Suing Multinational Corporate Groups for Torts in Wake of the Lubbe Case
Alex Twanda Magaisa
Graduate Teaching Assistant
University of Warwick
This is a Commentary published on 19 December 2001.
Citation: Magaisa A, 'Suing Multinational Corporate Groups for Torts in Wake of the Lubbe Case', Commentary', Law, Social Justice and Global Development (LGD), 2001 (2) <http://elj.warwick.ac.uk/global/issue/2001-2/magaisa.html>. New citation as at 1/1/04: <http://www2.warwick.ac.uk/fac/soc/law/elj/lgd/2001_2/magaisa/>
The wave of globalisation has increased the conduct of business on a transnational basis. As competition in the marketplace gets stiff firms are frantically seeking to exploit new opportunities in different parts of the world. Firms are also adopting various strategies in attempts to maximise efficiency and minimise exposure to liability. Indeed, managing liability is now an important part of business strategy. The growth of multinational corporate groups is one response to the potential liability problems that come with operating in multiple jurisdictions. Various constituencies such as consumers, creditors, employees, the environment and the public feel the influence of the activities of these large global firms. It is in the interests of all affected constituencies that social and economic costs arising are kept to a minimum while productivity is enhanced. The growth of multinational corporate groups has brought with it the problem of ascribing liability for torts committed by individual units of the corporate group operating in different legal and economic jurisdictions. Legal suits involving claimants and defendants in different jurisdictions illustrate this. The determination of transnational litigation has been quite difficult and these suits have illustrated the complex interplay between principles of substantive corporate law and procedural rules of international civil litigation. The primary problem that victims of corporate torts face when they deal with multinational corporate groups is choosing the right forum in which to pursue their claims. This is particularly so when claimants try to go after the parent company in the group which may be located in a different jurisdiction. In one way or another, the victim's choice of forum is prone to challenge by the parent company and these challenges are not only inconvenient but also costly. This article comments on the recent case of involving South African victims against an English-based corporate group. It points out that the English House of Lords seems to be pursuing a more positive approach to international litigation involving multinational corporate groups.
The matter involved Cape Industries PLC and its asbestos operations again. Cape Industries, a multinational company based in England, through its subsidiary units was involved in the mining and milling of blue and brown asbestos in various locations in South Africa between 1939 and 1979. More than 3000 plaintiffs are suing Cape Industries for wrongful deaths and injuries resulting from exposure to the hazards of asbestos. The claimants are either direct victims of the hazard having worked or lived in the vicinity of the mining and milling operations or dependants of deceased victims. Cape Asbestos Company, through which Cape Industries operated in South Africa, no longer exists and has no assets or insurance to satisfy the South African victims even if they were to sue it and win judgement.
The victims brought the claims against Cape Industries before the High court in England. The company objected to the suit on the grounds of Forum Non Conveniens, arguing that the natural forum for the pursuit of the action was South Africa. The major issue in these proceedings was whether the actions should proceed in the English or South Africa courts. There were thousands other potential claimants who were waiting for the outcome of these proceedings. In the substantive claim the victims allege harm arising from Cape Industries' negligence leading to exposure to the dangerous substance. The majority claim to be suffering from asbestosis while others have mesothelioma, a slow-developing cancer that affects the lungs and is primarily caused by asbestos when inhaled[5 ]. They claim that when they breath, it feels like there is 'crackling paper' in their chests, and it is painful. It is alleged that when Cape Industries left South Africa in 1979, it did not rehabilitate the mines, mills and dumps which continue to pose a hazard to local communities to this day. The roads leading to the abandoned mines are littered with asbestos that is blown into the homes of many people. There are allegations that Cape Industries took advantage of Apartheid laws in South Africa and exploited children who worked in the mines and mills under harsh conditions, without protection and these are some of the claimants.
Scholars will recall that there have been various suits arising from asbestos related diseases and indeed this includes the landmark corporate law case of Adams v Cape Industries (1990) Ch 433 (hereafter 'the Adams case'). Perhaps it was partly in the knowledge that an attempt to sue Cape Industries in America and enforce the judgement in England was futile that the victims decided to approach the English courts directly for the trial of the matter. Perhaps they sought to avoid the fate that befell their American counterparts in the Adams case. Clearly barring their later offer to submit to the jurisdiction of the South African courts it seems that there was no other ground upon which the victims could have pursued the claims in South Africa without facing the challenge on jurisdictional basis. However despite their attempt to evade the problems of recognition and enforcement of foreign judgements they were met with the defense based on the doctrine of Forum Non Convenience (FORUM NON CONVENIENS).
