English courts have in the last 12 months seen a noticeable number of cases against UK parent companies involved with subsidiaries accused of human rights breaches. Given that parents and subsidiaries are treated as separate entities with each responsible for their own activities, victims seeking to bring claims against parents for the activities of subsidiaries have to demonstrate that a parent owed them a duty of care.
The common law concept of a duty of care was set out in the case of Caparo Industries plc v Dickman which found that a party alleging to be owed a duty of care must first establish that the alleged damage was foreseeable, that there was proximity in the relationship between the party owing the duty and the party alleging damage and that it would be fair, just and reasonable to impose the duty.
In relation to parent companies owing third parties a duty of care, English courts have held that this could take place under two conditions:
where the parent has taken over the management of the relevant activity of the subsidiary in place of the subsidiary’s own management; or
where the parent has given relevant advice to the subsidiary about how it should manage a particular risk.
Duty of care falls short
Those two conditions were applied in AAA & Others v Unilever PLC and Unilever Tea Kenya Limited, a Court of Appeal case decided in July 2018 which concerned an attempt by Kenyan claimants to sue Unilever—a company registered in the UK—for the way Unilever’s Kenyan subsidiary (UTKL) had dealt with an outbreak of violent ethnic clashes at its plantation. The Court of Appeal held that the claimants had failed to show that either of the two conditions above applied to Unilever’s relationship with UTKL concluding that UTKL ‘was responsible itself for devising its own risk management policy and for handling the severe crisis which arose’. Accordingly, Unilever did not owe the claimants a duty of care.
This case when viewed alongside the two contrasting decisions of Lungowe v Vedanta and Okpabi v Royal Dutch Shell Plc presents a conflicting picture as to the amount of control required to be exercised by a parent company for them to be held liable for the activities of a subsidiary. More importantly, the cases highlight the limitations of the concept of a duty of care as a means of extending access to justice to victims claiming against UK parent companies.
A distinct statutory strict liability tort
Given the right of victims to effective state and non-state remedies under the UN Guiding Principles on Business and Human Rights, the UK has an obligation to improve access to justice in such cases through legislative means among others.
As such, a way round the limitations of the duty of care may be for the UK to introduce a distinct law founded on holding parents to account based on the economic benefit they derive from activities of subsidiaries. Under such a proposal, provided a UK parent company is involved with a subsidiary accused of major human rights abuses/breaches of environmental obligations, the parent would be held liable.
The statutory tort would of course be limited to major breaches of recognised national, international human rights/environmental principles ideally drawn from countries’ treaty obligations. Further, due to this being a strict liability tort, it would be no defence for a parent to argue that it exercised control/due diligence prior to the damage. Lastly, account would need to be made of the likelihood of parallel proceedings and double recovery in other jurisdictions.
Whilst certainly ambitious, the suggestion of replacing the duty of care with a statutory alternative in respect of parent liability has been suggested in other quarters with a notable contribution coming from the late Gwynne Skinner who argued for a similar approach to be applied to breaches of international human rights and environmental obligations occurring in ‘high-risk’ countries. Another contribution worth noting is that suggested by Amnesty International and the Business & Human Rights Resource Centre who propose a duty of care or ‘duty to prevent’ harm established by law. The ability to control, and not actual control, would be enough as a basis for liability under such a proposal.
There is no escaping the conclusion that using the duty of care approach to hold parents to account is unsatisfactory, both as a means of improving access to justice for victims and as a mechanism for determining the nature of the relationship between parents and their subsidiaries. The Supreme Court appeal hearing in Lungowe v Vedanta in January 2019 may go some way in clarifying the law but even that would not be a substitute for a distinct statutory tort specifically designed to address the parent/subsidiary relationship and access to justice.