This blog post has been contributed by Professor Chris Riley, Module Convenor for Company law.
On 12 February 2021, the UK’s Supreme Court delivered its much-awaited judgement in the case of Okpabi v Royal Dutch Shell plc [2021] UKSC 3. The case revolves around extensive pollution allegedly caused, in Nigeria, by the Shell oil group – and specifically, by its Nigerian subsidiary, SPDC Ltd. The claimants are members of Nigerian communities affected by that pollution. They have chosen to sue (in the English courts) not only SPDC, but also the ultimate parent company in the Shell Group, Royal Dutch Shell plc (‘RDS’), arguing that the parent company also owed them a duty of care.
From the outset, RDS sought to prevent the English courts from hearing the case against it, contending that there was no arguable case that it owed the claimants a duty of care in relation to the pollution. Both the High Court and the Court of Appeal agreed with RDS, but the Supreme Court has decided the claim against RDS is at least arguable. The case can now proceed to a trial (in England) to establish whether the two companies are in fact liable.
Although the Supreme Court allowed the appeal, and found the claim against the parent to be an arguable one, it nevertheless confirmed the general trend found in recent cases in this area, in which the law has moved away from the position established in Chandler v Cape plc. Chandler’s treatment of tortious claims against parents as involving a novel duty of care has been rejected, and the four ‘indicators’ which Chandler set down to determine when a parent would owe duty have been effectively side-lined. Recent cases such as AAA v Unilever and Vedanta v Lungowe Resources have ruled that ‘ordinary tort principles’ apply, so that parent companies will ordinarily be liable only for their active misfeasance – only where they sufficiently ‘take over, intervene in, control, supervise or advise the management of’ those subsidiary activities which have caused harm to others. The Supreme Court in Okpabi has reiterated that this is the correct approach.
Nevertheless, the Supreme Court in Okpabi has clarified, and perhaps thereby slightly expanded, what parental behaviour might cause the parent to owe a duty of care. First, the parent does not need to be exercising overall control over a subsidiary to owe a duty of care. What matters is the parent’s involvement in the particular subsidiary activity (say, the repair of oil-pipelines) which caused the harm. Second, the Court rejected RDS’s argument that a parent could never be liable merely because it had issued group-wide policies that its subsidiaries were expected to follow (for example, policies about how leaks from its pipelines should be prevented or repaired). The Supreme Court found that the mere issuing of policies might be sufficient, even if subsidiaries were not being forced to implement those policies.
More significant than these minor elaborations of the law are the more practical consequences of the Supreme Court’s decision. It allowed the appeal primarily because it felt that the Court of Appeal (like the High Court before it) had taken the wrong approach to determining whether the claimants’ case was arguable. The lower courts had each evaluated, in some detail, the strength of the actual and likely evidence against RDS. The Supreme Court ruled that such an approach was inappropriate. It resulted in a lengthy mini-trial of the claim, just in order to determine whether there was an arguable case that would then require a full-trial. Instead, for the purpose of assessing whether the claim was at least arguable, and should therefore be allowed to proceed to trial in England, the court should have assumed that the claimants’ allegations were true, unless ‘exceptionally, they are demonstrably untrue or unsupportable’.
This clearly sets a much lower threshold for determining whether a case is ‘arguable’. It makes it far easier for claimants to establish an arguable claim against a parent company, notwithstanding that the claim might eventually fail if and when it comes to a trial. This is strategically very significant, at least in those cases where claimants are injured by a subsidiary operating in a country with a problematic civil justice system. For such claimants, having an ‘arguable’ claim against the parent can be hugely advantageous, even if that claim fails at an eventual full-trial. By establishing an arguable claim against an English parent company, the claimants can then bring that claim, and also their claim against the foreign subsidiary, in England. For claimants in countries with weak systems of civil justice, gaining English jurisdiction can be crucial.
However, that strategy is threatened if the parent can, early in the proceedings, show that the action against the parent is unarguable. Doing so would leave only the subsidiary claim, which would then have to be heard in the country where the harm was suffered (in Okpabi, in Nigeria). But, following Okpabi, claimants can now more easily continue with the parental claim – and so also the subsidiary claim – to an English trial. The fact that the parental action might eventually fail at the trial will be far from disastrous, provided the (probably much stronger) subsidiary claim is won. The parental claim will have served its purpose – getting an English trial against the subsidiary.
If the “leaks” are caused by local people trespassing on the pipelines and deliberately puncturing the pipes to steal oil, what then?
then the claim would most likely fail. If the claimant can prove this is the case then there is no breach by them.