In the recent decision of Akpan v Royal Dutch Shell plc (30 January 2013), a Dutch court ordered a Nigerian subsidiary of Royal Dutch Shell to pay a local Nigerian farmer and fisherman (Akpan) compensation for the damage caused as a result of third-party sabotage of an exploration well operated by the Nigerian subsidiary. The willingness of courts to hear such cases is an important consideration for multinational companies, particularly those operating in lesser developed countries where the potential for human rights abuses is higher.

The decision comes against the backdrop of an increasing trend of parties seeking to hold multi-national companies liable for the conduct of their foreign subsidiaries in developing countries both:

  • as a matter of tort, in particular the tort of negligence, and
  • as a matter of international law, in particular human rights violations, in US courts pursuant to the Alien Tort Statute (ATS).

Although there are a number of procedural and substantive legal hurdles which plaintiffs must overcome to establish their claim, the willingness of courts, such as the Dutch court in Akpan v Royal Dutch Shell,to hear such cases is an important consideration for multinational companies, particularly those operating in lesser developed countries where the potential for human rights abuses is higher.

Background to the case

The plaintiff Akpan is a Nigerian farmer and fisherman who lives in the village of Ikot Ada Udo in Akwa Ibom State, Nigeria. He was joined by Vereniging Milieudefensie (Milieudefensie), a Dutch NGO whose objective is the worldwide promotion of environmental care, as a second plaintiff.

The plaintiffs commenced proceedings against Shell Petroleum Development Company of Nigeria Ltd (SPDC or Shell Nigeria) and its parent company, Royal Dutch Shell plc (RDS) in 2010. RDS is a legal entity established in The Hague and is the head of the Shell Group. Through its subsidiaries, RDS holds all shares in SPDC, a Nigerian legal entity that conducts the Nigerian oil production operations for the Shell Group.

The proceedings related to two oil spills which occurred in 2006 and 2007 at the oil facilities of SPDC. The spills were caused by an abandoned exploratory well owned by SPDC.

The first incident occurred in August 2006, when a small volume of oil spilled from the well onto land and fishponds near the village of Ikot Ada Udo and owned and used by Akpan. The second incident occurred in late July or early August 2007, when a larger volume of oil spilled from the well into the same areas. 

The second spill was reported to SPDC on 10 August 2007 and was eventually stopped on 7 November 2007 by an SPDC employee through closing the valves of the wellhead. An estimated 629 barrels of oil had spilled from the well and the cause of the spill was ‘tampering of wellhead’.

Remediation work was performed in the area of the spill in the period August 2008 through March 2009. The contractors performing the work confirmed that the spill was caused by sabotage. Accordingly, in 2010, following the commencement of the proceedings, SPDC further secured the well against sabotage by sealing off the wellhead from the oil reservoir by means of a concrete plug.

Claims

As against the Nigerian subsidiary SDPC, the plaintiffs alleged that SPDC committed the tort of negligence; the tort of nuisance; or the tort of trespass to chattel by failing:

  • to produce oil in a careful manner and prevent oil spills from occurring,
  • to ensure that the well complied with today’s standards,
  • to maintain the wellhead properly, and
  • to protect the facilities from sabotage.

As against the Dutch holding company, RDS, the plaintiffs alleged that RDS also committed the tort of negligence by failing:

  • to induce its subsidiary to prevent the oil spills,
  • to respond adequately to the oil spills,
  • to clean up the oil pollution adequately by issuing guidelines and ensuring compliance with guidelines, and
  • to ensure that SPDC had sufficient financial resources and technical expertise to perform such activities adequately.

The plaintiffs claimed:

  • damages,
  • liability for the infringement of Akpan’s physical integrity by living in a contaminated environment,
  • damages for the harm caused to the environment as a result of the tort, and
  • that the defendants be ordered to clean up the pollution caused by the oil spills and ensure that an adequate oil spill contingency plan is implemented.

Jurisdiction

One of the issues with which the court had to grapple was whether it had jurisdiction over the Nigerian subsidiary, SPDC.

A Dutch court has jurisdiction over all defendants if it has jurisdiction over one defendant and the causes of action against each defendant are connected with each other in such a way that a joint consideration is justified for reason of efficiency.

The defendants contested jurisdiction over the Nigerian subsidiary alleging that it was an abuse of process to hear the issue in the Dutch court as it was clear that the action against the Dutch parent company RDS, over which the court initially had jurisdiction, would fail. In support of their argument, the defendants argued that the Nigerian subsidiary SPDC could not foresee that it would be summoned in the Netherlands with regard to the oil spills in question.

The District Court dismissed these arguments. It held that there was no basis for finding that the claims against RDS would fail and that, accordingly, the plaintiffs had not abused procedural law. The court held that the claims against RDS and SPDC had the same legal basis, namely, the tort of negligence under Nigerian law. The court stated:

“for quite some time …, there has been an international trend to hold parent companies of multinationals liable in their own country for the harmful practices of foreign (sub-)subsidiaries, in which the foreign (sub-)subsidiary involved was also summoned together with the parent company on several occasions.” ([4.5]) 

The court held that it was foreseeable for SPDC that it might be summoned in the Netherlands together with RDS in connection with the alleged liability for the oil spills.

