17/06/2016

Lungowe v Vedanta – a boost for claims against multi-nationals

The opportunity for claimants from developing countries to bring claims in England and Wales against multi-national corporate groups that have caused loss in their home country has been given a significant boost by Coulson J’s recent decision in Lungowe v Vedanta Resources Plc [2016] EWHC 975 (TCC).

1,826 Zambian claimants commenced proceedings in the TCC alleging that Konkola Copper Mines (“KCM”) and its parent company Vedanta Resources PLC (“Vedanta”) were liable for personal injury, damage to property, loss of income, and loss of amenity and enjoyment of land due to pollution/environmental damage caused by the Nchanga copper mine which KCM operated. The Defendants, as invariably happens in claims of this sort, denied that the English Court had or should exercise jurisdiction, arguing the natural forum for the dispute was clearly Zambia.

Coulson J rejected both Vendata’s and KCM’s challenges to the jurisdiction.

Vedanta’s challenge to jurisdiction was rejected

In relation to Vedanta’s challenge, Coulson J said this.

1. Vedanta is an English company and the claimants therefore had a straightforward route to establish jurisdiction based on Vedanta’s domicile (under Art 4 Brussels I Recast, Regulation 1215/2012).

2. However while it has always been open to claimants to sue English parent companies based on their domicile here, historically two things would have stymied the Claimants’ claim:

(a) First, establishing a claim against a parent company for the acts of its subsidiary in the claimant’s home country was invariably problematic. While as against an English domiciled parent company that was not really a jurisdictional obstacle (though plainly it was a significant problem at the merits stage), it was important when trying to use the parent as an anchor defendant to justify the court exercising jurisdiction over foreign subsidiaries (since as discussed further below the ‘necessary or proper party’ service out gateway requires there to be a real issue between the claimant and parent).

(b) Second proving that England was the forum conveniens in order to justify service out was usually difficult as all, or almost all, the relevant connecting factors pointed abroad (as that was where the claimant was, the tortious acts were committed, loss was suffered, all the relevant witness/documents/evidence were etc…) and the claimant’s only hope was the invariably tricky task of proving access to justice would be denied abroad.

3. Coulson J.’s decision confirms that neither obstacle is what it used to be.

4. As to the first obstacle: the difficulty of establishing a cause of action against parent companies for the actions of their subsidiaries has been reduced by the Court of Appeal’s decision in Chandler v Cape [2012] WLR 3111 which recognized that in certain situations a parent company could owe a duty of care for the actions of its subsidiaries. While the limits of that duty and decision are open for debate, that debate is one for a different blog (or at least blog post)! What matters here is that Coulson J was satisfied that applying the principles identified in Chandler v Cape the Claimants had a claim which raised a real issue to be tried and was not so weak it was likely to fail. As noted, that finding was not critical to whether the Court should exercise jurisdiction over Vedanta but was important to whether it should do so over KCM.

5. As to proving that England is the forum conveniens, that problem has evaporated where a claimant has established jurisdiction under Art 4 Brussels I Recast because the ECJ’s decision in Owusu v Jackson [2005] QB 801 prohibits an English Court from declining jurisdiction on that basis. That is a huge boon for claimants in cases of this sort, and was critical not only to establishing jurisdiction against Vedanta but also KCM in this case.

6. Unsurprisingly Vedanta tried various arguments to distinguish or avoid Owusu but none succeeded.

(a) First, Vedanta tried to distinguish Owusu on the facts highlighting “…Owusu was a unitary claim arising out of one incident, whilst this is a group action with over 1,800 claimants” which had arisen out of various actions spanning a period of years see: §66. Coulson J. though rightly concluded that this was not a basis to distinguish the reasoning in Owusu; the ECJ had laid down a ‘one size fits all rule’ prohibiting recourse to a forum conveniens analysis where jurisdiction had been established by domicile, whatever the substance of the claim. The difference in facts did not therefore matter: see [67] – [68].

(b) Second, Vedanta contended (bluntly!) that Owusu was wrong and should not therefore be followed (see [69]). Coulson J., equally candidly, said that there was force in Vedanta’s submissions that “…the ECJ’s reasoning is suspect…” but “…the mere fact that the reasoning in Owusu might be said to be capable of sustained criticism does not make the decision any the less binding on me…”.

