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Mining dam lawsuit highlights increasing D&O exposures

The Anglo-Australian mining giant BHP is facing a revived £5 billion lawsuit in the Court of Appeal, launched by around 200,000 Brazilians over a devastating dam failure in 2015.

The claim, one of the largest in English legal history, seeks to hold BHP to account for the disaster and is the latest high profile case in which foreign litigants are seeking to bring group litigation against English-domiciled parent companies in the English courts.

The Mariana dam disaster, also known as the Samarco dam disaster, occurred on 5 November 2015, when the Fundão tailings dam at the Germano iron ore mine of the Samarco Mariana Mining Complex near Mariana in Brazil, suffered a catastrophic failure.

Nineteen were killed and villages obliterated as a torrent of more than 40 million cubic metres of mining waste swept into the Doce river and Atlantic Ocean.

The Brazilian claim emulates the lawsuits brought in London against Vedanta and Royal Dutch Shell. The Supreme Court allowed a group Nigerian farmers and fishermen to sue Shell, Konkola Copper Mines plc and its parent company Vedanta Resources in the English courts after oil spills in the Niger Delta contaminated land and groundwater. Vedanta ultimately settled out of court in January.

The Vedanta case identified two crucial factors for granting permission to bring such a claim: the prospects of establishing parent company control over a subsidiary’s practices to establish a duty of care owed by the parent company to third parties affected by the operations of a subsidiary; and the claimants’ lack of access to justice in their own jurisdiction.

These developments pose significant risks to multinational corporations who may be exposed to unexpected litigation and is a challenge for Directors and Officers (D&O) insurers in the face of evolving international exposures

In the last 12 months, there has been an upsurge in the number of shareholder claims that are being pursued in multiple jurisdictions. In the US, there are increased numbers of securities claims being filed against non-US issuers but whose shares are traded through American Depository Receipts (ADR).

For ADRs that are not actually sponsored or otherwise actively promoted to US investors, it was considered that US courts had no jurisdiction over investor claims. However, the Court of Appeals for the Ninth Circuit ruling in a case concerning Toshiba meant that even where a foreign issuer had limited involvement in any share transaction, this would still amount to a domestic transaction sufficient for the purpose of the Exchange Act and therefore granting jurisdiction in the US.

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