In a major development for environmental litigation in the UK, the English Court of Appeal has revived the claims of over 200,000 individuals and businesses affected by the collapse of the Samarco dam in Brazil in 2015.  Overturning the High Court, which had struck out the claims, the Court of Appeal in Municipio de Mariana v BHP Group plc and BHP Group Ltd [2022] EWCA Civ 951 held that the difficulty of litigating the claims in the UK could not deny the litigants practical access to justice for a triable cause of action.

Proceedings concern devastation caused by dam collapse

Brazil experienced an environmental disaster in November 2015, when the Fundão tailings dam at an iron ore mine near Mariana, Brazil, gave way.  The collapse killed 19 people, destroyed downstream villages, polluted the Rio Doce river and sent sludge into the Atlantic Ocean more than 600 kilometres away.  The dam was owned and operated by Samarco Mineração SA (“Samarco”) a Brazilian company jointly owned by two other Brazilian companies, Vale SA (“Vale”) and BHP Billiton Brasil Ltda (“BHP Brazil”).

The claimants include more than 200,000 individuals, including members of the indigenous Krenak community who have particular community rights, and for whom the river plays a unique part in their spiritual traditions; 530 businesses; 15 churches and faith-based institutions; 25 municipalities; and five utility companies.  The defendants in the UK court action are BHP England and BHP Australia, which sit atop the BHP Group.

Jurisdiction in the UK over BHP arises by virtue of its domicile in the UK under an EU regulation (the “Brussels Recast”) (which continues to apply in the UK under the transitional arrangements provided for under the Withdrawal Agreement), while jurisdiction over BHP Australia is established by it carrying on business at offices in the UK.

Three causes of action are pending against the defendants, all advanced under Brazilian law:

1. The first claim is for strict liability as an indirect polluter. Brazil’s Environmental Law is said to impose liability for environmental damage by another (in this case Samarco) if the defendant (a) ultimately owns the polluter; (b) controls the polluter; (c) fails to supervise the activity which gives rise to the damage; (d) funds the activity of others which led to the damage; or (e) benefits from the activity of others which led to the damage.  The claimants rely on each of these alternatives in relation to the defendants and Samarco.
2. The claimants also assert fault-based liability under article 186 of Brazil’s Civil Code. In essence they allege that the defendants were aware of the risk of the collapse of the dam and repeatedly disregarded advice and warnings about it from a number of sources.
3. The claimants also rely on fault-based liability under article 116 of Brazil’s Corporate law. This imposes a duty of protection on a controlling shareholder, including a duty not to permit activities involving a significant risk of substantial damage to the community.

The claimants have abandoned a fourth claim, which had relied on liability resulting from Samarco’s inability to pay, essentially pursuant to a right to “pierce the veil” under article 4 of the Environmental Law.  The claims are all for monetary compensation, approximately £5 billion in total.

By the time the claims were filed in 2018, the disaster had already given rise to a vast number of claims against other defendants in the Brazilian courts, including one for 155 billion Brazilian reals (£21.3 billion); and to a compensation and remediation programme by the Renova Foundation (“Renova”), a Brazilian private foundation established by Samarco, Vale and BHP Brazil.   About three quarters of the claimants had been involved in such litigation and/or the Renova programme.

In 2020, the High Court (Mr Justice Turner (“the Judge”), struck out the claims as an abuse of process.  The Judge cited problems of irreconcilable judgments and cross-contamination arising from parallel proceedings in Brazil and found that the claims would be “irredeemably unmanageable” in England.  He also considered that the claimants could not expect to receive any more advantageous redress through pursuing the claims in the UK than could be obtained through litigation and/or the Renova initiatives in Brazil.  The UK proceedings, therefore, were “futile and wasteful”, according to the Judge.

