It has been a few months since the Supreme Court handed down its much-anticipated judgment in Lungowe v Vedanta on the potential scope of parent company liability for the tortious acts or omissions of foreign subsidiaries.


See our summary of Vedanta here. Vedanta now looks set to be the final word on the subject from the Supreme Court for the foreseeable future because the claimants in a similar case (AAA v Unilever) have been refused permission to appeal from the decision of the Court of Appeal. See our summary of Unilever - here.

The refusal of permission to appeal in Unilever is perhaps surprising, given that the reasoning of the Court of Appeal in that case differed in two important respects from the Supreme Court's authoritative statement of the law in Vedanta. We explain why in the final section of this Note.

However, on the facts of Unilever, the likelihood is that these distinctions in reasoning will be of most interest to lawyers. It is unlikely that they would have made a difference to the substantive decision in Unilever

Managing multinational operations

The Supreme Court decision in Vedanta remains the definitive statement of the law, albeit that the decision (which related to a jurisdiction challenge only) has not yet been applied substantively by a lower Court. For now, the practical guidance for parent companies in multinational groups remains to:

  • Avoid seeking directly to exert operational control through direct intervention in the management of a subsidiary's affairs.
  • Exercise instead operational supervision of the activities of subsidiaries, through establishing group wide policy frameworks and codes of practice. 
  • Ensure competent, autonomous and empowered management of subsidiaries, who are themselves responsible for implementing group policy frameworks or codes of practice

Supreme Court in Vedanta and Court of Appeal in Unilever compared

The Court of Appeal's judgment in Unilever proceeded on the basis that the legal test for whether a parent company owed a duty of care to those harmed by the tortious acts or omissions of a subsidiary was to apply what is known as the Caparo three stage analysis (referring to the decision of the House of Lords in Caparo Industries v Dickman). This approach was expressly discredited by the Supreme Court in Vedanta, which preferred instead to ask whether the parent company had "undertaken a sufficiently close intervention into the operation of the [activities of the subsidiary] to attract the requisite duty of care". In doing so, the Supreme Court adopted an amalgam of the reasoning in Home Office v Dorset Yacht and the "assumption of responsibility" test from Hedley Byrne v Heller & Partners

It remains to be seen how lower Courts will grapple with the new approach of the Supreme Court in Vedanta, which displaces what had appeared to be a settled position in the Court of Appeal in three similar cases (Unilever, Vedanta case and another Court of Appeal decision, (not appealed) Okpabi v Shell). On the facts of Unilever, it seems unlikely that the new approach would have made any difference to the outcome.

The Supreme Court also took a novel approach to the question of whether England was the proper place for claims to be brought against a foreign subsidiary. Displacing the presumption that had previously existed that the risk of inconsistent judgments would in most cases present an insuperable obstacle to the claims against foreign parties proceeding elsewhere (where an arguable case existed against the English "anchor defendant"), the Supreme Court advocated a more balanced consideration of various factors (location of evidence and witnesses, applicable law for example) where the English parent company had agreed to submit to the jurisdiction of the local Courts of the foreign subsidiary. Again, given the decision on the duty of care question in Unilever, this difference of approach is unlikely to have made a difference.

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Gareth Jones

Gareth Jones

Legal Director, Dispute Resolution
Leeds

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Key contact

Kate Menin

Kate Menin

Principal Knowledge Lawyer, Dispute Resolution
London

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