This note introduces two cases, both concerned with liability under a duty of care of parent companies, the obligation of ‘due diligence’ in supply chain operations and the obstacles presented by the corporate structure. The two cases in question are Lungowe v Vedanta[1] (a UK case) and Jabbir and Others v KiK[2] (a case heard in Germany). First, I set out a very brief relevant background to each case, before considering a) the question of extra-territorial jurisdiction b) the problems posed by the corporate structure and the potential obligations created by the companies’ own codes of conduct.

Both cases are placed side by side in order to highlight the comparisons and contrasts between them in relation to both of these matters.

1. The cases

KiK

A fire at one of KiK’s main suppliers, Ali Enterprises (‘AE’) in Karachi had killed 258 people and injured many others.[3] The European Centre for Constitutional and Human Rights (ECCHRE),[4] argued that as the main customer of AE, KiK had a share of responsibility and linked this responsibility to ‘due diligence’ within the supply chain. KiK was the first case of this type to be brought to a German court and as such it created a great deal of expectation, both from victims and from German companies operating through subsidiaries abroad or involved in supply chain operations.

Vedanta

In 2015, 1826 farmers represented by British law firm Leigh Day commenced an action in the UK for continuous pollution of their water supply since 2004 against Vedanta Resources Plc (‘Vedanta’), the parent company, and Konkola Copper Mines (‘KCM’), the subsidiary. The jurisdiction of the English courts was challenged by Vedanta and KCM. On April 10 the Supreme Court, almost four years after the case began in the Technology and Construction Court, allowed the case to proceed.[5]

2. Extraterritorial jurisdiction, access to remedy

Access to justice, legal aid, procedural advantages, familiarity with class actions, higher damages and ease of enforcement of a potential decision are legal factors mentioned in cases where victims try to sue the parent company for actions related to activities of subsidiaries abroad.[6] Beyond legal considerations, victims think it is important to litigate in a place where investors and the public become aware of the actions of the company abroad. In KiK this awareness enabled the ILO-mediated negotiations between KiK and the victims of the AE fire.[7]

KiK

Establishing jurisdiction over a parent company domiciled in a European civil law system is easy. Article 4 of Brussels I Recast[8] allows claimants to bring a case in the court of the domicile of defendant. Once a court is seized, if the case falls within its remit, the court must accept jurisdiction (limited exceptions to this rule, can be found in the regulation).[9] Bringing the action against KiK in Germany was not a problem. The Dortmund court accepted jurisdiction based on KiK’s domicile in Germany and granted legal aid to the plaintiffs. No lengthy jurisdictional battles of the sort heard in the English court (and in other common law jurisdictions) took place.

KiK did not challenge the jurisdiction of the court. Instead, KiK challenged the court process in Germany on a technicality—it claimed that the action was time-barred. The victims and their lawyers are considering an appeal. Should this proceed and succeed, the outcome would offer a reassuring level of supply chain responsibility in the form of legal obligations, and not merely as a voluntary gesture.

Vedanta

In common law countries, the matter is not as simple because the courts have traditionally enjoyed a wide discretion over whether to allow service out or to stay existing proceedings articulated around the jurisdictional concept of forum non conveniens.[10] Despite the application of Brussels I Recast due to the defendant’s domicile in the UK,[11] jurisdictional battles began challenging service out on KCM on the basis that the UK was not ‘the proper place’ for the litigation. Vedanta, further, challenged the existence of a ‘real issue’ to be tried against them and suggested that the only reason to bring the case in the UK was to make them the ‘anchor defendant’ and henceforth bring KCM to the English courts.

3. How to infer a duty of care of parent companies and due diligence. A role for ‘soft-law’?

Vedanta and KiK are based on obligations of parent companies and due diligence in supply chain operations respectively. In both cases, liability may be imposed if the court finds there is a breach of the duty of care or of an obligation of due diligence to the subsidiary’s or supplier’s employees and to the general public.[12]

KiK

The action brought up by ECCHR against KiK relied on ‘proximity’ – as AE’s main client – and on the ‘assumption of responsibility’ due to what they described as ‘effective control’ which enabled AE’s workers to rely on upon KiK for the maintenance of a safe and healthy working environment.[13] In the wake of the fire, KiK offered a fund to compensate the victims but refused to acknowledge the existence of a legal responsibility to the employees of its supplier. Again, the insistence on voluntary actions and self-regulation, and the refusal to accept a legal commitment, were in full operation.

