Two out of three: the Court of Appeal rules in favour of multinational parent company (again)

Posted: 30/11/2018

The Court of Appeal has recently ruled for the second time, in AAA & others v Unilever Plc and Unilever Tea Kenya Limited [2018] EWCA Civ 1532, that an English multinational parent company cannot be held liable for acts of its foreign-registered subsidiary.

This is the third judgment handed down in the past 12 months on this subject, with two of the three sets of claimants failing to convince the Court of Appeal either that a duty of care should be imposed on the parent company, or that (consequently) the English courts should have jurisdiction.  In each case (Lungowe v Vedanta Resources Plc [2017] EWCA Civ 1528; Okpabi v Royal Dutch Shell Plc [2018] EWCA Civ 191; and now Unilever), the Court of Appeal carried out a detailed examination of the factual evidence including, critically, the degree of control that the parent company had over the acts and omissions of its foreign-registered subsidiary. 

Background

A group of claimants (made up of employees and former employees of Unilever Tea Kenya Limited (UTKL), along with their relatives also residing on UTKL’s tea plantation) sought to bring proceedings in England against both UTKL and Unilever Plc (Unilever), its ultimate holding company at the time of the relevant events. 

The dispute arose out of inter-tribal violence which occurred in Kenya following the 2007 presidential election, during which the claimants were targeted by ‘marauding mobs’ on the tea plantation operated by UTKL. Sadly, the acts of the mobs resulted in murders, rape, and other violent assaults, and caused serious damage to property. 

The claimants argued that UTKL and Unilever each owed them a duty of care in tort to take appropriate steps to protect them from this violence, and that those duties of care had been breached. 

To establish that England was the correct jurisdiction in which to bring the claims, it was necessary for the claimants to demonstrate a good arguable case against Unilever to allow the claim against Unilever to be brought in England.  Unilever might then act as anchor defendant enabling the claim against UTKL, as a necessary or proper party to the proceedings, to also proceed in England. 

The High Court decision

The Honourable Mrs Justice Elisabeth Laing found at first instance that the claimants had no arguable claim against either defendant, because they could not have foreseen the damage suffered by the claimants, meaning that the three-stage test to establish a duty of care, as set out in Caparo Industries Plc v Dickman [1990] 2 AC 605, could not be satisfied. The three-part test is:

• whether the damage is foreseeable;
• where there is a sufficient relationship of proximity between the parties; and
• whether it would be fair, just and reasonable in all the circumstances to impose a duty of care.

Based on the facts, not least that the plantation was self-contained and extensive, and that there was no evidence that anything remotely comparable had taken place on UTKL’s land before, the judge held it was not foreseeable that post-election violence of this kind would spill into the plantation. 

In relation to Unilever specifically, the judge also held that it would not be fair, just and reasonable to impose a duty of care, since it would have in effect required Unilever to act as a surrogate police force to maintain law and order, when in fact Unilever had been entitled to rely on the Kenyan police force to do so. 

The judge did find, nonetheless, that there was a sufficient degree of connection between the activities of (and omissions to act by) Unilever, as the ultimate holding company of UTKL, and the damage suffered by the claimants, so as to satisfy the test of proximity in accordance with guidance provided by the Court of Appeal in Chandler v Cape Plc [2012] EWCA Civ 525.

However, as the three-stage Caparo test was not satisfied, the judge held that the claims were “bound to fail”. 

Appeal

The claimants appealed Laing J’s ruling that neither Unilever nor UTKL owed the claimants (now the appellants) a duty of care.  In response, Unilever and UTKL put in a notice:

• arguing that the judge should have found that there was no duty of care owed by Unilever on the additional ground that, contrary to her view, there was no proximity between Unilever and the appellants in respect of the damage suffered by them; and
• challenging the judge’s finding that, if viable tort claims existed against Unilever (as an anchor defendant) and UTKL, England was the correct jurisdiction to determine the claim. 

Court of Appeal decision

Lord Justice Sales, Lord Justice Newey and Lady Justice Gloster DBE were unanimous in dismissing the appellants’ argument on grounds of lack of proximity.

On a closer examination of the factual evidence, it became clear that the UTKL management team were self-sufficient: they did not have cause to refer to anyone else within the Unilever group for advice about either the running of the plantation or its relations with the local community in Kenya.  Indeed, it was found that by 2007, there was no one else in the Unilever group outside of UTKL with relevant expertise or experience, because by then the group had become almost exclusively a consumer goods business, and Unilever did not have superior knowledge or expertise about local political or ethnic matters.

On inspection of the key documents, it was found that Unilever set group-wide policies that, according to the group's risk management policy, had been developed "to provide a set of mandatory rules designed to ensure consistency in key areas within our world-wide operations", and covering "operational or functional matters in respect of which they govern how we run our business”. Responsibility for implementing these policies, including the group’s crisis management policy, fell to the national and regional managers, who were required to ensure that all operating units within their jurisdiction were covered by appropriate crisis management plans.

