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Has the dam burst? The potential impact of the English Courts’ decision to hear the claims arising out of the Fundão mining disaster.

October 2022
Joanna Lewis, Nathan Penny-Larter and Samuel Attwood

In a surprise development for multinational corporations operating in the United Kingdom, we recently saw the Court of Appeal of England and Wales allow the Claimants’ appeal against a decision to strike out a claim on the basis of an abuse of process, emanating from the Fundão tailings dam disaster.

The decision highlights the English and Welsh Courts’ renewed commitment to hearing international claims involving corporations with a British interest, regardless of complexity and/or size, particularly where matters of public safety and Environmental Social Governance (‘ESG’) compliance are concerned.

The Collapse

On 5 November 2015 the Fundão tailings dam at the Germano iron ore mine near Mariana in the state of Minas Gerais, Brazil, suffered a catastrophic failure. This sadly led to the destruction of about 200 properties and injuries to many local residents, including 19 fatalities. The destruction was caused by the collapse of the Dam, which released an estimated 40 million cubic metres of iron ore mine tailings into the Doce River.

The Original Claim

Immediately after the collapse the Município de Mariana & Others  v BHP  claims were issued, with an estimated total claim value of $6.6B USD. The claims were brought by over 200,000 affected individuals, 500 companies, 25 local municipalities and 15 religious organisations (‘the Claimants’).  The Defendants in the joint claims are 1) BHP Group Limited, a large Australian mining corporation and 2) its British subsidiary BHP Group (UK) Ltd, formerly BHP PLC. It is reported that BHP was responsible for the Dam and the related mining operations in the region.

The Claims were issued in the English and Welsh Courts, with many individuals also reportedly accepting assistance from Brazilian government aid schemes. Most notably, none of the claimants appear to have issued viable claims in the Brazilian Courts for the same incident.

In November 2020, the Defendants were initially successful in their application to strike out the claim, on the basis that the numerous claims would be unmanageable if allowed to proceed. It was further argued, and accepted, that even if the claims were “practically workable”, the large volume of cases would place an undue burden on the Court, which would amount to an abuse of process.

The Claimants were subsequently granted permission to appeal the first instance decision.

The Court of Appeal’s Decision

In July 2022 Lord Justice Underhill VP (sitting with Popplewell and Carr LJJ) held that the lower Court had erred when striking out the claims on the basis that they would be unmanageable if they allowed to proceed. It was further held that the claims would not place an undue burden on the Court and/or amount to an abuse of process.

The Court of Appeal ultimately rejected the Defendants’ submissions resisting the application. Key to the Defendants’ submission was the assertion that the English proceedings were “pointless and wasteful”. The Court of Appeal did not accept this position, finding that the Claimants had brought viable claims against both Defendants in England with no claims issued in Brazil arising out of the same incident.

The Court of Appeal was critical of the first instance decision, concluding that the Court had allowed the potential manageability of the claims to ‘infect’ its decision on whether or not the claims were clearly and obviously pointless. The Court went further to re-affirm that, subject to the rule of the law, there exists an unhindered right to the access of justice where a properly arguable claim is possible. On this basis the appeal was allowed, and the original claims will now be heard.

In an additional attempt to challenge the Court of Appeal’s jurisdiction, the Defendants also filed concurrent objections on the basis of Forum Non Conveniens and Article 34 of the Recast Brussels. Notably, the Brussels regulation still applied as the claim was brought prior to the effective date of Brexit and/or the implementation or the European Union (Withdrawal) Act 2018.

In brief, an Article 34 objection grants a Member States’ Court the ability to stay proceedings indefinitely whilst a third nation’s Court concludes related proceedings.  A Forum Non-Conveniens argument proposes that the receiving Court acknowledge that another Court and/or dispute forum is the appropriate location for the claim, in this instance the Brazilian Courts.

On the facts, the Defendants were not able to prove that the Claimants had issued claims on the same matter in Brazil, or that the Brazilian Court was the appropriate court to deal with a claim against the Australian and English Registered Defendants, as such the jurisdictional objections were dismissed.

Future Considerations for Construction Practices

Considering the facts of this case, it would be sensible for construction professionals registered in the United Kingdom who operate in other jurisdictions to ensure strict compliance with health and safety protocols.

As a best practice this compliance will also be to a higher standard than that of the project’s national regime and as a minimum would be in compliance with British and European Industry Standards. The current BHP case has demonstrated that the English Courts are willing to consider the liability of English and Commonwealth Registered companies for alleged breaches of health and safety matters, even where the project and loss incident occurs in a foreign jurisdiction with a competent and independent Court system. This decision appears to be underpinned by the English Court’s desire to support the rule of law and to consider where appropriate all viable claims. In this instance the registration and operation of BHP partially via the United Kingdom appears to have played at least a partial role in the consideration of the Court.

In order to mitigate any potential losses, construction professionals should undertake regular and thorough reviews of the standards to which their foreign projects are constructed and where possible ensure that compliance with health and safety and/or structural specifications are ‘over-performed’.  It would also be sensible to ensure that proper records are kept of the reviews so evidence can be produced, if required, of compliance with the Health and Safety requirements.

The Impact on Directors and Officers

In the light of the considerable potential claim values and the Court’s apparent willingness to allow multi-party litigations regardless of complexity, Directors and Officers, should be mindful to consider their duties to ensure compliance with both health and safety and ESG protocols.

Whilst it is impossible to say to what extent the ESG element of this dispute affected the Court’s decision to allow the appeal and/or consider the original claim, the finding is in keeping with the current trend of recent cases which are sympathetic to the consideration of claims relating to potential breaches of ESG protocols, including the SEC fine handed out to BNY Mellon and McGaughey v USS case in England.

The current landscape requires directors and officers to balance the financial health of their company against the potential impacts that the company is, or might have, on the surrounding environment and/or society. In instances such as the BHP claim, the Court of Appeal will be conscious that in conjunction with the claimants’ right to a viable claim, there is also a significant public policy consideration to be made in relation to how the English Courts treat alleged foreign breaches of ESG. Effectively, if the Court of Appeal had upheld the decision of the Court of First Instance, it might have portrayed a future where registered companies could escape their purported ESG duties, provided that the impacted environment and/or society was within a foreign jurisdiction. This is not conducive to the ‘international approach ’ that drives the development of ESG regulation, and the global push towards climate change.

In the future Directors and Officers should be mindful that their international operations are managed to the same high ESG protocols that their parent company and/or UK registered subsidiary operate by and that the Health and Safety issues relevant to the country they are operating in have been considered. Again, record keeping of board minutes where these issues are discussed are necessary to address concerns generally but also in relation to potential derivative actions from Companies’ Shareholders who might be concerned by the Company’s record on ESG and health and safety.

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