Supreme Court affirms in Vedanta a general principles path to hear Zambian environmental claims

May 24, 2019

The case of Vedanta Resources plc and Konkola Copper Mines plc v Lungowe and others has received a lot of attention in recent years.  In essence, 1,826 Zambian citizens are suing Konkola Copper Mines plc (a public company incorporated in Zambia) and Vedanta Resources plc (its UK domiciled and incorporated parent) for damage to their health, property, livelihood and enjoyment /amenity in connection with alleged discharges of toxic matter from the Nchanga mine in Zambia, owned and operated by Konkola, into local watercourses that provides their sole source of drinking water.  These claims are based on Zambian common law duty of care to the claimants or fault based statutory liability under Zambian environmental, mining and public health legislation (it being accepted that the common law principles would be identified in accordance with those established in England). 

Shortly after the proceedings started in the UK, Konkola and Vedanta challenged the jurisdiction of the courts of England and Wales to hear the dispute. They were unsuccessful in the High Court and in the Court of Appeal. Konkola and Vedanta then appealed to the Supreme Court.

The Supreme Court, like the High Court and the Court of Appeal before it, has decided that the courts of England and Wales can hear the dispute.

The jurisdiction arguments

In basic terms, the substance of the claim has nothing to do with the UK.  The claimants live in Zambia, the alleged injury and damage took place in Zambia, and the entity alleged to be most directly connected to the injury and damage is company registered and operating in Zambia.  As a general rule, the courts in England and Wales will not hear what is essentially a Zambian matter.

However, the claimants are taking strategic and procedural advantage of a rule that the courts of England and Wales will hear a claim against a foreign registered company where it is a necessary and proper party to a claim against another company over which the court will take jurisdiction, as long as it is satisfied that there is a “real issue” to be tried against that other company.

As a UK incorporated company, the courts of England and Wales will take jurisdiction over Vedanta. So, in essence, to take advantage of this rule and bring Konkola into the proceedings, the claimants have to show that:

  • the claims against Vedanta involve a real issue to be tried;
  • it is reasonable for the court to try that issue;
  • Konkola is a necessary or proper party to the claims against Vedanta;
  • the claims against Konkola have a real prospect of success; and
  • either, England is the proper place in which to bring the combined claims or that there is a real risk that the claimants will not obtain substantial justice in Zambia, even if it would otherwise have been the proper place, or the convenient or natural forum.

In the appeal, Vedanta and Konkola argued that the first limb (“real issue”) and the fifth limb (“proper place”) were not satisfied. If they were right, it would mean that the entire proceedings in so far as the English courts are concerned would be stopped dead in their tracks. 

The Supreme Court held as follows:

There was a real issue to be tried. The essence of the claimants’ case against Vedanta is that it exercised a sufficiently high level of supervision and control of the activities at the mine, with sufficient knowledge of the propensity of those activities to cause toxic escapes into surrounding watercourses, as to incur a duty of care to the claimants. They point to material published by Vedanta in which it asserts its responsibility for the establishment of appropriate group-wide environmental control and sustainability standards, for their implementation throughout the group by training, and for their monitoring and enforcement.

The Supreme Court regarded the published materials in which Vedanta asserted its own assumption of responsibility for the maintenance of proper standards of environmental control over the activities of its subsidiaries, and specifically the operations at the mine, which were also were implemented through training, monitoring and enforcement as sufficient on their own to show that it is arguable that a sufficient level of intervention by Vedanta in the conduct of operations at the mine may be demonstrable at trial, after full disclosure of the relevant internal documents of Vedanta and Konkola, and of communications passing between them.

Thus, there was a real issue to be tried.

Zambia, not England, is the proper place to bring the claim, but there is a real risk that the claimants will not obtain substantial justice there. The Supreme Court thought that there was little to support England being the proper place for the trial of the claim, having regard to the interests of the parties and the ends of justice.  This was especially so in light of Vedanta agreeing to submit to the Zambian court. However, the Supreme Court would not interfere with the High Court’s finding that there was a real risk that justice would not be obtained in Zambia if the case were to be tried there.

The High Court’s view that that substantial justice would be unavailable in Zambia had nothing to do with any lack of independence or competence in its judiciary or any lack of a fair civil procedure suitable for handling large group claims. Rather, it derived essentially from two factors: first, the practicable impossibility of funding group claims where the claimants were all in extreme poverty (legal aid could not be obtained and conditional fee arrangements are unlawful in Zambia); and second, the absence within Zambia of sufficiently substantial and suitably experienced legal teams to enable litigation of this size and complexity to be prosecuted effectively, in particular against a defendant with a track record which suggested that it would prove an obdurate opponent with means.

What will happen now?

With the jurisdiction issue settled, the claim will now pass through the usual procedural stages and proceed to trial and examination of the substantive issues in full in the normal way. The claimants may not be able to demonstrate at trial, on the basis of the entirety of the evidence, that a duty of care exists, that it has been breached, and that it has led to damage. If they cannot do so (essentially the same enquiry concerning the extent of Vedanta’s intervention is required for the purposes of establishing breach by it of statutory duty), their claim against Vedanta will fail.

Vedanta will take heart from the similar recent case of Kalma and others v African Minerals Limited, African Mineral (SL) Limited and Tonkolili Iron Ore (SL) Limited, in which the claimants (after a long and expensive trial) failed to demonstrate at trial any wrongdoing on the part of the UK parent, African Minerals Limited.

The claim against Konkola could still succeed even if the claim against Vedanta fails. That the “real issue” against Vedanta that allowed Konkola to be sued here in the first place has fallen away will not stop the claim against Konkola.

Commentary

If Konkola and Vedanta had been successful on appeal (with the effect of terminating the proceeding at an early stage), they would have necessarily avoided the considerable future costs and time that will now be involved in defending this action – potentially through to trial or any prior settlement.

The decision opens the way for the pursuit of large transnational tort claims in England and Wales (supported by the specific tactical expertise and resources in this market) on the basis that:

  • a “real issue” against the UK parent was accepted by the Court at the jurisdiction stage, and plaintiffs may expect to get over the “real issue” hurdle on a reasonably regular basis in future;
  • the limits of the duty will continue to be tested because, subject to the general principles of tort, the court:
    • rejected that all cases of parent liability could be “shoehorned” into two identified categories (set out at para 51) and recognised the unlimited variety of models of management and control within multi-national companies; and
    • confirmed that proclaiming by the parent of group-wide policies and guidelines to address inherently dangerous activities which are implemented as of course by a subsidiary, or with further active steps (such as training supervision and enforcement to see they are so implemented), may found a duty of care; and
  • the basis for the finding (i.e. a lack of access to funding and expertise) that justice would not be obtained in Zambia may readily exist in other jurisdictions where multi-national groups of companies own and/or operate businesses (and there are potential parallel rule of law challenges associated with submission to the local jurisdiction in respect of disputes).

Managing your company's legal risk profile and approach

As we have foreshadowed in earlier blogs (Update on tort and human rights claims against UK parent companies based on overseas activities and Risk of environmental claims in courts of England & Wales puts multinational companies in a dilemma), in-house counsel should review sustainability, environment and human rights policies, public statements or reporting to ensure they are fit for purpose and support an holistic and integrated legal and risk management approach for environmental and social/human rights risks. The Vedanta decision emphasises that if the value of group policies, processes and management approaches, including the prudential benefits of specific due diligence, are to be achieved, they must be appropriately drafted, and supported by clear and robust management approaches (including addressing implementation, responsibilities, resourcing and training) across group company structures and relationships. 

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