UTKL, which produced its own accounts for 2007 (independent to those of Unilever), prepared its own ‘Crisis and Emergency Management’policy in accordance with Unilever’s group-wide policies. This policy envisaged two crisis events: ‘Country instability’ (including civil unrest associated with elections) and ‘Riot and Ethnic Clashes’.

The evidence also showed that UTKL carried out its own crisis management training programme, and received no assistance or guidance from Unilever when preparing its own policies or training its staff.

In addition, UTKL’s then managing director wrote to Unilever in November 2007 to give assurance, as was required, that he had reviewed all the risks to which his operating unit (which included UTKL) was exposed, and that relevant actions to meet risks had been identified and included in strategic and operational plans in relation to that unit. As Sales LJ observed: “Unilever did not dictate or advise upon the terms of these plans, but simply sought and was given assurance that an appropriate policy was in place at the relevant level.”

In light of the evidence explored by the Court of Appeal judges, it was held that the appellants were“nowhere near being able to show that they [had] a good arguable claim against Unilever”. It was clear from both witness and documentary evidence that “UTKL did not receive relevant advice from Unilever in relation to such matters.” Instead, “UTKL understood that it was responsible itself for devising its own risk management policy and for handling the severe crisis which arose in late 2007, and…it did so.”

The appellants’ argument therefore failed by reason of lack of the necessary proximity to impose a duty of care on Unilever, which also meant that there was no anchor defendant to enable proceedings against UTKL to be brought in England.  For that reason, the judges decided not to deal with the other issues raised in the appeal, with Sales LJ, who gave the approved judgment, explaining that “It would serve no useful purpose to do so. Indeed, it would be inappropriate to do so.” If there was to be a trial, “it will have to take place in Kenya against UTKL and against Unilever, if the appellants are able to join it in proceedings in Kenya. In those circumstances it is far better that we leave issues of foreseeability and what was fair, just and reasonable in terms of imposition of duties of care regarding events in Kenya in 2007 to the Kenyan courts, which are obviously more familiar with Kenyan society than we are, rather than trying to express opinions about them ourselves. The Kenyan courts will also be better placed than we are to rule upon the effect of the Kenyan Occupiers Liability Act, on which the appellants seek to rely in framing their case in tort against UTKL. Accordingly, we express no opinion in relation to the judge's reasoning on these issues.”

Commentary

This case is the second recent example of the Court of Appeal being reluctant to impose a duty of care on a parent company for acts or omissions carried out by its foreign-registered subsidiary. It is clear that in order to establish such a duty, the general principles of the law of tort must be satisfied (applying the three-part test in Caparo Industries Plc v Dickman). As Sales LJ stated in his judgment: “Helpful guidance as to relevant considerations was given in Chandler v Cape Plc; but that case did not lay down a separate test, distinct from general principle, for the imposition of a duty of care in relation to a parent company.”

Sales LJ went on to give two helpful examples as to when such a tortious claim against a parent company might be appropriate. First, “where the parent has in substance taken over the management of the relevant activity of the subsidiary in place of…or jointly with… the subsidiary's own management” and second, “where the parent has given relevant advice to the subsidiary about how it should manage a particular risk.”

The cases of Chandler v Cape Plc, Vedanta Resources and Okpabi were all said to fall into the first category. The appellants argued that their case fell within the second category, ie they alleged that they relied on advice given by Unilever to UTKL regarding the management of risk in respect of the political climate in Kenya. Based on the evidence presented however, the judges did not agree.   

It is particularly salient that the Court of Appeal deemed it necessary to examine the factual evidence in considerably more detail than the first instance judge had done in her judgment, not least to fully deal with the proximity arguments raised by the appellants. It is a salutary lesson that factual evidence filed in similar cases in support of the legal position must be as detailed as possible, as the recent cases demonstrate that the specific facts of a particular case will be crucial to the outcome (as was demonstrated in Lungowe).

It is normal practice for multinational parent companies to set group-wide policies and frameworks to ensure compliance across the group. Those companies would be wise to impose group-wide policies in a manner such that each subsidiary implements the policies through its own management structure, in order to avoid the parent company effectively taking control of and responsibility for individual subsidiaries, which could inadvertently lead to a duty of care being imposed on the parent company.

In addition, multinational parent companies should bear in mind the potential implications of the jurisdictions where their holding companies are registered – those based in favourable jurisdictions could well find themselves the subject of ancillary claims, in a bid to use them as an anchor defendant. 

This area of case law remains uncertain, not least due to the Court of Appeal’s conflicting decision in Lungowe (where a duty of care was established). However, the Supreme Court has granted permission to hear a direct appeal in Lungowe, which should soon provide some welcome guidance at the highest level.  Having said that though, what is clear is that this is a very fact-specific area of law with each case turning on its own unique facts. There are therefore no easy answers, and a detailed analysis of the facts will be required in each case to determine the extent to which the parent company assumed control over the acts or omissions of the subsidiary in question.

This article was published in New Law Journal in November 2018.

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