Parent company liability for overseas environmental and human harm

Summary

The liability of parent companies for the acts of their overseas subsidiaries has been a subject of increasing judicial attention, particularly in the context of environmental harm and human rights claims.

In this article, we draw out the circumstances in which a court in England & Wales may find a parent company liable for the acts of an overseas subsidiary, comparing the English courts' analysis in the key decisions of BHP, Vedanta and Okpabi to date.  

We also highlight practical considerations for corporates with cross-border operations.

Background to parent company liability in England & Wales

Historically, the doctrine of separate corporate personality insulated parent companies from liability for the acts of their subsidiaries. However, the English courts are establishing a line of case law holding that, in certain circumstances, a parent company may owe a direct duty of care to those harmed by the actions of its subsidiaries.

In February 2021, we examined the UK Supreme Court's rulings in Vedanta and Okpabi in which the Court ruled that a UK parent company may owe a direct duty of care to third parties affected by its subsidiary's operations if, as a matter of fact, the parent has sufficiently intervened in, controlled, or assumed responsibility for the relevant operations. In doing so, the Supreme Court rejected both the notion of a special test for parent/subsidiary relationships, and that there was any prescriptive list of factors to establish liability. The key is the extent to which the parent actually took over, intervened in or controlled the management of the relevant activity.

The High Court's decision in Municipio de Mariana v BHP Group, delivered late last year, was a landmark in the development of parent company liability for overseas environmental and human harm. It built on the foundations laid by the English courts in Vedanta Resources PLC and another v Lungowe and others and Okpabi and others v Royal Dutch Shell Plc, confirming that English courts will look beyond formal corporate structures, scrutinise the reality of parent-subsidiary relationships and hold parent companies to account where they exercise control or assume responsibility for the activities of overseas subsidiaries. Although none of these decisions are binding, being in respect of interim applications or foreign law, they are significant indicators of how the courts will apply the law at trial in future cases.

BHP has been denied permission to appeal by the High Court and has said it will apply directly to the Court of Appeal for permission. In the meantime, a damages trial is expected to begin in October 2026. Vedanta settled without admission of liability in December 2020, but the Okpabi proceedings are expected to reach trial in 2027.

The BHP judgment: Municipio de Mariana v BHP Group

This dispute arose from the catastrophic collapse of the Fundão Dam in Brazil in November 2015 which released approximately 40 million cubic metres of mining waste, killing 19 people, destroying housing and causing widespread environmental devastation.

Samarco Mineração SA, the dam's operator, was a joint venture between Vale S.A. and BHP Brasil Ltda. The ultimate parent companies of BHP Brasil Ltda were BHP Group (UK) Limited and BHP Group Limited (Australia), operating as a single economic entity under a dual-listed company structure (BHP). Over 600,000 claimants brought proceedings in the English High Court against BHP, seeking to hold BHP liable for the environmental and human harm caused by the collapse.

The High Court found that BHP and Vale were liable as a matter of Brazilian law for the losses arising from the dam's collapse. The court found that BHP:

• exercised sufficient control over Samarco;

• participated and was involved in the subsidiary's activities;

• assumed responsibility for the assessment, control, mitigation and management of the subsidiary's risks; and

• derived substantial financial and commercial benefits from its relationship with the subsidiary.

Comparative analysis: The position after Vedanta, Okpabi and BHP

Degree of control over subsidiary's operations

In each of Vedanta, Okapabi, and BHP, the Court determined that the extent to which the parent had intervened in, controlled or assumed responsibility for the subsidiary's operations supported the finding of liability.

In Vedanta and Okpabi, the Court found that although the parent companies did not have material control over the subsidiaries' management of the relevant project that gave rise to the harm, they nevertheless exercised a high degree of control over the subsidiary's wider operational affairs.  It is worth noting that the Court will take into account any public disclosures made regarding the parent's supervision and control of the subsidiary. For example, in Vedanta, the Court noted that Vedanta published a public sustainability report which stressed that the oversight of all Vedanta's subsidiaries rests with the board of Vedanta itself.

