Lungowe v. Vedanta: How to hold multinationals liable for harmful activities | Business| Economy and finance news from a German perspective | DW | 04.02.2020
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Lungowe v. Vedanta: How to hold multinationals liable for harmful activities

A landmark case is getting underway in the UK. Miner Vedanta Resources has been sued by nearly 2,000 Zambian villagers. The question: Is a multinational responsible for the actions of its foreign subsidiaries?

Many will be watching closely as the landmark suit, Lungowe v. Vedanta, gets underway this month in the UK. The case involves 1,826 Zambian villagers who are suing global miner Vedanta Resources for environmental damage by its Zambian subsidiary, Konkola Copper Mines (KCM).

The villagers won the right to sue Vedanta in England where the company is registered following a monumental UK Supreme Court decision, which caught many experts by surprise, last year. It ruled that the claimants could sue the Vedanta along with its subsidiary in England because they wouldn't be able to get access to proper justice in Zambia.

The Zambian legal system doesn't allow "no win, no fee" claims, explains Oliver Holland of Leigh Day law firm. He is representing the Zambian villages on a no win, no fee basis, which allowed his clients to gain access to legal representation. That's on what the UK Supreme Court in part based its decision to allow for the case to be tried in England. It also said that Zambia doesn't have the legal experience (and law firms) that can handle a group action of this nature.

Case complicated by another legal battle

The first hearing will be on February 5. The claimants will now have to prove that Vedanta can be held responsible for the actions of its Zambian subsidiary, KCM.

"The claimants will rely on Vedanta's corporate material that they published, in terms of sustainability reports, annual reports, which set out areas that they take responsibility for," says Holland.

This would point to the fact that Vedanta was aware of what was going on, he notes. 

An impage of Nchanga Open Pit Mine

The Zambian villagers allege waste from Nchanga Mine polluted a nearby river on which their livelihoods depend

Documents disclosed during the course of the litigation will help them prove their case. But this second part may have just gotten harder. Vedanta is currently facing a legal battle with the Zambian government, which has tried to seize KCM from the global miner.

"It makes it difficult to bring in the [Zambian] subsidiary to the proceedings because at least provisionally, it's not connected to Vedanta," says Holland.

"If Vedanta were ultimately to lose that and KCM was no longer part of Vedanta terminally, then the case would still proceed against Vedanta in any event," he adds. 

And it certainly looks like the two entities won't be working together. Vedanta plans to "represent the interests of Vedanta, and not KCM under the current circumstances," the company told DW in a written statement. 

Legal 'patchwork quilt' on the duties of multinationals

Lungowe v. Vedanta shows just how hard it is to regulate multinationals across borders. It took around three years for the suit to reach the UK Supreme Court, which then decided in favor of the claimants.

"We have a patchwork quilt of national legislations regarding whether multinational corporations have a legal duty of care with respect to the actions of their subsidiaries and suppliers overseas," says Suzanne Spears, an international lawyer with London-based Allen and Overy.

But things may be changing.

"Even if you can't reach into Zambia and regulate for Zambians, you can regulate the parent company," Spears explains. 

With this case, British judges have shown the willingness to try and answer a question that lawmakers across the channel have taken the lead on. In 2017, France adopted the "duty of vigilance" law. It essentially makes large French companies responsible for their global business activities, which cause damage to the environment or violate human rights.

However, the extent to which France's duty of vigilance law can be applied was recently tested. Last week, a court in Nanterre declared itself incompetent to rule on a case involving oil company Total und alleged environment damage it caused in Uganda. So the decision will now be left to another court.

An image of the Total logo

Oil giant Total has become the first major French multinational to be sued under the new "duty ov vigilance" law. Claimants from Uganda allege environmental damage and human rights violations linked to an oil project

Legislative tide turning slowly

Attempts to regulate multinationals across the world and make them liable for the actions of their subsidiaries or even partners are slowly gathering steam, according to Chancia Plaine of Huglo Lepage law firm in Paris.

The expert on environmental law points to the Lungowe v. Vedanta case in the UK. She believes the claimants could have potentially referred the case to the European Court of Justice. In the UK Supreme Court judgement summary, Justice Briggs says the Zambian claimants had cited European law to say they had the right to sue Vedanta in England.

"If the national courts hadn't approved this case, they could have brought it to the European [Court]," Plaine explains. "That would push the question at the European level."

While the question is yet to be tested at the European Court of Justice, the UN has been looking into it, but EU countries haven't been very keen on its proposal.

"As originally envisioned the (UN) treaty was directed exclusively at multinationals and not national companies," explains Spears of London-based Allen and Overy. 

And that's why the EU has had a problem with the treaty. But work on it has continued and changes are being made that could one day result in an agreement that could be adopted by countries around the world.

German environment minister speaking to the press

German environment minister Gerd Müller has been calling for a law to make companies liable for their foreign activities

Meanwhile, Germany may, like its French neighbor, create legislation to make multinationals liable for their activities across borders. Last year, the German Ministry of Development called for a "supply chain law" (Lieferkettengesetz), which would also force companies to perform due diligence on their suppliers. But it isn't without its critics. Germany's development minister Gerd Müller has said there's been resistance from the business community.

Still, the French law, the proposed supply chain law in Germany and the Lungowe v. Vedanta case are signs that the tide may be shifting.

"Social expectations now are converging on the concept that corporations have a responsibility not only to their shareholders but also to all their stakeholders — customers, employees, suppliers and communities," says Spears.

Multinationals in the UK and beyond will be watching very closely to see what happens in the Lungowe versus Vedanta case. A decision in favor of the claimants would be a landmark ruling that would set a precedence that could reverberate beyond Britain's borders.