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Corporations In International Litigation: Problems of Jurisdiction and the United Kingdom Asbestos Cases

Published online by Cambridge University Press:  17 January 2008

Peter Muchlinski
Peter Muchlinski
Affiliation:
Drapers' Professor of Law, Queen Mary and Westfield College, University of London. An earlier draft of this article was presented as a paper at the ILA 2000 Conference, London, 28 July 2000. Many thanks to Richard Meeran and Susannah Read for their valuable help and insights. Errors or omissions remain my responsibility alone.
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Extract

In his seminal work The Multinational Challenge to Corporation Law Professor Phillip Blumberg assets that, “jurisdiction continues to be one of the most litigated areas involving the clash of enterprise and entity.”1 Indeed, in a world where business is increasingly conducted through the medium of economically integrated multinational enterprises (MNEs), the question of whether a forum has jurisdiction over disputes arising out of the operations of non-resident entities of the MNE brings into contrast the mismatch between the territorial reach of the legal system and the transnational reach of the enterprise. In terms of corporation law this raises the further matter of whether, and how far, the legal organisation of the MNE into distinct legal entities, in distinct legal jurisdictions, should affect the applicable rules of private international law as to the reach and scope of forum jurisdiction. Such issues have recently been aired before the English courts in a series of cases, arising out of the asbestos mining and milling operations of the British based MNE Cape plc in South Africa, which culminated in a judgment given by the House of Lords on 20 July 2000. It is the purpose of this paper to explore the issues of jurisdiction over non-resident entities of MNEs, first, through an examination of these cases in the light of Cape's industrial and management structure. It is striking how little such matters are addressed in the Anglo-American legal literature pertaining to private international law. Rather than considering the economic realities of the cases in issue, and developing new doctrines to deal with them, lawyers have tended to rely on legal concepts—in particular, the territorial nature of legal jurisdiction and the single unit corporate form—to lead them to often unsatisfactory results that would appear to a lay person not to accord with justice. A clearer understanding of the economic realities of group operations thus seems essential for the development of law in this area.

Type
Articles
Information
International & Comparative Law Quarterly , Volume 50 , Issue 1 , January 2001 , pp. 1 - 25
Copyright
Copyright © British Institute of International and Comparative Law 2001

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References

1. Blumberg, Phillip I., The Multinational Challenge to Corporation Law (Oxford, Oxford University Press, 1993) at p.117.Google Scholar

2. But see Blumberg op. cit. note 1 at pp.116–7, 197–99; Muchlinski, P.T., Multinational Enterprises and the Law (Oxford, Blackwell Publishers, revised paperback edition, 1999) chaps.3 and 5Google Scholar and Dine, Janet, The Governance of Corporate Groups (Cambridge, Cambridge University Press, 2000) chap.3.Google Scholar

3. This Convention was signed in 1968 and came into force in 1973. The original version can be found in O.J. [1978] L304/77. For the more recent Consolidated version of the Convention see O.J. [1998] C27/1. Similar principles are extended to EFTA countries through the Lugano Convention 1988. For comment on the jurisdictional issues see North, P.M. and Fawcett, J.J.Cheshire and North's Private International Law (London, Butter-worths, 13th ed, 1999) chaps.11–14Google Scholar. The Brussels Convention has the force of English law through the Civil Jurisdiction and Judgments Act 1982 1982 c.27. See Collins, L.The Civil Jurisdiction and Judgments Act 1982 (London, Butterworths, 1983).Google Scholar

4. See Cheshire and North ibid. at p.284. See too the Hague Preliminary Draft Convention on Civil Jurisdiction and Enforcement of Judgments, Article 22 http://www.hcch.net/e/workprog/jdgm.html

