Vedanta v. Lungowe Symposium: Foreign Direct Liability Cases in England After Vedanta

[Claire Bright is a Max Weber Fellow at the European University Institute and a Research Fellow in Business and Human Rights at the British Institute of International and Comparative Law.]

In the Vedanta case, the claimants relied on Article 4.1 (combined with Article 63) of the Brussels I Recast Regulation to establish the jurisdiction of the English courts over the parent company since Vedanta is domiciled in England. The provisions of the Brussels I regulation are mandatory in nature, which means that the domestic courts of an EU member state are required to accept jurisdiction over the claims against a defendant domiciled in their territory as confirmed by the ECJ in the case of Owusu v Jackson.

However, the scope of the Brussels I Regulation is limited to EU domiciled defendants, and residual jurisdiction over third state defendants such as foreign subsidiaries of EU based companies is to be determined pursuant to the private international law rules of the forum.

As against the Zambian subsidiary, the claimants relied on English private international law to establish the jurisdiction of the English courts, and more specifically on the “necessary or proper party” gateway of the English procedural code (paragraph 3.1 of CPR Practice Direction 6B).

On the question on the abuse of EU law, the Supreme Court (SC) relied on the factual findings of the lower courts that the claimants genuinely wished to obtain damages from Vedanta, especially considering the doubts around the actual solvency of KCM, and that, whilst the opportunity to sue KCM as well in England by using Vedanta as an anchor defendant was an important part of their motivation, it was not their sole motive, and concluded that their claim did not constitute an abuse of EU law.

The SC also found that there was a real issue to be tried against Vedanta and that it was “well arguable that a sufficient level of intervention by Vedanta in the conduct of operations at the Mine may be demonstrable at trial” (para 61). This extremely significant aspect of the decision has already been analysed in depth McCorquodale, Cassel and Anil Yilmaz.

The SC then turned to the question of whether England was the proper place in which to bring the claim against KCM. Here, the SC disagreed with the courts below that had found that where claimants have a right to sue an English domiciled parent company under Article 4.1 of the Brussels I Recast Regulation, then England will normally be the proper place in which to bring a closely related claim against third state defendants such as foreign subsidiaries of that company in order to avoid the risks of conflicting judgments about the same matter, irrespective of the strength of the connecting factors between the claims and the place where that other defendant is domiciled. Here, the SC sent a clear message to future claimants in foreign direct liability cases encouraging them to avoid the risk of irreconcilable judgments by not exercising their right under Article 4.1, and instead bringing proceedings against both corporate defendants in the host State, so long as substantive justice is available there (paras 78-79).

In this respect, the court found particularly relevant the fact that Vedanta had offered to submit to the jurisdiction of the Zambian courts. However, cases like the Chevron case has shown that submitting to the jurisdiction of the host state court will not prevent the corporate defendant to challenge the validity of the decision in the enforcement stages, preventing victims of corporate human rights abuses from access to a remedy.

The SC affirmed that avoiding the risk of conflicting judgment was not a trump card and had to be balanced against the connecting factors. However, in practice, the connecting factors will invariably point towards the host State in this type of foreign direct liability cases. And indeed in the Vedanta case, the SC referred to the trial judge’s conclusions that the connecting factors – which included the applicable law, the place where the wrongful act or omission occurred the place where the damage occurred and where the Mine was operated, and the place where the claimants, witnesses and majority of evidence were based – overwhelmingly pointed towards Zambia, to conclude that Zambia would normally have been the proper place to bring the litigation:

“if substantive justice was available to the parties in Zambia as it is in England, it would offend the common sense of all reasonable observers to think that the proper place for this litigation to be conducted was England“. 

 Although the mandatory nature of the Brussels I Recast provisions remains, arguably at least, intact, in practice, claimants making use of Article 4.1 post-Vedanta will be penalised as the risk of irreconcilable judgments argument will no longer get much traction in determining whether England is the proper place to bring their claims.

The SC allowed the complaint to proceed in English courts solely on the basis of the trial judge’s finding that there was a real risk that claimants would not have access to substantial justice in Zambia on the basis of the absence of a means of funding group claims in circumstances where the claimants were all in extreme poverty in Zambia and the lack of legal teams with the necessary experience and resources to take on this type of complex litigation.

As a result, in future foreign direct liability cases, proving the existence of a real risk of the lack of access to substantive justice in the host state – similarly to the doctrine of forum necessitatis – will effectively be the only way of bringing foreign subsidiaries of English based corporations into the proceedings in England. However, despite the fact that insufficient access to justice in host state propels many foreign direct liability case, it may not be an easy task for the claimants to prove the existence of that risk whilst “having due regard to considerations of comity and the requirement for cogent evidence” (para 96.)

The attitude of the SC hence seems contradictory. On the one hand, the court deplores the disproportionate way in which the jurisdictional issues have been litigated and the voluminous pleadings at such an early stage of the legal proceedings (i.e. prior to cross-examinations and discovery), and, on the other hand, the SC adds a new jurisdictional hurdle. In a recent study for the European Parliament, the author (together with Axel Marx and Jan Wouters) highlighted that jurisdictional hurdles often constitute one of the main obstacles to accessing legal remedies faced by claimants in foreign direct liability cases.

More jurisdictional hurdles are yet to come as it is to be expected that after Brexit, when England is no longer subject to the jurisdiction of the European Court of Justice, the doctrine of forum non conveniens will be reintroduced so that English courts will be able to stay proceedings as against English domiciled defendants as well as their foreign subsidiaries. However, reintroducing the doctrine of forum non conveniens to ensure that foreign direct liability cases are litigated in host states would not only accentuate the imbalance of power between parties and the risk that access to remedy will not be obtained by the claimants – as many cases have illustrated since the Bhopal case – but would also constitute an obstacle to access to justice in itself by creating unnecessary delays and added legal costs.