The Supreme Court has delivered its latest ruling in the developing area of parent company liability for the acts or omissions of overseas subsidiaries, handing down judgment in the case of Okpabi and others (Appellants) v Royal Dutch Shell Plc and another (Respondents).
The case concerns a claim by a group of more than 40,000 citizens of the Ogale and Bille communities in Rivers State, Nigeria who allege they suffered loss caused by the operation of an oil pipeline and its associated infrastructure by Royal Dutch Shell (“RDS”)’s Nigerian subsidiary Shell Petroleum Development Company of Nigeria (“SPDC”).
SPDC challenged the jurisdiction of the English courts to hear the claim. At first instance and in the Court of Appeal it was found that there was no real issue to be tried as against the English parent defendant, which is one limb of the test to establish jurisdiction against the Nigerian subsidiary.
In making its decision to allow the claim to proceed in England, the Supreme Court found it had not been shown on the basis of the submissions and the evidence that the asserted facts in the particulars of claim were demonstrably untrue or unsupportable. Therefore, it had not been established that there was no real issue to be tried as against the English parent company. In particular the group’s vertical corporate structure and how authority was delegated clearly raised triable issues.
Additionally, it was found that the majority in the Court of Appeal had made a number of material errors of law, most significantly by conducting a mini trial, which had led to its decision being based on the evidence produced before it at this stage, rather than on whether the pleaded case disclosed an arguable claim.
In the judgment, Lord Hamblen warned in particular against reaching a decision in cases of this sort on the basis of a very limited number of documents disclosed in the initial stages of litigation, stressing the importance of internal corporate documents in cases concerning alleged liability of a parent company for the acts/omissions of its subsidiary.
The Supreme Court found that the Court of Appeal had made other errors of law, including:
- focussing on the issue of control as being critical, when in fact control was just a starting point – the relevant issue is the extent to which the parent took over or shared with the subsidiary the management of the relevant activity, which may or may not be demonstrated by the parent controlling the subsidiary;
- appearing to accept a “general principle” that a company could never incur a duty of care in respect of the activities of a subsidiary by maintaining group-wide policies and guidelines, which approach was inconsistent with the Supreme Court’s decision in Vedanta (which was handed down after the Court of Appeal's decision in Okpabi); and
- appearing to treat the liability of a parent company in relation to the activities of its subsidiary as its own distinct category of common law negligence, again contrary to the (subsequent) decision in Vedanta.
Impact of the Okpabi judgment
The Supreme Court’s judgment reaffirms the principle established by Vedanta that an English parent company may bear liability for the acts/omissions of its overseas subsidiaries.
It was not really in doubt following the Vedanta judgment, but the Supreme Court has now made crystal clear in Okpabi that there should not be a mini trial when determining jurisdiction, but an assessment should be made on the case as pleaded on whether there is a reasonable question to be tried.
The Supreme Court also re-emphasised the following principles:
- the court should consider whether, on the facts of the case as presented, there is a real issue to be tried – there should not be a mini trial and this hurdle will be overcome unless the claim is demonstrably untrue;
- there is no distinct category of negligence when considering the liability of a parent company for the acts of its subsidiary – cases in this area should be assessed as for all other cases in common law negligence; and
- there is no general principle that a company can never incur a duty of care in respect of the activities of its subsidiary by maintaining group-wide policies and guidelines.