(c) Finally, Vedanta argued that the proceedings should be stayed because reliance on Owusu by the Claimants amounted to an abuse of EU law. That required Vedanta to show that the Claimant’s sole object in proceeding against them either was to oust the jurisdiction of another court, or alternatively that the basis of the joinder was fraudulent: see [74]. And Coulson J. held Vedanta could not surmount that high hurdle: the Claimants had an arguable claim against Vedanta; there were doubts about KCM’s financial resources (but not Vedanta’s) to meet any judgment; and the Claimants saw Vedanta as both the ultimate architect of the pollution which had caused their loss and the ultimate beneficiary of the mine and therefore the real defendant: see [77]. It could not therefore be said that the sole reason for the Claimants proceeding against Vedanta was to establish a jurisdictional advantage.

KCM’s challenge to jurisdiction was rejected

Having rejected Vedanta’s challenge, Coulson J moved to consider KCM’s.

1. The Claimants had served KCM out of the jurisdiction via the gateway in PD 6B Para 3.1(3) (the ‘necessary or proper party’ gateway).

2. KCM therefore sought to argue that

(a) The claim against it did not have a real prospect of success;

(b) The gateway requirements were not satisfied; and

(c) England was not the forum conveniens.

3. The first and second arguments turned largely on the evidence before Coulson J and his assessment of the Claimants’ claims both against KCM and Vedanta (who KCM argued the Claimants had no real issue against, and therefore could not satisfy the gateway requirements). Those arguments did not succeed and for present purposes nothing more needs to be said about them.

4. More significant from a purely private international perspective was Coulson J’s analysis of forum conveniens:

(a) The judge first analysed whether England was the most appropriate forum to determine the claim against KCM ignoring (for the moment) the fact that he had decided the Claimants’ claim against Vedanta could proceed in England. Ignoring that factor Coulson J had no hesitation concluding that the appropriate forum was Zambia (to which almost every relevant connecting factor pointed: see [153]-[154]).

(b) Did it therefore matter that the claim against Vedanta would be heard in England? The Judge held that made all the difference. In Credit Agricole Indosuez v Unicof Ltd and Others [2003] EWHC 2676 (Comm), Cooke J said “…the fact of continuing proceedings in England against other defendants on the same or closely allied issues virtually concludes the question, since all courts recognise the undesirability of duplication of proceedings and the lis alibi pendens cases make this clear”, and while Coulson J suggested Cooke J had slightly over-stated the position when saying the existence of continuing proceedings “virtually concludes” the debate, it was a highly significant, and in this case determinative, factor: see [167].

(c) KCM tried to avoid that conclusion:

(i) First, by arguing the claim against Vedanta was simply a device to anchor the proceedings in England. But the Judge rejected that argument for the same reasons as he rejected Vedanta’s “abuse of EU law” argument (see [163]).

(ii) Second, by suggesting that the Claimants would not ultimately maintain their claim against Vedanta once jurisdiction was established. The Judge however refused to second guess the Claimants’ stated intention to sue Vedanta: having held there was a real issue between the Claimants and Vedanta it was inappropriate for the Court to attempt to foresee or guess what might happen to that claim in the future.

(d) Finally, Coulson J held that even if all the connecting factors pointed to Zambia, England was still the most appropriate forum because Zambia was not a forum in which the Claimants could obtain access to justice. That conclusion stemmed from a number factors (see [175]) including: (i) the fact that the Claimants could not fund, or therefore afford to bring, their claims in Zambia (CFAs are illegal in Zambia and there was no prospect of the Claimants obtaining sufficient legal aid); (ii) that there were no lawyers in Zambia with the requisite experience willing to take the Claimants’ case; (iii) the Zambian courts appeared to have a dubious approach to resolving environmental litigation claims and the Claimants could have little confidence their complex claims would be managed and resolved appropriately; and, (iv) KCM had in the past been shielded from criminal prosecution in Zambia as a result of their political connections (which suggested they might find similar protection in this case).

Comment

Coulson J’s decision is significant as one of the first to actually apply all the existing legal principles in one case and to confirm that the combined effect of Owusu and Chandler v Cape is to give claimants a powerful route to establish jurisdiction in England and Wales against English domiciled parent companies and their foreign subsidiaries for damage committed by their foreign subsidiaries abroad.

This is by no means the first case of this sort to be brought before the English court (judgment is for instance still awaited in Arroyo v Equion Energia Limited) but nor is it going to be the last given that claimants now have a tried and tested route by which to establish jurisdiction here.