UK Supreme Court allows Nigerian citizens’ appeal in respect to an environmental damage claim against a UK parent company
Okpabi & others v Royal Dutch Shell Plc and another [2021] UKSC 3
12 February 2021
Summary
The UK Supreme Court has allowed an appeal from the Court of Appeal on the basis that two Nigerian communities have an arguable case that a UK domiciled parent company owes them a duty of care in respect of alleged systemic health, safety and environmental failings of its Nigerian subsidiary company.
The unanimous judgement confirms the application of Lungowe v Vedanta Resources plc [2020] AC 1045 (Vedanta) when considering circumstances in which a parent company will owe a common law duty of care for activities of a foreign subsidiary, and highlights that there is "no special test applicable to the tortious responsibility of a parent company for the activities of its subsidiary".[1]
This case involved an appeal of an interlocutory jurisdictional dispute and not a determination of the substantive matter of whether the parent company owed a common law duty of care to the Appellants.
Facts
There were two sets of proceedings within the appeal: the Ogale proceedings and the Bille proceedings. In the Ogale proceedings, the Appellant claimants were a Nigerian farming and fishing community of approximately 40,000 individuals located in Rivers State. In the Bille proceedings, the Appellant claimants were 2,335 individuals who live in the Bille Kingdom (a remote riverine community in Rivers State).[1] Both Appellant claimants (the Appellants) have been affected by numerous oil spills from pipelines which have caused widespread environmental damage including serious water and ground contamination, rendering the natural water sources in the Appellants’ communities unsafe for drinking, fishing, agricultural, washing, or recreational purposes. The Appellants allege that the oil spills have not been adequately cleaned or remediated. [2]
The Appellants claimed that The Shell Petroleum Development Company of Nigeria Ltd (SPDC) was liable in negligence for the oil spills. They claimed the spills originated from pipelines and associated infrastructure operated by SPDC as part of an unincorporated joint venture involving its UK domiciled parent company, Royal Dutch Shell Plc (RDS) and other parties.[3]
The Appellants also alleged negligence against RDS on the basis that it owed the Appellants a common law duty of care as it exercised significant control over, and assumed responsibility for, the material aspects of SPDC's operations,[4] and failed to protect the Appellants against the risk of foreseeable harm arising from SPDC's operations.[5]
To serve the claim on SPDC, a Nigerian registered company, and join them as a "necessary or proper party", the Appellants were required by paragraph 3.1(3) of Practice Direction 6B to establish that their claim against RDS "raise[s] a real issue to be tried, which means that they have a real prospect of success" (this is known as the "summary judgment test").[6]
Procedural History
After the Appellants were initially granted permission by HHJ Raeside QC to serve SPDC out of the jurisdiction, in subsequent appeals before both the High Court and the Court of Appeal, the Court gave summary judgment, based on slightly different reasoning, that there was no arguable case that RDS owed the Appellants a duty of care,[1] and accordingly, the conditions allowing service out of jurisdiction under paragraph 3.1(3) of Practice Direction 6B were not established.
Basis of appeal
The Appellants appealed this matter to the Supreme Court on the basis that the Court of Appeal materially erred in law in its analysis of:
the principles of parent company liability in its consideration of the factors and circumstances which may give rise to a duty of care; and/or
the procedure for determining the arguability of the claim at an interlocutory stage, as shown by its treatment of the threshold for what constitutes an arguable case, and by its approach to both contested and factual issues and to the relevance and significance of likely future disclosure; and/or
the overall analytical framework for determining whether a duty of care exists in cases of this type and its reliance on the Caparo threefold test.[1]
Decision
The Supreme Court unanimously allowed the Appellants’ appeal. In his leading majority judgment, Lord Hamblen found that the Court of Appeal was wrong to decide that there was no issue to be tried in relation to RDS's duty of care to the Appellants,[1] and remitted the matter on the basis that other jurisdictional challenges remain outstanding.[2]
In reaching this conclusion, Lord Hamblen focussed on the second appeal point raised by the Appellants to reiterate importance of avoiding mini-trials when considering as a jurisdictional issue whether or not there is a triable issue against a defendant, a point previously made in Vedanta and in Three Rivers District Council v Governor and Company of the Bank of England (No 3) [2003] 2 AC 1 (Three Rivers District Council).[3]
Lord Hamblen included in his judgment an extract of Lord Hope of Craigshead's clarification in Three Rivers District Council that summary judgment should be reserved only for cases:
