AAA & Ors v Unilever plc & Unilever Tea Kenya Limited

Since the seminal decision of the House of Lords in Saloman v A Saloman & Co Ltd[1],  English law has recognised companies as legal persons distinct from their shareholders.

That distinction has been the bedrock of English commercial law ever since, providing the conditions in which businessmen may engage in economic activity which might be considered too risky if they were trading in their own name.

The rule in Saloman v Saloman is not, however, absolute. In certain circumstances, the Courts may effectively 'look through' a corporate entity to the persons (usually natural persons) standing behind the company. Although this has come to be referred loosely as 'piercing' or 'lifting' the 'corporate veil', the law surrounding such cases remains surrounded in a degree of doubt.[2]  It is therefore interesting to look at a parallel line of cases in which claimants have asked the Courts to look to the responsibility of parent companies for acts of their subsidiaries of which the decision of the Court of Appeal in AAA & Ors v Unilever plc & Unilever Tea Kenya Limited [2018] EWCA Civ 1532 (Unilever)[3] is the latest.[4]  

Unlike in many of the 'corporate veil' cases, the claimants in these cases seek a tactical advantage rather than access to a more effective financial remedy – they seek to bring their claims before the English Courts because of an apparent perception that they will thereby obtain a fairer and more effective determination of those claims than might be the case if such claims were tried elsewhere. For understandable policy reasons, the Courts have treated such attempts with suspicion. Where is the line to be drawn so that the so that the English Courts are not exercising extra-territorial jurisdiction too readily, nor compelling English holding companies too frequently to go to the trouble of defending meritless claims?

The circumstances of Unilever 

The appeal in Unilever arose from a jurisdictional decision on the question of whether there was a real issue to be tried between the claimants and the English parent company, for the purposes of establishing the English parent as an 'anchor' defendant in order to permit the claims against both the English parent and the foreign subsidiary to proceed in England.

The claims arose from acts of violence committed by third parties against employees on a Kenyan tea plantation and their families during widespread violence and disorder following the 2007 Kenyan Presidential election. It was alleged that a duty of care was owed to the claimants not only by the owner and operator of the tea plantation, Unilever Tea Kenya Limited, a company incorporated in Kenya (Unilever Kenya), but also by Unilever plc, an English incorporated public company, of which Unilever Kenya was a wholly owned subsidiary.

The law

There are two distinct sets of legal principles at work in these cases:

1. There is a jurisdictional question arising under the Civil Procedure Rules at paragraph 3.1 of Practice Direction 6B. For the purposes of deciding whether the case is an appropriate one for service out of the jurisdiction on the foreign subsidiary company, it is necessary to determine whether that subsidiary is a "necessary and proper party" to a claim properly before the English Courts.

2. A facet of that enquiry is whether there is a serious issue to be tried between the claimants and the English 'anchor' defendant. It was on this point that the decision in Unilever, as it had in Shell and Vedanta, focused – did the parent company owe the claimants a duty of care in relation to loss which they may suffer due to the acts of a subsidiary company? 

The three recent Court of Appeal decisions on the point establish that the three stage test set out in Caparo Industries v Dickman[5] is to be adopted in answering the latter question.[6]  

The decision in Unilever

At first instance, Laing J decided against the claimants on the question of whether there was a real issue to be tried between the claimants and Unilever plc. Although the Court of Appeal unanimously upheld Laing J's conclusion, Sales LJ (with whom the rest of the Court of Appeal agreed) reached his decision on different grounds. 

The Court of Appeal's reasoning focused, as it had done in Shell and Vedanta, on the question of proximity (the second element of the three stage Caparo test) and, specifically, on the nature and extent of the control exerted by Unilever over the activities and affairs of Unilever Kenya. Disagreeing with Laing J, the Court of Appeal concluded that the evidence showed that the claimants had no chance of establishing that Unilever had exercised the relevant degree of control of Unilever Kenya on the basis that the group-wide system of mandatory policies imposed by Unilever did not amount to the exercise of operational control.[7] 

The difficulty with this line of reasoning is that the Courts are setting themselves the task of engaging in a factual enquiry which, at the relevant procedural stage, they are ill-equipped to conduct. These are difficult and nuanced questions of fact on which detailed evidence would be required at trial, yet the Court is in these cases seeking to make its decision on the basis of untested factual allegations. The unsurprising consequence is that the jurisdiction hearing effectively becomes a mini-trial on the question of control, generating a volume of material which the appellate Courts themselves regard as wholly disproportionate, when the very purpose of the hearing is to prevent parties from being unnecessarily put to the substantial cost of proceedings in England.[8] 

Returning to the 'corporate veil', it is striking that any finding that a duty of care exists[9] in cases such as Unilever, Shell and Vedanta would in substance be a form of what Lord Sumption described in Prest as the "concealment principle": the Court deploying orthodox legal principles in order to look behind the corporate personality of a company so as to expose the true actors standing behind it (or, more specifically to the present context, the Court is seeking to look behind the corporate identity of the foreign subsidiary in order to ascertain the true actors in the alleged wrongdoing). Such parallels cannot have been lost on the judges in these cases, and might have strengthened their resolve to prevent all but the clearest cases of a parent company "pulling the strings" to proceed to trial. 

Conclusion

The Supreme Court will have an opportunity in Vedanta to consider this line of authority and offer guidance as to how the Courts should in future approach these issues. It is to be hoped that the Supreme Court will assist parent companies who find themselves inappropriately in the firing line, by offering a less cumbersome approach to screening such claims at the interim stage and thereby protecting parent companies from protracted and costly 'mini-trials' on the question of control.

Please contact Gareth Jones for more information.

[1] [1897] AC 22

[2] See, for example, Prest v Petrodel [2013] UKSC 34.

[3] EWCA Civ 1532

[4] This decision was preceded by two other recent decisions of the Court of Appeal, in Okpabi & Ors v Royal Dutch Shell Plc & Shell Petroleum Development Company of Nigeria Ltd [2018] EWCA Civ 191 (Shell) and Lungowe and Ors v Vedanta Resource Plc and Konkola Copper Mines Plc [2017] EWCA Civ 1528 (Vedanta).

[5] [1990] 2 AC 605

[6] See the judgment of Sales LJ in the Unilever Case at [36], the judgment of Simon LJ in the Vedanta Case at [69], and the judgments of Simon and Sales LJJ in the Shell Case at paragraphs [23] and [135] respectively.

[7] [2018] EWCA Civ 1532, [38] – [41]

[8] Indeed, Simon LJ began his leading judgment in the Shell Case with stern criticism of the magnitude of the resources that had been devoted to this issue and the volume of material thereby generated – see [2018] EWCA Civ 191, [10] – [22].

[9] Or, at least at the preliminary stage and pending a full trial in the Vedanta Case (assuming the Court of Appeal's decision is upheld by the Supreme Court), might exist.