English proceedings not an abuse of process

On appeal, the Court of Appeal found that the High Court had been wrong to strike out the claims as an abuse of process.  It noted that the Judge was influenced by what he considered to be the complications arising out of the existence of parallel proceedings in Brazil, and what he described to be an “acute” risk of “unremitting cross-contamination” of proceedings.  Undertaking the sort of “scrupulous analysis” that it considered the Judge should have undertaken, the Court of Appeal found that the facts, as far as the current evidence shows, did not support the Judge’s findings:

1. None of the claimants and neither of the defendants is a party to the only pending mass action in Brazil (the one for 155 billion Brazilian reals).
2. The degree of overlap with the Brazilian proceedings is limited or non-existent.
3. None of the claimants is seeking “identical remedies” in Brazil to those sought in England.
4. The 155bn mass action had been stayed since March 2017 and the stay was unlikely to be lifted for a further two years.
5. Any trial thereafter would be a minimum of two to four years away (and possibly up to a decade or more away), and it was unclear whether any sentence would involve a determination of the liability of the Brazilian Companies, and address causation, quantum and in-kind relief.
6. The majority of the claimants are not seeking any remedy in any proceedings in Brazil, and none of them is seeking any remedy against the defendants in Brazil.
7. The vast majority of claimants who have recovered damages have only received very modest sums in respect of moral damages for interruption to their water supply. They will give credit for those sums.
8. Compensation under the (optional) Renova scheme is not the product of any judicial decision but rather an extra-judicial settlement. Redress under another judge-created (optional) Novel System does not involve any adjudication of legal rights under Brazilian law.

Based on this analysis, according to the Court of Appeal, the risk of unmanageability, or as the Judge put it “utter chaos”, due to the existence of proceedings in Brazil is not clear and obvious.  While it may be that “down the line” some individual claims may need to be reviewed, that does not make them, individually or collectively, unmanageable.  The Court found that there was no proper basis for the Judge’s finding that the proceedings were abusive on the basis of irredeemable manageability.

The Court also found that the Judge was wrong to rely on forum non conveniens factors in considering the unmanageability and abusiveness of the claims.  The risk of inconsistent judgments, “the challenge of language”, translation costs, the need to apply Brazilian law, the unlikelihood of claimants or witnesses being permitted to give evidence remotely from Brazil (as a matter of Brazilian law) and the burden these would place on the English courts were not grounds on which to establish an abuse of court.  Under Brussels Recast the courts of a member state have no power to decline jurisdiction over a defendant domiciled and sued in that member state by reference to foreign proceedings or these other difficulties.  Moreover, the Court of Appeal had “considerable doubts as to whether proceedings can ever truly be said to be ‘unmanageable’” and noted that the claimants had provided the Court with “clear illustrations of case management options,” which could be explored in due course.

In addition to considering that they were unmanageable, the Judge had characterised the claims as abusive for being pointless and wasteful.  The Court of Appeal rejected this characterisation, noting that it was not clear on the evidence that the claimants could benefit from the proceedings in Brazil or otherwise obtain full redress there.  The Court did not wish to discourage claimants from engaging with whatever opportunities properly exist for them in Brazil.  However, it did not consider the remedies in Brazil so obviously adequate that it would be pointless and wasteful to pursue proceedings in the UK.  The Court held that, as there is a realistic prospect of success, the claims in the UK are not pointless and wasteful and are not to be struck out.

Stays of the cases against the two defendants were not necessary

The Court of Appeal also found that the High Court had been wrong to find that the cases against the two defendants, if not struck out, should instead be stayed.

With respect to BHP Group Plc, the English entity, the Judge had decided that the claims should be stayed under Article 34 of the Brussels Recast Regulation.  Article 34 gives the court jurisdiction to stay proceedings brought against a defendant in the jurisdiction of its domicile where there arises a risk of irreconcilable judgments between the courts of a member and non-member state of the EU (in this case Brazil).  Contrary to the Judge’s conclusion, the Court of Appeal found that the proceedings in Brazil did not give rise to the risk of irreconcilable judgments. For the reasons explained above, no such risk existed, with respect to the 155bn mass claim or otherwise, such that the court would have been obliged to stay the English proceedings under Article 34.

