Parent liability for overseas subsidiaries' actions: when will the English courts have jurisdiction?

Three recent decisions of the English High Court have illustrated the principles that the court will apply when determining whether it has jurisdiction over tort claims against multinational parent companies domiciled in England, and their overseas subsidiaries.

Background

All the cases feature tort claims brought against multinational parent companies domiciled in England in relation to harm allegedly caused by their overseas subsidiaries. In two of the cases, the claimants were residents living locally to the subsidiaries' operations. The most recent case primarily concerned employees of the subsidiary.

The claimants sought to bring their claims within the English courts' jurisdiction by way of:

1. a claim in negligence against the English domiciled parent company (i.e. as an "anchor defendant"); and
2. a claim against the foreign subsidiary on the basis that the subsidiary was a "necessary or proper party" to the claim against the parent company.

In Vedanta, the claimants successfully used this strategy such that the claims against both parent and subsidiary will proceed in England (subject to appeal, which is due to be heard in July 2017). In Royal Dutch Shell, by contrast, it was found that it could not reasonably be argued that the parent company (Shell Parent) owed a duty of care to the claimants, with the result that there was no anchor defendant in the jurisdiction and so the local subsidiary (Shell Nigeria) was successful in contesting jurisdiction (subject to appeal). In the very recent decision in Unilever, the court reached the same conclusion.

Establishing parent liability: factors the court will take into account

These decisions offer useful learning points for multinationals in relation to the factors the courts will consider when determining whether claims in respect of activities overseas may be brought in the English courts.

In short the decisions demonstrate that:

1. it is extremely difficult to argue that English courts do not have jurisdiction over English-domiciled companies;
2. the ability to sue English-domiciled parent companies in England makes it easier to sue local subsidiaries in England as part of the same proceedings; and
3. the degree of control by a parent company over its subsidiary and the nature of the corporate structure are likely to be significant to the success of claims against the parent company and the likelihood that the English courts will exercise jurisdiction over the local subsidiary.

In Vedanta, the claimants argued that the parent company had assumed responsibility for the local subsidiary by virtue of the high level of control and direction given by the parent in respect of the subsidiary's mining operations. Although he thought that establishing a duty of care would be an "uphill task", Coulson J was not prepared to rule that the claims were weak or very unlikely to succeed.

However, in Royal Dutch Shell, Fraser J made it clear that the courts will not "slavishly" draw the same conclusions as were drawn in Vedanta. Applying the factors from Chandler v Cape, and two further factors taken from the case of Thompson v Renwick Group, Fraser J found that:

1. Shell Parent was not operating the same business as Shell Nigeria. Shell Parent operated only as an ultimate holding company and dealt with financial matters. In fact, it did not directly hold shares in Shell Nigeria.
2. Shell Nigeria did not rely on Shell Parent's specialist knowledge, rather Shell Nigeria (as a licensed operating company) had specialist knowledge in relation to highly technical mining operations in a difficult jurisdiction.
3. Although disclosure had not yet been given, no evidence had been presented by the claimants which showed that Shell Parent knew that Shell Nigeria relied on it to protect the claimants or indeed that Shell Nigeria ever relied on Shell Parent.
4. Shell Nigeria was an autonomous subsidiary with sizeable income and assets of its own.
5. Finally, Shell Parent's knowledge of its many group companies would "never sensibly be considered as comprehensive, or anything other than knowledge at a very high or superficial level".

As a result, Fraser J concluded that the claimants had failed to demonstrate that there was a real issue to be tried between the claimants and Shell Parent (the proposed "anchor" defendant). Therefore Shell Nigeria was not a necessary or proper party to the claim. In Fraser J's words "absent the existence of proceedings on foot in England against [Shell Parent], there is simply no connection whatsoever between this jurisdiction and the claims brought by the claimants, who are Nigerian citizens, for breaches of statutory duty and/or in common law for acts and omissions in Nigeria, by a Nigerian company".

