The High Court has considered the circumstances in which a parent company may be liable to third parties in negligence for the acts or omissions of its subsidiary.

Background: 

The starting point when considering whether a person owes a duty of care to another is the tripartite test as set down by the House of Lords in Caparo Industries v. Dickman [1990] 2 AC 605. The three limbs to the test are:

  1. Is the damage a foreseeable result of the defendant's conduct?
  2. Were the parties in a sufficient relationship of proximity or neighbourhood?
  3. Is it fair, just and reasonable to impose a duty of a given scope on one party for the benefit of the other?

Facts: 

Two different sets of proceedings were brought in the High Court against Royal Dutch Shell plc (RDS), the ultimate holding company of the Shell Group, and its Nigerian operating subsidiary, Shell Petroleum Development Company of Nigeria Ltd (SPDC). In both cases the claimants were seeking damages resulting from alleged ongoing pollution and environmental damage. They claimed that under the Caparo test RDS owed them a duty of care as a result of the control which they alleged RDS exercised over SPDC's operations.

RDS argued that the claims against it were a device by the claimants to bring their case before the English courts. It argued that the claims had nothing to do with the UK and challenged the English court's jurisdiction.

Decision:

The High Court found that RDS was not liable for the acts of SPDC as the claimants did not meet the requirements of the second and third limbs in Caparo.

The proximity test:

Applying the second limb of the Caparo test, the court found that several factors indicated that the relationship between RDS and the claimants was not sufficiently proximate. In particular:

  • RDS did not hold shares directly in SPDC, but did so instead through another company;
  • RDS did not conduct any of SPDC's operations;
  • the two officers of RDS on the Executive Committee of the Shell Group (the central decision-making body of the Shell Group of companies) were only a minority of its membership;
  • Shell did not have a licence to conduct operations in Nigeria;
  • there was a joint venture in existence engaged in operations in Nigeria, but RDS was not a member; and
  • imposing a duty of care on RDS would potentially impose "liability in an indeterminate amount, for an indeterminate time, to an indeterminate class" as there were 1,366 other companies in the Shell Group active in over 100 countries.

In considering the proximity point, the court had regard to the four factors identified by the Court of Appeal in Chandler v. Cape [2012] EWCA Civ 525, a case which dealt with the liability of a parent company for the health and safety of its subsidiary's employees. These were whether:

  • the parent and subsidiary were operating the same businesses;
  • the parent had, or ought to have had, superior knowledge on some relevant aspect of the particular industry;
  • the parent knew, or ought to have known, about the subsidiary's system of work; and
  • the parent knew, or ought to have foreseen, that the subsidiary was relying on it to protect the claimants.

Although the factors were non-exhaustive, the higher the number of those four factors that were present, the more likely that the parent would owe a duty. On the facts, the court found that none of these four factors was present.

The fair, just and reasonable test:

Applying the third test in Caparo, the court considered that it would not be fair, just and reasonable to impose a duty of care of the nature alleged by the claimants on RDS. In particular:

  • Nigeria had a statutory framework under which SPDC had strict liability for oil spills and there was evidence that the claimants could claim compensation only from SPDC under the Nigerian statute;
  • RDS was prohibited from performing operations in Nigeria under Nigerian law, and it did not have any pipelines or infrastructure in Nigeria; and
  • RDS held the shares in its subsidiaries as if it were an investment company.

As there was no arguable duty of care owed by RDS to the claimants, there was no real issue that it would be reasonable for the English courts to try. The English courts therefore had no jurisdiction.

Comment:

The fact that two companies are part of the same group does not of itself mean that the parent company has liability in negligence for the acts of its subsidiary. This decision shows that whether such liability exists is to be dealt with on a case-by-case basis, by reference to the various criteria discussed above. It also emphasises the significance of the relationship between corporate group structure and operational issues, highlighting as it does the difficulties of establishing parent company responsibility where the parent has no involvement in the business operations of the subsidiary.

A similar point has also recently come before the High Court again in AAA and Others v. Unilever plc and Unilever Tea Kenya Ltd [2017] EWHC 371. In this case the claimants were seeking to bring a claim against a UK incorporated parent company in relation to events on a tea plantation in Kenya owned by its Kenyan subsidiary. Again the court applied the Caparo test and found that, on the facts, it had not been satisfied.

Okpabi and others v. Royal Dutch Shell plc and another [2017] EWHC 89