Liability in tort of parent for acts and omissions of subsidiary
In His Royal Highness Emere Godwin Bebe Okpabi v Royal Dutch Shell plc ( EWHC 89 (TCC)) the High Court provided a helpful analysis of the circumstances in which a parent company owes a duty of care with regard to operations carried out by its subsidiary.
In this case, establishing whether a duty of care was owed by the parent was central in determining whether the English courts had jurisdiction to hear the claim. The case is interesting to examine in the context of the readiness of the English courts to hear claims relating to conduct outside the jurisdiction brought by foreign claimants.
The judgment concerned two sets of proceedings brought by around 42,500 Nigerian citizens against Royal Dutch Shell plc (RDS) and Shell Petroleum Development Company of Nigeria (SPDC). The claimants claimed that they had suffered damage as a result of oil spills emanating from the defendants' oil pipelines and associated infrastructure in the Niger Delta.
RDS is the ultimate holding company of the worldwide Shell Group and is incorporated in the United Kingdom, where it has its registered office. It is listed on the FTSE stock exchange in London as well as other stock exchanges worldwide.
SPDC is a subsidiary of RDS within the Shell Group of companies and is a Nigerian-registered exploration and production company incorporated under the laws of Nigeria. SPDC operates in Nigeria through a joint venture with other Nigerian registered oil companies. RDS is not a member of the joint venture.
As a company registered in England, RDS was served in England as an 'anchor defendant'. Following an ex parte hearing, the claimants obtained permission to serve SPDC outside the jurisdiction under Paragraph 3.1(3) of Practice Direction 6B, on the basis that SPDC was a "necessary or proper party" to the claim against RDS.
The defendants argued that the claims had nothing to do with the jurisdiction of England and Wales and instead should proceed in Nigeria. Further, they alleged that issuing claims against RDS in England was a cynical device used by the claimants to bring claims that would otherwise have no connection with England.
The court held that the case against RDS should be considered first, to establish whether there was a real issue to be tried between the claimants and RDS – which, if proved, would allow the claims to be heard in the English courts.
Liability in tort of parent for acts and omissions of subsidiary
The claimants' case was that RDS was responsible for the acts and omissions of SPDC which allegedly led to the damage caused by pollution and environmental damage in the Niger Delta. The claimants submitted that RDS was "not a true holding company" and claimed that both defendants were legally responsible for the oil pollution.
The defendants argued that the claims against RDS were bound to fail, as RDS did not owe a duty of care to the claimants for the acts and omissions of SPDC. The defendants alleged that SPDC was responsible for all operational decisions in Nigeria and claimed that RDS did not have a supervisory role or any specialist activities or knowledge that would put it in any other position than that which would be expected of an ultimate parent.
The court ruled that RDS did not owe a duty of care to the claimants, holding that there was no real issue to be tried between the claimants and RDS. The court noted that the claimants' claims against RDS (rather than SPC) were "extremely thin, bordering on sketchy, and in a great many instances simply not evidence[d] at all".
Consequently, the claimants could not rely on RDS as an anchor defendant to obtain jurisdiction in England over SPDC under the necessary or proper gateway path in Practice Direction 6B 3.1(3):
"Absent the existence of proceedings on foot in England against RDS, there is simply no connection whatsoever between this jurisdiction and the claims brought by the claimants, who are Nigerian citizens, for breaches of statutory duty and / or in common law for acts and omissions in Nigeria, by a Nigerian company."
The claimants will now go to the Court of Appeal in the hope that the decision will be overturned and the claim allowed to proceed in the English courts.
The judgment confirmed that RDS and SPDC were two separate legal entities forming part of 1,367 companies within the corporate family of Shell companies, which are located in 101 different countries. RDS did not hold shares in SPDC, but rather in Shell Petroleum NV, which was itself a holding company. Shell Petroleum NV held shares in other companies, one of which was SPDC.
The court commented that:
"membership of the same group does not of itself clothe RDS, the ultimate holding company, with responsibility for acts or omissions on the part of subsidiary companies within the group. This is a fundamental principle of the law of England concerning the separate legal personality of subsidiary companies."
The defendants submitted that RDS never held a board meeting in the United Kingdom, had no employees and engaged in no operations and provided no services. It had no oil producing assets and had none of the regulatory licences that would permit it to become engaged in operational activities. RDS was even prohibited by Nigerian law from engaging in oil operations. The court accepted these submissions.
