All at sea? The Supreme Court provides important new jurisdictional guidance in claims where there is an ‘anchor defendant’

Vedanta Resources PLC and another v Lungowe and others [2019] UKSC 20

The Supreme Court recently considered the application of the Brussels Recast Regulation in conjunction with English rules of private international law in a jurisdictional challenge arising in a claim against both a UK- domiciled parent company and its non-EU-incorporated subsidiary. Whilst the case involves a mass tort claim, the Supreme Court disapproved recent case law that favoured continuing claims in the UK where there is an ‘anchor defendant’ who is not able to challenge the jurisdiction of the court.

Instead, a claimant will now be required to relinquish its right to bring a claim in the domestic court of the ‘anchor defendant’ if (i) an alternative jurisdiction is available in which the claim against all of the defendants can be tried; and (ii) substantial justice is available in the foreign jurisdiction.

The effect of this ruling provides a valuable new framework for foreign defendants considering whether or not to mount a jurisdictional challenge notwithstanding the existence of one or more anchor defendants to the claim.

The appeal also raised noteworthy issues as to when a parent company will be liable in its own right for the acts and omissions for a subsidiary, albeit the Supreme Court ultimately decided that the arguments raised did not require it to reconsider the circumstances when a new duty of care category might be established.

 Background

The underlying claims arose from alleged toxic emissions from a copper mine located in the Chingola District of Zambia, which was owned and operated by the second defendant, Konkola Copper Mines plc (KCM). KCM was a public company incorporated in Zambia and was a subsidiary of the first defendant, Vedanta Resources plc (Vedanta).  Vedanta was a public company incorporated and domiciled in the UK and was the ultimate parent of a multinational group of companies.  Although the Zambian government owned a significant minority shareholding in KCM, according to Vedanta’s own published materials, its control over KCM was such that KCM was effectively a wholly-owned subsidiary.

The claimants were members of the local Chingola community, who alleged that toxic discharge from the mine had contaminated their only source of water. The claims were pleaded in common law negligence and breach of statutory duty, and pursued against KCM as the operator of the mine, and against Vedanta by reason of the “very high level of control and direction that the first defendant exercised at all material times over the mining operations of the second defendant and its compliance with applicable health, safety and environmental standards.”

The Issues

The appeal concerned jurisdiction issues arising within the structure of one defendant being domiciled within the jurisdiction of the English court (the ‘anchor’ defendant) and the other domiciled without (the ‘foreign’ defendant).

Proceedings were served on Vedanta, the anchor defendant, within the jurisdiction in accordance with Art 4.1 of the Recast Brussels Regulation (RBR). This provides that, generally, persons domiciled in a Member State shall be sued in the courts of that Member State, whatever their nationality.  According to the case law of the CJEU, the provision is designed not only to protect EU domiciliaries, but also to enable claimants to know with reasonable certainty where a defendant may be sued.  In Owusu v Jackson (Case C-281/02) [2005] QB 801, the Court of Justice held, contrary to earlier English jurisprudence, this conferred a right on claimants to sue an English-domiciled defendant free from jurisdictional challenge upon forum non conveniens grounds.

Service was effected on KCM out of the jurisdiction in accordance with a long-standing rule of English private international law, now enshrined in CPR 6PDB para 3.1 and known as the ‘proper party gateway.’ Under Art 6.1 of the RBR, such rule determines the jurisdiction of an English court against defendants not domiciled in a Member State.

It was common ground that to rely on the ‘proper party’ gateway, a claimant needs to show:

1. that the claims against the anchor defendant involve a real issue to be tried;
2. if so, that it is reasonable for the court to try that issue;
3. that the foreign defendant is a necessary or proper party to the claims against the anchor defendant;
4. that the claims against the foreign defendant have a real prospect of success;
5. that, either, England is the proper place in which to bring the combined claims or that there is a real risk that the claimants will not obtain substantial justice in the alternative foreign jurisdiction, even if it would otherwise have been the proper place, or the convenient or natural forum.

Thus, whether the claims disclosed a real triable issue against Vedanta was a main issue in the appeal. Vedanta argued it had insufficient involvement in the operation of the mine to ground a duty of care to the claimants or statutory liability.   Vedanta further maintained that even if a triable issue were found against it, the claim should nevertheless be stayed as an abuse of EU law; the claimants were using Art 4 of the RBR to establish jurisdiction against an anchor defendant (here, Vedanta), for the collateral purpose of attracting the international jurisdiction of England and Wales against foreign defendants (KCM), who were the real targets of the claim.

The four issues to be determined were, therefore, whether (i) there was an abuse of EU law; (ii) there was a real and triable issue against Vedanta; (iii) England was the proper place to bring the combined claims; and (iv) there was a real risk that the claimants will not obtain substantial justice in the alternative foreign jurisdiction.

