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30 Apr 2019

Vedanta v Lungowe: a slipping of the anchor by the Supreme Court?

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It has often been observed that a very large amount of litigation in England, in particular in the Business and Property Courts, concerns parties and underlying issues which have little or no connection to this country. Often that is because the parties have chosen English law and jurisdiction in their agreement. There are other cases where the participation of the defendants is not so voluntary.

One example is tortious claims against a company headquartered in the UK but in respect of the operations of an overseas subsidiary for alleged environmental damage in the country of operation of its subsidiary. These will involve multiple claimants often of limited means who may be attracted in particular by the availability of lawyers and funding in England to pursue what will be both factually and legally complex claims against what may be perceived as deeper pockets than undercapitalised local subsidiaries.

Another example is what is sometimes described as "oligarch litigation" (though of course it is not limited to disputes between businessmen in Russia and the former CIS). The underlying business and legal issues will have no real connection with England but the claimant will be attracted not just by the quality of the English legal system but by the ancillary weapons in the claimant's arsenal - worldwide freezing orders, wide ranging asset disclosure orders and even the possibility of court appointed receivers to hold disputed assets.

The recent decision of the Supreme Court in Vedanta Resources PLC and another v Lungowe and others1 concerned the first type of case and resulted in success for the claimants in establishing jurisdiction here. However it may, in time, have the effect of limiting jurisdiction in the second type of case.

The relevant background to the Vedanta decision can be set out fairly briefly.

The claimants are over 1800 Zambian citizens living in the Chingola District. They alleged damage to their health and farming activities from discharge from the Nchanga Copper Mine (the "Mine") into water courses used for drinking and irrigating.

The first defendant Vedanta Resources Plc ("Vedanta") is an English company listed on the London Stock Exchange which holds a majority stake in the second defendant Konkola Copper Mines Plc ("KCM") (a Zambian company) which is the operator of the mine.

The claimants have made claims in negligence and breach of statutory duty against both KCM (as operator of the mine) and Vedanta (by reason of its alleged high level of control of the operations of KCM and its compliance with applicable health, safety and environment standards).

The claimants asserted jurisdiction against Vedanta as of right as a company domiciled in England under Article 4 of the Brussels Recast Regulation (1215/2012) (the "Brussels Regulation"). They asserted English long arm jurisdiction against KCM as a "necessary or proper party" to the claim against Vedanta under (in substance) paragraph 3.1 of CPR Practice Direction 6B. Both Vedanta and KCM challenged jurisdiction but the challenges were rejected by both Coulson J in the Technology and Construction Court and by the Court of Appeal.

They then appealed to the Supreme Court. In a single judgment given by Lord Briggs the Supreme Court has dismissed the appeals. The key issue was identified as the "structure of jurisdiction" against Vedanta as the defendant domiciled within the jurisdiction (the "anchor defendant") and KCM as the defendant domiciled outside the jurisdiction (the "foreign defendant").

Various jurisdiction regimes are in play before the English Court in relation to this situation. In both cases the jurisdiction over the anchor defendant arises under Article 4 of the Brussels Regulation. That is a matter of right.

If the foreign defendant is domiciled in the EU or a Lugano Convention state2 then the jurisdiction to join the foreign defendant (in the absence of some other "direct" jurisdiction under the Brussels Regulation or the Lugano Convention) would be governed by Articles 8.1 or 6.1 respectively.

If the foreign defendant is domiciled elsewhere the jurisdiction to join it (again in the absence of one of the other long arm gateways) will be governed by paragraph 3.1 of CPR Practice Direction 6D. The latter applied to KCM as a Zambian company.

The Supreme Court began by setting out a useful checklist of the applicable requirements in the "necessary or proper party" case:

  • The claims against the anchor defendant involve a real issue to be tried.
  • It is reasonable for the court to try those issues.
  • The foreign defendant is a necessary or proper party to the claim(s) against the anchor defendant.
  • The claim against the foreign defendant has a real prospect of success.
  • Either England is the proper place to bring the claim or there is a real risk the claimant will not obtain "substantial justice" in the alternative foreign jurisdiction even if it would otherwise have been the convenient forum.

A "real issue" means a claim which is not liable to be struck out on a summary judgment basis.

There were four specific issues.

