Negligence liability: parent and subsidiary companies

by Dentons
Contact

Dentons

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

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Dentons | Attorney Advertising

Written by:

Dentons
Contact
more
less

Dentons on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.