The claimants claimed that public statements regarding the Shell Group's commitment to environmental issues made by the Shell Group and RDS established a duty of care on behalf of RDS. However, the judge did not consider that statements made to fulfil RDS's stock exchange listing obligations were sufficient to establish a duty of care on its part, commenting:
"It is highly unlikely in my judgment that compliance with such disclosure standards could, of itself, be characterised as an assumption of a duty of care by a parent company over the subsidiary companies referred to in those statements. There is certainly no authority to this effect and in the absence of any, I would hold that such compliance cannot in itself be a sufficient factor to [find] a duty of care on the part of a parent holding company."
Duty of care
In determining whether RDS owed a duty of care to the claimants, the court examined the threefold test applied by Caparo v Dickman ( 2 AC 605):
- The damage should be foreseeable;
- There should exist a relationship of proximity or neighbourhood; and
- It should be fair, just and reasonable to impose a duty of care.
The court determined that the second and third limbs of the test would be problematic for the claimants.
With regard to the second limb of the test (ie, proximity or neighbourhood), the court noted as follows:
- RDS did not hold shares in SPDC.
- RDS did not conduct any oil operations itself.
- Although two officers of RDS sat on the executive committee of the Shell Group of companies, those two constituted a minority of that membership.
- RDS was prohibited by Nigerian law from conducting operations in Nigeria.
- A joint venture was in place that was engaged in oil operations in Nigeria, of which RDS was not a member.
- Imposing a duty of care on RDS would potentially impose "liability in an indeterminate amount, for an indeterminate time, to an indeterminate class". The court held that this was the antithesis to proximity or neighbourhood.
With regard to the third limb of the test (ie, whether it was fair, just and reasonable to impose a duty), the court noted as follows:
- Nigeria has established a statutory framework which imposes obligations on companies engaged in the oil business to provide compensation for damages. SPDC had a strict liability for oil spills and therefore concepts of fairness, justice and reasonableness did not require the imposition of a duty of care on RDS.
- There was evidence that the claimants were entitled to claim compensation only from SPDC under Nigerian statute.
- RDS was prohibited by Nigerian law from performing operations and had no oil pipelines or associated infrastructure in Nigeria.
- RDS simply held shares in its subsidiaries as if it were an investment holding company.
- The activities in question were carried out by SPDC as part of the joint venture with the Nigerian state.
The court also considered the four factors identified in Chandler v Cape ( 1 WLR 3111), which identified the circumstances in which a duty of care can be imposed on a parent responsible for the health and safety of its employees. The factors were said to be descriptive rather than exhaustive, but the presence of some or all of the factors would bring the case more closely within the scope of a duty of care owed by a parent.
When approaching the factors identified in Chandler v Cape, the court in this case noted that the purpose of the analysis is to establish whether the parent is better placed – because of its superior knowledge or expertise – than the subsidiary in respect of the harm. If that parent is better placed, one must then consider whether it is fair to infer that the subsidiary would rely on the parent.
The court here determined that none of the four factors identified in Chandler v Cape was present, based on the following reasoning:
- RDS was not operating the same business as SPDC.
- RDS did not have superior or specialist knowledge compared to SPDC. Rather, SPDC had specialist knowledge of the oil business in Nigeria.
- RDS could have only a superficial knowledge or overview of the systems of work of SPDC, given the size and scale of companies and activities within the Shell Group.
- There was no evidence that SPDC was relying on RDS to protect the claimants. The judge noted that "SPDC is a wholly autonomous subsidiary with considerable income and sizeable assets of its own… I do not consider that it would be fair to infer that the subsidiary would rely upon the parent".
The court's analysis of the circumstances in which a parent can owe a duty of care with regard to the operations carried out by its subsidiary is interesting for practitioners to examine, particularly those acting for large multinational corporations.
The fact that two companies form part of the same group does not in itself impose responsibility on the parent for the acts of its subsidiary. The level of specialist knowledge and reliance placed on a parent is particularly pertinent to consider when establishing a duty of care. The case highlights the difficulties faced when trying to establish a subsidiary's reliance on a parent that has "no experience whatsoever" of the day-to-day operational business of the subsidiary.
This is not the first case in which the location of a parent has been examined with respect to the jurisdiction of domestic courts (see Young v Anglo American South Africa Limited  EWCA Civ 1130, where it was held that claims must be pursued in the place where a subsidiary is based or the wrongdoing occurred).
For further information on this topic please contact Jonathan Wood or Elizabeth Wiggin at RPC by telephone (+44 20 3060 6000) or email ([email protected] or [email protected]). The RPC website can be accessed at www.rpc.co.uk.