English parent company liability for actions of non-UK subsidiaries: A duty of care tightened by ESG requirements

After the successful appeal by the Fundão Dam disaster claimants with regard to the defendants’ case management stay and forum non conveniens applications, the High Court trial has started in the Município de Mariana v BHP Group[i] case. The trial is the largest group action case in English legal history, where BHP faces a £36 billion claim in England from some 620,000 claimants. The claimants’ success in the Court of Appeal, which allowed the matter to proceed to trial following jurisdictional challenges, suggests that UK-headquartered multinational companies are not immune from liability for the actions of their overseas subsidiaries and joint ventures, even if those entities are not under direct UK ownership. The argument that was advanced by BHP’s counsel is that BHP did not design or operate the dam, nor did BHP have any licence to do so; BHP was simply a joint controlling shareholder “minding [its] investment”.

The Court of Appeal also recently concluded in Limbu v Dyson[ii] that England is the appropriate forum for an ESG dispute to proceed, notwithstanding that the claimants were employed in factories operated in Malaysia by two non-Dyson supply chain companies.

The Vedanta and Okpabi decisions

These successful appeals align with the Supreme Court decisions in Vedanta Resources v Lungowe[iii] and Okpabi v Royal Dutch Shell,[iv] which confirmed that jurisdictional and corporate veil barriers are no longer shields that hide multinational parent companies from human rights abuses and responsibility for harm caused by overseas subsidiary operations. These judgments are of particular significance to English parent companies whose subsidiaries conduct hazardous business operations in emerging markets. The Vedanta Resources v Lungowe and Okpabi v Royal Dutch Shell judgments both highlighted the difficulty of discharging claims at the jurisdictional stage when liability arises from the action of overseas subsidiaries, but held that it is possible to impose a legal duty of care on the parent company for the wrongs of its subsidiary.

Where no duty of care was assumed

Examples where the courts found that no duty of care was owed with regard to subsidiaries include the following cases that preceded Vedanta and Okpabi, both of which highlight the importance of evidence:

Thompson v Renwick Group,[v] where a parent company did not assume a duty of care to employees of its subsidiaries by appointing an individual as a director of the subsidiary with responsibility for health and safety. In running the day-to-day operations of the subsidiary, the director was not acting on behalf of the parent group; he was acting pursuant to his fiduciary duty owed to the subsidiary. Further, the intermingling of businesses and shared use of resources was not sufficient to justify the imposition of a duty of care on the parent company. The evidence fell short of what was required for the imposition of a duty of care on the parent company.

AAA v Unilever,[vi] where there was a claim for loss suffered during post-election violence. It was held that the English-registered parent company owed no duty of care to those affected by the actions or omissions of its Kenyan subsidiary where the subsidiary was responsible for its own decision-making and had not sought advice from the parent company. Accordingly, there was insufficient proximity between the parent and 218 claimants, who had suffered damages following a violent invasion of the subsidiary’s premises, to found an action in tort.

Duty of care alleged, notwithstanding third party interference

The Court of Appeal in Alame v Royal Dutch Shell[vii] has allowed the trial to proceed where claims have been made with regard to environmental pollution caused by Shell and its Nigerian subsidiary. Shell claims no responsibility for the chronic pollution caused by its subsidiary and that it is not liable for damage to the pipelines caused by theft “on an industrial scale”[viii] and the illegal refining of spilled and stolen oil (‘illegal third-party interference’).[ix] The Claimants allege that the illegal refining was a foreseeable consequence of pleaded duties to take reasonable steps to protect pipelines and other infrastructure against bunkering and other interference,[x] notwithstanding that military and police security arrangements (a “joint task force”) had been made and relied upon by the Defendants, a joint task force allegedly known to be actively involved in unlawful bunkering.[xi] The Claimants also allege that Shell managed or jointly managed its Nigerian subsidiary’s operations relating to pipeline integrity and security, and the prevention and/or detection of third part interference.[xii]

The Court of Appeal overruled the High Court, where the lower court had found the claim to be a ‘global claim’, which would have required the Claimants to link specific damage to individual oil spills at the pleadings stage.[xiii] The Court of Appeal decided that it was wrong to impose upon the Claimants the need for their claims to be progressed on the basis that they are ‘global claims’, and that they should instead be tried through the selection of lead cases. The decision of the Court of Appeal enables claimants to bring forward complex environmental cases involving multiple pollution events without having to prove that a single polluter was responsible, particularly in the pleading of claims where claimants have limited information as their disposal. The Court of Appeal highlighted the importance of disclosure being given and expert evidence obtained “before pleading a case with full particularity”,[xiv] and “to ensure that the parties are on an equal footing in relation to relevant information.”[xv]

Points of note from the two Supreme Court decisions

However, a few points need to be noted before one views these cases as widely opening the door to broad English parent company liability. First, the two Supreme Court decisions did not decide that a duty of care actually existed, but that it could exist and that the claimants could proceed within the English jurisdiction. The Supreme Court held that, in the context of parent/subsidiary relationships, whether a duty of care arises “… depends entirely on the extent to which, and the way in which, the parent availed itself of the opportunity to take over, intervene in, control, supervise or advise the management of the relevant operations (including land use) of the subsidiary” (per Lord Briggs in Vedanta, §49; cited with approval in Okpabi, §25). Okpabi indicated that de facto operational control was required to give rise to a duty of care. A parent company could assume a duty of care for the conduct of its subsidiaries simply by adopting standardised group-wide policies and procedures, a position that, as outlined below, could become more of a requirement under ESG laws and regulations, as well as encouraged for reputational considerations.

