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Supreme Court provides further guidance on liability for UK-domiciled parent company for foreign subsidiaries

  • 15 February 2021 15 February 2021
  • UK & Europe

  • Insurance & Reinsurance

Supreme Court provides further guidance on liability for UK-domiciled parent company for foreign subsidiaries

Okpabi and others v Royal Dutch Shell Plc and another [2021] UKSC 3

The Supreme Court has granted an appeal in respect of a claim brought by more than 40,000 Claimants against the UK-domiciled parent company of a multi-national group of companies.  The Supreme Court held that the majority in the Court of Appeal had erred in law by finding there was no arguable case against the parent company. In line with Vedanta, the organisational structure of the parent company and how it worked in practice, required proper disclosure, and therefore clearly raised triable issues.

This decision will carry significant impact in various sectors including environmental litigation and legacy disease litigation. Decisions such as this and Vedanta place parent companies at significant risk of mass tort litigation, thus circumventing the strategic corporate structures carefully put in place to avoid these claims.

Background

There are two effective sets of proceedings contained within the appeal, the Ogale proceedings and Bille proceedings. The Ogale proceedings involve approximately 40,000 Claimants from the Ogale Community in Rivers State, Nigeria.  The Bille proceedings involve 2,335 individuals residing in the Bille Kingdom, a remote community also located in Rivers State.  Both groups are referred collectively as the Claimants.

The Claimants allege that numerous oil spills have occurred from pipelines and infrastructure in the vicinity of their communities. The spills have allegedly caused widespread environmental damage, with the natural water sources in the Claimants' communities rendered unsafe “for drinking, fishing, agricultural, washing or recreational purposes.”  The Claimants allege that the oil spills were caused by the negligence of The Shell Petroleum Development Company of Nigeria (SPDC), a Nigerian registered company, responsible for operating the aforementioned pipelines and infrastructure.

Royal Dutch Shell Plc (‘RDS’) is the parent company of the Shell group of companies, incorporated in the UK. The group of companies includes SPDC as a subsidiary.

The Claimants' case against RDS is that it owed them a common law duty of care on the basis that it exercised significant control over material aspects of SPDC’s operations and/or assumed responsibility for SPDC’s operations. This resulted in a failure to protect the Claimants against the risk of foreseeable harm arising from SPDC’s operations.

Previous decisions

At first instance, Mr Justice Fraser held that “although the court had jurisdiction to try the claims against RDS… it was ‘not reasonably arguable that there is any duty of care upon RDS.’”  The Court of Appeal held that Mr Justice Fraser has erred in certain respects and reviewed the evidence again, providing its own conclusions.

The majority of the Court of Appeal held that “there was no arguable case that RDS owed the appellants a common law duty of care to protect them against foreseeable harm caused by the operations of SPDC.”  Lord Justice Sales dissented stating that there was a good arguable case.

Following deferment of an application for permission to appeal pending the decision in Vedanta, the application was granted on the basis that Vedanta clarified the law.

Supreme Court

The appeal was granted. A copy of the judgment can be found here.

In summary, the appeal raised two issues:

  • Whether the Court of Appeal erred in law;
  • If so, whether the majority was wrong to decide there was no real issue to be tried.

Did the Court of Appeal err in law?

In light of Vedanta, the Claimants' legal argument was effectively restated in that a duty of care arose as:

  1. RDS was responsible for the management or joint management of the relevant activity of SPDC;
  2. RDS provided defective advice/group-wide safety/environmental policies then implemented by SPDC;
  3. RDS promulgating group-wide safety/environmental policies, and taking active measures to ensure implementation by SPDC;
  4. RDS holding it that it exercises a particular degree of supervision and control of SPDC.

These arguments were identified as Vedanta routes (1) to (4) for the purposes of the judgment, but were identified only as convenient headings for the purposes of this appeal, and not “supporting any special or separate parent/subsidiary duty of care tests.”

The Supreme Court considered the findings of the three Judges in the Court of Appeal, including the dissenting judgment of Lord Justice Sales. 

The Court of Appeal was wrong to be drawn into a mini-trial, contrary to the judgment in Three Rivers, and had wrongly carried out an evaluation of the weight of the evidence and a subsequent exercise of a judgment based on that evidence.

The Court of Appeal was also wrong to analyse this case by reference to the threefold test set in Caparo. Per Vedanta, the liability of parent companies in relation to the activities of their subsidiaries is not, of itself, a distinct category of liability in common law negligence.”

Was there a real issue to be tried?

The Supreme Court held that the case as set out in the pleadings was supported by documentary evidence, including the RDS Control Framework and the RDS HSSE Control Framework. This meant there was a “real issue to be tried under Vedanta routes (1) and (3).”  There was no need to consider the application of routes (2) and (4).

Lord Justice Hamblen relied upon and adopted that the analysis of Lord Justice Sales, the dissenting judgment in the Court of Appeal.  Lord Justice Sales had highlighted that “it is of significance that the Shell group is organised along Business and Functional lines rather than simply according to corporate status.”

His view was that the evidence “support[s] 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 is arguably capable of meeting the criteria for imposition of a duty of care”.

Further update

A further detailed update addressing the impact of this decision in various sectors will be issued in the coming weeks.

 

 

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