In the case of BHP Group Ltd, the Australian entity, the Judge was wrong to stay the case on the basis of the doctrine of forum non conveniens.  The test for forum non conveniens is as set out in Spiliada Maritime Corp v Cansulex Ltd [1987] AC 460.  First, the defendant must satisfy the court that there is another available jurisdiction that is clearly or distinctly more appropriate for the trial of the dispute.  If the defendant satisfies the burden, the claimant must satisfy the court that there are circumstances by reason of which justice requires that a stay should nevertheless be granted.

On the first stage, the Court of Appeal found that there was a real risk that there was no available route in Brazil for the claimants to pursue a claim against the defendants, for the reasons summarised above.  On the second stage, the court found that, even if a process was available, there was a real risk that the claimants could not obtain substantial justice in Brazil.  The Court noted that the Judge had erred in taking into account the redress potentially available to other parties in Brazil, in discounting the evidence that there were insuperable obstacles to the claimants pursuing a claim against BHP Australia in Brazil, and in suggesting that the claimants were required to “test the water” in Brazil first before bringing their claims in the UK.

In conclusion, the Court held that the claims against the English entity should not be stayed on the grounds of irreconcilable judgments and the claims against the Australian entity should not be stayed under the doctrine of forum non conveniens.

Comment

The decision in the Samarco dam case should sound a warning bell for UK based parent companies with overseas operations.  There are several important lessons to be learned from the case.

Increase in the risk of transnational claims in the UK

The Samarco decision continues the trend of UK courts opening their doors to cross-border ESG litigation.  In that regard, it follows on two other, relatively recent major jurisdictional rulings by the UK Supreme Court – Jalla v Royal Dutch Shell Plc [2020] EWHC 459 and Vedanta Resources PLC and another v Lungowe and others [2019] UKSC 20.  A key factor all three rulings was that the claimants would not be able to obtain substantial justice against the multinational corporations and their local subsidiaries in the foreign countries.  This was the case even though BHP had established a voluntary compensation scheme in Brazil and some of the claimants had obtained compensation through the scheme; and even though Vedanta had agreed to submit to the jurisdiction of the Zambian courts.  Thus, one message of these cases is that is not enough for defendants to appear willing to provide remedies; substantial justice requires that adequate and effective remedies are actually available to the claimants.

Increase in the risk of liability for subsidiaries’ conduct

The decision in the Samarco dam case, like the jurisdictional decisions in the Vedanta and Shell cases, also increases the risk to UK based companies of liability for the conduct of their foreign subsidiaries.  The parent companies themselves were not directly involved in causing the environmental damage in these cases.  Instead, the English parent companies are said to have exercised a level of managerial control sufficient to give rise to direct liability in tort for the conduct of foreign subsidiaries.  In the Vedanta case, the parent was said to have assumed responsibility for the subsidiary’s environmental performance in a sustainability report; while, in the Samarco case, the foreign companies were said to control Samarco, a joint venture, because they were able to appoint some of its directors through their local subsidiary and were involved in its management.  Therefore, another message from these cases is that it is not enough to issue sustainability reports and claim to engage in sustainability due diligence; the objective of these efforts must be to actually prevent or mitigate human rights and environmental harms.

Increase in the risks associated with lax environmental standards and enforcement

The Samarco dam decision also illustrates the risk to UK based companies associated with the application of foreign law in cross-border disputes.  Brazil’s Environmental Law is said to impose liability for environmental damage by another in circumstances beyond those in which the defendant controls the polluter (as under English tort law) or is the operator of the polluter (as under the UK’s Environmental Damage Regulations).   Ultimate owners, supervisors, funders and beneficiaries of business activities also could be held liable for environmental harm under Brazilian law.  While Brazil’s law may be more stringent in that respect than English law, other weaknesses in Brazilian law are said to have contributed to the Samarco disaster, as well as another, more recent and even more devastating, dam collapse.  From this, a third message emerges from the Samarco case, which is that lax environmental regulation and enforcement is not a location advantage.  Instead, it poses litigation, reputation and financial risks to multinational companies who fail to adhere to the standards of conduct that would be expected of them at home or internationally.