ESG litigation: English Court not fazed by complex group litigation – key takeaways for multinational businesses

The Court of Appeal recently allowed a group action comprising more than 200,000 victims of an environmental disaster in Brazil to go ahead in the English High Court. The claim was originally dismissed by the High Court for being “irredeemably unmanageable” but has now been revived on appeal, with abuse of process arguments dismissed. While permission to appeal is being sought, it reinforces the view that the English courts are ‘open for business’ when it comes to complex international ESG claims. It is yet another claim in a lengthening line of cases which demonstrate that the English courts consider the group action system robust enough to grapple with difficult case management issues created by large claimant groups bringing legally and factually complex claims. It also serves as a reminder to UK-based parent companies that they may face liability for the acts of their overseas subsidiaries and potentially even suppliers, if they do not effectively mitigate the relevant risks.

Background

The case relates to a significant environmental disaster in Brazil – the collapse of the Fundão dam in November 2015. The dam was owned and operated by a Brazilian JV, which is partly owned by the BHP Group. The victims of the disaster have instituted proceedings in England by which they are seeking to recover £5 billion in damages from the English (“BHP England”) and Australian (“BHP Australia”) parent companies of the BHP Group.1

Permission to appeal has been sought, but we set out below the key takeaways from the Court of Appeal judgment in the case (Municipio De Mariana and others v BHP Group (UK) Ltd [2022] EWCA Civ 951).

Key takeaways

English Court prepared to use general case management powers to grapple with complex group actions

The Fundão Dam decision is another clear signal that English Courts will welcome collective actions in appropriate cases, even when they are large, legally and factually complex and potentially unmanageable. The Judgment stresses the Court’s general case management powers under the overriding objective and refers to the group litigation orders (“GLO”)2 scheme, which give the Court even wider powers, “including, importantly, the selection of lead cases, the trial of preliminary issues and the adoption of a staged approach, either in parallel with other progress in the litigation or as a stand-alone procedure”.  The Court specifically referred to previous group actions where complex case management issues have been successfully managed, including environmental claims against English parents, relating to their subsidiaries in Cote d’Ivoire, Colombia, and Nigeria.3

This Fundão Dam claim was originally dismissed by the High Court on the basis that it was “irredeemably unmanageable” due to the number, turnover, contactability of claimants, and the prospect of irreconcilable judgments from parallel proceedings.  The Court of Appeal revived the claim, however, ruling that access to justice should not be limited simply because of perceived unmanageability and complexity.    

We also note that a week after the decision was handed down, a new ‘class action’ platform called Find Others (which is supported by Solicitors Regulation Authority), was launched in the UK. The service looks to connect lawyers with individuals who wish to pursue group litigation. Assembling a group for litigation in the UK can be challenging, with most claimant firms relying on press coverage and social media advertising (sometimes supported by television and other media for bigger claims). The Find Others service could provide another potential tool to assist.

UK multinationals not insulated from liability arising from actions of overseas subsidiaries 

This case is another in a growing body of cases where the English Court will be asked to assess whether the English parent has liability for the acts of its overseas subsidiary.4 Whilst none of these cases have yet made it to trial such that an English parent has ultimately been found liable, preliminary and interlocutory action in these cases have demonstrated that important factors may include the extent to which a parent company intervenes in the management of its subsidiary, and the extent to which it holds itself out as doing so.

The claims in this case arise under Brazilian law but they are advanced against BHP England and BHP Australia on the basis of the operational control they allegedly exercised over the Brazilian JV. It is alleged that, amongst other examples of exercising control, they appointed directors of the JV directly even though such rights were formally given to BHP’s Brazilian subsidiary.

With ongoing issues in the global supply chain, many UK companies may be looking to bridge supply chain gaps through overseas acquisitions or joint ventures, which could give rise to ESG liability for UK parent companies further down the line. But parent companies should be aware that liability risks may also arise beyond their own subsidiaries, from other third parties in the supply chain. For example, there are currently cases in England proceeding against UK companies in respect of working conditions at smallholders from whom the overseas subsidiary purchases products, and in a factory contracted to manufacture the products a UK parent ultimately sells.  It is key to identify and to address possible ESG risks of any parties in a supply chain and to implement a compliance program in a way that tries to mitigate costly litigation further down the line.

Existence of local compensation scheme not sufficient to demonstrate abuse by bringing claim in England, or justify a stay

In this case, the partners in the Brazilian JV established a private foundation, Renova, to administer a compensation scheme for victims. A class action had also been commenced in Brazil by the state authorities on behalf of the victims. BHP placed considerable reliance on the availability of these remedies to argue there was a risk of irreconcilable judgments and therefore it was an abuse of process to bring the claims in England, when the cases rightfully belonged in Brazil.

The Court gave detailed consideration to whether these local remedies really provided adequate redress for the victims. It noted the extensive problems faced by the victims in obtaining compensation from Renova and the fact that the class action in Brazil had effectively stalled. The Court found these factors militated against staying English proceedings in favour of the Brazilian processes.

How we can help

We would be happy to assist you with:

  • reviewing your corporate group structures, policies and procedures, and advising on an effective strategy to mitigate litigation risk emanating from group subsidiaries and other third parties in the supply chain; 
  • creating or refining effective operational grievance mechanisms for subsidiaries, to mitigate the risk of litigation against the local and/or parent English company;
  • reviewing and commenting on the prospects of any ESG litigation which has been or is likely to be brought against you; and
  • reviewing and commenting on the prospects of any ESG claims you are considering bringing, or funding, in the English Courts against an English parent company

 

 

Authored by Ardil Salem, Matthew Felwick, Srishti Kalro, and Emmie Le Marchand.

References
  1. While the BHP Group previously had a dual listed company structure, it has since (on 31 January 2022) unified its corporate  structure under the Australian parent company.
  2. Note that a GLO is one form of multi-party litigation, where the claims have to have “common or related issues of fact or law”.  Representative actions are also a common form of collective action, where one or more claimants can represent other claimants with the same interest.
  3. Motto v Trafigura Ltd [2009] EWHC 1246 (QB); The Ocean Pipeline Group Litigation [2016] EWHC 1699 (TCC), and The Bodo Community v Shell [2014] EWHC 1973 (TCC).
  4. Okpabi v Royal Dutch Shell [2021] UKSC 3; Vedanta v Lungowe [2019] UKSC 20; - both cases rumoured to have settled
Contacts
Ardil Salem
Partner
London
Matthew Felwick
Partner
London
Srishti Kalro
Senior Associate
London
Emmie Le Marchand
Associate
London

 

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