Court of Appeal decides Brazilian environmental group action can proceed in English courts

In a highly anticipated judgment, the English Court of Appeal overturned the High Court's decision to strike out what is believed to be the largest group action in English legal history. The judgment is part of a growing trend of cases demonstrating the English courts' receptiveness to large multi-jurisdictional group actions and, in particular, those which relate to environmental damage involving a foreign subsidiary of an English company.

We set out some observations on the decision below. Key takeaways include:

1. The judgment continues the recent trend in the English courts to permit multi-jurisdictional tort litigation, arising from the activity of local subsidiaries, to proceed against English parent companies. This is likely to encourage claimants, and the claimant law firms and litigation funders who support them, to pursue multinationals in England.
2. Preliminary issues, in the form of either jurisdiction challenges, allegations of abuse of process or both – as was the case here – are a feature of these claims. The Court of Appeal judgment provides useful guidance on the distinction between matters of jurisdiction and inconvenient forum (forum non conveniens), on the one hand, and abuse of process, on the other. The findings on forum non conveniens will likely be welcomed by prospective claimants given that the issue is likely to become increasingly relevant in multi-jurisdictional tort disputes post-Brexit.
3. Multi-jurisdictional tort litigation can be extremely complicated – both factually and legally. The Court of Appeal's approach is a clear steer that this, along with the case management consequences which follow, is not in and of itself a reason to prevent litigation proceeding in England.
4. It remains to be seen whether the defendants in this case accept the decision of the Court of Appeal, or seek to appeal the matters of jurisdiction and abuse of process to the Supreme Court.
5. Multi-jurisdictional tort litigation is an example of the phenomenon of ESG disputes: disputes inspired by, or consistent with, society's current focus on sustainability. Often ESG disputes are as much about drawing attention to an issue, or cause, as they are about pursuing a legal remedy to judgment. It is notable that the Court of Appeal observed in this case that the claimants might legitimately pursue litigation in England so as to increase their settlement prospects, as defendants might wish to consider whether settlement would be "advantageous to avoid any adverse reputational damage from findings of liability".

Background

The claim arose out of the collapse of the Fundão Dam in Brazil in 2015, Brazil's worst ever environmental disaster, which released over 40 million cubic metres of tailings from iron ore mining into the Doce River in Brazil. The collapse and flooding killed 19 people, destroyed entire villages, and had a widespread impact on numerous individuals and communities.

In 2019, a claim was brought on behalf of 202,600 claimants in the English courts against the English and Australian parent companies of one of the shareholders in the joint venture company for the dam.¹ The claims were made on the basis that the defendants were liable, under Brazilian law, as "indirect polluters or otherwise" for the consequences of the failure of the dam. By the time English proceedings were commenced, a number of claims had been brought against other defendants in the Brazilian courts, and a compensation and remediation programme had been set up. 

High Court decision

The defendant parent companies advanced a number of challenges to the jurisdiction of the English courts. These included that proceedings against the Australian parent should be stayed because Brazil was the convenient forum for the claims, and the proceedings against the English parent should be stayed because there was a risk of irreconcilable judgments, given the pending proceedings in Brazil. 

Both parent companies also applied for the claims to be struck out or stayed on the basis that they constituted an abuse of process. 

In November 2020, the High Court struck out the claim for abuse of process owing to the "irredeemable unmanageability" of the proceedings. 

The judge's decision was heavily influenced by the existence of parallel proceedings in Brazil, noting that "the risk of inconsistent judgments would be acute" and raised concerns over "cross-contamination" in respect of the risk of decisions taken in Brazilian courts undermining or affecting decisions of the English courts. In particular, the judge warned that the claimants' "tactical decision to progress closely related damages claims in the Brazilian and English jurisdictions simultaneously [was] an initiative the consequences of which, if unchecked, would foist upon the English courts the largest white elephant in the history of group actions". 

The judge also expressed concern about the complexity of the proceedings, observing that the "immense pool of claimants with grossly disparate interests" would have a "significantly deleterious impact indeed upon the scarce resources of the English courts" and that the level and rate of turnover of claimants would likely be unmanageable. 

In addition, the judge found that, if his findings on abuse of process were wrong, he would stay the claim against the Australian parent company on grounds of forum non conveniens.  

Court of Appeal decision

Abuse of process 

The Court of Appeal overturned the High Court's decision, finding that there was no proper basis for the judge's findings that the proceedings were abusive on the basis of "irredeemable unmanageability", as a matter of principle and also on the facts. 

In particular, the Court of Appeal took issue with the High Court's assertions that the unmanageability of a claim resulted in an abuse of process, stating that "even if the proceedings were unmanageable due to complications arising out of parallel proceedings in Brazil, or because of other procedural complexities, that would not mean the court process was being misused". It concluded that, in any event, the risk of unmanageability due to the existence of proceedings in Brazil "is not clear and obvious".

