against a defendant outside the jurisdiction.

The Court of Appeal has recently considered whether English proceedings can properly be commenced against a defendant outside the jurisdiction. Although the court’s decision in Lungowe and others v Vedanta Resources Plc and another[1] addressed a question of legal process, it reminds observers that an English parent company may in certain circumstances owe a duty of care to the employees of an overseas subsidiary. It suggests further that such a duty may be owed more widely, to non-employees who may be affected by the subsidiary’s actions.

Background

Konkola Copper Mines Plc (KCM) is a public limited company incorporated in the Republic of Zambia and the owner of a copper mine. KCM is a subsidiary of Vedanta Resources Plc (Vedanta), an English company. The many claimants were Zambian citizens, who claimed that they had suffered as a result of pollution and environmental damage caused by KCM’s mining operations.

The claimants had commenced proceedings against both Vedanta and KCM. It had been observed in the High Court previously that the claimants would struggle to get effective access to justice by bringing proceedings solely against KCM, in Zambia.

In the High Court, Vedanta and KCM had challenged the jurisdiction of the English courts to hear the proceedings. The High Court dismissed the challenge, and the Court of Appeal upheld the High Court’s judgment. There was a complex issue of law to be decided in this case, namely whether Vedanta, as a parent company, could be liable for the actions of its foreign subsidiary. The existence of this issue justified the court’s decision.

The jurisdictional question

In an earlier case heard by the European Court of Justice (ECJ), Owusu v Jackson[i], the ECJ had held that, under the Brussels Convention, the English court was obliged to hear a case where the defendant was domiciled here, notwithstanding that the court of another, non-EU, state was a more appropriate venue. Here, the defendant in question was Vedanta.

Under the Civil Procedure Rules 1998, Practice Direction 6B, English proceedings may be commenced against an overseas defendant in certain circumstances, including where there is a good arguable case that the claim is covered by a “gateway” in paragraph 3.1. The most pertinent “gateway” here was that:

  • a claim had been made against the (English) defendant, Vedanta;
  • there was a real issue between the claimants and Vedanta which it was reasonable for the court to try (this issue is discussed below); and
  • the claimant wished to commence English proceedings against another person who was a “necessary or proper party” to the claim (namely, KCM).

The legal question

As noted above, the Court of Appeal’s decision related to the jurisdictional question only, but in reaching this decision it fell to the court to consider the legal grounds on which a claim could rely. Accordingly, as discussed further below, the court considered how the English law of negligence could apply in the case against Vedanta.

Under English law, to be liable in negligence:

  • the defendant must owe a duty of care to the claimant – in other words, it must be recognised in law that the careless infliction of damage by the defendant on the claimant should be actionable;
  • the defendant must, by its actions, have breached this duty of care, in the sense that it has not lived up to the standard expected of it by the law;
  • the defendant’s actions must have caused the damage which is subject of the claim. In some (but not all) circumstances, for example, it may be sufficient for a claimant to show that, but for the actions of the defendant, the damage would not have occurred; and
  • the type of damage that the claimant has suffered must have been foreseeable…. Read More

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