Vedanta v Lungowe: an irreconcilable regulatory overreach?

This blog post is reproduced from a contribution made to the Business and Human Rights Journal Blog Symposium on Business, Human Rights and Extraterritoriality.

http://blog.journals.cambridge.org/2019/05/02/vedanta-v-lungowe-an-irreconcilable-regulatory-overreach/

Vedanta was an appeal of the Court of Appeal’s decision in respect of the liability of a UK parent company for the activities of its Zambian subsidiary. 1,826 Zambian claimants alleged loss of income, damage to property and personal injury due to pollution and environmental damage caused by Vedanta’s Zambian subsidiary, KCM. Upholding the High Court judge’s decision, the Court of Appeal determined that it had jurisdiction over Vedanta and KCM; that there was a real issue to be tried between the claimants and Vedanta; that England and Wales was the proper place to bring the claim against KCM and alternatively, that the claimants “would almost certainly not obtain justice in Zambia.” On appeal by Vedanta, the Supreme Court had to determine the following matters:

  1.  Abuse of EU law.
  2. Real issue as against Vedanta.
  3. Proper place.
  4. Substantial justice.

Abuse of EU law

The appellants’ submission in this respect was that it was an abuse of EU law for the claimants to rely on Article 4(1) Recast Brussels I Regulations to bring a claim against an EU domiciled defendant (Vedanta) for the collateral purpose of  attracting English courts’ jurisdiction against KCM who were the real targets of the claim. The judge at first instance had found that “although the prospect of attracting jurisdiction against KCM was a substantial reason why the claimants sued Vedanta in England, it was not their only reason,” a finding upheld by the Court of Appeal.

The Supreme Court upheld that position, agreeing with the view of Professor Briggs that “the ship had now sailed” in respect of the mandatory nature of Article 4(1) and any exceptions from that rule had to be construed restrictively. Such case law as there was on abuse of EU law involved the invocation of one EU law principle so as to subvert another. By contrast with the present case, the allegation was that the claimants were relying on Article 4(1) to circumvent or improperly subvert forum conveniensjurisprudence and specifically the necessary and proper party gateway. The Court concluded that the fact that Article 4(1) fettered English courts’ use of the forum conveniens doctrine did not, of itself, amount to an abuse of process. Allowing arguments about abuse of process founded on forum conveniens would provide a basis for derogating from Article 4, the very thing ruled impermissible by the Court of Justice in Owusu v Jackson (Paras [36], [39], [40] and [41]).

Real issue between the claimants and Vedanta

To establish whether there was a real issue between the claimants and Vedanta, the Court of Appeal upheld the judge’s application of the test in Caparo Industries plc v Dickman and the indicia in Chandler v CapeThe Court of Appeal also noted that a parent company may owe a duty of care to those affected by the operations of a subsidiary where the parent: “… (a) has taken direct responsibility for devising a material health and safety policy the adequacy of which is the subject of the claim, or (b) controls the operations which give rise to the claim.”

The Supreme Court upheld the application of Caparo and Chandler to parent company liability cases, albeit with the clarification that the Chandler indicia were merely examples and not a straitjacket in which to fit all cases. “The liability of parent companies in relation to the activities of their subsidiaries is not, of itself, a distinct category of liability in common law negligence.” Further, the Court was reluctant to shoehorn all cases of parent company liability into the two categories identified by the Court of Appeal recognising that the parent company/subsidiary relationship may give rise to liability in different contexts. Notwithstanding those comments, the earlier courts’ conclusion in respect of whether there was a real issue to be tried was upheld (Paras [49] – [56], [60], [62]).

Whether England was the proper place in which to bring the claims

The earlier courts had applied Rule 6.37 Civil Procedure Rules to find that Zambia was the proper place to try the claim against KCM, ignoring the claim against Vedanta. Taking into account the claim against Vedanta which the claimants would pursue in England, England was the proper place as there was no reason why the claimant should be expected or required to relinquish the right to sue in England in order to avoid duplication of proceedings. At the Supreme Court, the appellants argued that the wording of Rule 6.37(3) required the Court to be satisfied that England was the proper place to bring the claim (against KCM) rather than the trial of the case as a whole.

