From: McGaughey, Ewan [mailto:ewan.mcgaughey@kcl.ac.uk]
Sent: 23 April 2019 15:56
To: Lionel Smith, Prof.
Cc: obligations@uwo.ca
Subject: Re: Vedanta v Lungowe. UK Supreme Court on parent company duty of care in respect of its overseas subsidiary

On 23 Apr 2019, at 2:47, Lionel Smith, Prof. <lionel.smith@mcgill.ca> wrote:

 

Ewan, does this reasoning (benefit/burden) depend on drawing a distinction between corporate controlling shareholders and individual controlling shareholders? Otherwise it seems to me that it amounts to overruling Salomon.

Because of vicarious liability, separate legal personality does not guarantee limited liability of shareholders. Salomon carries with it, I think, a principle (now set out in our corporate legislation in Canada, I don’t know about the UK Act) that the control that goes with being a controlling shareholder does not create a principal-agent relationship, whatever the general law outside of corporate law might say. This is why there are veil-piercing cases which look to levels of control that go beyond this, often (as you say) to the point that it can be described as ‘interference’.

The new decision seems to be much less demanding in this respect.

Lionel

 

 

From: "McGaughey, Ewan" <ewan.mcgaughey@kcl.ac.uk>
Date: Tuesday, April 23, 2019 at 08:49
To: ODG <obligations@uwo.ca>, "Baughen S.J." <s.j.baughen@swansea.ac.uk>
Cc: Gerard Sadlier <gerard.sadlier@gmail.com>, "Tettenborn A.M." <a.m.tettenborn@swansea.ac.uk>
Subject: Re: Vedanta v Lungowe. UK Supreme Court on parent company duty of care in respect of its overseas subsidiary

 

Dear all, 

 

It’s notable how close this judgment is to Arden LJ’s judgment in Chandler v Cape plc [2012] EWCA Civ 525. There, the Court of Appeal approved the High Court’s result, but adjusted its reasoning: that a parent company which controlled a subsidiary it could be liable for its torts. By contrast Arden LJ said that there would be an “attachment of responsibility” (more than an assumption) by law if a parent interfered in a subsidiary’s affairs. This looked a lot like being a trustee de son tort. Arden LJ also suggested that if a parent interfered in a subsidiary’s affairs on one issue (e.g. finances) but something went wrong elsewhere (e.g. safety) there would still be an attachment of responsibility. It was emphasised, however, that being a passive investor was not going to visit liability. In fact this formulation suggested a test that would result in liability more often than a control test.

 

Lord Briggs in Vedanta speaks approvingly of Chandler, but has again used the term ‘assumption of responsibility’, muddled with talk of the Caparo test. Apparently it’s all basic tort principle, and just applying well-understood rules since the Home Office failed to stop the borstal boys trashing yachts in Dorset. That’s not the way company lawyers see it: many have waited for years for Adams v Cape Industries plc [1990] Ch 433 to be overturned. This held a parent in London couldn’t be responsible for asbestos injuries of an employee of an insolvent American subsidiary, because the-then tests for jurisdiction in conflicts of laws didn’t see the parent being ‘present’ in the US through its subsidiaries. Vedanta has been forshadowed by Lubbe v Cape plc and other cases. But the Supreme Court in Vedanta suggesting that we’ve just been forgetting to apply ordinary tort law since the 70s to problems of multinational corporate torts is a bit surprising.

 

But what’s the principle - from the humble ‘general principles’ of tort law - that Lord Briggs has really laid down? From paragraphs 42-62 it’s not clear to me. There are, however, examples: a parent is liable for subsidiaries’ actions if (1) you take over management, (2) you give advice on dealing with risks - [51], (3) you hold yourself out as having group-wide policies to supervise subsidiaries, eg on safety or environmental harm, but you omit to fulfil them, [53]. And then it’s said that working out these things will ‘depend heavily upon the contents of documents internal to each of the defendant companies’ [44]. Will that make litigation hard for claimants in practice? It’s also said that this isn’t like vicarious liability. It’s something else. But why should that be so, and what’s the justification? If parent companies get the benefits of their subsidiaries’ activities, why shouldn’t they bear the burdens? If parent companies create the risk of an enterprise, why shouldn’t they be responsible for everything in the scope of the risks they create? This is a missed opportunity to simplify the law, and prevent multinational corporations externalising the social costs, while they internalise the gains. This said, it’s also a huge step forward.

 

Best wishes, Ewan

 

 

School of Law, SW2.28

www.kcl.ac.uk 

papers.ssrn.com 
@ewanmcg 

 

On 23 Apr 2019, at 12:20, Baughen S.J. <s.j.baughen@swansea.ac.uk> wrote:

 

Dear Ger, all

 

Yes that's quite a little bombshell. If I were an in-house lawyer to a UK TNC I'd be looking very carefully at what the website and published materials said about how group policies are implemented.

