Developments in parent company liability in English law: what are the implications for corporate human rights policies?

In the wake of the Court of Appeal’s decision in AAA v Unilever last month, we examine how evolving jurisprudence on parent company liability might impact on the way companies develop group policies on issues such as sustainability, the environment and human rights.

Last month, the Court of Appeal handed down its judgment in AAA & Others v Unilever plc and Unilever Tea Kenya Limited [2018] EWCA Civ 1532. The case is the latest in a series of recent Court of Appeal judgments on jurisdiction in cross-border claims (following Lungowe v Vedanta Resources plc [2017] EWCA Civ 1528 and Okpabi v Royal Dutch Shell plc [2018] EWCA Civ 191) which consider whether it is arguable that a UK parent company can be held liable for the human rights impacts of its foreign subsidiaries.

These decisions represent potentially very important developments in parent company liability in English tort law, which are considered in depth in Freshfields’ Risk and compliance blog here. In this post, however, we consider the judgments from another angle: the implications for multinational group policies and procedures on human rights, sustainability and the environment.

What is the relationship between corporate human rights/sustainability policies and liability in tort?

In English tort law, liability only arises where the defendant has breached a “duty of care” owed to the claimant. The damage suffered must have been foreseeable; there must have been sufficient proximity between the parties, and it must be fair, just and reasonable to impose liability in all the circumstances.

The application of this test is invariably a fact-sensitive enquiry, and in all of Unilever, Okpabi and Vedanta the way in which the defendant companies’ groups were structured – and their group policies implemented – weighed heavily in the balance of the courts’ assessment of whether it was arguable that the claimants were owed a duty of care by the UK parent company:

• In Lungowe v Vedanta, the Court of Appeal found that it was arguable such a duty of care existed. The case concerned pollution arising from Zambian mines owned and operated by one of Vedanta’s subsidiaries. Drawing on Vedanta’s sustainability reports (which stressed the parent company’s oversight over pollution control within its subsidiaries), the group-wide training rolled out by the parent company and its operational management influence, the Court found that it was arguable that a duty of care was owed by the UK parent.
• CSR policies were again under the microscope in Okpabi v Shell, although the Court came to a different conclusion on the duty of care issue. The claimants alleged that Shell’s Nigerian subsidiary had failed to implement adequate safeguards to protect those living in the vicinity from environmental damage. They pointed to an extensive array of Shell group documents, including annual reports, sustainability reports, CSR and health and safety policies, arguing that as these were implemented by the parent across the Shell group, they were sufficient to found a duty of care against that parent. However, the majority of the Court of Appeal (Sales LJ dissenting) found that the issuing of these mandatory group risk policies and standards did not in itself indicate the requisite level of control required to give rise to a duty of care, and the claimants’ case failed.
• In AAA v Unilever, the Court of Appeal took a similar line to Okpabi v Shell. The claim was brought by a group of 218 individuals – employees and residents on a tea plantation operated by the defendant’s Kenyan subsidiary – claiming damages for inter-tribal violence arising in the wake of the 2007 Kenyan presidential election. The Court took a close look at the Unilever group’s structure, statutory accounts and risk management policies, but as the Kenyan subsidiary had its own independent management structure and had promulgated its own policies for emergency situations, the Court found that the parent owed no duty of care to those affected by the violence.

It is difficult to identify any clear statements of principle from these three fundamentally divergent decisions. Claimants seem to fare better in establishing an arguable duty of care where group policies and their implementation by parent company management demonstrate a degree of specific, direct influence over the subsidiary (as in Vedanta); but struggle where their case is predicated primarily on extracts from generic group documents which failed to disclose such influence (Shell and Unilever).

What is apparent, however, is just how closely the English courts are now willing to examine corporate group documents – including sustainability reports, health and safety policies and human rights policies – to determine whether a duty of care might exist.

What are the implications for how companies develop relevant policies? 

The law is still in a state of flux. We may not have a clear picture of the extent to which these kinds of group policies can ground a duty of care until the UK Supreme Court has ruled on further appeals of these cases.

However, in a world where courts are willing to pore over detail of a company policy and examine precisely how it has been implemented across a corporate group – and potentially attach significant liability on the basis of such analysis – it is clearly vitally important that those policies are up to scratch. Indeed, it must also be borne in mind that the rulings of the Court of Appeal noted in this post were on a preliminary issue (whether the English courts have jurisdiction to hear the claims); at full trial, one would expect an even closer examination of such policies.

Heightened scrutiny does not mean the relevant policies need be any less aspirational in terms of the admirable goals that they set out to achieve. But it does mean that they should be developed and implemented with the same consistency and degree of commercial and legal rigour that is befitting documents from which a court might consider potentially significant legal liability to arise.