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26 Apr 2019

Opinio Juris (USA)

Implication of UK Supreme Court decision in Vedanta v. Lungowe for supply chain relationships

"Vedanta v. Lungowe Symposium: Potential Implications of the UKSC’s Decision for Supply Chain Relationships", 23 Apr 2019

In this post, I will focus on the implications of one of the central questions that the UK Supreme Court (‘UKSC’) addressed in its much-awaited Vedanta Resources PLC and anor v Lungowe and orsjudgment: whether the claimants’ pleaded a real triable issue against Vedanta. This issue very much boiled down to the question of whether a parent company may owe a duty of care to persons harmed by the actions or omissions of its foreign subsidiary. Relying on the basic tort of negligence principles, the UKSC held that such a duty by a parent company would not be a novel category [para.54]. The court affirmed the point made in earlier case law that there is no separate category of negligence for this type of parent-subsidiary-third party relationship. Rather, what was before the court was simply a matter of ‘whether A owes a duty of care to C in respect of the harmful activities of B’ [para.54]...

In deciding on whether Vedanta may owe a duty of care to the communities harmed as a result of the environmental pollution caused by the mining activities of its Zambian subsidiary, the UKSC focused on whether there was an arguable case that Vedanta sufficiently intervened in the management of the mine owned by its subsidiary [para.44]. For the UKSC, the most compelling indicator of a high level intervention was found in the public disclosures made by Vedanta in its sustainability reports which the Court considered an assumption of responsibility...

According to the UKSC, even if the parent company has not implemented in practice what it has disclosed in its public disclosures, it may still be considered to have assumed a duty of care [para.53]...

Implications for supply chain relationships

Several features of the UKSC’s analysis of the ‘real triable issue’ question shows that this judgment can have implications beyond parent-subsidiary relationships.

First, the UKSC emphasized (agreeing with Sales LJ in AAA and ors v Unilever PLC and anor) that the parent-subsidiary relationship did not give rise to a distinct category of negligence. It is not the parent’s ‘ownership’ of shares in a subsidiary that determines the level of supervision/control exercised for purposes of the duty of care assessment...