in which a legal argument cannot be made out; or
where the factual basis for a claim is fanciful and without substance.[4]
In summary, Lord Hope stated that a mini-trial on the documents without discovery and without oral evidence is not the object of summary judgment, which is reserved for cases that are not fit for trial at all.[5]
Lord Hamblen found that the Court of Appeal conducted a mini-trial and adopted "an inappropriate approach to contested factual issues and to the documentary evidence".[6] In his reasoning, Lord Hamblen highlighted the importance of allowing the process of discovery to occur in this type of case to ensure that relevant internal corporate documents are considered by the Court in cases concerning the negligence liability of a parent company for the acts of its subsidiary.[7]
In applying this reasoning to the matter at hand, Lord Hamblen found that the pleadings set out a real issue to be tried on the basis of RDS's management of SPDC activities and the deployment by RDS of group-wide policies which RDS took steps to implement in SPDC's operations,[8] and that there was a real prospect of disclosure of relevant evidence being provided.[9]
While it was not necessary to determine the other alleged errors of law for the purpose of the decision, Lord Hamblen also made the following points in relation to the other grounds of appeal raised by the Appellants:
there may be circumstances in which group policies imposed by a parent company and implemented by a subsidiary can give rise to the parent company owing a duty of care to third parties;[10]
the relevant issue is not whether the parent company has control of the subsidiary, but the extent to which a parent takes over or shares with the subsidiary the management of a relevant activity;[11]
"There is no special doctrine in the law of tort of legal responsibility on the part of a parent company in relation to the activities of the subsidiary, vis-à-vis persons affected by those activities";[12] and
"The liability of parent companies in relation to the activities of their subsidiaries is not, of itself, a distinct category of liability in common law negligence."[13] As such the Court of Appeal was wrong to apply the threefold test set out in Caparo Industries Plc v Dickman [1990] 2 AC 605.[14]
Commentary
This case is significant because it applies the Vedanta case to clarify circumstances in which tortious action can be brought by third parties against UK domiciled parent companies in relation to the operations of their foreign subsidiaries. The case will also possibly make it less likely that summary judgment of jurisdictional issues will occur in cases regarding the duty of care owed by UK domiciled parent companies to third parties in respect of the operational activities of their foreign subsidiaries, and more likely that both parent and subsidiary companies will be required by courts to disclose their internal documents as part of the discovery process in these matters.
The principles applied in this case and in Vedanta may have application in a broader human rights context, including clarifying principles on which, for instance, an overseas employee working for manufacturers in a developing country could bring legal action against a UK domiciled parent company of their employer in UK courts.
The full text of the decision is available here.
Sara Lane is a Pro Bono Senior Associate at Ashurst.
[1] Okpabi v Royal Dutch Shell Plc [2021] UKSC 3, [27].
[2] Okpabi v Royal Dutch Shell Plc [2021] UKSC 3, [3].
[3] Okpabi v Royal Dutch Shell Plc [2021] UKSC 3, [4].
[4] Okpabi v Royal Dutch Shell Plc [2021] UKSC 3, [5].
[5] Okpabi v Royal Dutch Shell Plc [2021] UKSC 3, [7].
[6] Okpabi v Royal Dutch Shell Plc [2021] UKSC 3, [7].
[7] Okpabi v Royal Dutch Shell Plc [2021] UKSC 3, [10].
[8] Okpabi v Royal Dutch Shell Plc [2021] UKSC 3, [14] and [18].
[9] Okpabi v Royal Dutch Shell Plc [2021] UKSC 3, [101].
[10] Okpabi v Royal Dutch Shell Plc [2021] UKSC 3, [159].
[11] Okpabi v Royal Dutch Shell Plc [2021] UKSC 3, [160].
[12] Okpabi v Royal Dutch Shell Plc [2021] UKSC 3, [21] and [102].
[13] Okpabi v Royal Dutch Shell Plc [2021] UKSC 3, [21], quoting Three Rivers District council V Governor and Company of the Bank of England (No 3) [2003] 2 AC 1, [94]-[96]. .
[14] Okpabi v Royal Dutch Shell Plc [2021] UKSC 3, [21], citing Three Rivers District council V Governor and Company of the Bank of England (No 3) [2003] 2 AC 1, [94]-[96].
[15] Okpabi v Royal Dutch Shell Plc [2021] UKSC 3, [102].
[16] Okpabi v Royal Dutch Shell Plc [2021] UKSC 3, [129].
[17] Referencing considerations taken into account in Vedanta.
[18] Okpabi v Royal Dutch Shell Plc [2021] UKSC 3, [153], [154], [158].
[19] Okpabi v Royal Dutch Shell Plc [2021] UKSC 3, [143], [145].
[20] Okpabi v Royal Dutch Shell Plc [2021] UKSC 3, [147].
[21] Okpabi v Royal Dutch Shell Plc [2021] UKSC 3, [149], quoting Lungowe v Vedanta Resources plc [2020] AC 1045, [50].
[22] Okpabi v Royal Dutch Shell Plc [2021] UKSC 3, [151], quoting Lungowe v Vedanta Resources plc [2020] AC 1045, [49].
[23] Okpabi v Royal Dutch Shell Plc [2021] UKSC 3, [151].