Insights

Will Australian courts follow the UK holding parent companies liable for harm caused by subsidiary companies?

The fascinating and compelling decision in Vedanta Resources PLC v Lungowe [2019] UKSC 20, delivered 10 April 2019, involved a procedural dispute over whether litigation relating to pollution in Zambia could be tried in the English Courts.

The judgment is significant for multinational UK parent companies with operating companies in the most underdeveloped countries, but also potentially has important implications for Australia.

Amongst a number of issues that it resolved, Vedanta applied earlier UK caselaw (especially relevant was Chandler v Cape PLC [2012] EWCA Civ 525) to find a parent company could be liable for harm caused by a subsidiary company under normal principles for establishing a duty of care where the parent company exercised a sufficiently high level of supervision and control of the activities of the subsidiary.

The decision has attracted numerous commentaries, including multiple online casenotes at Norton Rose Fulbright, UKSC blog, Blackstone Chambers, Hill Dickinson, Baker & Partners, Macfarlanes & Gowling WLG.

No Australian courts have yet applied Vedanta and there has been little reference even to Chandler but the decisions seem likely to influence the future direction of liability of parent companies in Australia.

In contrast to the UK courts, Australian courts have been very reluctant to pierce the corporate veil by holding parent companies liable for harm caused by subsidiary companies.

Former Chief Justice of Victoria Marilyn Warren examined this judicial reluctance in a fabulous 2017 article, “Corporate Structures, the Veil and the Role of the Courts” (2017) 40 Melbourne University Law Review 657. Her Honour compared the UK approach in Chandler with Australia and wrote:

“If we compare Chandler and the Australian cases, it is evident that the English law has taken a more generous approach when delimiting the circumstances in which it will consider imposing a duty of care on a parent company. … the key difference between the English and Australian approaches is not so much the different tests applicable for duty of care, but rather a difference in attitude towards imposing direct liability on parent companies. The approach in the Australian cases is rooted in a reluctance in corporations law to lift the corporate veil, and thus sets the bar high for the parent–subsidiary relationship that would give rise to a duty of care on the part of the parent. The approach taken by the Court of Appeal of England and Wales in Chandler, on the other hand, applies tort law without as much regard to the consequence that the imposition of a duty of care on the parent could have the practical effect of circumventing the separate legal status of group companies.”

Speaking of criticisms of the UK approach, her Honour noted (omitting references):

“One of the challenges of these cases is that they lie ‘at the hazy intersection of company and tort law, where bedrock principles such as limited liability, separate corporate personality, and traditional principles of negligence collide.’ Tort law’s objectives, including providing compensation for loss and injury and deterring wrongdoing, sit uneasily with the principle of limited liability where a company is unable to meet a judgment debt or it has been liquidated.”

And in response to criticisms about opening the floodgates, her Honour pointed to the practical reality of the difficulty of cases against parent companies:

“I think it needs to be remembered that this kind of litigation against a parent requires the plaintiff to provide a considerable amount of evidence about the parent–subsidiary relationship and the control the parent exerts over the subsidiary. This is no easy task in many cases, particularly where the events in question, as in asbestos cases, occurred many years ago. This factor, I think, reduces the likelihood of regular tort proceedings against parent companies for the activities of their subsidiaries; rather, it seems to me that they would be a proceeding of last resort for plaintiffs.”

There remain substantial obstacles to Chandler and Vedanta influencing Australian law, where, her Honour noted:

“The Australian experience has certainly been that direct parent liability has almost completely fallen off the radar, although much of that can probably be attributed to the narrow approach taken by the Australian cases.”

So, while the reasoning in Chandler and Vedanta is clear, compelling and attractive, ultimately, their influence in Australia remains to be seen.

But, at the very least, Australian lawyers should be aware of them and the possibility that direct parent liability can be brought back on the radar in the right case.

 

Dr Chris McGrath

Barrister

Higgins Chambers

19 June 2020