5. Lubbe et al. v. Cape plc (CA 30 July 1998) [1998] C.L.C. 1559; Group Action Afrika et al. v. Cape plc (QBD 30 July 1999) [2000] 1 Lloyd's Rep. 139 at 141; Rachel Lubbe et al. v. Cape plc (CA 29 Nov. 1999) [2000] 1 Lloyd's Rep. 139 overturned on appeal before the House of Lords Schalk Willem Burger Lubbe et al. v. Cape plc. Judgment 20 July 2000 http://www.parliament. the—stationery—office. co. uk/pa/ld 199900/ldjudgmt/jd000720/lubbe—l.htm. [2000] 2 Lloyds Reports 383. See too Durham v. T ↦ N plc (CA 1 May 1996 unreported) for a similar case involving a claim by an employee in a Canadian subsidiary of an English-based parent. The Court of Appeal held that Canadian Law applied to the tort. In Feb. 1999 further proceedings were commenced against T ↦ N by two South African and two Indian employees. Another set of similar cases have involved the U.K. based firm Thor Chemicals. In this case employees in South Africa sued on the ground of death and personal injury suffered while exposed to dangerous mercury-based chemical manufacturing processes that had been moved there from the U.K. after English health and safety inspectors had criticised Thor over the effects of these processes on the health of their U.K. employees. See Ngcobo v. Thor Chemical Holdings Ltd (CA 9 Oct. 1995 unreported). Thor Chemicals settled the initial claims against them in 1997 for £1.3 million. A further 21 claims are now in progress. In July 1998 Thor's attempt to stay these proceedings was rejected by Garland J and leave to appeal was refused by the Court of Appeal: Sithole et al. v. Thor Chemicals Holding Ltd and another (31 July 1998 unreported). For background see Meeran, Richard “The Unveiling of Transnational Corporations: A Direct Approach” in Addo, Michael (ed.) Human Rights and the Responsibility of Transnational Corporations (The Hague, Kluwer Law International, 1999) pp.161–170.Google Scholar

6. Article 2 states: “Subject to the provisions of this Convention, persons domiciled in a Contracting State shall, whatever their nationality, be sued in the courts of that State”.

7. [1987] A.C. 460.

8. See Cheshire and North op. cit. n.3 at pp.334–50 and Connelly v. RTZ plc [1998] A.C. 854, [1997] 4 All E.R. 335 (HL).

9. Spiliada Maritime Corporation v. Cansulex Ltd op. cit. n.7 at pp.476–82; Connelly v. RTZ [1998] A.C. 854 at pp.871–3; see too Schalk Willem Burger Lubbe v. Cape plc op. cit. n.5 per Lord Bingham at p.390.

10. Op. cit. n.5 Evans, Millett and Auld LJJ.

11. The defendant's petition to the House of Lords was refused on 14 Dec. 1998.

12. Op. cit. n.5.

13. Ibid. Pill, Aldous and Tuckey LJJ.

14. See Rachel Lubbe et al. v. Cape plc op. cit. n.5 at p.165 per Pill LJ. See too per Aldous LJ at pp. 166–7 who held that the Court of Appeal had been misled as to the nature of the action before them. See too the judgment of Buckley J in Group Action Afrika et al. v. Cape plc op. cit. n.5 at pp.143–4.

15. Op. cit. n.5.

16. See In re Union Carbide Corporation Gas Plant Disaster at Bhopal India in December 1984 634 F.Supp 842 (SDNY 1986) affirmed on appeal 809 F.2d 195 (2nd Cir. 1987). For analysis see Muchlinski, P.T. “The Bhopal Case: Controlling Ultrahazardous Industrial Activities Undertaken by Foreign Investors” 50 MLR 545 (1987)CrossRefGoogle Scholar. Buckley J also referred to Gulf Oil v. Gilbert 330 U.S. 501 (1947); Piper Aircraft v. Reyno 454 U.S. 235 (1981); Richardson—Merell Inc 545 F.Supp 1130 (1982). Only the Bhopal case was referred to by the Court of Appeal.

17. Group Action Afrika et al. v. Cape plc op. cit. n.5 at pp.154–5.

18. Rachel Lubbe et al. v. Cape plc op. cit. n.5 at p.161 per Pill LJ.

19. Ibid, at pp.162 per Pill LJ.

20. Ibid. at p.168.

21. [1998] A.C. 854.

22. Lords Lloyd of Berwick, Hope of Craighead and Clyde agreed with Lord Goff, Lord Hoffmann dissenting.

23. [1998] A.C. 854 at 873E.

