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Okpabi v Shell: the Supreme Court lowers the bar for parent company liability claims

Okpabi v Shell: the Supreme Court lowers the bar for parent company liability claims

Overview

On 12 February 2021 the Supreme Court handed down its long-awaited judgment in Okpabi v Royal Dutch Shell [2021] UKSC 3.

It finally determines the defendants' challenge to the jurisdiction of the English Courts, which had succeeded before both the High Court and the Court of Appeal.  However, the Supreme Court unanimously allowed the claimants' appeal, overturning the judgments of the lower courts, and enabling the claims against RDS and SPDC to proceed before the English courts. The judgment is of particular interest to corporations which operate in emerging markets, or whose businesses pose particular operational hazards, reflecting as it does the willingness of the English Courts to allow parent company liability claims, relating to harms alleged to have been suffered overseas in connection with the operations of foreign-domiciled companies, to proceed in this jurisdiction. 

The litigation involves claims brought by over 42,000 individuals in the Bille and Ogale communities in the Rivers State, Nigeria. The claimants are seeking damages for widespread environmental damage, including serious ground water contamination, alleged to have been caused by oil spills from pipelines that are operated by a Nigerian subsidiary, Shell Petroleum Development Company of Nigeria Limited ("SPDC").  SPDC operates the pipeline pursuant to a joint venture arrangement with various other entities, the Nigerian government being the majority owner. To summarise the claimants' principal case, they allege that the UK domiciled parent company, Royal Dutch Shell ("RDS") breached a common law duty of care to them, which arose because it "exercised significant control over material aspects of SPDC's operations" and/or it assumed responsibility for SPDC's operations, including by the "promulgation and imposition of mandatory health, safety and environmental policies, standards and manuals" which failed to protect the claimants against the risk of foreseeable harm.  The Claimants successfully persuaded the Supreme Court that there was indeed a triable issue as to whether RDS owed such a duty of care to them.  The Supreme Court thereby followed very much the same approach, and the guidance it had given, on the same issue in its important judgment two years ago in Vedanta v Lungowe [2019] UKSC 20.

In reaching its decision on the issue of parent company liability in Okpabi, the Supreme Court emphasised that the Court of Appeal had erred by being drawn into conducting a mini trial on the question of whether there was a real triable issue on the question of RDS's duty of care, and that it had adopted an inappropriate approach to dealing with contested factual and documentary issues. The Supreme Court re-emphasised (again, following its approach in Vedanta) that the focus at the jurisdictional (and the summary judgment) stage must be the claimants' own pleaded case, unless it is demonstrably untrue or unsupportable.  This guidance will constitute a significant hurdle to future defendants in seeking to defeat such claims at the jurisdictional stage:  in highly factually complex cases such as these, defendants' ability to contest the pleaded case against them at an early jurisdictional hearing has been substantially curtailed. 

The Supreme Court also considered substantive issues of law, providing further guidance as to the circumstances which could give rise to parent company liability. In particular, it provided some guidance on the meaning and importance of corporate "control" and indicated that de facto operational control (as opposed to de jure control) was necessary to give rise to a duty of care, and it made clear that a parent company could assume a duty of care for the conduct of its subsidiaries simply by adopting group-wide policies (whereas the majority of the Court of Appeal had seemed to consider that a particular and specific focus on the subsidiary was a pre-requisite for a duty of care to arise).  This finding, which confirmed the view first suggested by the Supreme Court in Vedanta, has significant implications for how multi-nationals should assess the degree of risk they are taking on when issuing such group-wide policies which seek to standardise or improve group-wide practice, including potentially unsafe systems of work.

For a more detailed discussion of the Okpabi decision and its place in the growing case law on parent company liability, please see the article regarding parent company liability in the Travers Smith Dispute Resolution Yearbook, here.

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