16 Feb UK Okpabi et al v Shell: UK Supreme Court Reaffirms Parent Companies May Owe a Duty of Care Towards Communities Impacted by their Subsidiaries in Third Countries
[Ekaterina Aristova is a Postdoctoral Fellow at the Bonavero Institute of Human Rights, University of Oxford and Carlos Lopez is a Senior Legal Advisor at the International Commission of Jurists.]
The much-awaited judgment by the UK Supreme Court (SC) in Okpabi and others v Royal Dutch Shell Plc and another (Okpabi) was handed down in an online hearing on Friday 12 February 2021 some five years after the original complaint against Shell was filed in UK courts in 2016.
The case relates to claims by HRH Emere Godwin Bebe Okpabi, and more than 42,000 individuals from the communities of Ogale and Bille in the Niger Delta, alleging that oil spills from the respondents’ pipelines caused severe environmental damage, affecting their land, livelihoods, water sources and health. They sued Royal Dutch Shell plc (Shell), UK-based parent company, and its Nigerian subsidiary SPDC, which operates the joint venture between Shell and the state-owned oil company. But the responsibility of Shell, and the jurisdiction of UK courts over the case, was contested by their legal counsel. Both the High Court and the Court of Appeal (CoA) sided with Shell, but the Supreme Court has now reversed course.
Proceedings were commenced while the UK was still a Member State of the European Union. Hence, claimants relied on the rules of domicile in Brussels I Regulation Recast to bring a claim against RDS, while SPDC was joined in litigation as a ‘necessary or proper party’ under English common law. Under this gateway, the question of whether UK courts have jurisdiction over the foreign subsidiary hinges on the question of whether the claimants have an arguable case that a UK domiciled parent company owed them a common law duty of care (para 1).
The SC decision in favour of the claimants strongly affirmed the court’s own jurisprudence in Lungowe v Vedanta Resources (Vedanta), but developed it in some respects (one of the authors analysed Vedanta, in previous blogs and symposium) The decision was mainly based on a finding that the CoA erred in law by summarily dismissing the case after conducting an assessment of the available evidence, which at that stage of the process is always minimal. The CoA had concluded that such evidence, including the issuance and monitoring of group-wide policies, did not disclose an arguable duty of care of Shell towards the affected communities and therefore the UK courts had no jurisdiction.
The SC considered this to be a flawed approach. The CoA it said should not have engaged in a mini-trial assessing the little evidence that was available and its weigh but should have used the proper test laid out by Lord Briggs in Vedanta: “The resolution of the jurisdictional challenge depended upon whether the appellants’ claim satisfied the summary judgment test of real prospect of success” (para 127 followed by a citation of Vedanta at para 45). In other words, “are there reasonable grounds for believing that disclosure may materially add to or alter the evidence relevant to whether the claim has a real prospect of success?” (para 128).
Then, the SC explained the importance of internal corporate documents “in the context of cases concerning the negligence liability of a parent company for the acts of its subsidiary” (para 129). The appellants (Nigerian claimants) had not yet had the benefit of seeing those documents since there had been no disclosure. Documents relating to operational matters could help the claimants in showing there was operational control on the part of Shell (para 134). Other specific documents relevant for establishing the existence of a parent company’s duty of care include minutes of the meetings of Shell’s management bodies; internal country reports for Nigerian operations; correspondence between the management of RDS and SPDC concerning health, safety, security and environmental aspects of SPDC’s operations (para 138).
The SC also made repeated and extensive references to two documents that had not been disclosed by Shell but became available to the claimants from third parties: the RDS Control Framework and the RDS HSSE Control Framework, which contain information about operational organization and lines of supervision or control within the Shell group of companies. These documents and the information they contain were said to provide a powerful illustration of how multinational company groups organize and operate beyond the formality of separate legal personality. The SC concluded that these documents showed how dangerous it was to seek to summarily “determine issues which arise in parent/subsidiary cases such as this without disclosure. Both are clearly material documents. Had there been no appeal, the appellants’ claim would have been dismissed without consideration of either of them” (para 136).
The SC’s judgment contains other findings of particular importance for future cases. First, it was held that the CoA had been wrong to resolve the question of the parent company’s duty of care by reference to the threefold test set out in Caparo Industries Plc v Dickman (Caparo) (para 151). In Caparo, a duty of care is owed to persons when a harm was reasonably foreseeable, there was a relationship of proximity between the defendant and the plaintiff, and it is fair, just and reasonable to impose liability. But, as stated by Lord Briggs in Vedanta, the Caparo framework does not apply when the claim concerns an already-established category of duty such as parent company liability which itself is not “a novel and controversial new category of case” (para 54 of Vedanta). Secondly, the SC concluded that the CoA has focused “inappropriately” on the extent of the parent company’s control over SPDC’s operations [para 146]. As one of the authors of this blog has argued earlier, the CoA took a “highly restrictive approach for the imposition of the duty of care” (on page 14). The SC was right to confirm that “control is just a starting point”, and the subsidiary may delegate “de fact management” of some of its activities to “emissaries of its parent” (para 147). For all these reasons the SC found in favour of the claimants, concluding that the CoA committed an error in interpreting the law.
The International Commission of Jurists (ICJ) and the CORE Coalition UK (CORE) acted as interveners in this case submitting a third-party intervention laying out applicable international standards and recommendations on best practice for corporate responsible conduct, in particular the need to carry out proper human rights diligence over its own operations and those of commercial partners. The submission also provided relevant highlights from comparative jurisprudence. One of them – Hardie Industries plc v White  NZCA 580 (Hardie v White) from the New Zealand Court of Appeal- bears similarity with the reasoning used by the SC in Vedanta and Okpabi.
In Hardie v White, the Court of Appeal noted that public company documents showed oversight and direction of subsidiary companies, but that the evidence on how companies within the corporate group coordinated with one another had been primarily in the hands of the defendant company and had yet to be disclosed. In these circumstances, the court held that “the publicly available material at that stage was sufficient to raise a serious issue as to whether the parent companies had acted in such a way as to give rise to a duty of care” (submission from ICJ and CORE at para 32). Thus, the recent SC judgment in Okpabi goes in the same direction of international and comparative jurisprudence.
The judgment is also significant in terms of access to justice and reparation, which are key components of the international human rights legal framework. As Sophie Kemp has pointed out, the SC holdings on procedure go some way in facilitating access to justice for claimants such as the Nigerian communities “by clarifying and to some extent lowering the hurdles that claimants must meet”. In so doing, the judgment has not only reaffirmed its previous landmark decision in Vedanta, but also clarified the application of the jurisdictional test in such a way as to expedite claimants’ access to a proper fair trial. In such proceedings they should have an opportunity to defend their rights with some degree of equality of arms, as required by international law, given the existence of the rules of disclosure under which the parent company will have to disclose internal documents relevant to the proceedings. This is perhaps the most significant contribution of this recent UKSC judgment for human rights and environmental justice advocates.
Okpabi comes just one week after another judicial decision concerning Shell’s activities in Nigeria had been delivered, this time by the Court of Appeals in the Netherlands. In that decision, the Dutch CoA applied the Vedanta jurisprudence that it considered an integral part of Nigerian common law and found Shell in breach of that duty. As noted by Cees Van Dam and Lucas Roorda, this was the first time a company was found in breach of that duty towards communities living in the vicinity of the company operations.