English courts find UK parent companies not liable for subsidiaries operating in Africa
Posted in Blog post
In two recent cases, the English Court of Appeal rejected claims that UK parent companies, Unilever Plc and Royal Dutch Shell Plc (RDS), owed a duty of care to claimants affected by the operations of their African subsidiaries. The decisions in AAA v Unilever and Okpabi v Shell indicate that the existence of centralized policies, without further management control or specific advice regarding particular risks, will not be enough to establish proximity for the existence of a duty of care in negligence.
Unilever concerned allegations from employees and former employees that they were victims of violence during the 2007 presidential election in Kenya, when they were targeted by mobs on plantations where they worked and lived. Those affected sought to establish liability on the part of Unilever Plc’s subsidiary, Unilever Tea Kenya Limited, and claimed Unilever Plc owed them a duty of care to provide protection from the violence that occurred.
In Shell, 2,355 individual claimants and representatives of the Ogale community brought a claim against RDS for the actions of its subsidiary, Shell Petroleum Development Company of Nigeria Ltd, on the basis that RDS controlled the operation of pipelines and infrastructure from which leaks occurred causing serious damage, and that it assumed responsibility to protect claimants from the resulting damage.
- In both cases, the Court of Appeal made clear that a parent company will only be held liable for the actions of its subsidiary if the three-part test of foreseeability, proximity and reasonableness established in Caparo v Dickman for imposing a duty of care on another is met. The Court highlighted that a duty of care may be owed if the parent company controls the operations giving rise to the claim and/or assumes direct responsibility for the subject of the claim. This places a high evidentiary burden on the claimant at a time when the relevant information may not be available to the claimant.
- In both cases, the area in dispute was that of proximity, with both claimants relying on company policies as a factor demonstrating proximity. In Unilever, the Court stressed the difference between a parent company which controls, or shares control of, material operations and one which produces group-wide mandatory policies with the intention of ensuring conformity throughout a group of companies. The issuing of mandatory policies does not demonstrate that a parent company controls the operations of a subsidiary. Such centralised assistance is far from the evidence required to cross the proximity hurdle.
- Both cases are different to Chandler v Cape, where a parent company was held to be liable for the actions of its subsidiary. Unlike in Chandler, both Unilever Plc and RDS did not have specialist knowledge or expertise in relation to local business or political practices; the subsidiaries in Africa managed operations and did not have any cause to refer to the parent company for advice or guidance, nor did the parent company intervene in the activities of its subsidiaries.
It is clear that under English law a duty of care between an English parent company and a foreign claimant might be established in certain situations (see our blog on Lungowe v Vedanta Resources Plc), but these recent cases show that something more than group-wide mandatory policies will be required to establish proximity for such duty. Further clarity may be provided: the defendants in Vedanta obtained permission to appeal to the Supreme Court in March 2018 and the claimants in Shell are seeking permission to appeal to the Supreme Court. Watch this space.
The Inside Africa team would like to thank Ashleigh Lister, knowledge paralegal, for her contribution to this blog post.