In reaching these conclusions, the court also raised the issue of whether, if the claims against RDS were dismissed, the court should leave the assessment of the claims against SPDC to a Nigerian court.  The court concluded that the forum non conveniens restriction no longer played any role in today’s private international law and held that:

“the jurisdiction of the Dutch court in the matter against SPDC … does not cease to exist in the event that the claims against RDS were to  be dismissed, not even if subsequently, in fact, no connection or hardly any connection would remain with Dutch jurisdiction.” ([4.6])

Milieudefensie’s claims

Another issue arose in relation to Milieudefensie’s standing.  The defendants disputed Milieudefensie’s standing on two grounds:

First, that its claims were based on a provision of the Dutch Civil Code relating to class actions and that substantive Nigerian law does not recognise any equivalent provision governing class actions.

Secondly, that a ‘purely individual’ representation of interests was involved in the proceedings, and that the class action does not offer any advantage over litigating in the names of the interested parties themselves. 

The defendants argued that Milieudefensie “does not develop sufficient actual activities for the environment in Nigeria and/or the proceedings involve a purely local interest”.

The court rejected this argument.  It held that the relevant provision of the Dutch Civil Code is a rule of Dutch procedural law and that the requirements stipulated by that provision were satisfied by Milieudefensie.  It held that a number of Milieudefensie’s claims rose above the individual interest of Akpan, and were directed towards the rest of the community and the environment in the vicinity of Ikot Ada Udo.  In support, the court referred to the fact that Milieudefensie’s objective is to promote environmental protection worldwide and that these proceedings fall within that objective.  It further relied upon the fact that the community of Ikot Ada Udo had no objection to Milieudefensie being a party to the proceedings such that it could not be held that Milieudefensie’s claims are inadmissible based on the Dutch Civil Code.

On the merits, however, the court dismissed the claims initiated by and for Milieudefensie.  In support, it held that the fact that by virtue of the Dutch Civil Code, Milieudefensie can protect the interests of third parties in law does not mean that any damage of those third parties can be considered to be damage of Milieudefensie itself.  It further held that there is no proximity between SPDC in Nigeria and Milieudefensie in the Netherlands for any damage that occurred in Nigeria.

Merits

On the merits of the case, the Dutch court dismissed all claims against RDS.  Applying Nigerian and English law (as Nigerian law is based on English law), the court held that RDS did not commit any tort as the relationship between RDS and the people living in the vicinity of oil pipelines and oil facilities of its subsidiaries in other countries was not sufficiently proximate to establish a duty of care.  It therefore held that it could not be assumed that RDS had an obligation to intervene in SPDC’s policy regarding the prevention of and response to sabotage of oil pipelines and oil facilities in Nigeria. 

In reaching its conclusion, the court considered whether, under English law, a parent company has a duty to prevent its subsidiary from inflicting damage on others through its business operations and came to the conclusion it did not, unless special circumstances were present.

With respect to SPDC, the court held that SPDC committed the tort of negligence against Akpan by insufficiently securing the wellhead of the well prior to the two oil spills in 2006 and 2007 against the sabotage that was committed at that time in an easy manner.

In reaching its decision, the court found that:

  • it was reasonably foreseeable that an oil spill from an oil pipeline or facility of SPDC would have harmful consequences for people living in the vicinity of the location where the spill originates and farming or fishing at that location;
  • SPDC should have realised that there was a very high risk that the well would be sabotaged sooner or later.  SPDC created a particularly dangerous situation at the well and allowed the situation to continue.  SPDC should have foreseen the obvious risk of sabotage and should have taken more and better preventative measures against the risk.  The requirement of proximity was therefore satisfied;
  • it was fair, just and reasonable to rule that SPDC had a specific duty of care in respect of the people living in the vicinity of the well as the cost of preventing the risk of damage by sabotage was relatively low, and was done in 2010 following the commencement of the proceedings; and
  • SPDC had breached its duty of care.  SPDC should have properly secured the well because it could and should have considerably limited or excluded such an obviously large risk of sabotage – which was easy to commit – at a relatively low cost. 

SPDC was ordered to pay Akpan compensation for the damage suffered.  Damages are to be decided at a later stage.

Implications

Akpan v Royal Dutch Shell plc is an interesting decision as it comes only shortly  before the expected decision in Kiobel v Royal Dutch Petroleum in which the US Supreme Court has been asked to decide whether corporations are immune from liability for violations of international law such as torture, extrajudicial executions or genocide or if corporations may be sued in the same manner as any other private party defendant under the ATS for such egregious violations.

Whether based on general principles of tort or on a violation of international law, typical considerations for plaintiffs are:

  • Does the court have personal jurisdiction over the defendants? – Generally, this is the case where the multinational has its headquarters in the relevant home country. 
  • Can the actions of third parties, such as a subsidiary, be attributed to the parent company?  In general, in common law countries, this will depend on the tort of negligence and, more specifically, whether the defendant owes a duty of care to the plaintiff.  In civil law countries, the question may be whether the multinational has Organisationsverschulden, i.e. whether the parent company has violated its duty to ensure the proper conduct of its employees.
  • Does the client have enough funding for the litigation?  Questions of mass claims and conditional fees/contingent fee arrangements come into play.
  • Do NGOs have standing to make claims against the multinational?

Despite these difficulties, however, a growing number of plaintiffs have started proceedings against multinationals.  For example, 33 indigenous Peruvians commenced proceedings against Monterrico Metals Plc in the English High Court alleging that they have been tortured and mistreated at a mine owned by Monterrico following an environmental protest.

To date, most of these cases have, however, been settled before a judicial decision was handed down - perhaps for fear by multinationals of creating unhelpful precedents. Akpan v Royal Dutch Shell plc and Kiobel may, however, give strength to potential plaintiffs’ causes and may result in a lessened willingness to settle.