UK: Court Of Appeal Upholds Challenge To Jurisdiction Over Nigerian Environmental Claims (Okpabi And Others v. Royal Dutch Shell Plc And Another)

Last Updated: 15 May 2018
Article by Liz Tout and Catherine Gilfedder

Commercial analysis: Liz Tout and Catherine Gilfedder analyse the Court of Appeal's recent decision in Okpabi and others v. Royal Dutch Shell Plc and Shell Petroleum Development Company of Nigeria Ltd, which confirmed the English courts do not have jurisdiction over claims against a UK parent company and its Nigerian subsidiary for environmental damage in Nigeria. It also addresses the circumstances in which a parent company will be liable for damages arising from actions (including human rights and environmental violations) of its overseas subsidiaries.

Analysis

Okpabi and others (suing on behalf of themselves and the people of Ogale Community) v. Royal Dutch Shell Plc and another; Alame and others v Royal Dutch Shell Plc and another [2018] EWCA Civ 191

What is the case about?

The claimants, citizens of the Niger Delta, seek damages arising as a result of alleged ongoing pollution and environmental damage caused by oil leaks from pipelines and associated infrastructure. They allege that Royal Dutch Shell (RDS) and its local subsidiary, Shell Petroleum Development Company of Nigeria Limited (SPDC), are liable in negligence. The claim against RDS was brought on the basis that RDS owed the claimants a duty of care because it controlled the operation of the pipelines and infrastructure from which the leaks occurred, or because it had assumed a direct responsibility to protect the claimants from the environmental damage caused by the leaks.

At first instance, Fraser J held there was no arguable duty of care owed by RDS to the claimants. Given there was no "real issue to be tried" between the claimants and RDS, the latter also could not be an "anchor defendant" for the purposes of giving the courts jurisdiction over claims against SPDC.

What did the court decide?

A majority of the Court of Appeal (Sales LJ dissenting) agreed the claim should not proceed in the English courts. Simon LJ and Sir Geoffrey Vos considered the claimants had failed to establish an arguable case that RDS controlled SPDC's operations, or that RDS had responsibility for the matters and procedures that allegedly caused the relevant damage.

What principles did the court use for establishing parent company liability?

Both parties accepted the relevant test was as set out in the Court of Appeal's recent judgment in Lungowe and Ors v. Vedanta Resources Plc and Konkola Copper Mines Plc [2017] EWCA Civ 1528, [2017] All ER (D) 102 (Oct), in which the court held the claim should proceed. That test comprises seven principles, the key points from which can be summarised as follows:

  • the starting point is the three-part test for establishing a duty of care as set out in Caparo v. Dickman [1990] 2 AC 605, [1990] 1 All ER 568, that is: the damage should be foreseeable; there should be a relationship of proximity and it must be fair, just and reasonable to impose a duty of a given scope;
  • a duty may be owed by a parent company to the employee of a subsidiary, or a party directly affected by the operations of that subsidiary, in certain circumstances;
  • those circumstances may arise where the parent company:
    • has taken direct responsibility for devising a material health and safety policy the adequacy of which is the subject of the claim;
    • controls the operations which give rise to the claim; and
  • where both parent and subsidiary have similar knowledge and expertise and they jointly take decisions about the relevant operations, which the subsidiary implements, both companies may (depending on the circumstances) owe a duty of care to those affected by those decisions.

In an effort to show the relevant "circumstances" existed here, the claimants relied on a number of factors in support of RDS's arguable control of SPDC's operations:

  • the issue of mandatory policies, standards and manuals which applied to SPDC;
  • the imposition of a system of supervision and oversight of the implementation of RDS's standards which bore directly on the pleaded allegations of negligence;
  • the imposition of control over SPDC's spending; and
  • a high level of direction and oversight of SPDC's operations.

The areas of dispute between the parties related to proximity and whether it was fair, just and reasonable that such a duty be imposed. Examining the above factors, the majority was not persuaded that the claimants had demonstrated sufficient control by RDS to establish the proximity required. Simon LJ noted, for instance, that the policies in question were mandatory across all Shell Group companies, and were not tailored in any way to SPDC. One could not determine, based on the short excerpts relied upon, that RDS exercised material control over SPDC's material operations. Moreover, the policies in question constituted only "high level guidance on the centralised accumulation of a wide range of expertise and experience" which was then made available to all subsidiaries. Nor did an "Assurance" document, which indicated a central team would review the effectiveness of certain of those policies across all group operations, show the exercise of any degree of control. As Simon LJ put it, RDS's concern was "to ensure that there were proper controls and not to exercise control".

In arguing the imposition of a duty was fair, just and reasonable, the claimants pointed to a number of principles including the "importance of multi-national parent companies conducting themselves consistently with international standards", which Simon LJ considered to be a "doubtful" foundation for a duty of care.

Sales LJ disagreed with the majority's conclusion, considering that the witness evidence and relevant policies supported a case that there was a "pattern of distribution of expertise and control in relation to the handling of the risk of oil spills in the Niger Delta", which was arguably capable of meeting the criteria for the imposition of a duty of care.

How does this clarify the law for multinationals?

The Okpabi decision is helpful in clarifying that issuing mandatory group policies and procedures will not alone be sufficient to establish a duty of care on the part of the parent to those affected by their subsidiaries' actions. Following the court's decision in Lungowe there had been concern that, in seeking to improve subsidiaries' conduct through imposing policies in relation to matters such as human rights, UK parent companies increased the risk of liability for issues arising in these areas. This decision makes clear that what matters is actual control, the determination of which will involve detailed factual analysis of the relationship between the parent and subsidiary in relation to the operations giving rise to the claim.

As such, UK companies with subsidiaries operating in high-risk industries and jurisdictions will want to strike a balance between aiming to minimise violations taking place, including through introducing relevant policies and procedures, and the risk of being found to control their subsidiaries' operations. Companies may wish to ensure their policies are applied on a uniform basis across their groups, rather than tailored to address subsidiary-specific problems, and that responsibility for implementing those policies remains with the subsidiary.

The claimants in this case have indicated they plan to seek permission to appeal to the Supreme Court (as the Lungowe claimants have). Another High Court decision in this area (AAA and others v. Unilever Plc [2017] EWHC 371 (QB)) is also currently on appeal. As such, further judicial guidance on the circumstances in which a duty of care may arise is likely to be forthcoming in the near future.


This piece was first published by Lexis Nexis

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