24. Rachel Lubbe et al. v. Cape plc op. cit. n.5 at

25. Ibid. at p.16 per Pill LJ.

26. For a fuller analysis see Muchlinski op. cit. n.2 chaps.2 and 3.

27. Dunning, J.H., Multinational Enterprises and the Global Economy (Wokingham, Addison-Wesley Publishing Co, 1993) p.3Google Scholar. See for similar definitions Hood, Neil and Young, Stephen, The Economics of Multinational Enterprise (London, Longman, 1979) p.3Google Scholar; Caves, Richard, Multinational Enterprise and Economic Analysis (Cambridge, Cambridge University Press, 2nd ed, 1996) p.1.Google Scholar

28. See further Blumberg op. cit. n.1 chap.10, Muchlinski op. cit. n.2 chap.3; Teubner, GuntherLaw as an Autopoietic System (Oxford, Blackwell Publishers, 1993) chap.7Google Scholar, Teubner, “The Many Headed Hydra: Networks as Higher Order Collective Actors” in McCahery, J., Picciotto, S. and Scott, C.Corporate Control and Accountability (Oxford, Clarendon Press, 1993) p.41.Google Scholar

29. OECD Guidelines for Multinational Enterprises 27 June 2000 “Concepts and Principles” p.3. http://www. oecd.org/daf/investment/guidelines/mnetext.htm

30. The following paragraph draws on the description of Cape plc in the judgment of Evans LJ in Lubbe et al. v. Cape plc (CA 30 July 1998). See too House of Lords op. cit. n.5 judgment of Lord Bingham at p.387.

31. See further House of Lords, Claimant's Final Served Case pp.132–5 points 1–20.

32. See further: OECD Structure and Organisation of Multinational Enterprises (Paris, 1987)Google Scholar; Dunning op. cit. n.27 at pp.222–232; Martinez, and Jarillo, “The Evolution of Research on Co-ordination Mechanisms in Multinational Corporations” 20 Journal of International Business Studies 489 (1989)CrossRefGoogle Scholar. On control over decision making in UK subsidiaries of foreign-owned firms see: Steuer, M. et al. The Impact of Foreign Direct Investment on the United Kingdom (Dept of Trade and Industry, 1973) Ch.7Google Scholar; Young, S., Hood, N. and Hamill, J.Decision—making in Foreign Owned Multinational Subsidiaries in the UK ILO Working Paper No.35. (Geneva, ILO, 1985).Google Scholar

33. OECD ibid. at p.35.

34. Dunning op. cit. n.27 Table 8.1 at p.225 using Young, Hood and Hamill op. cit. n.32 as source.

35. Dunning op. cit. n.27 at p.226.

36. By Article 53 of the Brussels Convention the domicile of a company, or other legal person or association of persons, will be determined, for the purposes of the Convention, by reference to its seat. In order to determine that seat the court shall apply its rules of private international law. As English law did not determine the domicile of a company in accordance with the seat theory, preferring the incorporation theory, the 1982 Act introduced a definition of the seat of a company that allowed for this theory to be used in Convention cases. Thus a company or association has its seat in the United Kingdom if, and only if, it is incorporated or formed under the law of a part of the United Kingdom and has its registered office or some other official address in the United Kingdom, or its central management and control is exercised in the United Kingdom: Civil Jurisdiction and Judgments Act 1982 s.42(3).

37. Note the Opinion of the European Court of Justice of 13 July 2000 in Case C–412/98 Societe Group Josi Reinsurance Company SA v. Compagnie d'Assurances Universal General Insurance Company where the Court held that the system of rules for the conferment of jurisdiction established by the Convention is not usually based on the criterion of the plaintiff's domicile or seat. The Court went on to note that neither is the system based on the nationality of the parties. See further text at nn.45–6.

38. On which see further Muchlinski op. cit. n.2 chap.9.

39. See Institute of International Law Yearbook Vol.65 part I, Session of Milan 1993, Preparatory Work, p.306–7.(Paris, Editions A. Pedone).

40. [1992] Ch 72; [1991] 4 All E.R. 334 (CA). For criticism see Cheshire and North op. cit. n.3 at pp.264–6.

41. S ↦ W Berisford plc v. New Hampshire Insurance Co [1990] 2 Q.B. 631; Arkwright Mutual Insurance Co Ltd v. Bryanston Insurance Co Ltd [1990] 2 Q.B. 649.