 

Best wishes,

 

Simon

 

Simon Baughen, Professor of Shipping Law, Athro Cyfraith Llongau.

 

https://orcid.org/0000-0003-0837-4501

 

 

---

From: Gerard Sadlier <gerard.sadlier@gmail.com>
Sent: 23 April 2019 12:07:04
To: Baughen S.J.
Cc: Tettenborn A.M.; obligations@uwo.ca
Subject: Re: Vedanta v Lungowe. UK Supreme Court on parent company duty of care in respect of its overseas subsidiary

 

Dear Simon, all

What I thought was striking in Vedanta was the second sentence of the
quotation from the judgment which Simon has reproduced, which reads:

“[I]t seems
to me that the parent may incur the relevant responsibility [for the
tort of a subsidiary] to third parties if, in published materials, it
holds itself out as exercising that degree
of supervision and control of its subsidiaries, even if it does not in
fact do so. In such circumstances its very omission may constitute the
abdication
of a responsibility which it has publicly undertaken.”

Kind regards

Ger

On 4/23/19, Baughen S.J. <s.j.baughen@swansea.ac.uk> wrote:
> Dear All,
>
>
> Difficult to spot the difference between the court’s assessment in Okpabi.
> In the CA Simon LJ states “The issuing of mandatory policies plainly cannot
> mean that a parent has taken control of the operations of a subsidiary (and,
> necessarily, every subsidiary) such as to give rise to a duty of care in
> favour of any person or class of persons affected by the policies. [88]”.
>
>
>
> Sir Geoffrey Vos made a similar point.
> “The promulgation of group standards and practices is not, in my view,
> enough to prove the “imposition” of mandatory design and engineering
> practices. There was no real evidence to show that these practices were
> imposed even if they were described as mandatory. There would have needed to
> be evidence that RDS took upon itself the enforcement of the standards,
> which it plainly did not.”
>
> But contrast with Lord Briggs in Vedanta
>
> “Even where group-wide policies do not of themselves give rise to such a
> duty of care to third parties, they may do so if the parent does not merely
> proclaim them, but takes active steps, by training, supervision and
> enforcement, to see that they are implemented by relevant subsidiaries.
> Similarly, it seems to me that the parent may incur the relevant
> responsibility to third parties if, in published materials, it holds itself
> out as exercising that degree of supervision and control of its
> subsidiaries, even if it does not in fact do so. In such circumstances its
> very omission may constitute the abdication of a responsibility which it has
> publicly undertaken.”
>
> Of course it’s all a question of the trial judge’s assessment of the facts,
> but this seems to be the key difference between a duty of care being
> arguable in Vedanta but not in Okpabi - the parent making sure that the
> subsidiaries implement the group wide policies.
>
> Best wishes,
>
> Simon
>
>
> Simon Baughen, Professor of Shipping Law, Athro Cyfraith Llongau.
>
>
> https://orcid.org/0000-0003-0837-4501
>
>
>
> ________________________________
> From: Gerard Sadlier <gerard.sadlier@gmail.com>
> Sent: 23 April 2019 10:06:50
> To: Tettenborn A.M.
> Cc: obligations@uwo.ca
> Subject: Re: Vedanta v Lungowe. UK Supreme Court on parent company duty of
> care in respect of its overseas subsidiary
>
> Dear all
>
> Reading Vedanta, it seems to me that a lot of parent companies would
> exercise the level of control indicated by the Court as a trigger for
> potential liability for the torts of a subsidiary. Am I wrong? Views
> welcome.
>
> Kind regards
>
> Ger
>
> On 4/21/19, Tettenborn A.M. <a.m.tettenborn@swansea.ac.uk> wrote:
>> Thanks, Simon: service out cases are often more useful than they look on
>> obligations law.
>>
>> Andrew
>>
>> On 21/04/19 19:32, Baughen S.J. wrote:
>>
>> Dear Colleagues,
>>
>>
>> 2017 saw three ‘anchor defendant’ cases before the High Court involving
>> tort
>> claims against a UK parent corporation in respect of the activities of
>> its
>> overseas subsidiary. The claimants sought leave to serve the subsidiary
>> out
>> of the jurisdiction under the ‘necessary and proper party’ gateway for
>> service out of the jurisdiction in paragraph 3.1 of Practice Direction 6B
>> in
>> the Civil Procedure Rules (“CPR”). In two cases, AAA v Unilever and Okpabi
>> v
>> Shell, leave was refused but was granted in the third case, Vedanta
>> Resources PLC and another v Lungowe. The key issue was whether there was
>> a
>> triable issue against the UK parent corporation. Lungowe involved alleged
