When may a parent company be liable for the actions of a subsidiary?

The Supreme Court has recently clarified the circumstances in which a parent company may be liable for the harmful consequences of a subsidiary’s activities.

Vedanta Resources plc, an English company, is the parent of an international minerals group. One of its subsidiaries is Konkola Copper Mines plc, a Zambian company which operates a large copper mine.

A group of Zambian citizens have alleged that the copper mine has repeatedly discharged toxic matter into local watercourses, resulting in damage to their health, their livestock and their crops. They brought claims for negligence and breach of statutory duty against both Konkola and Vedanta, alleging that Vedanta had a high level of control and direction over Konkola’s operations.

The proceedings in the Supreme Court arose from an application from Vedanta and Konkola contesting jurisdiction. One of the questions was whether the claimants had a triable issue against Vedanta, since it was Vedanta’s status as an English company that had led the claimants to bring the claim in the English courts.

Vedanta argued that it could not be shown to have done anything in relation to the mine that would give rise to a duty of care towards the claimants or a breach of Zambian environmental law. On this issue, the Supreme Court found for the claimants: Lord Briggs, with whom the other justices agreed, held that there was sufficient indication that Vedanta assumed responsibility for Konkola’s environmental compliance for it to be arguable that Vedanta should be liable. Since it was also held that there was a real risk that the claimants would not obtain substantial justice in Zambia, it will now fall to the High Court to decide whether Vedanta did in fact intervene in Konkola’s operations, after disclosure of all relevant evidence.

Of more general interest is the way in which Lord Briggs approached the question of whether a parent company may be liable to those affected by the harmful activities of a subsidiary. Such an issue is, he said, to be decided not in relation to any specific categories, but more broadly, according to the ordinary principles relating to a third-party duty of care. The matter will depend on ‘the extent to which, and the way in which, the parent availed itself of the opportunity to take over, intervene in, control, supervise or advise the management of the relevant operations . . . of the subsidiary’.

Liability could arise, for example, where a parent issues group guidelines containing systemic errors, where a parent takes steps to ensure that its subsidiaries implement such policies, or where a parent holds itself out as supervising its subsidiaries but does not in fact do so.

That list of circumstances is not exhaustive. The lesson is that parent companies should take care in supervising their subsidiaries, since a parent may be liable if the activities of its subsidiary cause harm.

Vedanta Resources plc and anor v Lungowe and ors [2019] UKSC 20

For any more information on the topics in this article please contact Brendan Biggs on b.biggs@ashfords.co.uk.