Forum Non Conveniens is the major defence usually advanced by the parent company, at least in the common law world.This doctrine is that there is a natural and more appropriate forum for the determination of the dispute than the one in which the case has been brought. Originally developed in Scotland and later adopted in other common-law jurisdictions, the doctrine was meant to prevent forum shopping by allowing the defendant to argue that there is a more natural forum elsewhere[9 ]. Forum shopping can generally be defined as the practice whereby the plaintiffs go about picking the forum most advantageous to them regardless of the negative impact on the defendant. Normally the plaintiff gets advantages he would otherwise not have in the natural forum. The effect of a successful defence based on Forum Non Conveniens in a suitable case is that the plaintiff is forced to sue in the most appropriate forum in the interests of justice. This doctrine was finally accepted in English law in the landmark case of Spiliada Maritime Corporation v Cansulex Ltd  1 A.C.460 (Spiliada case). According to the ruling in that case when such a defence is presented the test applicable takes two stages:
(i) The Defendant must show that there is another natural forum, which is clearly more appropriate for the hearing of the case. Usually this is the forum in which the damage occurred, the availability and access to evidence, victims and witnesses are based;
(ii) Once the defendant satisfies the first stage, the onus then falls on the plaintiff, to prove that regardless of the fact that the natural forum lies elsewhere, nonetheless justice requires that the matter be heard in the prevailing court. The Plaintiff has to show that substantial justice will not be done in the appropriate forum.
The court retains discretion whether or not to stay the action depending on the evidence presented by both parties. We shall call this the Spiliada Test.
In the present case the judge in the first instance ruled that the matter was distinctly more related to South Africa. In light of that finding he decided to stay the proceedings in the English forum. He relied on the first stage of the Spiliada test and found that South Africa was the natural forum. The proceedings took some complicated twists procedurally but the major issue before the House of Lords was whether or not the main action for damages should be stayed on grounds of Forum Non Conveniens. Should the action by the victims against the English parent company be pursued in England or in South Africa? As we now know from the landmark judgement handed down on 20 July 2000 by the House of Lords, the action was allowed to proceed in England. In effect the defence of Forum Non Convenience did not succeed. The House of Lords found that on the first stage of the Spiliada test, England was not the natural forum. Since South Africa was where the mining and milling of asbestos was done and almost all the victims are located. However using the second stage of the Spiliada test, the House of Lords found that the circumstances in the case indicated that justice required that the matter should be heard in England. In the leading judgement, Bingham LJ referred to the lack of funding for the litigation in South Africa, the complications likely to arise from the legal and factual issues in the matter and the absence of developed mechanisms for handling group actions in South Africa. The Learned Judge indicated that these factors were relevant to the exercise of the court's discretion within the second stage of the Spiliada test. As in the similar case of Connelly v RTZ Corporation (hereafter the 'Connelly case'), there was a possibility that due to lack of funding the victims could not get professional representation, a result that would mean the actions might not be pursued at all in South Africa.
The Connelly case was important for showing that courts are prepared to apply the second tier of the Forum Non Conveniens test, that is, exercising the discretion to refuse a stay if justice so requires. It may be that the House of Lords is more victim-friendly. At least in that case, it provided hope to victims of corporate torts in-group situations. As the court pointed out, after this procedural victory, the next issue relate to the question whether the Parent company owes a duty of care over subsidiaries and whether factually that duty was breached. This is the issue of liability in tort that is the core of the substantive claim and is pending before the courts.
