Okpabi and others v Royal Dutch Shell and another

Okpabi and others v Royal Dutch Shell and another

Originally published by Croner-i (https://app.croneri.co.uk/reference-articles/law-and-guidance/case-reports?product=139_ ) For further details, please contact the Croner-i sales team on 0800 231 5199.

Keywords: oil pollution – multinational companies - negligence

Statute reference: this case was brought in common law negligence

The Facts

The appeal to the Supreme Court concerned claims by 40,000 claimants in Nigeria. They were inhabitants of the Bille and Ogale communities. They alleged that they had suffered damage resulting from oil spills from infrastructure operated by the Shell Petroleum Development Company of Nigeria Ltd (SPDC). The spills caused widespread environmental damage including serious water and ground contamination. The claimants sought compensation and remedial works.

SPDC is a Nigerian company which is a subsidiary of Royal Dutch Shell (RDS), a company domiciled in England. The claimants brought parallel claims against SPDC and RDS. On behalf of the claimants it was argued that both companies were liable in negligence and that RDS owed them a duty of care because it exercised significant control over material aspects of SPDC’s operations and/or assumed responsibility for those operations.

Proceedings were served on RDS. The claimants obtained permission to serve SPDC but this was overturned by the High Court. The High Court found that the claims had no real prospect of success. It was not reasonably arguable that there was any duty of care upon RDS.

The claimants’ appeal to the Court of Appeal referred to the general statement of the relevant law, as follows:

· In order to establish a duty of care in common law negligence, claimants must prove foreseeability, proximity and reasonableness.

· A parent company may be liable for the acts of a subsidiary. This depends upon the facts of the case.

· Claims against subsidiaries are more likely to be successful if they are made by former employees, but third party claims are not in themselves excluded.

· A duty of care is more likely to be established where a parent company had superior knowledge or expertise about the operations of its subsidiary.

In relation to RDS’s control over SPDC’s operations, the claimants relied on the following:

· RDS had issued mandatory policies, standards, manuals and design an engineering practices.

· RDS had imposed a system of supervision of the implementation of standards which were directly relevant to the current negligence claim

· RDS had financial control over SPDC and there was a high level of oversight of SPDC’s operations.

The appeal was dismissed for the same reasons as those of the High Court decision. The Court of Appeal carried out a detailed review of the facts and stated that the conditions for granting permission to serve the claim on SPDC as a necessary or proper party to the claims against RDS had not been made out. 43 witness statements and expert reports were filed. There were 2000 pages of material and eight files of exhibits.

The claimants appealed to the Supreme Court. The Supreme Court allowed the appeal and made the following points:

· When dealing with jurisdictional issues related to whether there was a triable claim, the focus should be on the particulars of claim or witness statements and whether the cause of action had a real chance of success.

· The liability of parent companies in relation to activities of their subsidiaries is not, of itself, a distinct category of liability in negligence.

· Ordinary principles of the law negligence apply. On the facts, whether a duty of care arises 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 operations of the subsidiary.

· RDS had a high degree of control over SPDC’s pollution and environmental compliance and the operation of its oil infrastructure. It was therefore reasonably arguable that RDS owed a duty of care to the claimants.

· There was no special test for the circumstances in which a parent company owes a duty of care in relation to the activities of a subsidiary. These circumstances may include where the parent company takes over the management of activities or takes steps to implement group-wide policies.

· Proof of the nature and extent of the involvement of RDS in the activities of SPDC depended largely on disclosure of documents.

· There were real issues to be tried. This conclusion was supported by witness evidence.

· The Shell group’s vertical structure, with organisational approval preceding corporate approval, allowed for delegation of authority. This included operational safety and environmental responsibility. The way in which this organisational structure worked in practice, and the extent to which authority was delegated, raised triable issues.

The case will now be referred to the High Court to decide the issues of liability and, if liability is established, the amount of compensation.

Comment

· The decision of the Supreme Court in the Okpabi case is generally recognised as a very important development in the approach of the courts to claims which allege a duty of care on the part of a parent company for environmental harm caused by a foreign subsidiary.

· Multinational companies with UK headquarters need to be aware that non-UK claimants may be able to bring claims in English courts for the actions of their foreign subsidiaries.

· The very large quantity of documents produced in the case were not enough to stop the claim. The court focused on the facts alleged in the particulars of claim,

· Parent companies cannot rely on the local implementation of global policies by subsidiaries and should carefully consider the way in which management, supervision, advice and policy are dealt with.

· In relation to control, multinational companies may impose control measures to prevent subsidiaries from causing harm to third parties. There may be a risk that such measures could amount to control of the subsidiaries and could actually increase the risk of litigation.

· The Okpabi case illustrates the difficulty for parent companies establishing good governance where subsidiaries operate independently with local oversight and policy implementation.

· The Supreme Court decision in this case does not mean that RDC is liable. The essential effect of the decision is that the claim can proceed.

· A number of parent companies based in the UK have subsidiaries based in the EU. Despite Brexit, such companies will come within the scope of potential EU legislation which requires parent companies to apply human rights, environmental and good governance due diligence in relation to subsidiaries.