The Court of Appeal also rejected the High Court's decision to take into account both the risk of inconsistent judgments and what the judge described as "the challenge of language", noting that "the risk of inconsistent judgments and other difficulties identified [e.g. the application of Brazilian law] are matters to be confined to jurisdictional challenges". Accordingly, the Court of Appeal concluded that the risk of irreconcilable judgments and other forum non conveniens factors should not have played any part in the judge's finding of abuse.

Given its findings, the Court of Appeal deemed it necessary to consider the issue afresh by assessing whether the claim was pointless and/or wasteful so as to amount to an abuse of process. The Court concluded that there was no "safe or proper basis" for determining this and that "[t]here is a realistic prospect of a trial yielding a real and legitimate advantage for the claimants such as to outweigh the disadvantages for the parties in terms of expense and the wider public interest in terms of court resources".

In reaching this conclusion, the Court of Appeal made a number of important observations which highlight the courts' general willingness to allow large group actions despite ongoing proceedings in another jurisdiction:

• It noted that because: (i) viable claims had been brought against the defendants as of right in England (as the English parent was domiciled in England and the Australian parent did business there); (ii) no claims had been brought against the defendants in Brazil; and (iii) the basis for liability was factually distinct from those claims in Brazil, it was "self-evident" that there was a need for "particular caution" in striking out the English proceedings for being pointless and wasteful.
• It observed that claimants are entitled to choose whom to sue and it was not the "part of the court's function to interfere with the process". While claimants do not have an unfettered right to pursue a claim against their chosen defendant, it will be a rare case in which a court will find that "there is no legitimate advantage in pursuing a defendant merely because there exists a claim for the same loss against another person, and especially when it is advanced on a different basis of liability".
• It accepted that pursuing the action here may improve the chance of settlement, given the risk to the defendants of reputational damage resulting from negative findings on liability in a public trial.
• It affirmed that an individual approach is required where multiple claims are brought by different claimants who do not stand in materially the same position, and stated that "abusive factors applicable only to one claimant do not render another co-claimant's claim abusive". It noted that the High Court had mistakenly treated the claimants as a "single indivisible group against whom the application must succeed or fail altogether".

Forum non conveniens

The Court of Appeal's judgment also overturned the High Court's decision to stay proceedings in respect of the claims brought against the Australian defendant on forum non conveniens grounds. Forum non conveniens is a basis on which the English court may stay proceedings if another forum is clearly more appropriate and, if so, justice does not otherwise require the proceedings to continue in England. The Court of Appeal found that the two-pronged test set out in the leading case on forum non conveniens (Spiliada Maritime Corporation -v- Cansulex Ltd [1987] AC 460) was not satisfied at both stages. In particular: 

• The Court of Appeal found that, although the High Court had identified several "powerful" factors in favour of Brazil being the natural forum (including: (i) the alleged tort took place in Brazil; (ii) the governing law is that of Brazil; and (iii) there was a lack of accessibility of the English court to the majority of the parties, including linguistic challenges), these were not sufficient "to outweigh the disadvantages of a [Brazilian court] process which may last for over a decade" and which may produce a result that does not advance the dispute.²
• The Court of Appeal found that the High Court had applied the wrong test by asking whether the claimants would "not obtain substantial justice" in Brazil rather than "whether there was a real risk of them not doing so".
• The Court of Appeal stated that, if a claimant establishes by "cogent evidence" that there is a real risk of not obtaining substantial justice in the identified foreign forum, the fact he has not "tested the water" is an irrelevant consideration.

The Recast Brussels Regulation applied as the claim was issued prior to the end of the Brexit transition period, and this meant that the UK-domiciled defendant could not advance an argument based on forum non conveniens. However, the Regulation no longer applies to claims issued after the transition period, and so the doctrine of forum non conveniens is likely to be increasingly central to multi-jurisdictional tort disputes against UK-domiciled defendants. Claimants seeking to bring international tortious claims against UK-domiciled parent companies will no doubt be heartened by the Court of Appeal's decision and in particular by the emphasis it placed on the length of time it would take to get a judgment in Brazil, with such issues not uncommon for claimants from developing countries. 

Comment

While the UK does not have the class action heritage of jurisdictions such as the US, recent years have seen an increase in the number of large collective claims being brought in the UK. The potential to hold English parent companies liable for the actions of their overseas subsidiaries has been one of the drivers behind this increase, particularly in respect of environmental and human rights related claims.

This latest judgment, and the Court of Appeal's apparent receptiveness to multi-jurisdictional group claims, is likely to see this trend continue. However, we understand that the defendants are considering whether to appeal this decision, so the Supreme Court may well have the final word on this issue – as it has in similar high-profile tort claims.

The full judgment can be found here. 

Authors: Tom Cummins, Benji Gourgey and Adela Mackie

1. Samarco Mineração SA (the owner and operator of the dam) is a non-operated equal joint venture between Vale SA and BHP Billiton Brasil LTDA (BHP Brasil). BHP Group Ltd is the ultimate owner of BHP Brasil and is linked with BHP Group Plc in a dual listed company arrangement, which provides for a unified management structure.
2. The Court of Appeal emphasised that this was a provisional finding as this was not a matter that had been raised by the claimants.