>> pollution from toxic emissions from a copper mine in Zambia owned by a
>> Zambian company, KCM, whose ultimate parent company is Vedanta Resources
>> Ltd
>> which is incorporated and domiciled in the UK.
>>
>>
>>
>> The Supreme Court, [2019] UKSC 20, in which Lord Briggs gave the lead
>> judgment, has upheld the findings at first instance and in the Court of
>> Appeal that there was a triable issue as regards Vedanta on the basis of
>> a
>> plausible case that its involvement in the activities of KCM gave rise to
>> a
>> duty of care to those affected by those activities.
>>
>>
>>
>> There was nothing novel about the negligence claim against a parent
>> company.
>> It all goes back to Dorset Yacht Co Ltd v Home Office. The question is
>> whether there was a plausible case that the parent company was playing
>> the
>> role of the home office in relation to the wrongs allegedly committed by
>> its
>> subsidiary, in the role of the borstal absconders. The duty would arise
>> from a sufficiently high level of supervision and control of the
>> activities
>> at the mine with sufficient knowledge of the propensity of those
>> activities
>> to cause toxic escapes into the surrounding watercourses. This was a
>> question for Zambian law, which it was agreed followed English tort law.
>> It
>> was a question of fact as to what that level actually was. On the facts,
>> there was sufficient material identified by the judge in support of the
>> view
>> that the claimants’ case was arguable and the judge made no error of law
>> in
>> assessing this issue, so his decision on the negligence claim must stand.
>>
>>
>>
>> The Judge had identified the following evidence as establishing that
>> there
>> was an arguable case that Vedanta owed a duty of care. There was part of
>> the
>> published material, namely a report entitled “Embedding Sustainability”
>> which stressed that the oversight of all Vedanta’s subsidiaries rested
>> with
>> the board of Vedanta itself, and which made particular reference to
>> problems
>> with discharges into water and to the particular problems arising at the
>> Mine. There was the management services agreement between Vedanta and KCM
>> ,
>> and a witness statement of Mr Kakengela.
>>
>>
>>
>> Lord Briggs was not so keen on the last two of these, but stated that he
>> regarded [61] “[t]he published materials in which Vedanta may fairly be
>> said to have asserted its own assumption of responsibility for the
>> maintenance of proper standards of environmental control over the
>> activities
>> of its subsidiaries, and in particular the operations at the Mine, and
>> not
>> merely to have laid down but also implemented those standards by
>> training,
>> monitoring and enforcement, as sufficient on their own to show that it is
>> well arguable that a sufficient level of intervention by Vedanta in the
>> conduct of operations at the Mine may be demonstrable at trial, after
>> full
>> disclosure of the relevant internal documents of Vedanta and KCM, and of
>> communications passing between them.
>>
>>
>>
>> Useful guidance for UK parent companies in multinational mining and
>> extractive industries.
>>
>>
>> Best wishes,
>>
>>
>> Simon
>>
>>
>> --
>>
>> --
>>
>>
>>
>>
>>
>>
>>
>>
>> Andrew Tettenborn
>> Professor of Commercial Law, Swansea University
>>
>> Institute for International Shipping and Trade Law
>> School of Law, University of Swansea
>> Richard Price Building
>> Singleton Park
>> SWANSEA SA2 8PP
>> Phone 01792-602724 / (int) +44-1792-602724
>> Cellphone 07472-708527 / (int) +44-7472-708527
>> Fax 01792-295855 / (int) +44-1792-295855
>>
>>
>> Andrew Tettenborn
>> Athro yn y Gyfraith Fasnachol, Prifysgol Abertawe
>>
>> Sefydliad y Gyfraith Llongau a Masnach Ryngwladol
>> Ysgol y Gyfraith, Prifysgol Abertawe
>> Adeilad Richard Price
>> Parc Singleton
>> ABERTAWE SA2 8PP
>> Ffôn 01792-602724 / (rhyngwladol) +44-1792-602724
>> Ffôn symudol 07472-708527 / (rhyngwladol) +44-7472-708527
>> Ffacs 01792-295855 / (rhyngwladol) +44-1792-295855
>>
>>
>>
>>
>> [ISTL]<http://www.swansea.ac.uk/law/istl/>
>>
>> See us on Twitter: @swansea_dst<https://twitter.com/swansea_dst>
>> Read the IISTL Blog: iistl.wordpress.com<https://iistl.wordpress.com/>
>> Read Andrew's other writing
>> here<https://www.conservativewoman.co.uk/author/andrewtetterborn/> and
>> here
>> <http://www.spiked-online.com/newsite/search_results/e33f8465aa58ebce86f46f4faed6a554/>
>>
>>
>>
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