In March of this year, there was a further attempt to establish jurisdiction on the basis that a parent company (in this case, Unilever plc) owed the claimants a duty of care to protect them from the risks of ethnic violence. The claimants were employees of Unilever's Kenyan subsidiary. The High Court held that that there was no real issue between the claimants in this case and the parent company. The claimants were victims of the ethnic violence which broke out after the Kenyan elections in 2007 and which spread to the tea plantation owned and managed by the local subsidiary.

Applying the three limbs of the well-known Caparo test (see below) to determine whether a duty of care might be established, the judge noted that on the "sufficient proximity" limb of the test, there were differences between this case and Royal Dutch Shell:

"The close geographical links between the parent company and subsidiary in that case are not present. [Unilever Kenya] is not a direct subsidiary of [Unilever Parent]. In this case, the risks against which such a duty would require [Unilever Parent] to provide protection are not foreseeable risks of personal injury caused by a dangerous activity in which [Unilever Parent] knows [Unilever Kenya] is engaged… ..Nonetheless, the relationship between [Unilever Parent] and [Unilever Kenya] differs from that between the parent and subsidiary in Okpabi. There is no equivalent of Unilever Executive ('UEx') in Royal Dutch Shell. [The Claimants] submit that the publicly available documents show that [Unilever Parent] is not just a holding company but plays a more active role in managing [Unilever Kenya's] affairs." With "some hesitation", the court concluded that "in theory" the claim against the parent "might succeed, based on the documents by which [Unilever Parent] has sought to exercise control over the management of [Unilever Kenya] and of [Unilever Kenya's]'s various policies". However, it was held that there was no real issue to be tried as the claim was bound to fail the remaining limbs of the Caparo test because:

1. it was not foreseeable that the claimants would suffer as they did, nor that law and order would break down in the country; and
2. in any event, a claim that it was fair, just and reasonable for the parent company to be subject to a duty either to anticipate and protect the claimants "against a breakdown of law and order, or to keep law and order when it had broken down and to ensure that [the claimants] did not suffer as they did from the criminal acts" was bound to fail.

Lessons to be drawn

Although the jurisdiction of the English courts remains far-reaching, the decisions in all three cases illustrate that each case will be decided on the facts. The nature of the group corporate structure in each case was key to establishing whether or not there might be a duty of care and this was considered in particular detail in Royal Dutch Shell. Drawing in particular on Royal Dutch Shell and Vedanta, we have distilled the factors which may indicate that a duty of care exists below:

Factors which may give rise to a duty of care on the part of the parent company

• Direct ownership of shares in the local subsidiary (although not necessarily determinative)
• The parent is an operating company
• The parent operates the same business as the subsidiary
• The officers of the parent are also officers of the subsidiary
• The parent has a high level of control over the actions of the subsidiary 

Factors which indicate there may be no duty of care on the part of the parent company

• Indirect ownership/the placing of an intermediary entity between the subsidiary and the parent (although not necessarily determinative)
• The parent acts solely as an investment holding company
• The parent does not operate the same business as the subsidiary
• The parent bought the subsidiary (rather than established it)
• There are no shared officers or those shared officers make up a minority of the subsidiary board
• A licence is necessary to operate in the foreign jurisdiction and no such licence is held by the parent
• Operations are conducted as part of a joint venture to which the parent is not party
• Public policy militates against imposing a duty of care, i.e. imposing a duty of care would potentially impose "liability in an indeterminate amount, for an indeterminate time, to an indeterminate class" (a classic expression from the US case of Ultramares Corporation v Touche (1931) 174 NE 441, 444)
• The legal framework in the foreign country allows adequate redress against the subsidiary for the harm allegedly suffered

Cases referred to
1. Lungowe and others v Vedanta Resources plc and another [2016] EWHC 975 (TCC)
2. HRH Emere Godwin Bebe Okpabi & Ors v Royal Dutch Shell & Anor [2017] EWHC 89 (TCC)
3. AAA and others v Unilever plc and another [2017] EWHC 371 (QB)
4. Chandler v Cape Plc [2012] EWCA Civ 525
5. Thompson v The Renwick Group plc [2014] EWCA Civ 635
6. Caparo Industries plc v Dickman [1990] UKHL 2