A recent judgment allowing Zambian villagers to pursue their case against Vedanta Resources in the UK courts could have important implications for multinational companies doing business in Africa. Michael Pollitt examines the issues.
Villagers from the Chingola District of central Zambia have been allowed to pursue their case against UK-based Vedanta Resources in the London courts, after alleging their water supply was polluted by the company’s Zambian subsidiary. The 1,826 citizens of Zambia’s Copperbelt Province claim toxic materials were discharged from the Nchanga Mine into watercourses providing their only source of crop irrigation and drinking water.
The judgment comes after repeated appeals from Vedanta and its Zambian subsidiary, citing corporate laws that ordinarily protect parent companies from domestic liability for the actions of their foreign subsidiaries. The court’s most recent ruling found that Vedanta’s level of intervention in the mine might mean it owes a “duty of care” to the communities it affected, and that these communities might not gain “substantial justice” if the matter was tried in the Zambian courts.
Duty of care
In establishing whether Vedanta might owe a duty of care to the Zambian community, the court looked first at the level of control it exercised over the mine.
It found that Vedanta had publicly laid down group-wide policies and guidelines with which it asked its subsidiaries to comply. This is very common and not enough, in isolation, to constitute any responsibility owed by the company to the communities affected by its subsidiaries. The key differentiating factor was that Vedanta had also publicly committed to enforcing these policies at its subsidiaries, rather than simply expecting them to comply.
The court found that companies who claim, in theory, to enforce high ethical standards at their international subsidiaries, through training, supervision or intervention, may create for themselves a “duty of care” towards the societies affected, whether or not these enforcements are carried out in practice.
Evidence submitted by the Zambian claimants included references to public reports issued by Vedanta in which it asserted its responsibility for establishing group-wide environmental and sustainability standards, as well as for implementing these standards across the group through training, monitoring and enforcement.
These published sustainability materials included a report, Embedding Sustainability, in which, the claimants allege, Vedanta stresses that the oversight of all its subsidiaries rests with the board of Vedanta itself.
Having established that Vedanta may have incurred a duty of care in relation to the communities affected in Zambia, the court had to determine whether this issue could rightfully be tried in the UK. In doing so, the court used two key tests. The first was to establish if the UK system was the “proper place” in which to conduct the proceedings. The second was to determine whether “substantial justice” would be available from the Zambian system.
The first of these tests failed. The court found that, because the case concerned compensation for “Zambian residents for negligence or breach of Zambian statutory duty”, it would “offend the common sense of all reasonable observers” to try the case in England.
However, the second test found that “substantial justice” may not be available to the claimants in Zambia.
This finding relied on two factors. Firstly, funding for the fees incurred in pursuing the case would be essential, as the claimants were all “at the poorer end of the poverty scale”. The court found that the claimants would not obtain legal aid in Zambia and could not be funded by a Conditional Fee Agreement as these are unlawful locally.
Secondly, the court found that access would not be available in Zambia to “sufficiently substantial and suitably experienced legal teams” to enable litigation of this complexity to be prosecuted effectively.
In this way, although the court did not take a position on whether a duty of care had been incurred in relation to the Zambian community, it concluded that the potential was sufficient for the case to be pursued and that doing so in the UK offered the best hope of justice.
What happens next?
The implications of this judgment for companies doing business through subsidiaries in Africa are significant. European companies intervening significantly in foreign subsidiaries, which then cause harm to their local community, could face litigation in their home country, if the affected community cannot hope for access to justice from their own legal system. Corporate lawyers have already begun encouraging their clients to keep a safe distance from any subsidiaries working in difficult jurisdictions, by removing from their policies any indication that they take responsibility for enforcing group-wide sustainability standards.
However, the prospect of giving up all responsibility for enforcing the sustainability standards to which they commit publicly will leave many companies feeling uneasy.
The case for meaningful intervention
Rather than abandoning all public commitments to sustainability, businesses should consider how they can turn their existing commitments into practical, meaningful interventions on the ground, designed to reduce the risk of harm being caused to the environment in the first place.
This approach will not suit all parent-subsidiary relationships, many of which will be a simple matter of share-ownership.
However, there will also be a significant number of companies who are heavily involved in the running of their international subsidiaries, including on the issues of environmental protection and sustainability.
These companies should not be incentivised to sever all ties with their affiliates in difficult environments, but to ensure that their interventions on the ground at these subsidiaries are meaningful.
This can be done by taking practical steps to monitor and assess how each foreign subsidiary is progressing with its implementation of the principles set out in any group-wide policy documents or sustainability reports. These assessments should be bilateral processes, designed not only to impose standards set at group level, but also to gather feedback on any challenges inherent to the local environment that make these standards difficult to achieve.
Action plans can then be developed for each subsidiary, taking into account the environments in which they are operating, but also offering practical guidance on how any gaps in their adherence to the group’s standards can be closed. Ongoing supervision, training, support and communication can then be used to assist foreign subsidiaries with their implementation of the actions necessary to ensure that group-level standards are upheld.
Viewed in this way, the Vedanta case offers multinational companies operating in Africa a very practical incentive to ensure that their public commitments to sustainability are always more than just words.
Michael Pollitt is a business ethics consultant at GoodCorporation, an assessment and consulting company specialising in the fields of corporate responsibility, business ethics and human rights.