(i) Abuse of EU law

At first instance, the judge considered that there might be an abuse of process if the sole purpose of bringing proceedings against the anchor defendant was attracting jurisdiction over the foreign defendant. However, this was not made out on the facts of the present case: the claimants had other valid reasons for pursuing Vedanta in England.  They had a bona fide claim, disclosing a real issue for trial, and a desire to obtain judgment against Vedanta because of a perception, supported by some evidence, that KCM might prove to be of doubtful solvency.  These findings, essentially of fact, were not disturbed by the Court of Appeal, nor the Supreme Court.

The main thrust of the Appellants’ case on appeal was that the ‘sole purpose’ test applied by the judge was too narrow and/or required a preliminary reference.

Lord Briggs (with whom Lady Hale, Lord Wilson, Lord Hodge and Lady Black agreed) began by reference to the authorities and the proposition that Art 4 of RBR lays down a primary rule which is automatic and mandatory in effect.  Citing decisions of the Court of Justice, Lord Briggs continued that, as a matter of EU law, where an exception or derogation from a primary rule applies, these are to be narrowly construed.  This was so, even in cases where there had been allegations that provisions of EU law were being used abusively to circumvent Art 4.  Lord Briggs, therefore, concluded that if there were an implied exception to Art 4 RBR based upon abuse of EU law, this also was to be narrowly construed.

The Appellants also sought to argue that allowing the claim to proceed in England would produce adverse consequences in cases where the proper place of the dispute was clearly the foreign jurisdiction. Given that an English court is, as a matter of both Owusu and Art 4 RBR, bound to entertain claims against all English-domiciled defendants, having thus allowed a claim against the anchor defendant to proceed, the need to avoid irreconcilable judgments in respect of foreign defendants would mean that an English court have no real choice but to conclude that England would be the proper place for the combined claim to be heard.  In cases of group litigation arising from environmental pollution occurring in a foreign country, this would not be desirable.

Lord Briggs proposed to solve this issue, not by staying proceedings against the anchor defendant, but:

…rather to temper the rigour of the need to avoid irreconcilable judgments which has, thus far, served to disable the English court from concluding that any jurisdiction other than its own is the forum conveniens or proper place for the litigation of the claim against the foreign defendant.

Lord Briggs would return to this in the discussion of issue (iii); the abuse of EU law issue was resolved against the Appellants without need for reference to the CJEU.

(ii) Real Issue to be Tried

Although Vedanta did not make a reverse summary judgment application, it was clear from the authorities that in applications to set aside permission to serve outside the jurisdiction on a foreign defendant under the proper party gateway, the test for summary judgment applies to the claim against the anchor defendant.

In the present case, the critical question was found to be whether Vedanta sufficiently intervened in the management of the mine owned by its subsidiary KCM to have incurred, itself (rather than by vicarious liability), a common law duty of care to the claimants or a fault-based liability under Zambian statute law. It was agreed that the level of intervention required to ground such duty or liability was a matter of Zambian law, but the question whether that level of intervention occurred in the present case was a pure question of fact.

The main thrust of the Appellants’ case on appeal was that a conclusion that Vedanta had incurred a duty of care to the claimants would involve a novel and controversial extension of the boundaries of the tort of negligence, beyond any established category, which therefore required a detailed investigation of the claimants’ case. Neither the judge nor the Court of Appeal carried out such investigation. Although the Respondents had pleaded their case by reference to Chandler v Cape plc [2012] 1 WLR 3111, the Appellants contended that the present case should be distinguished on the facts.

Lord Briggs approved the summary on this point by Sales LJ in AAA v Unilever plc [2018] EWCA Civ 1532, para 36:

“There is no special doctrine in the law of tort of legal responsibility on the part of a parent company in relation to the activities of its subsidiary, vis-à-vis persons affected by those activities. Parent and subsidiary are separate legal persons, each with responsibility for their own separate activities. A parent company will only be found to be subject to a duty of care in relation to an activity of its subsidiary if ordinary, general principles of the law of tort regarding the imposition of a duty of care on the part of the parent in favour of a claimant are satisfied in the particular case. The legal principles are the same as would apply in relation to the question whether any third party (such as a consultant giving advice to the subsidiary) was subject to a duty of care in tort owed to a claimant dealing with the subsidiary. Helpful guidance as to relevant considerations was given in Chandler v Cape plc; but that case did not lay down a separate test distinct from general principle for the imposition of a duty of care in relation to a parent company”

Although Sales LJ considered that the cases in which a parent might incur a duty would fall into two types of cases, Lord Briggs was reluctant to attempt such categorisation, useful as though they may be for analysis, given that “there is no limit to the models of management and control which may be put in place by a multinational group of companies.”   Thus, Lord Briggs rejected a submission that a general principle existed whereby a parent could never incur a duty of care in respect of subsidiaries merely by laying down group-wide policies and guidelines in the expectation that each subsidiary would comply.  Lord Briggs was of the view that, even if group-wide policies do not of themselves give rise to a duty of care, they may do so if, for example (i) 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; or (ii) 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.

