This piece was first featured in FromCounsel's Current Awareness email service on 6 August 2018.
Nigel Dougherty of Erskine Chambers comments on the Court of Appeal’s decision in AAA v Unilever plc
The decision of the Court of Appeal confirms that the legal principles for establishing a duty of care between the claimants and a parent company, with respect to the conduct of its subsidiary’s affairs, are the same as would apply as against any other third party. Chandler v Cape Plc [2012] EWCA (Civ) 525 did not establish any distinct doctrine of English tort law that provides a different test so far as it concerns a parent and a subsidiary company. Accordingly, to establish the existence of a duty of care owed by the parent company, it is necessary for a claimant to establish foreseeability, proximity and reasonableness.
At first instance in Unilever, Laing J had found that ‘proximity’ was established, although she held that the requirements of foreseeability and reasonableness had not been made out. In the Court of Appeal, the focus was on whether proximity could even be established. Even though the parent company had a number of group-wide policies as to risk management - and had received some advice on the political risks in Kenya - this was all done in very general terms. There was nothing to suggest that Unilever had sought to dictate or advise the subsidiary company over the management of local political risks. Indeed, all the relevant expertise relating to the management of those risks was within the relevant subsidiary in Kenya.
Unilever is therefore another example of the Court making clear that establishing a duty of care between a foreign claimant and an English parent company will require the Caparo (Caparo Industries Plc v Dickman [1990] 2 AC 605) test to be met.
On other facts, as in Lungowe v Vedanta Resources Plc [2017] EWCA Civ 1528, such a duty might arguably be established. On the facts of cases such as Unilever, Thompson v The Renwick Group Plc [2014] EWCA Civ 635 and Okpabi v Royal Dutch Shell Plc [2018] EWCA Civ 191, the claimants could not make out an arguable case that such a duty of care existed.
At present, claimants face a high evidentiary burden at an early stage of proceedings, at a time when they may not have any access to all the relevant corporate documentation which might be necessary to establish a fact such as ‘operational control’ by a parent company. Further, as Unilevershows, even the fact that group-wide operational policies and practices exist does not, of itself, serve to establish ‘proximity’. While these points are likely to be a comfort to UK-headquartered multinationals, it is likely that litigants - in particular, mass-tort claimants - will still look to ‘anchor’ proceedings in England, against an English parent company - if they can hope to establish, or can sensibly argue, the existence of a duty of care.
Given that the inquiry into the existence of a duty of care is necessarily fact-sensitive, it is not possible to offer a definitive indication of the circumstances that the court will have regard to in deciding whether or not such a duty can be established. In Shell, it was suggested that a parent company might owe a duty of care where: (a) the parent has effectively taken over the management of the subsidiary’s operations in place of, or jointly with, the subsidiary’s own management; and/or (b) the parent gave specific advice to the subsidiary about how it should manage a particular risk. Clearly, UK multinationals will want to avoid such behaviour as a means of avoiding a potential liability.
However, Unilever is unlikely to be the last word on this issue. On 23 March 2018, the defendants in Vedanta (UKSC 2017/0185) obtained permission to appeal to the Supreme Court. The claimants in Shell have also sought permission to appeal to the Supreme Court (UKSC 2018/0068). It is not known whether the claimants in Unilever will also seek, or obtain, permission to appeal. Whether they do so or not and howsoever it happens, it may be expected that the Supreme Court will soon have the chance to provide its views on this important issue.
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AAA v Unilever Plc [2018] EWCA Civ 1532 is an appeal from AAA v Unilever plc [2017] EWHC 371 (QB) (see FC Feature 27 October 2017 for counsel’s comment on that and similar cases on parent company liability, and FC Feature 2 March 2018 for further developments).
The case concerned an allegation that Unilever and one of its subsidiaries failed to have in place adequate plans to protect against violence that occurred on a tea plantation.
The High Court held that: (a) the damage suffered by the appellants was not foreseeable by either defendant; and (b) it would not be fair, just and reasonable to impose a duty of care as that duty would have required the defendants to act as a surrogate police force. These findings were appealed, and Unilever put forward that the judge should further have found that there was no duty of care owed on the basis that there was no proximity between Unilever and the appellants in respect of the damage suffered.
The Court of Appeal considered that there was no basis to call into question the evidence that the risk management policy was framed at the local level and Unilever played no role in the formulation of that policy.
There were two basic types of case where a parent might have taken action of a kind capable of meeting the relevant test for imposition of a duty of care: (a) where the parent has in substance taken over the management of the relevant activity of the subsidiary in place of the subsidiary's own management; or (b) where the parent has given relevant advice to the subsidiary about how it should manage a particular risk.
The court dismissed the appeal, stating that the appellants were ‘nowhere near being able to show that they have a good arguable claim against Unilever on this basis’.