CAN A PARENT COMPANY BE HELD LIABLE FOR ENVIRONMENTAL HARM CAUSED BY ITS SUBSIDIARY?

This post has been contributed by Mr Chris Riley, Module Convenor for Company law.

The decision of the UK High Court in HRH Emere Godwin Bebe Okpabi v Royal Dutch Shell Plc [2017] EWHC 89 (TCC), in February 2017, may have important implications for both UK multinational companies, and those who claim to have been injured by them.

The background to the case is a stark reminder of some of the less attractive features of modern global capitalism.  Multinationals, whose parent companies are usually based in developed countries, typically use complex webs of subsidiary companies to conduct their global operations.  But this creates problems in ensuring justice for those harmed by the operations of these subsidiaries:

• In developing countries, environmental or employment practices may be much less heavily regulated.

• This may lead to high rates of environmental damage, or harm to local employees. But victims may find that the subsidiary company responsible for the local operation is worthless, with most assets owned by the parent company.

• Even where the subsidiary is worth suing, legal proceedings against it in the courts of the developing country may be very problematic: they might, for example, be intolerably slow or prone to corruption.

Injured claimants may, then, prefer to sue the richer parent company, and to do so in the developed country where the parent is based. In Okpabi v Shell, residents of the Niger Delta claimed that their local environment had been badly damaged by Shell’s Nigerian subsidiary.  Besides suing that subsidiary, proceedings were also brought against the holding company for the Shell group, Royal Dutch Shell Plc.  And all these proceedings were brought in the UK.

Royal Dutch Shell Plc responded both by denying many of the claimants’ factual allegations and also, strategically, seeking to have the legal proceedings heard in Nigeria, rather than in the UK.  The UK High Court’s decision decided only this question of ‘jurisdiction’ – where the proceedings should be heard.  However, in order to deal with that, the High Court had to determine the likelihood of the action against the parent company being successful (if it was unlikely the action against the parent company would succeed, then it was inappropriate for the proceedings against it, or the subsidiary, to be heard in the UK).

The High Court declared that there was very little prospect of the action succeeding against the parent company.  As with the decision in Thompson v Renwick Group Plc, the court emphasised the fact that Royal Dutch Shell Plc was merely a ‘holding company’.  It had no employees of its own, and did not itself conduct oil operations, whether in Nigeria or anywhere else.  Accordingly, it was not the case that Royal Dutch Shell Plc was better placed than its Nigerian subsidiary to understand, or to address, the environmental risks posed by extracting oil.

The case has been subject to lots of press comment.  Here is a useful article, which also provides interesting background to the case: https://www.theguardian.com/business/2017/jan/26/nigerian-oil-pollution-shell-uk-corporations