Fundão dam collapse mass claims ruling concern for UK multinationals

Emilie Jones of Pinsent Masons said the ruling was “an illustration of the English courts’ openness, in appropriate circumstances, to hear mass claims against English parent companies arising from incidents involving their subsidiaries abroad.” Her comments came after the Court of Appeal overturned a High Court decision that struck out the claim as an abuse of process that “would lead to utter chaos” in both the English and Brazilian courts systems.

The case was originally brought by nearly 202,000 individuals, over 500 companies, 25 municipalities and 15 churches affected by the collapse of the Fundão dam in south-east Brazil in November 2015. The disaster released over 40 million cubic metres of iron ore mine tailings into the Doce River, causing huge damage and contamination. The claimants argued that BHP Group Plc (BHP England) and its Australian arm (BHP Australia) were liable to compensate them for the losses they sustained.

BHP England and BHP Australia, which were not involved directly in the disaster, are the ultimate parent companies of BHP Billiton Brasil, which entered into a joint venture with metals and mining company Vale concerning operation of the dam. Samarco, the joint venture vehicle, and Vale are alleged to have been direct polluters in the collapse and BHP Brasil an indirect polluter.

Handing down the decision of the Court of Appeal, Lord Justice Underhill said the High Court had been wrong to strike out the English proceedings as an abuse of process on the grounds that they were “pointless and wasteful”. He maintained that there was still “a realistic prospect of a trial yielding a real and legitimate advantage for the claimants”, adding that there was “a real risk that the claimants cannot obtain substantial justice” in Brazil.

The court also found that Mr Justice Turner’s decision in the High Court to stay the English proceedings against BHP England under Article 34 of the recast Brussels Regulation was flawed. Article 34 gives EU member state courts – and UK courts hearing pre-Brexit cases – the ability to stay proceedings when parallel cases are also pending in countries outside the EU. While the provision is meant to help avoid irreconcilable judgments in different jurisdictions, the Court of Appeal found that the degree of overlap between the English and Brazilian proceedings was relatively small.

Jones said: “As businesses’ focus on ESG risk intensifies, developments in this litigation are of real interest to UK-headquartered multinationals, particularly those operating in sectors like energy, mining and food production. The ruling shows that the English courts will not necessarily decline jurisdiction even where related proceedings are on foot in the foreign jurisdiction where an incident has taken place.”

“It may drive concerns about an increase in such claims being pursued in the English courts against English parent companies, with multinational businesses potentially having to fight parallel proceedings in multiple jurisdictions. That said, it needs to be remembered that, like in other similar claims which we have seen in the English appellate courts in recent years, no finding has actually been made that the English parent company here is liable to the overseas claimants,” Jones said.

“In addition, the detailed and complex judgment in this case demonstrates that the courts will carefully consider the nature, progress and potential outcome of any parallel overseas proceedings, so that there may well still be cases where, on the facts, the existence of proceedings elsewhere is enough to cause the English courts to stay their own proceedings,” Jones said.

She added: “Nevertheless, many multinationals operating in higher risk sectors and jurisdictions have been reviewing their approach to overseas subsidiary risk management, and this latest decision is a further reminder of the importance of seeking specialist advice. Businesses that have suffered an incident that might expose them to mass claims should also carefully consider whether a redress scheme implemented 'on the ground' in the affected country could mitigate the risk of claims arising in the English courts.”