Second, the Supreme Court in Vedanta canvassed whether England should always constitute a proper forum for tort liability claims [Verdanta, §16, §39, §40, §66, §69, §83]: “Following Owusu v Jackson, the English court has one hand tied behind its back” [Verdanta, §39]. The court could therefore decline jurisdiction if the English court is not the appropriate forum (forum non conveniens) for the resolution of the dispute. It is therefore possible that claims against English parent companies in future may be subjected to the forum non-conveniens hurdle, weakening the position of foreign claimants. The current, decided cases were initiated prior to the end of the UK-EU transition period (31 December 2020). After the end of the transition period, EU law no longer applies in the UK. The English courts have re-gained discretionary powers to rely on the common law rules. Proceedings instituted from 1 January 2021 will instead be governed by the English common law rules or the Hague Convention on Choice of Court Agreements, where it applies. Even if the UK accedes to the Lugano Convention and thus prevents the courts from staying proceedings against the parent, it would still be possible for corporate defendants to rely on the forum conveniens formula under the Vedanta decision to dispute jurisdiction over the foreign subsidiary. Considering the issues at stake, the forum [non] conveniens inquiry has the potential to evolve into protracted jurisdictional battles bouncing from one court to another. Despite this concern, the Court of Appeal in BHP Group ruled against the defendants on the forum non conveniens element.

Third, the liability of parent companies in relation to the activities of their subsidiaries is not, of itself, a distinct category of liability in the English common law of negligence (Vedanta, §49). It raises no novel issues of law and needs to be determined on ordinary, general principles of law of tort regarding the imposition of a duty of care (Okpabi, §25 and §151). There is no special test applicable to the tortious responsibility of a parent company for the activities of its subsidiary (Vedanta, §49 and §54; cited with approval by Lord Hamblen in Okpabi, §27 and §149).

Fourth, the Supreme Court was reluctant to shoehorn all cases of the parent’s liability into specific categories. There is no limit to the models of management and control, which may be put in place within a multinational group of companies (Vedanta, §51). The Supreme Court also held that the exercise of control by a parent company is not “critical”, but that is “just a starting point” (Okpabi, §146/7). “Control of a company and de facto management of part of its activities are two different things” (Okpabi, §147). A duty of care may arise regardless of control (Okpabi, §148). The Supreme Court in Okpabi ruled that the lower court had applied too much focus on the issue of control as against the management aspects of its activities; it was wrong for the lower court to have decided that group-wide policies could not give rise to a duty of care. The question of whether a duty of care should be imposed depends upon a careful examination of materials produced only on disclosure, and in particular upon documents held by Vedanta [§57]. The Supreme Court in Okpabi noted that “[t]he importance of internal corporate documents is well recognised in the context of cases concerning the negligence liability of a parent company for the acts of its subsidiary” (see §129 and §133).

Impact of increasing ESG obligations

These cases continue to be discussed in international litigation conference presentations and academic publications, but now probably should also be considered in the light of the ever-increasing corporate environmental, social and governance (ESG) obligations and expectations that could result in parent companies being required to assume broader responsibilities for or control over the activities of their subsidiaries or their supply chains. If so, this would make it harder for parent companies to avoid duty of care obligations such as occurred successfully in Thompson v Renwick Group and AAA v Unilever, both canvassed above. In Unilever, a challenge to jurisdiction, Lord Sales summarised the position as follows: “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 claim are satisfied in the particular case”. [Unilever §36] The opening statement by senior counsel for BHP appears to indicate that BHP is pursuing the path that allowed Unilever to escape liability.

The Vendanta and Okpabi Supreme Court judgments, the current BHP, Shell and Dyson cases highlight the need for multinational companies to be aware of the possibility that non-UK claimants may be able to bring claims in the English courts against English parent companies, including those using global supply chains or where multiple pollution events occurred without having to prove that a single polluter was responsible.

Conclusion

Notwithstanding Renwick Group and Unilever, parent companies are now coming face-to-face with ESG expectations for group-wide ESG policies and procedures, and their transparency. ESG is a concept with ever-expanding tentacles. Parent companies may now be required to establish group-wide policies and procedures that result in de facto control being exercised over overseas operations, including improved monitoring in their supply chains. Parent companies may today find themselves unable to avoid duty of care risks as was possible in Renwick Group and Unilever.

The English judgments are also likely to be highly persuasive in other common law jurisdictions, such as the British Virgin Islands, where CANDEY also has an office and specialises in dispute resolution.

It will be interesting to see how the BHP Group and Dyson cases evolve, and to monitor the progress of the Shell full trial scheduled for 2026.[xvi]

Note: This is a general summary of an evolving field of law, and is made available for general discussion purposes only between CANDEY and its clients and prospective clients. This memorandum does not constitute legal advice and must not be relied on as such. It should also not be cited as legal or academic authority.

CANDEY is a boutique litigation law firm that has extensive experience and resources to evaluate and advise on international commercial litigation. In particular, we can guide clients through the duty of care litigation process, particularly assessing early on the difficult procedural and evidentiary challenges that type of litigation involves.

[i] [2022] EWCA Civ 951.

[ii] [2024] EWCA Civ 1564.

[iii] [2019] UKSC 20.

[iv] [2021] UKSC 3.

[v] [2014] EWCA Civ 635.

[vi] [2018] EWCA Civ 1532.

[vii] Alame and others v Shell Plc and others [2024] EWCA Civ 1500.

[viii] Ibid [§14].

[ix] Ibid [§66].

[x] Ibid [§69;71].

[xi] Ibid [§66].

[xii] Ibid [§66].