Vedanta

One of the main objections from Vedanta to the establishment of a duty of care was its own corporate structure even though their own report ‘Embedding Sustainability’ acknowledged a high degree of operational and supervisory standard setting between Vedanta Plc and KCM.[14] During the Supreme Court hearing Vedanta claimed that ‘the corporate structure itself ‘tends to militate against the requisite proximity’ making what the defence counsel deemed a ‘ludicrous demand of a right to not be responsible for the operations of a subsidiary.’[15]  Vedanta also insisted that this was not ‘a Chandler case’[16] only to be rebutted by Lord Justice Wilson and Lady Justice Black who clearly stated that although ‘there is not an automatic duty of care… one can be established if all other conditions are right’[17] showing an encouraging willingness to make an ‘incremental development of the law.’

Conclusion

The battle about where to litigate is often the hardest fought in extraterritorial cases. Most cases involving transnational companies are stalled at the jurisdictional stage without even proceeding to discuss the merits. This is the battleground where ‘lawfare’ and dilatory techniques can be used by transnational companies to force cash-strapped victims and their lawyers to settle or give up the case. This battle may challenge the court’s jurisdiction like Vedanta or, if that is not possible, exploit any other procedural rule like what happened in KiK.

The positive note from both cases is an increasing inclination from European courts to consider the legal implications of non-mandatory codes of conduct and companies’ published information in respect of their structure, working conditions, environmental and human rights standards and to use this information to infer a duty of care. The tension between enforceable principles and voluntary commitments from multinational corporations and in supply chain operations draws, moreover, on wider debates about the legal responsibility of multinational corporate actors, and the frameworks available to make this responsibility enforceable.

Elena Blanco is an Associate Professor of International Economic Law. Her work sits at the intersection between public and private international law, and revolves around, coloniality, post-capitalism, regulation of TNCs and the linked climate, environmental and democracy crises of neoliberal globalisation.

[1] Lungowe v Vedanta Resources Plc [2017] EWCA Civ 1528 (‘Vedanta’)

[2] Muhammad Jabir and others v KiK Textilien und Non-Food GmbH – 7 O 95 (‘KiK’).

[3] Id.

[4] https://www.ecchr.eu. ECCHR is a Berlin-based human rights organisation that battles injustice with legal intervention.

[5] Vedanta Resources PLC and Another (Appellants) v Lungowe and Others (Respondents) [2019] UKSC 20. Appeal from [2017] EWCA Civ 1528.

[6] E. Blanco & B. Pontin, ‘Litigating Extraterritorial Nuisances under UK Common Law and UK Statute’ (2016) 6(2) Transnational Environmental Law, pp. 285–308.

[7] https://www.ecchr.eu/en/case/kik-paying-the-price-for-clothing-production-in-south-asia/

[8] Regulation (EU) No. 1215/2012 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters [2012] OJ L 351/1.

[9] Id. Sections 7, 8 and 9.

[10] Spiliada Maritime Corp v Cansulex Ltd  [1986] UKHL 10 a doctrine used to correct jurisdictional rules but transformed into a weapon by multinational corporations cf infamous Judge Keenan decision in the Bhopal litigation.

[11] Which, according to Owusu v Jackson (Case C-281/02 [2005] QB 801) bars the application of forum non conveniens.

[12] See R McCorquodale on liability of parent companies and,  http://opiniojuris.org/2019/04/18/symposium-duty-of-care-of-parent-companies/

[13]https://www.ecchr.eu/en/case/kik-paying-the-price-for-clothing-production-in-south-asia/

[14] ‘Vedanta’s Billions: Regulatory failure, environment and human rights’ Foil Vedanta (2018)  http://www.foilvedanta.org/news/vedantas-billions-regulatory-failure-environment-and-human-rights-report-released/ Unlike many other cases where control may be factual but it is difficult to proof, Vedanta Plc owns, directly, 79.42% of KCM therefore satisfying the test of proximity.

[15] Id.

[16] Chandler v Cape plc [2012] EWCA Civ 525.

[17] Samarendra Das ‘Can Zambian claimants get justice in the UK?’ Report on the Supreme Court hearing in the case of Lungowe v Vedanta. (January 20, 2019) available at Foilvedanta.org