February 12, 2018

Trend of environmental litigation against holding corporations on the increase

Environmental litigation against holding corporations for environmental damage caused by their subsidiaries abroad, globally, is increasing.

This case was first published on Commercial Risk Online.

In England, these claims have origins in employers liability claims of the 1990s, when the workers of foreign subsidiaries began suing holding corporations in the English courts for alleged health and safety breaches. The English courts have since been presented with several environmental claims, including those arising from alleged toxic waste contamination in Ivory Coast and oil pollution in Nigeria.

For a claimant, the advantages of suing holding corporations in their home jurisdictions speak for themselves. Foreign subsidiaries may lack the assets or insurance protection to finance large environmental remediation schemes. Claims in developed jurisdictions also have the added attractions of experienced lawyers, environmental experts and readily available litigation funding.

For the holding corporations which become defendants to such claims, they may face new and previously unforeseen environmental exposures. In particular:

  • As the claims are made directly against the holding corporation, they threaten the careful distribution of liability which multinational corporate structures are often intended to achieve.
  • The multijurisdictional nature of the claims means that they may fall between the cracks of the corporation’s environmental liability insurance arrangements.
  • The claims carry heavy exposures and stratospheric legal costs. In 2010, it was reported that the English firm representing the Ivory Coast claimants sought legal costs of £105m following settlement of the claim.

The Lungowe case

In 2014, a Zambian government report found that effluent discharged into surface water from the Nchanga copper mine contained material quantities of toxic metals and other substances. Such discharges gave rise to a potential liability in tort and under the Zambian Mines and Minerals Act 2008, Environment Management Act 2011, Environmental Protection and Pollution Control Act 1990 and Public Health Act 1930.

At the relevant time, the mine was owned and operated by KCM, a Zambian corporation in which the Zambian government was a minority shareholder. The majority shareholder was Vedanta, a multinational holding corporation domiciled in England.

In 2015, a group of about 2,000 Zambian villagers issued proceedings against KCM and Vedanta in the English High Court, seeking damages for personal injury, damage to property, loss of income, amenity and enjoyment of land.

Both defendants contested the jurisdiction of the English courts on the grounds that England was not a proper forum for the claims. The mine was operated by a Zambian company under licence from the Zambian government, the alleged contamination occurred in Zambia, the claims involved personal injuries and damage to land taking place in Zambia, the claimants were all Zambian citizens and residents, and there was no dispute that Zambian environmental law applied to the claims.

In 2017, the UK Court of Appeal unanimously upheld the exercise of jurisdiction by the English High Court and allowed the claims against both defendants to proceed to trial.

Implications of the decision

The decision of the Court of Appeal is important for holding corporations and their environmental liability insurers for three reasons.

First, the decision confirms that the English courts will exercise jurisdiction over environmental liability claims against companies that are domiciled there, provided there is a real issue to be tried and the proceedings do not amount to an abuse of process.

Secondly, the existence of an arguable environmental liability claim against a holding corporation in England will also justify an English court in hearing related claims against its foreign subsidiary. That is significant because the foreign subsidiary rarely has any other connection with England and Wales.

Thirdly, any holding corporation that controls the health and safety and environmental policies of its foreign subsidiaries now faces the risk of environmental liability being established by an English court.

On the facts before it, the Court of Appeal considered that Vedanta faced an arguable liability towards the claimants by reason of six specific factors:

  • Vedanta had published a report entitled Embedding Sustainability, which stressed that oversight of all Vedanta’s subsidiaries rested with the board of Vedanta itself. That document referred to discharges into water and the Nchanga mine incident in particular.
  • A management and shareholders’ agreement between Vedanta and KCM placed Vedanta under a contractual obligation to provide KCM with geographical and mining services, employee training services, metallurgical consulting services, assistance with management systems and technical and information technology and other services.
  • Vedanta provided environmental and technical training to KCM on a range of environmental issues, including health and safety and the management of environmental incidents.
  • Vedanta provided extensive financial support to KCM.
  • Vedanta made various public statements concerning its investment in KCM and its commitment to address environmental risks and technical shortcomings in KCM’s mining infrastructure.
  • A former KCM employee gave evidence that Vedanta exercised day-to-day control over KCM’s operational policies and affairs.

Those issues are now set to proceed to trial.

Conclusion

The Lungowe claim highlights the new risks that English-domiciled holding corporations face from international environmental claims.

The Court of Appeal has:

  • Confirmed that the English courts are free to exercise jurisdiction over such claims
  • Given a strong indication that holding corporations might face direct liability towards foreign claimants in English courts for breaches of other countries’ environmental laws.

Multinational corporations should be encouraged to review their due diligence, risk control and global insurance programmes to ensure that they have adequate protection against these emerging risks.