Biodiversity liability risk
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Here, we focus on four specific areas of current and rapidly-developing jurisprudence which are already having ramifications for the materiality of biodiversity liability risk for corporates. These trends are not sequential or siloed and may be more or less relevant depending on the jurisdiction. However, there is a mutually reinforcing and transnational element to these developments, particularly where laws or court decisions have extraterritorial effect. These trends give an indication of the direction of travel internationally: there is currently a “pincer” movement occurring around biodiversity targets and corporate accountability in the courts, which will increase nature- related liability risks for multinationals and across corporate value chains in the very near-term.
The case outlined examples of circumstances which could indicate an assumption of responsibility by a parent company for actions of its subsidiary, such as where the parent company: – conducts a group’s business so that they are, in management terms, carried on as if they were a single commercial undertaking; – issues group guidelines about minimising the environmental impact of inherently dangerous activities containing systemic errors which, when implemented as of course by a particular subsidiary, then cause harm to third parties; – takes active steps by training, supervision and enforcement, to see that group-wide policies are implemented by relevant subsidiaries; or – publishes materials in which it holds itself out as exercising a degree of supervision and control of its subsidiaries, even if it does not in fact do so. The Vedanta precedent was applied in the 2021 case Okpabi v Royal Dutch Shell Plc. 262 More than 40,000 citizens of two affected areas of the Niger Delta brought joint claims against Royal Dutch Shell, a UK-incorporated company and, SDPC, its Nigerian subsidiary. The claimants alleged that oil spills and pipelines operated by SDPC caused substantial environmental damage making the natural water sources unsafe for drinking, fishing, agricultural, washing or recreational purposes. The UK Supreme Court again accepted jurisdiction, outlining the following factors that may impact whether a parent can be liable for the acts of its subsidiary:
Extraterritorial tort law - lifting the corporate veil
The development of due diligence obligations and sustainability reporting, including TNFD, takes place against a background of courts’ increasing willingness to assume jurisdiction over human rights and environmental harms by subsidiaries in other jurisdictions. Courts in the UK, Canada, Sweden and the Netherlands are abandoning the strict separation of legal personhood under the corporate veil doctrine. In 2012, the English Court of Appeal established the possibility of parent companies being liable for the acts of their subsidiaries in the context of an asbestos claim in Chandler v Cape. 260 Although this case concerned two UK-incorporated entities, the recognition that a parent company may be found liable for harm caused by its subsidiary opened the door for similar claims to be brought for harm suffered by individuals in foreign countries along the parent company’s value chain. This is exactly what happened in Lungowe v Vedanta, 261 where the UK Supreme Court accepted jurisdiction over a claim brought by residents of the Chingola district in rural Zambia, whose health and farming livelihoods were negatively affected by toxins discharged by Nchanga copper mine into the water supply. The mine was administered by a Zambian company KCM, and Vedanta was KCM’s parent incorporated in the UK. The Supreme Court looked at the degree of supervision and control Vedanta exercised over its subsidiary. Relying primarily on the high-level intervention that was expressed in public disclosures made by Vedanta in its sustainability reports, the Supreme Court considered that Vedanta assumed responsibility for the acts and conduct of its subsidiary.
It should be noted that both the Vedanta and Okpabi decisions were on interim applications to establish the jurisdiction of the English courts and so merely considered whether there was a “real issue to be tried”, and did not entail a full examination of evidence and merits of the case. These cases nevertheless indicate a willingness of English courts to assume jurisdiction for environmental and ecosystem harms caused by foreign subsidiaries under the control of a UK-domiciled entity. Importantly, English courts have not suggested limiting this jurisdiction to only a parent-subsidiary relationship. It is therefore open to be argued that tortious conduct by partners in other types of relationships, based on control and knowledge, rather than ownership, could be sufficient for an English court to exercise its jurisdiction. This could potentially extend to value chain relationships, minority investors or joint venture partners. In the Netherlands, there are numerous cases in which Dutch parent companies have been held to account in the Dutch courts for irresponsible conduct in global value chains. 263
The first case where the Dutch courts lifted the corporate veil was another civil suit brought against Royal Dutch Shell (RDS) and its Nigerian subsidiary in relation to oil spills in the Niger Delta. 264 Claimant Nigerian farmers claimed that the oil spills damaged their lands and fishponds and compromised their livelihoods. In finding that RDS owed a duty of care to the victims of its subsidiary’s conduct, the Hague Court of Appeals applied Nigerian common law, the law of the state in which the damage occurred, in which English precedent has a persuasive authority, citing the line of authority from Chandler v Cape 265 to Lungowe v Vedanta 266 . In Canada, the Supreme Court’s 2020 judgment in Nevsun Resources Ltd v Araya 267 held that Canadian private businesses can be held liable in Canada for violations of customary international law committed by subsidiaries abroad. The claim was brought by Eritrean refugees who were subjected to forced labour and dangerous working conditions in a mine operated by BMSC, a company 60% owned by Canadian mining company Nevsun. 264 Wubeshet Tiruneh, Holding the Parent Company Liable for Human Rights Abuses Committed Abroad: The Case of the Four Nigerian Farmers and Milieudefensie v. Shell, EJIL:Talk!, 19 February 2021; Fidelis Ayoro Oguru, Llali Efanga in association with Vereniging Milieudefensie v Shell Petroleum N.V and Shell Petroleum Development Company of Nigeria Ltd [2021] HA ZA 09- 0579 AND HA ZA 10-1677. 265 Chandler v Cape Plc [2012] EWCA Civ 525. 266 Vedanta Resources PLC and another v Lungowe and others [2019] UKSC 20. 267 Nevsun Resources Ltd v Gize Yebeyo Araya, Kesete Tekle Fshazion and MihretabYemane Tekle [2020] SCC 5.
– taking over the management or joint management of the relevant activity;
– providing defective advice and/or promulgating defective group-wide safety or environmental polices;
– taking steps to adopt and implement group-wide policies; and
– holding out that it exercises a particular degree of supervision and control of a subsidiary.
260 Chandler v Cape Plc [2012] EWCA Civ 525. 261 Lungowe v Vedanta Resources plc [2019] UKSC 20.
263 European Commission, Study on due diligence requirements through the supply chain. Part III, country reports, Publications Office, 2020.
262 Okpabi and others v Royal Dutch Shell Plc and another [2021] UKSC 3.
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