'Parent company' liability: from Vedanta to BHP

On 9 November 2020, the English High Court handed down its decision in Município De Mariana & Ors v BHP Group Plc & Anor [2020] EWHC 2930 (BHP), striking out for abuse of process what would have been the largest mass tort claim in English legal history.

This decision provides useful guidance on an area of litigation risk that is still being clarified by courts across the world.

Key takeaways

• Challenges to the jurisdiction of the English courts will continue, though the courts will not allow unmeritorious claims to succeed.
• English courts are not a remedial panacea, and any cross-border claim, particularly if it has ESG aspects, will be challenging to manage.
• Accountability and remedy are not always aligned; if there’s no particular reason to prefer defendants in a foreign jurisdiction over local defendants or those more closely connected to the issues at hand, procedural consequences may follow.
• Enabling more effective access to local remediation should be a preferred option.

‘Parent company’ liability trends

The Supreme Court decision in Vedanta Resources PLC and another v Lungowe and others [2019] UKSC 20 allowed the claim against a parent company alleged to owe a duty of care to those affected by the operations of its subsidiary to proceed in the English courts.

Since then, several other tort cases have been threatened or issued against English-domiciled corporates. Those cases have sought to push the boundaries of tortious liability for corporates involving third-party wrongdoers, including:

• expansion of an alleged duty of care into supply chains (eg a pre-action claim against British American Tobacco regarding alleged abuses by farmers in its tobacco leaf supply chain); and
• applying the “creation of danger” principle to a scenario where a corporate allegedly plays a part in creating a hazardous environment which causes harm to a third party (Hamid Begum v Maran (UK) Ltd[2020] EWHC 1846).

This potential liability for corporates through novel applications of the law reflects a wider international trend, including:

• a now-settled claim against a Canadian-domiciled parent company, Nevsun Resources, for damages arising out of alleged breaches of international law in Eritrea, namely customary international law prohibitions against forced labour, slavery, cruel, inhuman or degrading treatment, and crimes against humanity;
• an unsuccessful claim against a German-domiciled lead company, KiK Textilien und Non-Food, for damages arising from alleged tortious breach of duty (based on English common law principles) resulting in personal injury and death after a 2012 factory fire in Bangladesh;
• repeated (and so far unsuccessful) claims against a French-domiciled lead company for misleading advertising on the basis of an inconsistency between what is being said about labour exploitation in supply chains and the alleged reality on the ground in Southeast Asia; and
• multiple claims against US-domiciled parent companies from a range of sectors seeking to establish liability for child labour in technology and cocoa supply chains.

Although specific to its facts, the decision in BHP highlights the dangers for claimants in forum and defendant “shopping” – choosing to proceed against secondary defendants in Western common law jurisdictions when there is a more appropriate jurisdiction in which claims can be (or have been) brought.

The English courts will not allow complex, costly and lengthy litigation to be brought in England where there appears to be no tangible benefits to the claimants and there is a risk of irreconcilable judgments/parallel proceedings making the process unworkable.

Background

A group comprising some 202,600 individual, corporate and institutional claimants sought compensation for losses sustained from the collapse of the Fundão dam in Southeastern Brazil on 5 November 2015.

Proceedings in Brazil

Both individual and group claims had begun in Brazil at the time the proceedings were issued in England. A remediation scheme had also been established in Brazil to mitigate the environmental consequences of the incident and to provide compensation to injured parties. Nearly half the claimants had already received financial payments under this scheme by 2019 and most claimants had avenues of redress available to them in Brazil.

Proceedings in England

The defendants in the English proceedings are English-domiciled BHP Group Plc (BHP plc) and Australian-domiciled BHP Limited (BHP Ltd), the ultimate parent companies of the BHP Group. BHP Ltd is the ultimate owner of BHP Brasil, which is a part owner of Samarco Mineração SA, the owner and operator of the dam.

Abuse of process

Litigation that consumes the time and resources of the English courts must be consistent with the overriding objective: to deal with cases justly and at proportionate cost. Where there are a number of potential defendants, claimants are free to choose who they want to sue and where. However, the court has the power to intervene where a party is misusing or abusing the processes of the court.