Thus, the conclusion that there is nothing special nor conclusive about the bare parent-subsidiary relationship; hence, the relevant principles to be applied in the present case were entirely orthodox principles which may be traced to the House of Lords decision in Dorset Yacht Co Ltd v Home Office [1970] AC 1004.  On the facts of the case, both the first-instance judge and Court of Appeal had properly considered all the evidence and had not made any error of law in the findings that, in its published materials, Vedanta could fairly be said to have asserted its own assumption of responsibility for maintaining proper standards of environmental control over its subsidiaries, and in particular, over the mine in question.

For these reasons, Lord Briggs held that both the duty of care in negligence and liability under statute had arisen.

(iii) The Proper Place

Lord Briggs found this issue the most difficult issue of the appeal. CPR 6.37(3) provides that:

“The court will not give permission [to serve the claim form out of the jurisdiction] unless satisfied that England and Wales is the proper place in which to bring the claim.”

Determining the ‘proper place’, traditionally known as ‘forum conveniens’ was a difficult concept to define, but generally requires a summary examination of connecting factors between the case and one or more jurisdictions in which it could be litigated as a whole, including as against the anchor defendant.  Although the current wording of the CPR is in terms of the proper place in which to bring ‘the claim,’ by reference to the traditional use of ‘the case’ in the older RSC equivalent provision and authorities, Lord Briggs was not persuaded that any the new term was not intended to effect any change in the previously clearly stated requirement for the court to consider the proper place for the case as a whole.

In the present case, the difficulties in establishing the proper place for the case to be heard were considered to derive from two factors: (1) multiple defendants domiciled in different jurisdictions; (2) following Owusu v Jackson, the court is disabled from the exercise of its traditional common law power to stay the proceedings against the domiciled anchor defendant.  Since Owusu, by reason of Art 4 RBR, the English courts cannot deny a claimant’s right to bring proceedings against an English-domiciled defendant.

Although the risk of multiple proceedings giving rise to irreconcilable judgments is an important factor, Lord Briggs found that in the cases addressing this specific risk, it was only one factor of many, albeit, one which has been often decisive where it has been found that the English proceedings against the anchor defendant will continue in any event. In the present case, it was clear that the judge clearly considered the risk of irreconcilable judgments and it was decisive in identifying England as the proper place.

Lord Briggs, however, was troubled by the fact that, by the time of the hearing, Vedanta had submitted to the jurisdiction of the Zambian courts. Although this did not prevent the claimants from continue claims against Vedanta in England, nor displaced their right to do under Art 4 RBR:

the reason why the parallel pursuit of a claim in England against Vedanta and in Zambia against KCM would give rise to a risk of irreconcilable judgments is because the claimants have chosen to exercise that right to continue against Vedanta in England, rather than because Zambia is not an available forum for the pursuit of the claim against both defendants. In this case it is the claimants rather than the defendants who claim that the risk of irreconcilable judgments would be prejudicial to them. Why (it may be asked) should that risk be a decisive factor in the identification of the proper place, when it is a factor which the claimants, having a choice, have brought upon themselves?

The judge referred to OJSC VTB Bank v Parline Ltd [2013] EWHC 3538 (Comm) where Leggatt J rejected a submission that, if the claimants had a real alternative to sue in the foreign courts but chose to proceed in England, that choice should substantially reduce the weight which ought to be given to the risk of inconsistent judgments.  Leggatt J, instead, held:

“I see the force of that point but it does not seem to me to answer the fact that it is a matter of entitlement on the claimant’s part to sue the first and third defendants in England. There is no reason why the claimant should be expected or required to relinquish that right in order to avoid duplication of proceedings. Rather, it seems to me that the existence of that right and the fact that it is being exercised is the starting point and the background against which I ought to consider the question of whether England is also the appropriate forum for the claim against the second defendant.”

Lord Briggs, after ‘anxious’ consideration, concluded that the principle was wrong and that if an alternative jurisdiction were available in which all defendants could be tried, assuming substantial justice is available in the foreign jurisdiction, a claimant should be expected to relinquish the right to sue in England to avoid duplication of proceedings. In the EU, Art 4 is expressly mitigated by Art 8 which requires consideration of the risk, but that is unavailable where the foreign defendant is outside the EU.

Considering the relevant connecting factors and the fact of irreconcilable judgments arose purely from the claimants’ choice, Lord Briggs held that Zambia was the proper place for the case to be heard.

(iv) Substantial Justice

Nevertheless, Lord Briggs found that there was there was a real risk that the claimants would not obtain substantial justice in Zambia, due to the problems of funding and instructing counsel familiar with group litigation on this scale.  But for this factor, Lord Briggs might have allowed the appeal, but ultimately dismissed and rejected the defendants’ challenge to jurisdiction.