The Supreme Court recently handed down a decision on the high-profile jurisdictional challenge relating to group claims brought by two Nigerian communities (the “Okpabi”) against Royal Dutch Shell Plc (“RDS”) and its Nigerian subsidiary, Shell Petroleum Development Company (the “Subsidiary”, “SRDC”) in connection with the Subsidiary’s alleged pollution in the Niger Delta. The case is of great interest as the Supreme Court unanimously reversed the Court of Appeal’s decision, concluding that it was arguable that RDS as a UK domiciled parent company did have a degree of control over its foreign subsidiary and therefore owed a duty of care to Okpabi in respect of the alleged environmental damage by its foreign Subsidiary.
This decision means that UK based parent companies with multinational operations can now face legal action in England over their subsidiaries’ actions abroad.
BACKGROUND
In 2018 the Court of Appeal considered the circumstances where a parent company can be held liable for the acts of its subsidiaries in Okpabi and others (on behalf of themselves and the people of Ogale Community) v Royal Dutch Shell Plc and another [2018] EWCA Civ 191. In particular, the Court of Appeal considered the effect of the implementation of a UK domiciled parent company’s group policies by its foreign subsidiary and whether this made it more likely or not that the UK parent would be held liable for the actions of its overseas subsidiary.
The Court of Appeal distinguished between a parent company that has significant control or shares control in material operations versus a parent company that issues mandatory policies and procedures to ensure compliance and conformity across the group. The Court of Appeal concluded that RDS did not have a sufficient degree of control over the operations of its Subsidiary to establish the necessary degree of proximity and therefore did not owe a duty of care towards Okpabi. This was because RDS did not have any appreciable level of oversight or control over the Subsidiary’s operations. Moreover, RDC did not own shares in the Subsidiary directly, but only though another subsidiary. As such it could not be proved that the Subsidiary was relying on RDS’s knowledge, expertise and oversight to protect Okpabi from the harm potentially suffered. The policies and procedures were standard across all countries in RDS’s group and, crucially, lacked any detailed policies and practices tailored specifically for the Subsidiary.
As such, the Court of Appeal ultimately ruled that the English court did not have jurisdiction to hear the claim brought by Okpabi against RDS and its Subsidiary as there was no arguable case that RDS, as the UK domiciled parent company, owed Okpabi a duty of care in respect of the damage caused by its Nigerian subsidiary.
For more information on the Court of Appeal’s decision, please click here to read our previous article on the judgement.
THE VEDANTA CASE
Shortly after the Court of Appeal’s decision, in 2019 the Supreme Court considered similar circumstances in which a parent company may owe a duty of care to those affected by the acts or omissions of its foreign subsidiary in Vedanta v Lungowe. As the procedural and substantive issues in the Vedanta and Okpabi cases were very similar, the Supreme Court heavily relied on its judgement in Vedanta.
Zambian citizens resident in the Chingola region of Zambia commenced proceedings against Vedanta Resources PLC (“Vedanta”), domiciled in the UK and Konkola Copper Mines Plc (“KCM“), domiciled in Zambia. Vedanta is the holding company of KCM, which is the owner-operator of the Nchanga copper mine in Zambia. The claimants alleged that they suffered personal injury and damage as a result of pollution and environmental damage caused by harmful discharges from the copper mine and alleged that both Vedanta and KCM owed them a duty of care to ensure that KCM’s mining operations did not cause harm to the environment or local communities in Zambia.
The Supreme Court confirmed that a UK-domiciled parent company is capable of owing a duty of care to third parties for the actions and omissions of its foreign subsidiaries and that the duty should be established by reference to general principles of tort (and not specific factors relevant only to the parent/subsidiary relationship as RDS had tried to affirm in its submissions at the Court of Appeal).
THE SUPREME COURT’S DECISION
The Supreme Court’s decision is therefore notable as it unanimously allowed Okpabi’s appeal, finding that the English court does have jurisdiction over the claims. It held that:
- the Court of Appeal materially erred in law by conducting a mini-trial in relation to the arguability of the claim at the jurisdiction stage; and
- it was reasonably arguable that RDS, as the UK domiciled parent company, owed a duty of care to Okpabi.
The Supreme Court held that there was no “limiting principle” that a UK domiciled parent company could never incur a duty of care in respect of the activities of a foreign subsidiary merely by laying down group-wide policies (as the Court of Appeal had attempted in Okpabi).
The Supreme Court found that the Court of Appeal had been wrong to approach the issue of parent company liability in negligence as a special category of liability. Quoting Vedanta, the Supreme Court stated that normal principles of negligence applied in determining questions of parent liability for acts of a subsidiary. As such, although control as a factor in determining a duty of care is important, the ordinary principles of the law of tort regarding the imposition of a duty of care will also need to be applied. Therefore, the most relevant question in establishing whether a duty of care is owed “depends on the extent to which, and the way in which, the parent availed itself of the opportunity to take over, intervene in, control, supervise or advise the management of the relevant operations (including land use) of the subsidiary“. [1]
In determining whether RDS had liability over its foreign Subsidiary, following the Supreme Court’s decision in Vendeta, Okpabi submitted that a duty of care had arisen based on the following factors:
- RDS taking over the management or joint management of the relevant activity of the Subsidiary;
- RDS providing defective advice and/or promulgating defective safety and environmental group-wide policies, which were implemented by the Subsidiary;
- RDS taking steps to adopt and implement group-wide safety and environmental policies and actively taking steps to ensure their implementation by the Subsidiary; and
- RDS holding out that it exercises a particular degree of supervision and control of the Subsidiary. [2]
Therefore, in applying general principles of negligence, the Supreme Court concluded that Okpabi had shown that there was an arguable case to be tried under the Vedanta routes (1) and (3) above. The effect of the judgement means that Okpabi’s claim against RDS and the Subsidiary can proceed to the English courts.
NEXT STEPS
Although the Supreme Court’s decision did not consider in full the factual allegations, as the focus was a decision on a question of jurisdiction, as opposed to a ruling on parental liability, the decision and comments in Okpabi clearly demonstrates the stance the courts are now taking in their approach to alleging a duty of care on the part of a parent company for harm caused by its foreign subsidiary. The court will go beyond simple corporate structures to determine in practice how each subsidiary is managed and operated.
This means that, on the question of liability caused by a foreign subsidiary and in respect of litigation risk, UK domiciled parent companies with large multinational groups will need to carefully consider their corporate structures and the actions they take over group-wide corporate policies and the extent of its management in relation to its subsidiaries to ensure a consistent approach.
For more information, and any guidance or advice on corporate policies, contract and commercial law, Cleveland & Co, your External in-house counselTM, are here to help.
[1] Paragraoh, 49 Vedanta v Lungowe
[2] Paragrpah 26-27, Okpabi & Others v Royal Dutch Shell Plc & Another [2021] UKSC 3
