WHEN IS A PARENT LIABLE FOR AN INTERNATIONAL SUBSIDIARY?
The last year or so has seen the Court of Appeal consider whether a UK parent company’s duty of care may extend to foreign subsidiaries in the high profile cases of Lungowe v. Vedanta Resources and Okpabi & Ors v. Royal Dutch Shell plc & Ors. The Court of Appeal has also addressed the question even more recently, in the case of AAA & Ors v. Unilever plc & Anor.
Correct approach
Both Lungowe and Okpabi concerned pollution and environmental damage allegedly caused by international subsidiaries, based in Zambia and Nigeria respectively, and centred on whether and how the claimants could make their pollution problem a case for the UK courts, and a liability for the UK parent company. In both cases, the Court of Appeal confirmed that the correct methodology for ascertaining whether or not a UK parent company will be liable for the operations of an international subsidiary is a two-stage process, as outlined below.
Stage one. First, ask whether the damage complained of was foreseeable, whether there was a relationship of sufficient proximity between the parent and its subsidiary, and whether the circumstances were such that it is fair, just and reasonable to impose a duty on the parent for the acts of the subsidiary. This is the ‘three-fold test’, established in Caparo Industries plc v. Dickman, for imposition of a duty of care in tort.
Jan-Mar 2019 issue
Walker Morris LLP