Despite that further formidable hurdle at the procedural level, the decision opens up possibilities for tort victims in similar circumstances to proceed in the courts of England and those who expressed fears that such a judgement could open floodgates to litigation against English-based multinationals may quite understandably be disappointed. There is a fair case for this argument. There are genuine fears that multinational companies based in England might in the long-run consider pulling out and relocate elsewhere, example U.S.A, where they are not too exposed to such actions because of the application of Forum Non Conveniens. The 'foreign- victim-friendly' image appearing around the House of Lords in the wake of these recent decisions in the Connelly and Lubbe cases might be seen as attracting more actions like these. It will not be surprising if there are moves to legislate against foreign victims suing English-based multinationals as a way of boosting international business confidence.
Some will however see the House of Lords approach as a positive step in making international business accountable regardless of the location of operations. This would counter the negative results of the application of traditional corporate law principles like Corporate Personality and Limited Liability in corporate groups without necessarily abolishing them. These principles of substantive corporate law ensure that an incorporated company is a separate legal person that is independent from its members whose liability in relation to the company's debts is limited up to the extent of their investment in the company's shares. It is these features of the company that form the foundation upon which a corporate group is constructed. They enable the group to be formally organised in such a way that liability can be split and limited although in reality the group operates as a single economic unit. The gap between commercial marketplace reality and the legal regulatory system has troubled courts whose dilemma is whether to face up to the economic realities or bow to the sanctity of separate legal entity and limited liability.
Therefore though this was primarily a procedural matter the underlying theme had much to do with corporate responsibility. How far that fundamental and topical aspect affected the decision-making process and outcome of the case at the procedural level is not clear but is clearly relevant. What is known is that very often determinations on Forum Non Conveniens are often the end of the matters in the sense that when a case is dismissed on that ground the plaintiffs may not pursue the claims no matter how legitimate. Similarly it is possible that when the defense of Forum Non Conveniens fails the defendant may concede to the substantive claim and settle. Thus a determination of Forum Non Conveniens, though procedural in nature, has severe implications on the pursuit of the substantive claim. Thus quite often care must be exercised that a dismissal on the grounds of Forum Non Conveniens will not deter victims from pursuing legitimate claims. This seems to have been considered by the House even though it may not have stated it explicitly. It did however indicate that there was a great chance that the matter might not be pursued at all in South Africa chiefly due to lack of legal aid.
Certainly after Connelly case and now the landmark Lubbe judgment, one can safely say that the House of Lords has been positively victim-friendly. Others of course will fear an avalanche of similar cases against multinationals based in or with a connection to England. The words of Lord Hoffman in the Connelly case echo the feelings of those who fear this possibility. This Lubbe decision has major implications for Zimbabwe since it also produces asbestos. Companies such as Africa Resources Limited, a subsidiary of SMM Holdings Group plc. operate asbestos mines and mills in Zimbabwe in the small towns of Zvishavane and Mashaba. The operations were once owned by an English-based multinational, Turner & Newall plc until in the mid-1990s when it disposed of them. It is not clear whether the negative image attached to asbestos mining and milling business was important for the decision to dispose of these operations but that may be relevant. The two towns depend on these operations as the majority of the people work in the mines and mills or related service industries. It is quite possible that over the years the people have been exposed to the potential dangers and they may have contracted various associated illnesses. Anyway, the companies are reportedly on a campaign to demonstrate that white asbestos is safe[17 ]. It has been indicated that claims against Turner & Newall are already being brought. The lawyers representing the victims in the Lubbe case have indicated that it is now possible to take on the Zimbabwean cases. There appears to be no reason why Zimbabwean victims should fare less than their counterparts elsewhere in similar circumstances.
As Lord Hope of Craighead pointed out in the Lubbe case, matters of public interest and policy have no place in the decision on forum non convenience. In doing so the House of Lords took a significant and positively different approach from the US courts which have made similar decisions based on broad grounds of public policy. The reason is that courts are not sufficiently equipped to carry out the necessary inquiries and assessments regarding the international implications of that approach. This appears to be a correct analysis and courts should leave the public policy considerations to the legislature or administrative bodies that have the mandate and capacity to decide whether or not such actions should be allowed to take place within a jurisdiction in general. Also there is a possibility that there seems to be no good reason why essentially private suit between individual parties should be decided on the basis of 'public interest' which is a notoriously elusive concept. It is also one that is prone to subjective interpretation and application by individual courts depending on the jurisdiction.
