Funding mass tort claims against multinationals - Vedanta, Shell and Unilever

Summary

The costs regime in England makes it an attractive forum for claimants who might otherwise be unable to afford proceedings in their home jurisdictions. In three recent claims brought against Vedanta, Shell and Unilever, the High Court suggested that overseas claimants can establish jurisdiction in England against English-domiciled parent companies for torts allegedly committed by overseas subsidiaries. If endorsed by the Court of Appeal, then we are likely to see further, similar mass tort claims, not least because they are lucrative for the claimants’ lawyers who share in successful claims but are not exposed to defendants' costs should the claimants fail.

Background

• Lungowe v Vedanta Resources Plc [2016] EWHC 975 (TCC) concerns claims brought by 1,826 Zambian villagers against the mining giant for alleged pollution and environmental damage caused by the Nchanga copper mine.
• In His Royal Highness Okpabi v Royal Dutch Shell Plc [2017] EWHC 89 (TCC), two Nigerian communities brought claims against Shell for damage caused by spills from an oil pipeline.
• In AAA v Unilever Plc [2017] EWHC 371 (QB) employees at a tea plantation sought damages for Unilever’s failure to protect them against political violence after the Kenyan elections.

In all three sets of proceedings, claims were brought against an overseas subsidiary and an English-domiciled parent. The fact that the claimants and primary tortfeasors were located overseas and the alleged torts were committed overseas would suggest the claims should be tried overseas. However, the High Court held in Vedanta that because the Claimants could evidence some degree of control by the English-domiciled parent over its subsidiary, jurisdiction could be established against the parent in England and Wales and the overseas subsidiary joined as a necessary and proper party. The court in Vedanta expressed doubts about the merits of the Zambian villagers’ claims but made it clear that the evidential hurdle for jurisdiction is low: their claims need only be arguable. Vedanta’s submission that this was simply a “device” or “hook” to bring proceedings in England was to no avail.

The High Court in Shell and Unilever adopted the theoretical approach in Vedanta but declined jurisdiction on the facts. In Shell the Claimants could not show the requisite level of control by Royal Dutch Shell plc over its Nigerian subsidiary - see our elexica article. In Unilever the Claimants sought to impose a wider duty of care on Unilever plc than that pleaded in Vedanta, in that they submitted that Unilever plc should have protected its subsidiary’s employees against criminal acts committed by third parties.

Costs

The same solicitors act for all three classes of claimants under Conditional Fee Agreements (CFAs). In their home jurisdictions, where the legal systems and costs regimes may be less developed, it is unlikely that the claimants would be able to afford to bring their claims at all. The availability in England and Wales of funding arrangements such as CFAs, Damages Based Agreements (little used at present) and a variety of third party sources of funding enables claimants to bring their claims here.

Whilst third party funders may find themselves on the hook for the costs of litigation which they have funded (see our article on third party funding), this is rarely the case for advisors acting on a CFA. This is therefore relatively low risk for claimants and solicitors. Law firms are incentivised to find and run such claims under a CFA because they stand to benefit from a significant fee uplift in the event of “success” (as defined in the relevant CFA) and are not exposed to the defendant’s costs in the event of failure.

If the Court of Appeal agrees with the High Court’s approach to the rules on jurisdiction options remain for defendant companies faced with claims of this sort, particularly through applying for security for costs. Orders for security for costs can be made against third parties to litigation, such as funders, if the third party is contributing towards the claimants’ costs in exchange for a share in any recovery should the claim succeed. Where there is no funder, but a CFA, the claimant’s lawyers cannot be forced to pay security for costs, but an application against the claimants could still succeed. Many parties using a CFA also have After The Event insurance against an adverse costs order and an application for security for costs can at the least test whether that policy is likely to pay out in the event of the claim failing. A successful application can remove much of the costs risk of fighting the claim, though obviously not the risk of attendant negative publicity and the necessary management time involved in litigation.

Commentary

The Vedanta and Shell decisions have both been appealed and it now falls to the Court of Appeal to determine the jurisdiction question.

Although the judgments may seem technical, the implications are significant and we are monitoring the appeals with interest.

In the meantime, corporate defendants facing mass tort claims may wish to ensure that all issues are fully disposed of in the local jurisdiction, as this could then allow the overseas parent to resist attempts to bring subsequent claims dealing with the same issues in England. The High Court has refused jurisdiction in a similar claim against Shell relating to oil spills in Nigeria (see our elexica article), but the Court of Appeal decisions will ultimately determine whether the growth of mass tort claims from overseas groups using third party funding and CFAs continues.