Abuse of EU Law

The defendants argued that it was an abuse of EU law to use Article 4 of the Brussels Regulation as a means of establishing jurisdiction against the foreign defendant which is the real target of the claim. The Supreme Court approached this on the basis that the courts below had found that the claimants had pleaded a real triable issue against Vedanta as the anchor defendant and in order to obtain damages from it but another reason for doing so was to be able to join KCM as a necessary or proper party. The Supreme Court considered the European case law and said that any derogation from Article 4 would have to be applied restrictively. The Supreme Court went on to say that in any event any remedy for a non-EU domiciled defendant lay not under EU law but by an adjustment of the English conflict of laws principle of forum non conveniens. The abuse of EU law argument was therefore rejected.

Real issue to be tried against Vedanta

The essential question was whether as a matter of English law there was a sufficiently arguable case that Vedanta owed a duty of care to the claimants for the actions (or inactions) of its subsidiary. The judge and the Court of Appeal had held that there was. The Supreme Court reviewed at some length the authorities relating to claims in negligence against parent companies in relation to the operations of their subsidiaries and commented that there was nothing special or conclusive about the parent/subsidiary relationship as to whether, in any given case, a duty of care of the parent could arise. It concluded that on the material available there was a suitably arguable case that Vedanta exercised a sufficiently high level of supervision and control at the Mine, with sufficient knowledge of the risk of toxic escapes, so as to owe a duty of care to the claimants; and that the analysis by the judge and the Court of Appeal of the underlying material to that effect was a conclusion which they were entitled to come to.

Was England the proper place to bring the claim against KCM?

The Supreme Court regarded this as the most difficult issue. There were two factors. First, the case involved multiple defendants domiciled in different jurisdictions. The second is that following the decision of the ECJ in Owusu v Jackson3 ("Owusu") it was no longer possible as a matter of EU law for the English Court to stay proceedings against the anchor defendant on the ground that the forum conveniens was elsewhere than England. The claimant can therefore proceed against the anchor defendant as a matter of right.

The Supreme Court noted that in cases since Owusu if the Court has found the claimant will in any event continue against the anchor defendant in England the avoidance of irreconcilable judgments of the English court (in relation to the anchor defendant) and a foreign court (in relation to the foreign defendant) had been in practice decisive in favour of England as the proper place for trial even where all, or the vast majority, of other factors pointed elsewhere.

However, in the Vedanta case there was a factor which troubled the Supreme Court. It was that both Vedanta and KCM had offered to submit to the jurisdiction of the Zambian courts so that the whole case could be tried there. This was not a reason to impose a stay on the claim against Vedanta since the decision in Owusu meant this could not be done. However it was potentially a reason for a stay of the claim against KCM.

In OJSC VTB Bank v Parline Limited4 a similar offer had been made by the anchor defendants to a claim whose centre of gravity was Russia. However the judge (Leggatt J) considered that this was not a reason to grant a stay of the claim against the foreign defendant; the entitlement of the claimant to proceed against the anchor defendants in effect trumped the power of the Court to stay the proceedings against the foreign defendant notwithstanding that the foreign court would otherwise be the appropriate forum.

Lord Briggs said that after "anxious consideration" he did not agree with Leggatt J; he concluded that the risk of irreconcilable judgments was not per se a reason not to stay the claim against the foreign defendant. The risk of irreconcilable judgments as a result of proceedings in two jurisdictions was a risk the claimant would have to take. It was a factor to take into account in the balancing exercise but was not the trump card.

The Supreme Court considered that, standing back, if substantial justice was available to the parties in Zambia it would offend common sense to think that the proper place for the litigation was England.

Substantial justice

That, however, left the issue of "substantial justice". Here the judge had concluded, after close analysis of the evidence, that the risk was not one of lack of independence or competence of the Zambian judiciary, or the absence of a civil procedure suitable for large group claims. Rather it was one of "access to justice": first, the funding of such claims and second the availability of experienced legal teams to deal with litigation of this size and complexity. These, the judge concluded, were not sufficiently available in Zambia. After review of the findings of the judge the Supreme Court concluded5 that the judge had had sufficient material to make the findings he did even if a different court or an appellate court might, on the same material, have come to a different conclusion.