The Supreme Court was not persuaded with that reasoning and referred to related provisions in Practice Direction 6B paragraph 3.1(3) as suggesting that the foreign defendant (KCM) must be a party to the trial of the case as a whole. Crucially, the Court disagreed with the earlier courts’ reasoning in respect of the claimants choosing to avoid irreconcilable judgments. By analogy with the choice available to claimants suing multiple EU defendants—such claimants can rely either on Article 4(1) or Article 8(1) to avert the risk of irreconcilable judgments—the Court reasoned that such a choice is also available in cases involving an EU and a non-EU defendant where the EU defendant is prepared to submit to the jurisdiction of the courts of the non-EU defendant. The alternative view would give Article 4(1) priority in cases involving an alternative forum outside of the EU ([74], [79], [82]).

Contrary to the earlier courts’ approach, the Court in the present case added that the risk of irreconcilable judgments was simply one of the factors rather than a decisive factor for the court to consider when choosing the proper place (Leggatt J at [16] in OJSC VTB Bank v Parline Ltd [2013] EWHC 3538 (Comm), overruled). Factors such as the location of the witnesses, the evidence and the location of the event giving rise to the tort pointed to Zambia as the proper place. As long as substantial justice were available in Zambia, it would offend common sense to argue that England was the proper place to hear the claim ([79], [84], [85], [87]).

Substantial Justice

Notwithstanding the factors pointing to Zambia as the proper place, the earlier courts had accepted the claimants’ evidence that access to justice was not possible in Zambia because previous environmental litigation in Zambia had failed; the claimants’ lacked financial resources and would be unable to afford legal representation; there was an absence of conditional fee agreements in Zambia; there was an absence of specialist environmental lawyers willing to represent the claimants and KCM had an obdurate approach to litigation. At the Supreme Court, the appellants, joined by the Attorney General of Zambia, appealed against those findings.

The Court upheld those findings adding that the conclusion of the earlier courts in respect of the absence of litigation funding in Zambia was based on a searching analysis of the evidence; did not disclose a misdirection about the meaning of substantial justice; and that due regard had been given to comity concerns and the requirement for cogent evidence. Accordingly, the appellants appeal was dismissed on the basis that they had failed to demonstrate that substantial justice could be achieved in Zambia ([94], [95], [96], [102]).

Analysis

Irreconcilable judgments – It is worth noting the Court’s view that for the purposes of avoiding irreconcilable judgments, a claimant has a choice whether to bring a claim under Article 4(1) in the English courts or in a mirror of Article 8(1), to pursue both defendants in another court provided the EU defendant is willing to submit to that court. Vedanta establishes that because of that choice, a claimant cannot use the risk of irreconcilable judgments as a trump card to argue that England is the proper place.

However, this choice does not completely mirror the intra-member state context because where jurisdiction is based on Article 8(1), Article 34 provides the courts of a member state another basis for jurisdiction. Article 34 applies where there are related prior proceedings in the courts of a third country, and it is expedient to stay proceedings in a member state to avoid the risk of irreconcilable judgments. Article 34 also provides a number of safeguards including the option to resume proceedings in the courts of a member state if those in the third country are stayed or discontinued. By contrast, a claimant who chooses to bring proceedings in a third country because an EU defendant is willing to submit to the courts of that country would not benefit from Article 34.

Regulatory overreach – KCM is Zambia’s biggest employer in which the Zambian government owns shares and has a golden share. By bringing KCM under English jurisdiction against the wishes of the Zambian government itself, English courts would be regulating an entity that is economically and politically significant to a foreign sovereign government. The Court correctly identified KCM’s obdurate approach as a threat to substantial justice being done in Zambia, but while the decision provides an the opportunity for access to justice for the claimants, it does not address the concern raised by the earlier courts that there must come a time when access to justice will not be exported to England.

Walker Syachalinga is an LLM candidate at University College London and blogs about human rights in southern Africa at https://justawaresouthernafrica.com/.


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