When may a parent company be liable for harm caused by the operations of its subsidiary: new developments in Vedanta Resources plc v Lungowe - Harry Sheehan, Devereux Chambers

07/10/19. The Supreme Court’s decision in Vedanta Resources plc v Lungowe [2019] UKSC 20 marks a substantial new development in the state of parent company liability and provides clear guidance as to when a parent company may be liable to those harmed by the operations of its subsidiary.

Within the last three years the Court of Appeal has decided three cases under very similar circumstances: Lungowe v Vedanta Resources plc [2018] 1 WLR 3575, Okpabi v Royal Dutch Shell plc [2018] EWCA Civ 191, and AAA v Unilever plc [2018] EWCA Civ 1532. In each of these cases a large number of claimants sought to bring claims against a parent company domiciled in the UK after being harmed by operations carried out by their subsidiaries in Africa. In each case the defendants attempted to prevent the claimants from being granted permission to effect service out of the jurisdiction and argued that there was no real issue to be tried against the UK based parent company. In Shell and Unilever the defendants had succeeded, with only the claimants in Vedanta being successful in the Court of Appeal...

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PI Discount Rate: ABI vs Government - Qamar Anwar, Managing Director, First4Lawyers

30/09/19. It must have come as a nasty shock to the Association of British Insurers (ABI) when the government didn’t do what it was told over the discount rate. After all, if the last decade has taught us anything, it is that the ABI gets its way on personal injury reform.

While insurers were busy releasing millions of pounds in reserves on the basis that the -0.75% rate set in February 2017 would rise to 0% at the very least, one of David Gauke’s last actions as Lord Chancellor was to put the interests of injured people to the forefront of his mind and set it at -0.25% instead.

Any higher and the danger of claimants losing out was too great, according to his statement of reasons. It appears that the Government Actuary recommended a figure of 0.25%, but on that basis there was only a 50:50 chance of a claimant being fully compensated, and Mr Gauke considered this too great a risk of under-compensation.

The ABI are angry, while the likes of Direct Line and Hastings have had to bolster their reserves (£17m and £8.4m respectively).

The accompanying impact assessment said insurers would save £230-320m as a result of changing the new rate, but the ABI said this “completely misrepresents insurance market pricing and reserving” that followed the old rate being set.

It was particularly sore about Ministry of Justice “guidance” to the stock market in September 2017 that it expected a new rate to be set at 0-1%, which the ABI said ensured that lawyers did not adopt the -0.75% rate in practice. As a result, it said, premiums have fallen and the majority of personal injury cases have settled at a rate between 0% and 1%, “as the government intended”, and so there would be no savings to pass on.

But let’s look at that more closely. In September 2017, the then Lord Chancellor said: “While it is difficult to provide an estimate, based on currently available information if the new system were to be applied today the rate might be in the region of 0% to 1%.”

Minister Lord Keen told the Justice Select Committee soon after that 0-1% was “an assessment of the direction of travel of the rate… I emphasise that it was not intended as an estimate of what the rate will be”.

This could not have been much further from a guarantee. So, insurers that reserved on that basis were complacent. You can see why they would assume the rate would rise substantially, given the speed with which the review of how it was set was initiated in the first place in 2017, but there are no grounds for sympathising with them.

Though the ABI is still considering a possible judicial review, my guess is that it will be hard to get off the ground – could it really be said that Mr Gauke’s decision was so unreasonable and based on no evidence that it must be overturned?

You can be sure that the complaints will go on, and indeed intensify in the run-up to the next review in five years’ time, but at least we have the luxury of certainty until then – it’s a rare commodity in the personal injury world right now.

But those protecting claimants shouldn’t get too giddy – the rate was set under the new methodology introduced by the Civil Liability Act, meaning it was judged on the basis of the typical claimant putting their compensation into a low-risk investment portfolio.

The actuarial assessment showed that, had the previous methodology been retained – setting the rate with reference to a very low-risk investment portfolio of index-linked government gilts – it would have to be changed to “around -1.5% or even lower”.

So claimants are still worse off, but just not as much as they could have been.

Qamar Anwar
Managing Director
First4Lawyers

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Recoverable Premiums and Proportionality - Nick McDonnell, Kain Knight Costs Lawyers

27/09/19. The 17 July 2019 saw the handing down of the combined, unanimous Court of Appeal judgment from The Master of the Rolls (Sir Terence Etherton) together with LJs Coulson and Irwin in West & Demouilpied v Stockport NHS Foundation NHS Trust [2019] EWCA Civ 1220. For some who regularly practice in legal costs it is the most important judgment of the last six years. West & Demouilpied (the latter pronounced ‘deh-moh-pee-yay’), on its face, is a decision about the reasonableness and proportionality in amount of Post 1 April 2013 (‘Post-April’) clinical negligence After The Event (ATE) insurance premiums, and in particular those premiums of market leader ARAG plc.

However, the Court of Appeal, in exploring the law and practice of such a premium’s proportionality, sought also, for the first time, to provide general guidance on the Post-April (‘new’) proportionality test on costs. Many believe the judgment provides practical texture to what was often considered an esoteric, legal concept that was impossible to apply consistently in practice in a principled manner, and where it was applied, it was believed to be done so arbitrarily. However, some very respected legal commentators not only believe the decision on proportionality generally provides little practical guidance and assistance but that it has, in fact, made the task of ensuring costs are proportionate significantly more difficult. But more on that later.

Whilst the general judicial commentary in West & Demouilpied on proportionality was where the judgment largely ended up, let us look at the original, core subject matter of the case which informs us how the Court reached their conclusions.

The Appeals

One of the main exceptions to the revocation of success fee and ATE premium recovery following the ‘Jackson Reforms’ allowed Claimants, bringing claims for damages following clinical negligence, to...

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