Global Vantage: UKSC considers the relationship between a UK-domiciled parent company and its foreign subsidiaryApril 2021
On 12 February 2021, the UK Supreme Court (“UKSC”) handed down its judgment in Okpabi and others v Royal Dutch Shell Plc and another  UKSC 3. The decision, which concerned two sets of proceedings brought by representatives of the Ogale and Bille communities of Rivers State, Nigeria (the “Appellants”), provides important guidance as to when a UK-domiciled parent company may owe a duty of care to those affected by the alleged failings of one of its foreign subsidiaries.
The Appellants claim that they have been affected by oil spills alleged to have originated from pipelines and associated infrastructure operated by the second respondents, the Shell Petroleum Development Company of Nigeria (“SPDC”). These oil spills are alleged to have caused extensive environmental damage. SPDC is a Nigerian registered company and a subsidiary of the UK-registered Royal Dutch Shell Plc (“RDS”), who are parent company of the Shell group, and who were the first respondents in this appeal.
The Appellants submit that RDS, as the parent company of SPDC, owed them a common law duty of care on the basis that either:
- RDS exercised significant control over ‘material aspects’ of SPDC’s operations and / or;
- RDS assumed responsibility for SPDC’s operations.
Further, the Appellants also advance submissions against SPDC, alleging that they are liable under various Nigerian statutory / common law causes of action.
The claim forms in both the Ogale and Bille proceedings were issued in 2015 and served on RDS in the ordinary manner as a defendant domiciled in the UK. However, as SPDC is a company registered in Nigeria, i.e. outside the jurisdiction, it was necessary for the Appellants to apply for permission to serve the claim forms on them, in accordance with Practice Direction 6B, paragraph 3.1(3). As described by the UKSC at paragraph 10 of their judgment, this requires that the Appellants:
“…establish that their claims against RDS, the anchor defendant, raise a real issue to be tried, which means that they have a real prospect of success…”
Permission for the Appellants to serve on SPDC out of jurisdiction was granted in March 2016. However, SPDC subsequently applied for the claim forms, their service and the permission granted to serve them out of jurisdiction to be set aside / for the proceedings against SPDC to be stayed. Separately, RDS also made applications challenging jurisdiction.
In November 2016, Fraser J heard applications from the respondents in which they sought to challenge jurisdiction and set aside service of the claims on SPDC out of jurisdiction.
Fraser J concluded that, whilst the submission that the court did not have jurisdiction to try the claims against RDS should be rejected, it was “not reasonably arguable that there is any duty of care upon RDS” (see paragraph 14 of the UKSC’s judgment). Therefore, the Appellants had failed to meet the requirements of PD 6B, para 3.1(3).
In light of the above, Fraser J set aside service of the claim forms on SPDC outside of jurisdiction, and the elements of the Appellants’ statements of case relating to RDS were struck out.
Court of Appeal
The Appellants challenged Fraser J’s determination in the Court of Appeal.
The Court of Appeal found that there were flaws in the first instance decision, particularly with the way in which evidence had been treated. However, following its own review of the evidence, the majority upheld Fraser J’s judgment as to there being no arguable case that RDS owed a common law duty of care to the Appellants in the manner claimed.
The Appellants subsequently sought permission to appeal to the UKSC. This was granted, following a temporary ‘delay’ whilst the UKSC concluded its judgment in the case of Lungowe v Vedanta Resources plc  UKSC 20;  AC 1045, which it notes at paragraph 2 of this judgment as being “…very relevant to both the procedural and the substantive issues raised on this appeal.”
The Appellants’ application for permission to appeal raised two principal issues:
- Whether the majority of the Court of Appeal had materially erred in law; and
- If so, whether the majority was wrong to decide that there was no real issue to be tried.