42. The Po [1991] 2 Lloyds Rep. 206 (CA); The Nile Rhapsody [1994] 1 Lloyds Rep. 382 (CA); Sarrio SA v. Kuwait Investment Authority [1997] 1 Lloyds Rep. 113 (CA); Haji—Ioannou v. Frangos [1999] 2 Lloyds Rep. 337 (CA).

43. See House of Lords, Claimant's Final Served Case pp.19–32.

44. Schalk Willem Burger Lubbe et al. v. Cape plc op. cit. n.5 at p.394.

45. See n.37.

46. Ibid. paras.53–59.

47. See Jones, GeoffreyThe Evolution of International Business (London, Routledge, 1996) pp.34–5.Google Scholar

48. [1997] 4 All E.R. 335 at 349c.

49. This is what happened in In re Union Carbide etc op. cit. n.16. See Muchlinski op. cit. n.16 for details of the plaintiff's evidence of group organisation. This was based on Union Carbide's corporate practice manuals that had been disclosed in pre-trial discovery.

50. Op. cit. n.5 at pp.390–391.

51. Blumberg op. cit. n.1 chap.6 on which this analysis is based.

52. Blumberg op. cit. n.1 at p.131.

53. Ibid.

54. Surely, if a firm is undertaking hazardous industrial activities it must be prepared to take on at least part of the risk, given that if it does not it will have a greater incentive to act in a negligent way. Furthermore, if it is willing to take all the profit on the venture the enterprise must carry some of the associated risk.

55. See Multinational Gas and Petroleum Services Co v. Multinational Gas and Petroleum Services Ltd [1983] Ch. 258 (CA).

56. See Adams v. Cape Industries [1990] Ch. 433 (CA).

57. See Claimants Final Served Case op. cit. n.43 at pp.43–50.

58. See Claimants Final Served Case ibid. at pp.35–40.

59. Lord Hope cited Clements v. Macaulay (1866) 4 M. 583; Societe du Gaz de Paris v. Societe Anonyme de Navigation “Les Armateurs Francais” [1925] S.C. 332; Tulloch v. Williams (1846) 8 D. 657; Sim v. Robinow (1892) 19 R. 665.

60. See Statement of Case on Behalf of the Republic of South Africa, 26 May 2000.

61. Ibid, para.2.2.

62. Dicey, and Morris, Conflict of Laws (13th ed, 2000) para.12–023.Google Scholar

63. Whether the same approach should be taken in litigation involving parties of equal resources is open to further discussion. Here different considerations may apply as the parties may be equally able to conduct litigation in a variety of alternative fora.

64. See Brussels Convention op. cit. n.3 Article 5(3) and Case 21/76 Bier BV v. Mines de Potasse D'Alsace SA [1976] E.C.R. 1735. The ECJ held that Article 5(3) is intended to give the claimant the option of suing either in the place where the damage occurred or the place of the event giving rise to it.

65. See text at nn.21–5 and Claimants Final Served Case at pp.62–117.

66. See Statement of Case on Behalf of the Republic of South Africa, 26 May 2000 paras.4.11–4.15.

67. Op. cit. n.5 at pp.391–394.

68. See Axen v. Federal Republic of Germany ECtHR Ser A 72 (1983).

69. Op. cit. n.7.

70. Dombo Beheer v. Netherlands ECtHR Ser. A. 274 at para.33 (1993)

71. Op. cit. n.60 paras.3.1–4.4.

72. Ibid. para.4.5.

73. See n.16 above.

74. South African Government Statement of Case op. cit. n.60 para.4.16 and see too Muchlinski op. cit. n.16 above at p.554.

75. Ibid.

76. South African Government Statement of Case op. cit. n.60 paras.5.1–5.6.

77. Op.cit. n.5 at p.394.

78. Ibid. at pp.397–398.

79. See House of Lords, Claimants' Final Served Case at pp.59–61.

80. OECD Guidelines for Multinational Enterprises, 27 June 2000, “Concepts and Principles” para.2. http://www.oecd.org/daf/investment/guidelines/mnetext.htm

81. Ibid. at p.4 and 5.

82. OECD Guidelines for Multinational Enterprises: 2000 Review, Commentaries, 27 June 2000 para.20. http://www.oecd.org/daf/investment/guidelines/mnetext.htm