The decision in Lubbe is a culmination of the approach that the House of Lords has taken before as indicated in the Connelly case. A contrary decision could have shut the door to foreign tort victims against English-based multinational corporate groups operating in other countries through subsidiaries. The decision leaves the door open to potential tort victims. The approach seems to reduce the possible negative impact of the Adams case decision which seemed to make successful claims in victims' jurisdictions futile when it came to enforcement in England. Indeed others may cry foul that taxpayers in England are being made to bear the burden of foreign victims' claims through legal aid funding. However legitimate this complaint may be, its opponents will always argue that the profits enjoyed by English-based Multinational corporate groups in the areas where they operate always find their way to England and ultimately benefit the economy and the people. There may indeed be cases that could well benefit the taxpayers in terms of holding multinational corporate groups accountable for the wrongs of their subsidiaries.
It is fair to conclude that despite these developments the position of tort victims trying to sue the foreign parent is not an enviable one. It is already settled that it is hard to attach liability of subsidiaries on parent companies due to the concepts of corporate personality and limited liability in corporate groups. It is clear that beyond that lies the difficulty of choosing the appropriate forum to pursue the action. If victims choose their local jurisdiction, they run the risk of failing to enforce the judgement. If they pursue the parents where they are based, the latter may succeed to block the action there on the grounds of Forum Non Conveniens. Of course, the recent Lubbe case goes a long way to give hope to tort victims living elsewhere, yet it is not automatic to have a right to sue in a foreign jurisdiction and problems in future cannot be discounted at this early stage. The outcome of cases will still very much depend on the facts and circumstances of each particular case.
On the other hand, the decisions also threaten the position of multinational corporate groups since they are now more exposed to liability for operations of subsidiaries. This might negatively impact on business in Developing countries, threatening economic stability in the process. It may be time for developing countries to seriously look into the issue and find ways of holding multinational corporate groups accountable for their deeds without benefiting from legal technicalities while at the same time avoiding a hostile image that would deprive them of investment. Of course the balancing act is a delicate process.
However, abolishing Forum Non Convenience may not be the answer, as it does not affect other countries' application of the same doctrine, which is the problem. In addition, for all its defects, Forum Non Convenience can serve important purposes in the common-law jurisdictions where suitable and its abolition without considering the effect on the whole system might prove to be unproductive. Other ways to counter the effect of Forum Non Conveniens could be worked out to make companies more accountable. For example, obligating all 'foreign owned' companies to operate through branches if engaged in specified risky activities. This would avoid the problem of corporate personality and establishing the presence of a multinational corporate group in the domestic jurisdiction.
Hopefully, the current approach of the House of Lords will produce a positive effect and persuade Multinational corporate groups to operate carefully and ensure safety and protection wherever they are based through subsidiaries or affiliates. This is indeed a matter of corporate responsibility. The complaints against multinational companies are increasing and for a long time now there has not been any international regulatory framework. It is hoped that courts in other countries will take a similar approach and play their part where seemingly the administrative and regulatory authorities seem to have developed cold feet for too long.
Developing countries face the dilemma of trying to attract investment on one hand and to protect their citizens and environment on the other. Quite often, they end up ignoring the latter interests in their bid to lure investment regardless of its hazards. The courts in the Developed countries can play a big role by holding Parent companies in their jurisdictions responsible for the torts of their subsidiaries in these developing countries. They could do this by enforcing judgments from the courts there or by allowing foreign victims access to their courts. In the latter regard, the House of Lords approach is commendable. It is important to realise that while prima facie determinations on Forum Non Conveniens are procedural matters, the reality is that they have significant impact on the pursuit of substantive claims.
1.'Globalisation' is a highly contested term with some viewing it as a mere concept and others as a process. An attempt to expound on its meaning would probably require its own book. This article will not confine itself to anyone's definition and as such I will use it in the sense that I think best describes the subject. For purposes of this commentary, it's meaning and application revolves around the idea of the continual fall of economic barriers between countries. It is part of a process that has been going on for a long time and the distinguishing factor is that the process is moving at an accelerated pace and is more far-reaching than it was before. For some further insight into this term see Smeets M., 'Globalisation of International Trade And Investment' in Buelens F. (1999) (ed.) Globalisation and the Nation-State Cheltenham: Edward Elgar p.7 - 33
2. The term 'Corporate Group' is used in this comment to reflect the de facto grouping of different companies under a common umbrella linked by cross-shareholdings or other links. Typically, there is a Parent company and Subsidiaries in which it holds all or substantial shares. Similar terms like 'Group of Companies' apply equally. It is not a body corporate on its own and is used here for convenience.
