Okpabi v. Shell: UK Supreme Court reaffirms broad potential for environmental damage claims against parent companies

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In the latest instalment of the English courts' consideration of their jurisdiction over claims against UK companies arising from foreign subsidiaries' operations, the Supreme Court has allowed a claim by Nigerian citizens against Royal Dutch Shell Plc (RDS) and its subsidiary The Shell Petroleum Development Company of Nigeria Limited (SPDC) to proceed.1 This line of cases is of clear importance for companies operating in industries and locations carrying a high risk of ESG-related harms, and offers some guidance as to the circumstances in which they may face negligence claims by affected communities in the English courts (which, the Supreme Court has held, will rarely be suitable for summary determination).

The Okpabi claims arise from oil leaks from pipelines and associated infrastructure operated by SPDC as part of a joint venture in the Niger Delta, and are brought in negligence. The claimant inhabitants of the region contend that RDS owed them a duty of care because it exercised significant control over material aspects of SPDC’s operations and/or assumed responsibility for SPDC’s operations, which allegedly failed to protect the appellants against the risk of foreseeable harm arising from them. Drawing heavily on its judgment in Vedanta Resources PLC and another v. Lungowe and others [2019] UKSC 20, and overturning the Court of Appeal's decision, the Supreme Court has held there is an arguable case that RDS owed the claimants a duty of care. As a consequence, the defendants' applications for strike-out and for the setting aside of service of the claim form against SPDC as a "necessary or proper party" should not have been allowed by the High Court.

Proportionality: focus should be on the particulars of claim

The Supreme Court emphasised (as it had in Vedanta) that, at the jurisdictional phase, it is inappropriate for the court to engage in a detailed examination of the evidence and issues in dispute. The correct approach is to focus on whether, based on the facts set out in the particulars of claim and any witness statements, the cause of action has a real prospect of success. Save where the alleged facts are "demonstrably untrue or unsupportable", it is not appropriate at this stage for the defendant to dispute the facts through its own evidence – indeed, doing so may simply show there is a triable issue.

First question: whether the Court of Appeal materially erred in law

Following on from those preliminary remarks, the Supreme Court found that the Court of Appeal had committed a material error of law in that it had been drawn into a mini-trial and adopted an inappropriate approach to the factual issues. In particular, it had preferred and accepted the evidence of various RDS witnesses, notwithstanding the fact that there had been no opportunity for cross-examination and minimal disclosure from RDS.

The Supreme Court re-emphasised the importance of disclosure in claims of this nature, particularly because of the well-established significance of internal corporate documents to parent company liability (and such documents would not be available to claimants at the summary judgment stage). Here, the appellants were able to point to specific documents that had not yet been disclosed but might well be material. Notwithstanding this, in determining the arguability of the claim at the interlocutory stage, the Court of Appeal had materially erred in law.

Additional points of interest to potential corporate defendants are:

  • the Supreme Court reaffirmed its finding in Vedanta that (contrary to the Court of Appeal's approach) there is no "general principle" that a parent company could never incur a duty of care in respect of the activities of a subsidiary by maintaining group-wide policies and guidelines;
  • the majority of the Court of Appeal appeared to focus inappropriately on control – whether a parent took over or shared the management of the relevant activity may or may not be determined by an examination of the overall level of control exercised over a subsidiary. Rather, a duty of care can also arise as a result of evidence of a relationship of supervision and advice, or public commitments with regard to the operations in question (even if there is in fact no intervention on the part of the parent);
  • ordinary common law negligence principles apply to cases of parent company liability – these do not form a "distinct category" of the tort.

Second question: a real issue to be tried?

Applying the approach outlined above, the Supreme Court found there was nothing to suggest the facts as asserted in the particulars were demonstrably false or unsupportable. Indeed, the claimants' case was fortified by points made in reliance upon two RDS internal documents that had been disclosed: an "RDS Control Framework" and "RDS HSSE Control Framework", policies applicable to all Shell companies.

The Supreme Court accepted the claimants' formulation of four possible "routes" suggesting the existence of a duty of care on the part of a parent company, in light of Vedanta (although finding these to be non-exhaustive):

  1. taking over the management or joint management of the relevant activity;
  2. providing defective advice and/or promulgating defective group-wide safety/environmental policies;
  3. taking active steps to ensure the implementation of such group-wide safety/environmental policies;
  4. holding out that it exercises a particular degree of supervision and control of the subsidiary.

The Supreme Court found there was a real issue to be tried on the basis of Routes (1) and (3), relying in particular upon the Shell group's "vertical" structure, meaning it was organised along business and functional lines which facilitated delegation, rather than according to corporate status. It noted that "whilst 'formal binding decisions' are taken at corporate level, these are taken on the basis of prior advice and consent from the vertical Business or Functional line and organisational authority generally precedes corporate approval". Such a model and practices are common among global businesses.

Having made this finding, it was unnecessary for the Supreme Court to make a determination regarding Routes (2) and (4) (although it noted there was no suggestion in the pleadings of systemic errors in the RDS policies and standards).

Conclusion

The Supreme Court's decision reinforces the position set out in Vedanta regarding the flexibility of the English courts' jurisdiction over parent company liability claims. It should be expected that proceedings relating to ESG issues abroad will continue to be brought here, and will generally require determination at trial rather than at an interlocutory stage.

For UK-headquartered multinationals, this reaffirms the need for care in devising and implementing effective group-wide policies. Given the promulgation of environmental and human rights obligations across many jurisdictions and businesses' responsibilities under international instruments, such as the UN Guiding Principles on Business and Human Rights, simply leaving a subsidiary to alleviate risks of this nature will rarely be a commercially sustainable option. Given that the greater a parent's involvement in an operation or issue, the greater the chance of a duty of care arising towards those affected, successfully anticipating and addressing ESG incidents in operations and supply chains remains paramount.

 

  1. Okpabi v. Royal Dutch Shell Plc [2021] UKSC 3

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.

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