Summary: Claimants are working hard to establish the groundrules for making environmental claims against UK parent companies in connection with activities of their overseas subsidiaries. UK based companies with overseas environmental exposures, particularly in developing countries, should be monitoring developments in this area.

Much has been written in recent days about the judgment of the Court of Appeal on 14 February 2018 in Okpabi and others v Royal Dutch Shell Plc (“RDS”) and Shell Petroleum Development Company of Nigeria Ltd (“SPDC”).

In the case, 42,500 individuals living in Nigeria were claiming damages from RDS (the parent company in the Shell group of companies, and incorporated in the UK) and SPDC (its Nigerian operating subsidiary, incorporated in Nigeria) in respect of oil spills in and around the Niger delta for which they said the defendants are responsible.

RDS applied for orders declaring that the Court had no jurisdiction to try the claims, or should not exercise such jurisdiction as it had. RDS won in the High Court, but the claimants appealed. By a majority, the Court of Appeal dismissed the appeal. The Court of Appeal decided that the claimants could not demonstrate a properly arguable case that RDS owed them a duty of care. With RDS safe from proceedings, the court would not then hear a claim against Nigerian incorporated SPDC on its own.

It is not always the case that a parent company owes no duty of care to those affected by the operations of a foreign subsidiary. The relevant test involves consideration of foreseeability, proximity and reasonableness, and its application will have different results in different cases. Indeed, the court found to the contrary last year in the case of Lungowe and others v Vedanta Resources plc and Konkola Copper Mines Plc.

The commentary on the RDS and Vedanta case thus far has centred largely on what parent companies in the UK can do to try to ensure that, when the relevant tests are applied, they are not exposed to proceedings here for injury or harm stemming from the local activities of their overseas subsidiaries. As they do so, they need to bear in mind that this is an unsettled area of law that may be subject to further appeals.

What has been largely absent from commentary thus far is a warning to parent companies that, where they are allowed to proceed here, claims of this nature are unlikely to be in any way straightforward or routine to defend. This is because:

  • First, the numbers of claimants and the damages claimed could be very significant. The RDS and Vedanta cases (and indeed the earlier case of Motto and others v Trafigura) indicate that large numbers of claimants (often well into the thousands) in the countries where pollution is alleged come forward, and together their claims can amount to multi-millions in damages.
  • Second, rather more commercial pressure can be brought to bear on defendants to reach settlements on damages and costs than might otherwise be the case. In these high value cases, the claimants can usually afford to pay the premium for After-the-Event insurance (which transfers the risk of claimants having to pay the defendant’s costs if the claimants lose to an insurer) and are thus less burdened by the usual costs risk.

    There have been fewer environmental claims in the UK generally since the Jackson reforms of 2013 started to bite. However, parent companies in the UK should not let this lull them into a false sense of security. Where jurisdiction over a claim against a UK incorporated parent companies in connection with the activities of overseas subsidiaries is accepted, claimants and claimant lawyers could hold a strong tactical hand. Parent companies in the UK should take the possibility of these claims seriously and act accordingly.