Key considerations in exercising the court’s case management powers to strike out the claim for abuse of process in this case included:

• the practicability of managing these types of claims and the impact on the court’s resources;
• the risk of irreconcilable judgments; and
• availability of local redress.

Practicability of managing these types of claims and the impact on the court’s resources

The management of group litigation, even in the most favourable circumstances, is not straightforward. Proceedings that involve closely related claims moving in parallel jurisdictions with many of the same claimants seeking the same remedies can create a risk that proceedings would become “irredeemably unmanageable.”

The relevant factors considered in this case included the following:

• Parallel proceedings would mean that judges in both jurisdictions were “constantly stepping on each other’s toes” and the procedural position in each jurisdiction would be in a constant state of flux. The task of the managing judge would be "akin to trying to build a house of cards in a wind tunnel.”
• Novel procedural challenges would lead to repeated visits to the Court of Appeal, generating further costs, delays and uncertainty.
• The group size itself was so large that it would be unmanageable. It was predicted that more claimants would join the group if the English proceedings were allowed to continue. On the other hand, the claimants’ solicitors had already lost contact with no less than 37,000 claimants and there was a risk of further claimants dropping out in the event of success in Brazil.
• Managing large volumes of documents in a foreign language would lengthen time and increase costs.
• The English court would be at a disadvantage in needing to apply Brazilian law, whereas the courts in Brazil are fully acquainted with its scope and application.

Risk of irreconcilable judgments

The comments on the “unmanageability” of the claim were exacerbated by the crossover in the legal foundations of the claims in Brazil and England. For the claim against BHP plc and BHP Ltd to succeed, it would have been necessary for the English court to determine whether, as a matter of Brazilian law, BHP Ltd’s subsidiary company, BHP Brasil, was to be considered an “indirect polluter.” That was already in dispute before the Brazilian courts, and it was inappropriate for the English court to decide the issue in parallel, on the basis of expert evidence as to Brazilian law which was likely to be conflicting.

Redress

Though there may be challenges in obtaining redress locally, claimants must consider carefully whether to spend time and resources bringing parallel claims in England. In these proceedings, the idea that litigation in England would be any better than local redress was considered “irredeemably flawed”.

In this case, the court took into account the following:

• The same losses pursued by claimants in England have already been (or are being, or could be) compensated for in the parallel jurisdiction. There would be serious practical challenges to ensuring that there was no double recovery.
• Local remediation schemes enable access to compensation with no costs liability, whereas in England a “success fee” is agreed with the claimants’ solicitors for a substantial percentage of any damages recovered.
• Procedural innovations were employed by the courts in Brazil to improve and streamline the process of providing redress, which would not be available in the English proceedings. For example, the formation of “local commissions” assisted by technical advisors that represent certain geographic areas and provide claimants with the opportunity to obtain redress without strict proof of loss.

Conclusion

The High Court’s decision provides useful guidance on an area of litigation risk that is still being clarified by courts across the world. These cases depend on their factual circumstances, but a number of observations can be made in the context of recent trends:

• Challenges to the jurisdiction of the English courts will continue. Despite comments from the courts lamenting the time and costs spent on preparing factually heavy interlocutory applications such as this, the court will not allow unmeritorious claims to proceed.
• English courts are not a remedial panacea. Any cross-border group claim, especially where it involves sensitive environmental, social and governance issues, will be challenging to manage. Judges will consider the impact on the court’s resources and whether claimants’ perception of what redress is achievable reflects the reality in practice. Claimants must be properly informed of the reality of proceedings in a foreign jurisdiction and could be supported by impartial information and advice so they can make an informed decision.
• Accountability and remedy are not always aligned. Where the stated purpose of a claim is compensation or redress for claimants, pursuing entities in a foreign jurisdiction instead of (or in addition to) entities more closely connected to the issues will come under careful scrutiny by the courts. If there is no particular reason to prefer defendants in a foreign jurisdiction over local defendants or those more closely connected to the issues, procedural consequences may follow.
• Enabling more effective access to local remediation should be a preferred option. Recent years have seen an increased focus on the alleged inadequacy of remediation available in local jurisdictions for claims of this nature. However, if local remediation is inadequate, the solution must involve consideration of how to improve local systems and encourage corporate actors to support these efforts, rather than to bypass them completely.