Before addressing the issues raised by the appeal, the UKSC first cited comments that were made in the Vedanta decision regarding the importance of proportionality when faced with litigation concerning jurisdictional issues. Where such issues required consideration as to “…whether there is a triable issue as against a defendant…” (see paragraph 21 of this judgment), the USKC noted that there was a need to avoid “mini-trials” and to exercise “judicial restraint”, as well as to disallow parties from filing large amounts of evidence.
Issue (i) – Materially erred in law
As set out at paragraph 101 of the judgment, the Appellants contended that the Court of Appeal had materially erred in law in its analysis of three relevant issues:
- the principles of parent company liability when considering factors and circumstances which might give rise to a duty of care;
- the procedure for determining arguability of the claim at an interlocutory stage; and/or
- the analytical framework for determining whether a duty of care exists in this type of case, and its reliance on the tripartite test in Caparo.
The UKSC’s judgment focusses only on the second of these concerns, as it concluded that it was “clear” that an error had been made on the point.
Instead of focussing on the pleaded case, both at first instance and in the Court of Appeal, the courts had been drawn into conducting a ‘mini trial’ of the evidence. This included making evaluations and judgments on the weight of that evidence, and meant making determinations related to contested factual evidence that were inappropriate for an interlocutory application, e.g. accepting evidence from the respondents’ witnesses despite the lack of cross-examination and disclosure.
Further, in relation to documentary evidence, the Court of Appeal had incorrectly concluded that a good arguable case had to be demonstrated on the material that was currently available. The UKSC clarified that although the high-level documentation obtained to-date by the Appellants did not evidence RDS exercising control over the operations of SPDC, that did not mean that further documentation provided on disclosure would be unlikely to do so. The Appellants had yet to provide evidence nor be provided with disclosure as to documents relating to operational matters.
Issue (ii) – Real issue to be tried
Taking account of the respondents’ submissions and the evidence, the UKSC concluded that it had not “…been shown that the averments of fact made in the particulars of claim should be rejected as being demonstrably untrue or unsupportable.” (see paragraph 153 of the judgment).
In Vedanta, the UKSC had explained that, in the context of the relationship between a parent and its subsidiary, the existence of a duty of care:
“…depends on the extent to which, and the way in which, the parent availed itself of the opportunity to take over, intervene in, control, supervise or advise the management of the relevant operations (including land use) of the subsidiary.” (see paragraph 49 of Vedanta).
The Appellants had amended their legal arguments based on the Vedanta judgment, and the UKSC was satisfied that the case set out in their pleadings, supported by the points made in reliance on certain RDS Framework documents, established that there was a real issue to be tried under Vedanta’s guidance. In particular, the UKSC found that there was a real issue to tried as to whether a duty of care arose through:
- RDS taking over the management or joint management of the relevant activity of the SPDC and/or
- RDS promulgating group-wide safety/environmental policies and taking active steps to ensure their implementation by SPDC.
This conclusion was supported by the Appellants’ witness evidence, and the possibility of relevant disclosure being provided. Significance was also placed on the Shell group having been organised along ‘Business and Functional Lines’, as opposed to only corporate status. This verticality involved significant delegation.
Whilst the UKSC’s decision does not conclude that RDS was at fault for the negligence alleged in either of the Appellants’ claims, it does pave the way for these proceedings to continue.
The judgment marks another set-back for Shell in Nigeria, who earlier this year suffered a similar defeat in the Dutch courts concerning liability for damages caused by oil spills in Nigerian villages in the early-mid 2000’s.
The decision reinforces the UKSC’s ruling in Vedanta, in which it granted permission for a group of over a thousand Zambian citizens to proceed with their case against Konkola Copper Mines plc, a Zambian Company and subsidiary of the UK-domiciled Vedanta Resources PLC, in the Courts of England and Wales. Both cases now stand as evidence of the increasingly blurred line that seems to be developing between domestic parent companies and their foreign subsidiaries.
Should the respondents wish to address the other challenges to jurisdiction, which were not resolved by Fraser J, this matter must now return to the High Court for further consideration.Download PDF