By Paul Davies, Michael Green, Samuel Pape and Charles Rae

In a recent decision, the High Court has ruled that Unilever plc (Unilever), the ultimate holding company of the Unilever Group, does not owe a duty of care to protect the employees and residents of a tea plantation owned and operated by a Kenyan subsidiary from ethnic violence carried out by armed third party criminals.

This decision is the third time in less than 12 months that an English court has considered a jurisdictional challenge to proceedings brought by foreign claimants seeking to hold a UK domiciled parent company liable for the alleged acts and omissions of an overseas subsidiary. Similar challenges were made in Lungowe & Ors v Vedanta Resources plc & Anor and more recently in Okpabi & Ors v Royal Dutch Shell plc & Anor with the courts reaching opposite conclusions on their respective facts. Our blog on the decision in Okpabi can be found here.

These cases are significant in the context of multinational corporate groups and the circumstances in which a parent company may be held liable in negligence for the actions and omissions of its subsidiaries.

Court decision

The claims in this instance were based on an alleged duty of care owed by Unilever to those working or living on the tea plantation owned by its Kenyan subsidiary. Applying the three stage test in Caparo v Dickman (reasonable foreseeability; relationship of proximity and whether the imposition of a duty would be fair, just and reasonable), the court held that the first and third limbs of the test could not be satisfied and as a consequence the claim against Unilever was “bound to fail”.

On the first limb, although there had been ethnic violence in the past in Kenya, the scale and ferocity of the events which occurred at the plantation were unprecedented. It was therefore inconceivable that Unilever, which was based thousands of miles away, should have foreseen the loss and damage caused to the claimants. On the third limb, the court held that there was no prospect of the claimants succeeding in establishing that the imposition of a duty of care on Unilever in the circumstances would be fair, just and reasonable given that the effect of such a duty would be to require Unilever to act as a “surrogate police force to maintain law and order” and result in Unilever being subject to obligations wider than the statutory duty imposed on its Kenyan subsidiary as occupier of the plantation.

Although it was not strictly necessary given the conclusions on the first and third limb, the court also considered whether the second limb of the Caparo test (proximity) raised a real issue or whether it too was bound to fail. The claimants had argued that a finding that the relationship between Unilever and the claimants was sufficiently proximate to give rise to a duty of care was arguable based on the principles set out by the Court of Appeal in Chandler v Cape. In this regard, the claimants alleged that publically available documents including Unilever’s memorandum of association and group policies relating to health, safety and risk management demonstrated that Unilever had played an active role in managing its subsidiary’s affairs.

The court, “with some hesitation”, accepted the claimants’ submission that this aspect of the claim was not bound to fail, noting, among other things that:

  1. the decision in Chandler shows that a parent company may, on appropriate facts, and even though it does not exercise complete control over the operations of its subsidiary, be responsible for the health and safety of employees of the subsidiary, in particular where the parent knows that the system of work operated by the subsidiary is unsafe; and
  2. in theory, it is arguable that a claim against the parent company might succeed, based on the documents by which the parent company has sought to exercise control over the management of its subsidiary and of its various policies.

This conclusion is in contrast to the decision in Okpabi in which Mr Justice Fraser struck out the claim against the parent company on the basis that it was “bound to fail”. In that case, it was held that the mere existence of group wide policies or public disclosures made by multinational companies in the context of meeting listing obligations are not of themselves sufficient to support the imposition of a duty of care on the parent.

Implications for multinationals

As all three decisions are under appeal, the scope and application of the Chandler principles in litigation involving multinational corporate groups are set to be revisited later this year. In the meantime, the decision in this case serves to reinforce the importance of companies ensuring that corporate separateness is observed on paper and in practice across multinational groups given the increased scrutiny of publically available information and group structures.