Court of Appeal agrees it is arguable that a duty of care may arise in relation to end-of-life asset disposal

On 10 March 2021, the English Court of Appeal handed down its decision in Hamad Begum (on behalf of MD Khalil Mollah) v Maran (UK) Limited [2021] EWCA Civ 326.

Maran (UK) Limited (Maran) appealed a High Court decision (see our article of 3 August 2020) rejecting its application for summary judgment and related application to strike out proceedings brought against it seeking damages for negligence in relation to the death of Mr Mohammed Khalil Mollah (Mr Mollah), who died whilst working on the demolition of the Maran Centaurus, (the vessel), at a shipyard in Bangladesh.

The Court of Appeal unanimously upheld the first instance decision that it is arguable that Maran could be responsible for or had created the state of danger that resulted in a third party causing the deceased’s death. The Court of Appeal overturned the first instance decision that the claim was one arising out of environmental damage (meaning that a longer limitation period applied), but agreed that the factual question of whether it would cause undue hardship to impose the shorter limitation period under Bangladeshi law should be determined as a preliminary issue.

The Court of Appeal panel comprised of Lord Justice Coulson, Lord Justice Males and Lord Justice Bean, with Coulson LJ giving the leading judgment.

Key takeaways

This is the latest in a series of cases which seek to push the boundaries of tortious duties of care in the area of sustainability and environmental, social and governance (ESG). The Court of Appeal recognised that the scope and extent of exceptions to the general rule that there is no liability in tort for harm caused by third parties is currently a fast-developing area of English law.

In common with other recent cases, the Court of Appeal refused to strike out the claim at an early stage where:

• Disclosure had not taken place;
• The duty of care alleged would be an “extension” of accepted applications (in which case, it was important that it should be considered in full, taking into account all of the relevant facts as determined at trial); and therefore,
• The question of whether the claim was arguable was to be determined solely on the assumption that the facts pleaded in the claim are true “unless, exceptionally, they are demonstrably untrue or unsupportable”.

The Court of Appeal dismissed Maran’s arguments that Mr Mollah’s death could have been avoided if the vessel had been sold by the intermediate buyer to a different yard (which did not have a notorious disregard for health and safety). In this regard, Maran relied on a clause in its agreement with the intermediate buyer obligating that buyer to confirm that it would only sell to a yard that would perform the demolition “…in accordance with good health and safety working practices…”. However, the claimant produced credible evidence that the parties to that contract knew that clause would be ignored.

The Court of Appeal commented that Maran could have achieved the buyer’s compliance with the clause by ensuring that it had “teeth”, for example, by making payment contingent on evidence that it had been complied with. These comments were made “for completeness” and are not findings of fact following a trial on the evidence, but confirm that the court will not allow a defendant to rely on contractual obligations on a third party as interrupting the chain of causation, unless it can be demonstrated that the relevant clause is readily enforceable. This should be taken into account when drafting clauses designed to prevent or mitigate ESG risks.

Maran’s Appeal

The appeal raised two key issues, as to whether:

1. it is arguable that a duty of care could arise for English-domiciled Maran in relation to loss and damage caused by the negligent demolition of the vessel by a third party; and
2. any exceptions to the applicable limitation period, namely Article 7 (claims arising out of environmental damage) or Article 26 (manifest incompatibility with public policy), of Rome II applied¹.

Duty of care

Two “routes” were put forward by the Claimant to argue the existence of a duty of care.

Route 1: Donoghue v Stevenson

Based on the ordinary principles of Donoghue v Stevenson [1932] AC 562, the vessel was argued to be a “dangerous product” which it was foreseeable would cause harm when being dismantled in Bangladesh, and it was further argued that there was no break in the chain of causation, because third parties acted as expected.

Coulson LJ expressed doubts whether, at trial, the court would find that a duty of care could arise under Donoghue v Stevenson principles, and considered that the case “does not sit comfortably” within this line of authority. A key challenge with this legal route is that it is heavily reliant on foreseeability, which is insufficient (by itself) to establish a duty.

The Court of Appeal also questioned the reasoning put forward by the Claimant to show sufficient proximity between the deceased and Maran. The established authorities require a significant element of supervision and control over the third parties causing harm to give rise to a finding of liability, which does not appear to exist in the present case. Ultimately, however, the argument was not “so fanciful” that it should not be permitted to proceed to trial.

Route 2: “creation of danger”

Based on a recognised “creation of danger” exception to the rule that there is generally no liability in tort for harm caused by the intervention of a third party², it was argued by the Claimant that by sending the vessel to Bangladesh, Maran knowingly exposed the workers at the Bangladesh ship yard to dangers in breaking it up.

The Court of Appeal described this as “an unusual extension of an existing category of cases where a duty has been found, but it would not be an entirely new basis of tortious liability”. For that reason, Coulson LJ noted that this argument would face hurdles at trial, not least because the alleged duty of care would be at the “edge of developments in this area" and the application of the “creation of danger” principle by English Courts has been rare.

Limitation Issues

The first instance judge found that, on application of Article 4 Rome II, the law of Bangladesh applied to the case. Bangladeshi law applied a non-extendible one year limitation period for this type of claim, and therefore the claim was statute-barred.

However, the first instance judge found that Article 7 Rome II could apply to replace the one year limitation period with the three-year limitation period applicable in England on the basis that such a claim arose out of environmental damage. The Court of Appeal was unanimous in finding that the argument under Article 7 had no real prospect of success, the claim arising from alleged breaches in relation to health and safety, and not from any environmental damage which may also have been caused by the beaching of the ship in Bangladesh to enable its dismantling.

The Court of Appeal agreed with the first instance judge that it would be necessary to hold a short preliminary issues hearing to determine whether the “undue hardship” test could be met on the facts, allowing the claimant to rely on Article 26 (under which a provision of foreign law may be disapplied if manifestly incompatible with public policy in the jurisdiction hearing the claim).

Practical consequence and conclusion

This decision has a number of potentially wide-ranging consequences in a corporate context relating to the identification and management of ESG risks in investment and business activities.

• Knowledge of end of life danger: the Court of Appeal was clear that this exception should be applied in extremely rare circumstances and (if the limitation issues can be successfully overcome) a trial will provide further helpful clarity on the impact of well-known risks of harm associated with the end of life or decommissioning of an asset. In this case, it was argued that Maran “could, and should have insisted on the sale to a so-called ‘green’ yard, where proper working practices were in place”. This trend towards the incremental extension of circumstances in which a duty of care will be imposed has potentially wide-ranging consequences across asset disposal and decommissioning activities in higher risk sectors, such as Energy & Natural Resources, Infrastructure, Construction and Industrials, as well as in higher risk geographies.
• Stronger contractual leverage is required to ensure ESG risks are mitigated: the Court of Appeal has signalled that provisions which address ESG risks, such as the clause that required this vessel to be disposed of in a responsible manner, can be strengthened by “building in” leverage to give the relevant clauses “teeth”. In this case, the suggestion was that further leverage could have been employed to link payments to the delivery of the vessel to an approved yard, the court concluding that “the inclusion of provisions requiring safe demolition in the contract of sale was well within the reasonable control of the Appellant”.