Parent company may owe a duty of care to employees of African subsidiary

This case is the latest in a line of cases before the English courts about parent company liability, specifically the duty of care owed for activities of their subsidiaries.

In Lungowe v Vedanta Resources Plc and Konkola Copper Mines Plc, the English Court of Appeal found that the UK parent company could owe a duty of care to the employees of its Zambian subsidiary, as the parent company had sufficient knowledge and expertise in the subsidiary's business and had jointly made the decisions which gave rise to the claim.

This judgment is a timely reminder for parent companies incorporated in common law jurisdictions such as Hong Kong or Singapore that run overseas operations, for example in Mainland China or Southeast Asia, that may find themselves owing a duty of care in relation to the operations of those subsidiaries.

Companies should consider reviewing their understanding of the operations of their subsidiaries and supply chain in order to exercise greater vigilance in conducting human rights due diligence at each level to effectively mitigate the risk.

Background

The claims were brought by Zambian citizens against Vedanta and Konkola Copper Mines Plc ("KCM") for alleged pollution and environmental damage caused by discharges from a copper mine. The mine was owned and operated by KCM, a public limited company incorporated in Zambia. Vedanta is incorporated in the UK and holds KCM among other mining companies.

The court applied the three-part test from the seminal case of Caparo Industries Plc v Dickman for whether a duty of care is owed: foreseeability, proximity and reasonableness. The law does not automatically impose liabilities in respect of acts or omissions of other companies in the same group. The claimant must prove that a duty of care arises. In certain circumstances, a duty may be owed by a parent company to the employee of a subsidiary, or a party directly affected by the operations of that subsidiary.

The judge looked at several recent English authorities on parent company liability (which interestingly, have not yet been applied in Hong Kong but likely would provide guidance) and summarized some of those circumstances, for example, where the parent company has taken direct responsibility for devising a material health and safety policy or controls the operations which give rise to the claim. A duty may also arise where the businesses of the parent and subsidiary are the same and the parent has the knowledge and expertise to protect the employees of the subsidiary. In this case, both parent and subsidiary have similar knowledge and expertise and they jointly take decisions about mine safety which the subsidiary implements. A duty of care may therefore be owed to those affected by those decisions.

The claimants relied on several factors which are summarized here:

  1. A report published by Vedanta entitled "Embedding Sustainability" stressed that the oversight of all subsidiaries rests with the Board of Vedanta. 
  2. There was a Management and Shareholders Agreement by which Vedanta had a contractual obligation to support KCM with various services such as mining, training, administrative, financial, technical, management and information technology. 
  3. Vedanta was required to produce information and training on environmental, technical and health and safety issues. 
  4. Vedanta financially supports KCM. It invested approximately US$3 billion in KCM when Vedanta acquired the company in 2014. It continues to provide loans to KCM and acts as a guarantor for KCM.
  5. Vedanta made various public statements regarding its commitment to address environmental risks and technical shortcomings in KCM's mining infrastructure. Vedanta designed a programme to address those environmental issues for KCM. 
  6. A former KCM employee who was employed by KCM for over a decade gave evidence of the high degree of control Vedanta exercised over KCM's operational affairs.

It is to be noted that this hearing was a jurisdictional hearing so the claimants only needed to prove that there was a 'real issue to be tried' between the claimants and the parent; the threshold is therefore lower. Nevertheless, the decision reflects a growing trend towards greater accountability for the actual decision-makers and a willingness to expand the English court's jurisdiction.

On these facts and on the evidence presented, the court in this case concluded that their claim was properly arguable and there was a serious question to be tried.

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