3. Shalk Willem Burger Lubbe et al v Cape plc (2000) 2 Lloyds Reports 383 (hereafter the LUBBE case)
4. 'Again' because the same company was party to litigation culminating in a landmark decision that will be discussed in this comment, Adams v Cape Industries see note below.
5..Also refer to the judgement in the LUBBE case.
8. The locus classicus is Sim v Robinow (1892) 19 R. 665 in which Lord Kinnear delivered a much quoted. judgement.
9. Juenger F.K. 'Forum Shopping, Domestic And International', 63 Tulane Law Review(1989) 553.
10. Lord Pearson in Boys v Chaplin (1971) A.C. 356 at 401.
11. Of course one can also point out that on the contrary the doctrine of Forum Non Conveniens allows reverse forum shopping because the defendant gets a chance to assert the best forum for himself. This seems apparent when a multinational corporate group voluntarily offers to submit to the foreign courts' jurisdiction where there was otherwise no ground for those courts to assert jurisdiction.
12. See the landmark judgement by Lord Goff of Chieveley in which he chronicles the development of the doctrine and its acceptance into English law and most of the common-law world.
13. See Spiliada case at 474-477 and also Connelly v RTZ Corporation Plc (H.L)  3 W.L.R.373 at 384.
14. In England the case of Connelly v RTZ Corporation (1997) 3 W.L.R 373 (H.L) 'Connelly case' raised some hope that victims of torts could proceed against English parent companies in the English courts. In that case, the plaintiff had worked in Namibia at a Uranium mine operated by a subsidiary of a multinational company, Rio Tinto Zinc Corporation (RTZ), which was based in England. He suffered from cancer of the throat and sued R.T.Z. for damages arising from negligence in that it failed to ensure provision of protective clothing when he worked in the mines. RTZ applied to the English High Court for a stay of the proceedings on the grounds of Forum Non Conveniens, arguing that Namibia was the natural and most appropriate forum for the hearing. The High Court granted the stay but on appeal the House of Lords decided that the matter should be tried in the English courts. The House of Lords refused to allow the application of the doctrine of Forum Non Conveniens on the ground that substantial justice could not be done in Namibia, the natural forum, but in England where the resources required were available - professional legal representation due to availability of legal aid and scientific expertise. It accepted that due to the lack of legal aid and professional expertise in Namibia, the matter could not be heard at all yet the victim had a legitimate claim. Granting the stay would have effectively killed his action and the company would have escaped liability.
15. The Bhopal case, in which victims of the infamous Bhopal tragedy in India were suing Union Carbide International based in the USA, illustrates the successful application of this defense in the U.S.A. When the victims sought damages against the US parent in the US court, Judge Keenan held that on the basis of Forum Non Conveniens and policy grounds requiring deference to the Indian courts the matter could be more appropriately tried in India. He held that India was the natural forum and the Indian courts had the capacity to deal with the matter regardless of any perceived complexities. (See note 17 below).
16. See a powerful judgement against Forum Non Conveniens by Justice Doggett in the case of Dow Chemical Company v Castro Alfaro 786 S.W.2d 674 (Supreme Court of Texas 1990) He says, 'the doctrine is favoured by multinational defendants because a Forum Non Conveniens dismissal is often outcome-determinative, effectively defeating the claim and denying the plaintiff recovery....[it] is in reality, a complete victory for the defendant.... Empirical data available demonstrate that less than four percent of cases dismissed under the doctrine......ever reaches trial in a foreign court. A forum non conveniens dismissal will usually end the litigation altogether, effectively excusing any liability of the defendant'
18. Eaglesham J., 'Lords rule Cape cases can be heard in the UK' Financial Times Friday July 21 2000 p.2.
19. Union Carbide Corporation Gas Plant Disaster at Bhopal (1986) 634F. Supp.842 (Bhopal case) - the Bhopal case.