The Court of Appeal has ruled that the English courts do not have jurisdiction over claims by victims of oil leaks from pipelines in the Niger Delta. The judgment comes after the Lungowe & ors v Vedanta Resources Plc [2017] EWCA Civ 1528 decision by the Court of Appeal delivered last year, in which it was held that similar environmental tort claims could proceed in the English courts on the basis that it was sufficiently arguable that the UK parent company owed a duty of care to the overseas claimant. The Okpabi decision offers insights into what evidence might be necessary to establish parent company liability for acts of a foreign subsidiary: Okpabi & ors v Royal Dutch Shell Plc & anr [2018] EWCA Civ 191, 14 February 2018

The claimants sought damages in the English court as a result of serious, and ongoing, pollution and environmental damage caused by leaks of oil from pipelines and associated infrastructure in and around the Niger Delta in part caused by sabotage and illegal bunkering.

The claimants are members of the Bille and Ogale communities where the oil leaks occurred. They contended that the defendants, UK company Royal Dutch Shell Plc (RDS), and its Nigerian subsidiary, the Shell Petroleum Development Company of Nigeria Ltd (SPDC), were responsible for damage to their lands based on the tort of negligence under the common law of Nigeria (which, the court accepted, was to be regarded as the same as the law of England and Wales).

In particular, they claimed that RDS, the UK parent company, owed a duty of care to the claimants either because RDS controlled the operation of pipelines and infrastructure in Nigeria from which the leaks occurred, or because it had assumed a direct responsibility to protect the claimants from environmental damage caused by the leaks. In establishing whether there was “a real issue to be tried between the claimants and RDS” and a “necessary or proper party” jurisdiction gateway against SPDC, it was necessary for the English courts to rule on its own jurisdiction, the threshold for which is establishing whether the claims against RDS had a “real prospect of success”. At first instance Fraser J held that there was no arguable case that RDS owed the claimants a duty of care. This decision was upheld on appeal by a majority (Sir Geoffrey Vos and Lord Justice Simon), with Lord Justice Sales dissenting.

The test for parent company liability

The court adopted the same test for establishing parent company liability as was adopted by the Court of Appeal in Vedanta:

– The starting point is the three-part test for duty of care of: (a) foreseeability; (b) proximity; and (c) reasonableness, as set out in Caparo Industries v Dickman [1990] 2 AC 605.

– A duty of care may arise where the parent company: (a) has taken direct responsibility for devising a material health and safety policy (the adequacy of which is the subject of the claim); or (b) controls the operations which give rise to the claim.

– Examples of circumstances where the three-part test might be satisfied are found in the decision of Chandler v. Cape Plc [2012] EWCA Civ 525. These examples include instances where the parent company is well placed, because of its knowledge and expertise, to protect the employees of the subsidiary (or, by analogy, where the parent company affects the operations of the company).

Proximity test fails – insufficient control of subsidiary

Although the foreseeability test was satisfied, there was insufficient proximity. The claimants had tried to show proximity by demonstrating RDS’s control of SPDC’s operations including:

– the issue of mandatory policies, standards and manuals which applied to SPDC;

– the imposition of mandatory design and engineering practices;

– a system of supervision and oversight in implementing RDS’s standards;

– financial control over SPDC; and

– a high level of centralised direction and oversight of SPDC’s operations in relation to security.

The majority concluded that none of these factors demonstrated a sufficient degree of control of SPDC’s operations in Nigeria by RDS.

Mandatory policies applied to all subsidiaries

Shell’s mandatory policies (on which the claimants relied heavily) contained high-level guidance, which is then made available to its subsidiaries to implement. Taking its HSSE & SP Control Framework as an example, this indicated how the effectiveness of HSSE compliance would be reviewed at Group level, but not the existence of any degree of control.

The court found that the imposition of these policies (to all subsidiaries) could not mean that the parent company assumed a duty of care to anyone affected by the policies. Sir Geoffrey Vos commented that the policies applied to all subsidiaries and had not been tailored for SPDC, and that “there needs to be something more specific for the necessary proximity to exist”.

A dissenting voice

In the view of Lord Justice Sales, however, the claimants had shown that they had a good, arguable case, namely, that RDS owed them a duty of care at the material times, and that RDS had breached that duty of care. He considered that there was a “more than merely speculative” claim based on the evidence produced, including the fact that the existence of global standards was capable of providing a mechanism for the projection of real practical executive control by RDS over the affairs of SPDC.

Comment

This decision demonstrates that there is a difference, as far as the law is concerned, between a parent company which takes steps to ensure that there are proper control mechanisms in place over all subsidiaries (for example, by establishing standard global mandatory policies and processes) and a parent company which seeks to exercise control over a subsidiary. It is in the latter case, suggests this decision, that a duty of care may arise.

That said, it is unlikely that this will deter future similar claims against multi-nationals. Mindful of that fact, it is likely that such companies will wish to assess the risk of parent company liability being established. Factors that may point away from parent company liability, as in this case, include standard policies which apply across the board to operating subsidiaries (not tailored to a particular subsidiary’s business) and a responsibility for implementing and overseeing any such policies – whether those be environmental and/or human rights focused – being firmly seated at subsidiary level. This, in turn, should help to promote better compliance and awareness of environmental and human rights issues by foreign subsidiaries.

Finally, it is likely that parent company liability for environmental and human rights claims is an area of law that will see further developments in the near future.