The Court of Appeal has considered whether a UK domiciled parent company can be liable for the acts or omissions of a foreign subsidiary.
This case concerned two separate actions based in the tort of negligence against Royal Dutch Shell PLC (RDS), the ultimate English holding company in the global Shell group; and Shell Petroleum Development Company of Nigeria Ltd (SPDC), a Nigerian subsidiary in the structure. The claimants, citizens of Nigeria, sought damages from RDS and SPDC in the English High Court for serious pollution and environmental damage caused by SPDC's oil pipelines and associated infrastructure. Between them, the two claims involved around 42,500 individuals.
The claimants sought to issue proceedings in the English courts in order to avoid delays in the Nigerian courts. In order to pursue a claim against SPDC in the jurisdiction, they relied on the 'necessary or property party' gateway under paragraph 3.1(3) of CPR Practice Direction 6B. This rule provides that a claimant may serve a claim form out of the jurisdiction with the permission of the court where a "claim is made against a person ('the defendant') on whom the claim form has been or will be served (otherwise than in reliance on this [rule]) and
- there is between the claimant and the defendant a real issue which it is reasonable for the court to try; and
- the claimant wishes to serve the claim form on another person who is a necessary or proper party to that claim".
Service was effected smoothly on RDS, which was of course present in the jurisdiction. The claimants then served a claim form against SPDC as a 'necessary or property party' to the claim (see criterion (b)). As such, the central issue for the court was to decide whether or not there was a 'real issue' between the claimants and RDS (criterion (a)). The claimants argued that RDS exercised a high degree of control and direction over SPDC's activities and had ultimate responsibility for ensuring that the subsidiary's Nigerian operations did not cause foreseeable harm to the claimants. As a result, they argued that RDS owed them a common law duty of care which it had breached by way of the oil spillages, such that there was a real issue between the parties.
The claimants and RDS agreed that the starting point was Caparo v Dickman and the renowned three-fold test needed to impose a duty of care:
- the damage should be foreseeable;
- there should exist between the party owing the duty and the party to whom it is owed a relationship of proximity or neighbourhood; and
- the situation should be one in which it is 'fair, just and reasonable' to impose a duty of a given scope upon the one party for the benefit of the other.
Though the parties agreed that the first limb had been satisfied, the trial judge found in favour of the defendants and held that there was no arguable duty of care owed by RDS to the claimants. The claimants had failed to demonstrate the necessary degree of proximity or that it would be 'fair, just and reasonable' to impose a duty of care on RDS. As such, the court did not have the jurisdiction to try any claim against SPDC since there was no real issue between the claimants and RDS.
The claimants appealed to the Court of Appeal.
The leading judgment was given by Simon LJ with whom Sir Geoffrey Vos, Chancellor of the High Court agreed. Simon LJ focused on the second and third limbs of the Caparo test. The claimants relied on five main factors to demonstrate RDS's arguable control of SPDC's operations:
- The issue of mandatory policies, standards and manuals which applied to SPDC;
- The imposition of mandatory design and engineering practices;
- The imposition of a system of supervision and oversight of the implementation of RDS's standards which bore directly on the pleaded allegations of negligence;
- The imposition of financial control over SPDC in respect of spending which, again, was directly relevant to the allegations of negligence; and
- A high level in the direction and oversight of SPDC's operations.
In considering the proximity, Simon LJ held that it was important to distinguish between a parent company which controls, or shares control of, the material operations on the one hand, and a parent company which issues mandatory policies and standards which are intended to apply throughout a group of companies in order to ensure conformity with particular standards. He went on to state that the issuing of mandatory policies plainly cannot mean that a parent has taken control of the operations of a subsidiary (and, necessarily, every subsidiary), such as to give rise to a duty of care in favour of any person or class of persons affected by the policies.
The Chancellor had a similar line of thinking: he rejected the idea that a set of group standards and practices was sufficient to require the 'imposition' of mandatory design and engineering practices. Further, he stated that the corporate structures of large multinationals tend to go against the finding of proximate relationships: "it would be surprising if a parent company were to go to the trouble of establishing a network of overseas subsidiaries with their own management structures if it intended itself to assume responsibility for the operations of each of those subsidiaries".
In relation to the third limb, both judges held that none of the claimants' arguments demonstrated that the imposition of a duty would be fair, just and reasonable. Accordingly, they dismissed the appeal.
Whilst this decision provides some clarity for global conglomerates, it is important to note that the claimants have stated that they intend to seek permission to appeal to the Supreme Court. It is also worthwhile to note Sales LJ's dissenting judgment: he was firmly of the opinion that the claimants had successfully demonstrated that RDS owed them a duty of care and that the existence of group standards gave RDS the means of exerting executive control over SPDC's operations. This, combined with the obvious risk of serious harm to the neighbouring landowners /occupiers from oil spills created proximity, and defined the relevant class to whom the duty was owed.
This area of law is, inevitably, guided by policy considerations. It is interesting to note that the Chancellor himself said that the court has a "responsibility in a case of this kind not to strive to find a reason to allow jurisdiction". As such, should the case proceed to the Supreme Court, it will be interesting to see what approach will be taken in this developing area of law.
For now, though this decision has confirmed some limits to the English court's jurisdiction, other case law suggests that foreign claimants may still bring claims against large multinationals in respect of acts and/or omissions of their foreign subsidiaries. More importantly, if large multinationals are to implement measures to prevent foreign entities from causing harm or loss to third parties, they should be mindful of the fact that those same measures could make them out to be in control of the operations of those entities, thus accepting responsibility for possible losses. Clearly, this is unsatisfactory, and further clarity is awaited with interest from the Supreme Court.