Holding company liability for acts of a subsidiary: Court of Appeal finds English court lacks jurisdiction on basis no duty of care owed

In the latest in a line of jurisdiction rulings in cases of so-called "class action tourism", the Court of Appeal has held that the English court does not have jurisdiction to hear tortious claims against two companies in the Unilever group, domiciled in the UK and Kenya respectively, arising out of alleged injuries suffered by individuals on the subsidiary's Kenyan tea plantation at the hands of third parties during post-election violence in 2007: AAA and others v Unilever PLC and Unilever Tea Kenya Limited [2018] EWCA Civ 1532. In doing so, the Court of Appeal has upheld the first instance decision, albeit on different grounds.

This is the second Court of Appeal decision this year in which a UK incorporated company and its overseas subsidiary have successfully challenged the jurisdiction of the English court to hear claims arising out of the operations of the subsidiary company abroad. Our discussion of the first decision, Okpabi and others v Royal Dutch Shell plc and another [2018] EWCA Civ 191, can be found here.  However, this remains a developing area of the law and it will be interesting to see whether the claimants will seek permission to appeal to the UK Supreme Court.

John Ogilvie, Damian Grave and Neil Blake, partners, Joanne Keillor, a senior associate, and Jake Savile-Tucker, an associate, in our disputes team consider the decision further below.

Background

The defendants/respondents were: (i) Unilever Plc ("UPLC"), a company incorporated in England; and (ii) Unilever Tea Kenya Limited ("UTKL"), a company incorporated in Kenya which owned and operated a tea plantation in Kenya (the "Plantation"). The claimants/appellants were 218 Kenyan nationals who were all employees or residents of the Plantation and victims of serious inter-tribal ethnic violence carried out by third parties on the Plantation following the Kenyan presidential election in 2007.

The claimants had alleged that: (i) the risk of this violence was foreseeable by the defendants; (ii) the defendants owed them a duty of care to protect them from the risks of such violence; and (iii) the defendants breached that duty of care.

As previously reported (see here), the High Court declined jurisdiction, finding that the three-part Caparo test for the imposition of a duty of care was not met, as the damage suffered was not foreseeable and it would not be fair, just and reasonable to impose a duty in any event. However, the court held (albeit obiter and "with some hesitation") that there was sufficient proximity between UPLC and the claimants.

On that basis Mrs Justice Laing found that there was no real issue to be tried between the claimants and UPLC, and without UPLC as "anchor defendant" there was no basis upon which to establish the English court's jurisdiction over the claim against UTKL (which the court considered had no real prospect of success in any event). She also said that if, contrary to her view, there were viable claims against both Unilever and UTKL, then England would be the appropriate forum to hear those claims.

The claimants appealed this decision on the basis of the High Court's findings in respect of the foreseeability and "fair, just and reasonable" limbs of the Caparo duty of care test. The defendants cross-appealed the findings in respect of proximity and appropriate forum.

Court of Appeal decision

The Court of Appeal (Sales, Gloster and Newey LJJ) unanimously dismissed the appeal by reason of a lack of proximity between the claimants and UPLC, allowing the respondents' cross-appeal. The result was that there was no anchor defendant for proceedings in England, and accordingly the court had no jurisdiction to hear the claims against UTKL.

No proximity

In considering proximity, the Court of Appeal found that it was necessary to examine in more detail than Laing J had done the evidence in respect of Unilever's corporate structure, the contemporary crisis management policies, the crisis management training programmes and the knowledge within the Unilever Group concerning crisis prevention and response.

It held that this evidence demonstrated that UTKL's business was managed locally by UTKL, which had the relevant experience in relation to local political or ethnic matters and that UTKL had devised its own crisis and emergency management policy and training programme without any specific direction or detailed advice from Unilever. On this basis, the Court of Appeal held that there was a lack of proximity.

Chandler v Cape

In considering the legal analysis of the proximity issue, the court held that there was no special doctrine in the law of tort of legal responsibility on the part of a parent company in relation to the activities of its subsidiary, vis-à-vis persons affected by those activities. Parent and subsidiary are separate legal persons each with responsibility for their own separate activities.

A parent company will only be subject to a duty of care in circumstances where the ordinary general principles of the law of tort are satisfied. The legal principles are the same as would apply in relation to the question whether any third party (such as a consultant giving advice to the subsidiary) was subject to a duty of care in tort owed to a claimant dealing with the subsidiary. In this context, the court emphasised that the case of Chandler v Cape constitutes "helpful guidance as to relevant considerations" only and "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".

The Court of Appeal identified two basic types of case where the test for a duty of care might be capable of being alleged in respect of a parent company:

1. 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; or
2. where the parent has given relevant advice to the subsidiary about how it should manage a particular risk.

In the present case, the claimants conceded that (i) was not applicable and, having reviewed the evidence, the Court found that the appellants were "nowhere near being able to show that they have a good arguable claim against UPLC" on the basis of (ii).

Foreseeability and fair, just and reasonableness

Lord Justice Sales, who handed down a unanimous decision on behalf of the Court, declined to address the other points raised in the appeal, including arguments in respect of foreseeability, and fair, just and reasonableness, stating that it "would serve no useful purpose" and would be "inappropriate" in circumstances where, if there is to be a trial, it would have to take place in Kenya and a Kenyan court would then be tasked with determining those issues.

Note: The Supreme Court refused permission to appeal in this case in July 2019.