Proportionality

In addition to these substantive findings Lord Briggs also made some strong remarks about proportionality. He said that the court had repeatedly raised concerns about the need for proportionality in jurisdiction challenges in particular in relation to appeals from the decisions of the first instance judge involving a lengthy and detailed review by the appeal court of the material before the judge. A particular reason, it was said, 6was that "in most cases they involve a contest between two competing jurisdictions in either of which the parties would obtain substantial justice. The exception, an issue whether substantial justice is obtainable in one of the competing jurisdictions, may require a deeper level of scrutiny not least … [because of the risk of] offending international comity". He concluded by emphasising that in relation to appeals7:

"Unless condign cost consequences are made to fall upon litigants, and even their professional advisers, who ignored these requirements" the court would be banging its head against a brick wall in relation to this subject.


Comments

  1. For claimants making environmental claims against a UK parent and its local subsidiary in a developing country, the decision is likely to assist them.The Supreme Court:

    (a)      placed emphasis on the high bar for striking out a claim as not disclosing a proper case to be tried;

    (b)      seems to have widened to some extent the circumstances in which claims can be pleaded against parent companies in respect of the negligent oversight of the conduct of their subsidiaries; and

    (c)      also noted that if there is evidence of local law relevant to the claim it may be difficult to challenge that evidence on a summary judgment test.

  2. In contrast, there must be a question as to whether in the "oligarch case" the English Court will in future be so ready to take jurisdiction over the foreign defendant.The anchor defendant may well be an insubstantial English company or perhaps one English domiciled defendant of relatively little importance whereas the real target may be individuals (or companies) domiciled outside the UK.If the foreign defendant is domiciled in the EU or a Lugano Convention state the issue will be governed by Article 8.1 or 6.1 of the Brussels Regulation or the Lugano Convention respectively i.e. that "the claims are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings …"8

  3. If the real centre of gravity of the dispute is some other jurisdiction then the defendants may well consider whether to seek a stay of the proceedings against them by all offering to submit to the jurisdiction of the foreign court so that it will be a one stop shop.In cases which involve an otherwise limited or minimal connection with England the court may, it seems, now be prepared to grant a stay against the foreign defendant(s).It will then be for the claimant to establish a lack of substantial justice in the "natural" jurisdiction.In the oligarch case that is unlikely to be a consequence of lack of access to justice for funding reasons but rather that the claimant will not get justice in the natural forum.Ironically this may favour those claimants who have the worst reputation in their own country, although no doubt some claimants can and will argue that for political reasons or the undue influence of the defendant substantial justice is not available there.

  4. The concern raised by Lord Briggs about proportionality in fighting jurisdiction disputes and in particular in relation to appeals is not new.However, there does sometimes seem to be a slight element of unreality about this.Although it has been said that London is a forum of choice for "oligarch" disputes, experience, and the law reports, show that that is not generally the case as far as defendants are concerned.Spending several hundred thousands of pounds9 in a dispute concerning English jurisdiction, particularly with its accompanying freezing orders and the like, may be regarded as a relatively cheap investment both for claimants (in maintaining jurisdiction) and defendants (in resisting it).It is of course right to emphasise the importance of the decision of the first instance judge (hence the importance to the parties of putting forward their best possible case at that level). But when the stakes are high on both sides, whilst it may be a matter to be visited in costs on the losing party, it is perhaps regrettable that it should be suggested that the legal representatives should be penalised for doing no more than seeking to exercise their client's rights either to seek or to resist English jurisdiction, and to appeal to the extent that English procedure permits.

  5. Finally, a Brexit thought.Key to the analysis of the Supreme Court is the mandatory nature of the jurisdiction against English domiciled defendants under Article 4 of the Brussels Regulation.That jurisdiction would be likely to fall away upon withdrawal.If it is replaced by the UK acceding to the Lugano Convention as has been suggested as a possible option then mandatory jurisdiction over English domiciled defendants will presumably remain.However, that may well not happen and, as matters stand it seems that in any event there would likely to be a gap between withdrawal and re-joining the Lugano Convention even if there was a soft Brexit.As the judgment records, following Owusu one eminent writer10 said that the "ship [of the availability of forum conveniens to an English anchor defendant] had sailed".It may well be that the ship will be returning to port11.


1 [2019] UKSC 20

2 Switzerland, Norway and Iceland

3 (Case C-281/02) [2005] QB 801

4 [2013] EWHC 3538 (Comm)

5 Even in the face of submissions on behalf of the Attorney-General of Zambia

6 At para [11]

7 At para [14]

8 Article 8.1 of the Brussels Regulation

9 Or even millions of pounds: see Tugushev v Orlov [2019] EWHC 645 (Comm)

10 Professor Adrian Briggs QC

11 But perhaps not Ramsgate

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