Brazilian compensation scheme is no barrier to English proceedings - Court of Appeal allows Fundão Dam class action to proceed

In a landmark decision, the Court of Appeal has held that group litigation brought by over 200,000 Brazilan claimants arising from the 2015 Fundão Dam collapse can proceed against a UK-domiciled parent company.

The decision signals a further shift by the English courts in their willingness to hear complex, multi-jurisdictional actions for collective redress.  It continues the trend of increasing scrutiny on UK-domiciled parent companies in relation to management and actions of their international subsidiaries and joint venture companies which their subsidiaries (in turn) own. The decision is an important development in both the class action landscape and in the new era of corporate governance and accountability, with an increasing emphasis on forum shopping in international litigation.   

Background

The collapse of the Fundão Dam in South East Brazil in November 2015 has been heralded as Brazil’s worst environmental disaster. The collapse released around 40 million cubic metres of toxic waste from iron ore mining, killing 19 people, destroying entire villages, and impacting numerous individuals and communities.

The £5 billion claim is brought against BHP England and BHP Australia, head of the BHP Group (the world’s biggest mining corporation). At the time of the disaster, the defendants were incorporated in England and Australia under a dual listing structure, comprising the same board of directors and senior management structure. BHP Brazil, a subsidiary of the BHP Group, is a 50% shareholder in a joint venture company, Samarco Mineração SA, which owned and operated the dam..

The 202,600 claimants are all Brazilian and comprise members from the indigenous community, businesses, faith-based institutions, municipalities and utility entities. Their claims are materially identical, based on the same factual and legal allegations, and all advanced under Brazilian law. They allege that the BHP Group is liable as “indirect polluters” on the basis of its corporate structure.

In November 2020, BHP successfully applied to strike out the English proceedings. The High Court (Turner J) held that granting the claimants permission to have their case tried before the English courts simultaneously with proceedings in Brazil carried acute risks of irreconcilable judgments and cross-contamination, and the claims in England would be “irredeemably unmanageable”.  It also considered the English proceedings futile because the claimants could not expect to receive more financially than they could obtain through the extant proceedings in Brazil or the Renova compensation scheme set up to redress victims of the disaster. The Court concluded the English proceedings were an abuse of the court process.

In November 2021, the Court of Appeal granted permission for the decision to be appealed and it has now handed down its decision.

Court of Appeal decision

In July 2022, the Court of Appeal unanimously overturned the High Court’s decision to strike out the claim, finding the High Court’s reasoning was wrong on numerous grounds. The Court of Appeal emphasised the importance of the claimants achieving effective access to justice, highlighting deficiencies in the Brazilian proceedings (which had been stayed indefinitely since 2017), that the majority of the claimants were not pursuing claims in Brazil and the widespread uncertainties with the Renova compensation scheme. It also rejected  the High Court’s finding that (potentially) unmanageable English proceedings and complications arising from parallel proceedings, including the risk of irreconcilable judgments, were an abuse of process; these issues (if they arose) could be addressed with sensible case management by the English court.  

Concluding that there was a realistic prospect that an English trial would yield a real and legitimate advantage for the claimants and this outweighed the disadvantages in terms of expense and court resources, the Court allowed the group litigation to proceed to trial.

Comment

The decision sends a clear signal that UK-headquartered multinational companies must pay close attention to the activities of their overseas subsidiaries and joint ventures, because they will be held to account by the English courts.  The Court of Appeal was motivated by genuine concerns over the adequacy of remediation in the foreign courts and it was not willing to allow the challenges of managing complex, cross-border group litigation to stand in the way.

The decision does not address the merits of the claim, in particular the key issue of BHP’s liability for the activities of an “independent” joint venture company, or causation issues - these issues will be for the trial court to determine.  The decision continues the trend for pushing the boundaries of corporate tortious liability, following the decisions in Vedanta Resources PLC v Lungowe (2019) and Okpabi and others v Royal Dutch Shell plc and another (2021), which determined that a parent company could be liable for the actions of its overseas subsidiary. 

In light of the increasing importance of companies having strong environmental, social and governance (ESG) principles, the BHP case demonstrates how companies will increasingly be held to account for the wide ranging consequences of their social actions and, such as in this instance, for environmental disasters. Insurers writing multinational programmes for large corporates will need to pay particular attention to the impact of the decision and the risk of parallel proceedings in multiple jurisdictions. The case may yet go to the Supreme Court, but the Court of Appeal has sent a clear message that the UK courts are prepared to scrutinise the worldwide operations of UK-domiciled companies more closely than ever. This is a reflection of a new readiness to accept jurisdiction over cases to ensure access to justice, even where the claimants are entitled to compensation in another forum.

Class actions and group litigation continue to gain traction across the world. To start a conversation or for more information on Class actions click here.