In His Royal Highness Emere Godwin Bebe Okpabi and Others v Royal Dutch Shell PLC (“RDS”) and Shell Petroleum Development Company of Nigeria (“SPDC”) [2017] EWHC 89 (TCC), the Technology and Construction Court confirmed that the English Courts will not permit tortious claims against the ultimate parent of an oil and gas company for the autonomous acts of their subsidiaries. The decision is a useful reminder on the importance of ensuring that an oil and gas group acts through the correct corporate entity when dealing with environmental issues that might give rise to claims in tort being made against it.

This decision may come as a relief to many large group companies, with often multitudinous operating entities in a range of jurisdictions. The decision also highlighted, however, that the court will adopt a case-by-case approach to the issue of the tortious liability of parent companies for the actions of a subsidiary.

Facts

Members of the Ogale community in Nigeria raised claims for damages against RDS and SPDC, alleging serious ongoing pollution and environmental damage caused by oil spills from the defendants’ pipelines. SPDC was the operator of a joint venture with the Nigeria National Petroleum Corporation and two other Nigerian companies. RDS was the ultimate parent company of SPDC, and held shares in another company that held shares in SPDC.

Members of the Ogale community in Nigeria argued that the claims would have better prospects of being progressed, and substantive justice achieved, if undertaken in England. However, this would require a defendant to be domiciled in England. SPDC was domiciled in Nigeria; RDS, meanwhile, was domiciled in England. To seek to achieve their aim of having the case heard before the English courts, the Members of the Ogale community therefore sought to use RDS as an ‘anchor defendant’.

By way of explanation, Practice Direction 6B allows for a ‘necessary or proper party’ gateway to service in paragraph 3.1(3). A claimant may serve a claim form out of the jurisdiction (in this case on the Nigerian entity, SPDC) with the permission of the court, where a claim is also made against another defendant (in this case RDS) and that claim form is served within the jurisdiction.

To make use of an ‘anchor defendant’ within the jurisdiction, however, a claimant also has to demonstrate that there is ‘a real issue’ between the claimant and that ‘anchor defendant’, and that it is an issue ‘which it is reasonable for the court to try’. In other words, only if the members of the Ogale community could satisfy this test concerning RDS could they bring an action against SPDC in England.

Was there a ‘real issue’ to try against RDS?

The court proceeded by considering the strength of the case against RDS, the proposed anchor defendant.

Notably, the claimants attempted to apply by analogy two previous cases: the first concerning another claim against SPDC (where it had agreed voluntarily to submit to English jurisdiction), the second concerning litigation against Vedanta. Justice Fraser found, however, that the correct approach was not to “slavishly” follow past decisions, but to apply existing principles of law to the facts of the present claims.

Justice Fraser considered whether RDS owed the claimants a duty of care under English law (it was agreed that, for all relevant purposes, English and Nigerian law were the same on this point) by applying the three-fold test in Caparo v Dickman [1990] 2 AC 605 (listed below):

a) damage should be reasonably foreseeable;

b) there should be a relationship of proximity or neighbourhood; and

c) it should be “fair, just and reasonable” to impose a duty of care.

(the “Caparo test”).

The claimants relied on public statements made by RDS, including statements in its corporate literature, to argue that the Caparo test was satisfied and show that RDS held ultimate responsibility over SPDC’s operations in Nigeria. Further, the claimants sought to show that RDS exercised sufficient control over its subsidiaries’ affairs by reference to the RDS Executive Committee; as the Executive Committee was the central decision making body of the Shell Group, RDS was responsible for the actions of SPDC by virtue of SPDC’s membership in the Shell Group.

RDS, however, argued that where it had no employees, did not engage in any operations, provide any services, own any oil producing assets, or have any licences to carry out operational activities, there could be no relationship between the claimants and RDS giving rise to a duty of care.

Decision

The court found that the second and third limbs of the Caparo test had not been satisfied. RDS did not have a sufficiently close relationship with the claimants to give rise to a duty of care, and to impose such a wide duty on RDS would be unfair. Generally, a company will not be liable for the actions of others simply by reason of common membership of a group. Instead, the existence of a duty of care depends on the circumstances of the case.

In considering the issue of proximity, the court noted the decision in Chandler v Cape Plc [2012] EWCA Civ 525. Merely holding shares in a subsidiary “as if they were an investment holding company” will not, by itself, give rise to a duty of care. Although there may be circumstances where a duty of care could arise, they did not apply in this case where:

a) RDS was not operating the same business as SPDC, it was simply the ultimate holding company and its only business was holding shares in SPDC. It did not have any operations or infrastructure of its own in Nigeria.

b) RDS did not have any superior, comprehensive, or specialist knowledge in comparison to SPDC, nor could it be expected to have such knowledge.

c) RDS was not expected to hold an in-depth knowledge of SPDC’s system of work; as a holding company, it could only be said to have a superficial overview.

d) RDS was not being relied upon by SPDC to protect the claimants; SPDC was an autonomous subsidiary conducting operations in Nigeria.

In relation to public statements made by RDS, the court found that the statements had been made in relation to the Shell Group generally, and did not weigh heavily when considering whether a duty of care existed. Policies merely starting with “all Shell companies must” were insufficient to prove a duty of care.

Although having some sympathy for the situation of the claimants, the court found generally that the evidence relied upon to found a claim against RDS was too thin or non-existent. There was no real issue between the claimants and RDS which the court should try. In the absence of RDS as an ‘anchor defendant’, the claims against SPDC could not otherwise proceed in the English courts.

Comment

The outcome of this case is positive for large international oil and gas companies. Although such companies may be perceived to have ‘deeper pockets’ to meet claims for negligence by an operating subsidiary, and the English courts may be the preferred forum, liability in tort will ultimately turn on the traditional Caparo test of foreseeability, proximity, and reasonableness. The perceived vulnerability of the other party could not, by itself, justify making the parent company liable.

However, the decision should be treated with some caution. While in this case the court found that the claims should proceed against the operating subsidiary in Nigeria, much will turn on the company structure and relevant operational nexus in each case. This will be an important factor for companies to consider when assessing the most suitable structure for exploration and production operations in future. It also flags the potential implications of other members of a corporate group being involved in operational issues that might give rise to claims in tort from third parties.