In BHP, the High Court found that BHP (together with Vale) was involved in Samarco's activities at every level, from strategic decisions and funding to detailed operational matters. Samarco's corporate governance structure facilitated BHP's ability to control Samarco, including through board appointments, committee membership, and decision-making processes. BHP assumed responsibility for risk assessment, control, mitigation and management within the BHP Group and specifically within Samarco, including conducting financial and technical audits of Samarco's operations.

Group-wide policies and standards

The Supreme Court has, in Vedanta and Okpabi, rejected the notion that a parent company merely promulgating group-wide policies can give rise to a duty of care. Instead, it has focussed on the extent to which that parent then took active steps to ensure their implementation by the subsidiary. In both cases, the court found that there was an issue to be tried on whether the parent company had taken such steps.

Economic benefit and funding

The courts have found that where a parent company derives financial benefit from its relationship with the subsidiary, this may justify the imposition of liability. In Vedanta and BHP, the courts considered whether the parent had funded or otherwise benefited from the subsidiary's activities. In BHP, for example, the court found that BHP was substantially invested in Samarco and derived significant financial and commercial benefits from its operations.

Knowledge and/or assumption of responsibility

The courts have also examined whether the parent company knew (or should have known) about the issues that led to the harm, and whether it assumed responsibility for remediating those issues.

In Vedanta, the Supreme Court noted that Vedanta's sustainability report made express reference to the particular problems at the mine in Zambia. Vedanta also made various public statements regarding its commitment to address environmental risks and technical shortcomings in the subsidiary's mining infrastructure.

Likewise, in BHP, the High Court found that BHP knew or ought to have known of serious structural issues at the dam. The court found that BHP was negligent in allowing the continuation of activities at the dam, failing to carry out recommended studies and remediation, and permitting the dam's height to be raised despite clear warning signs.

Practical guidance

Anyone concerned with managing legal, operational and reputational risk for a cross-border corporate group with operations overseas will no doubt have had one eye on these legal developments. We have set out below some practical guidance.

These cases are typically large-scale, complex (and expensive) court proceedings that raise sensitive and contentious issues and run for many years. They pose significant reputational risks for both parent companies and their senior executives, potentially requiring the disclosure of internal documents from across the corporate structure as well the production of witness evidence from senior executives. We note recent instances of local authorities/organisations seeking to prevent the sale or transfer of assets involved in environmental and human harm pending the determination of liability, thereby preventing companies from distancing themselves from, or divesting, local operating entities and/or assets as a means of managing environmental and human rights risk.

UK-based multinationals with overseas operations should consider the following practical steps to manage the risks:

• Risk management and policy implementation: While robust group-wide risk management and compliance frameworks are essential, parent companies should be mindful of the extent to which they intervene in or direct subsidiary operations, and of the risks of doing so. Where a parent assumes responsibility for risk assessment or operational decisions, it may also be found to have assumed legal liability.

• Governance review: Parent entities should ensure a regular review of the governance structures and decision-making processes between parent and subsidiary entities, which should in turn be clearly recorded. Roles and responsibilities at each level should be clear. Comprehensive records of the parent's involvement (or lack thereof) in subsidiary operations should be maintained.

• Training and communication: Directors and senior managers need to understand the legal risks associated with parent company involvement in subsidiary activities, particularly in high-risk sectors such as extractives and infrastructure.

• Insurance and indemnities: Companies should review insurance arrangements and consider whether existing policies adequately cover the risk of parent company liability for overseas environmental and human harm.

• Dispute resolution: At the contract-drafting stage, those involved at a senior level need to understand the risks, and available options for dispute resolution. Corporates should then be prepared to put procedures and resources in place (internally and/or externally assisted) to manage claims brought in the English courts, including procedures to manage extensive disclosure requirements, senior executive witness evidence and reputational impact.