The English Court of Appeal last week held that UK courts did not have jurisdiction to hear a case between Nigerian villagers and Royal Dutch Shell plc (RDS), a company incorporated in the United Kingdom. RDS has a subsidiary in Nigeria called Shell Petroleum Development Company of Nigeria (SPDC) which operates oil pipelines in the Niger Delta. The claimants, all residents of the Niger Delta, are seeking damages due to the contamination of land, swamps, groundwater and waterways by oil leaks from pipelines operated by SPDC.
The Court’s decision came down to whether on the evidence before it, the claimants could establish that RDS exercised real and practical control over the activities of its subsidiary SPDC. The Court found that the claimants failed to establish the requisite proximity between RDS and SPDC’s operations and therefore that it would not be fair, just and reasonable to try the case in the UK. In reaching this decision, the Court held that the issuing of mandatory policies could not mean that a parent company had taken control of the operations of a subsidiary such as to give rise to a duty and that the documents given in evidence by the claimants constituted high level guidance based on the centralised accumulation of a wide range of expertise, experience and best practice.
Distinguishing Lungowe from Okpabi
In Lungowe v Vedanta Resources Plc  EWCA Civ 1528 (also covered on this blog) the Court of Appeal established that UK courts had jurisdiction to hear a case against Vedanta, a UK company, for the alleged actions of its Zambian subsidiary. Given the parallels of the two cases and the different decisions reached, the Court in Okpabi felt compelled to state how the two decisions differed:
- SPDC did not hold the majority interest in a joint venture whereas in Vedanta the parent company had a majority 80% shareholding in the subsidiary that operated the mine which caused the damage.
- In Vedanta, the underlying documentary evidence included (a) a report which stressed that Vedanta’s board had oversight of all its subsidiaries, and a framework to ensure that surface and ground water did not get contaminated by its operations; (b) a management and shareholders’ agreement by which Vedanta agreed to provide the subsidiary with geographical and mining services etc; (c) Vedanta’s investment of some $3 billion in KCM; and (d) Vedanta’s public commitment to address environmental risks and technical shortcomings.
- The witness evidence in Vedanta specifically explained how the parent company had discarded the operational policies of the subsidiary and put in place its own policies and management.
Dissenting speech – Sales LJ
The Court of Appeal was not unanimous in its findings. In a dissenting speech, Sales LJ highlighted factors which he believed established a duty of care:
- It was arguable that Nigerian law imposing strict liability for oil spills tended to support the imposition of a duty of care on RDS as well, since it showed that damage from oil spills was something so obviously harmful that the local legislature had decided that liability for it should be strict.
- If SPDC became insolvent, it would be important to recognise the liability of others as well, if the relevant legal test for liability was satisfied.
- It was possible to have two persons legally liable for the same damage so RDS could be sued through its subsidiary in Nigeria using the Nigerian statute and also in the UK courts using the tort of negligence.
- Despite the distinct corporate personalities of RDC and SPDC, the claimants were entitled to argue that RDS and SPDC had organised the distribution some of their responsibilities on functional business lines rather than by reference to corporate personalities, as a result RDS could be sued as a legal person.
- The global standards imposed on subsidiaries by RDS were significant in the context of the claimants’ case overall because the existence of such standards was capable of providing a mechanism for the projection of real practical executive control over the affairs of SPDC, if they wished to.
- The evidence showed a pattern of distribution of expertise and control in relation to the handling of the risk of oil spills in the Niger Delta enough to find that RDS had a duty of care.
- The Court of Appeal’s decision is puzzling in light of its own admission that ‘the Nigerian joint venture, operated by SPDC…was particularly important from an economic perspective’. If it’s accepted that RDS viewed the venture to be economical and risky, it would be incredible that the parent company would still choose not to exercise any requisite control over its activities.
- The inconsistency between this decision and the earlier decision in Lungowe v Vedanta makes the law uncertain and suggests cases of this nature will be decided on the facts making them expensive and an obstacle to access to justice for the claimants.
- The Court’s assertion that Okpabi was a joint venture arrangement and therefore distinguishable from Lungowe is not persuasive. At the very least, RDS should be held to account for their share of the damage rather than being effectively exonerated. UK parent companies setting up subsidiaries in Africa do not do so lightly, it’s not right for them to reap all the benefits of such operations without taking responsibility for the damage that their subsidiary’s operations cause.
- Cases of this nature will naturally be complex and run the risk of being mini-trials. The Court highlighted ‘skeleton arguments’ running to 259 pages, 17 additional pages of detailed criticism of the other side’s case, 61 pages of post-hearing notes,13 lengthy witness statements and 3 expert reports from RDS and the 15 witness statements and 2 expert reports from the claimants. On top of this, the claimants requested for a delay in the judgment as they had come across more information which they wanted to go through before bringing it before the court.
- The Court made the point that the whole point of having a subsidiary is so that parent companies should not have direct responsibility over the subsidiary’s operations. But this observation doesn’t take into account another self-seeking purpose behind the setting up of a subsidiary, which is that some states put this down as a requirement for foreign companies operating in their jurisdictions in the first place. From this perspective, it could be argued that some subsidiaries are merely vehicles through which foreign based companies can access valuable African markets.
- Lastly, this case establishes that claimants must set out a much more direct link between the activities of the parent company and the subsidiary; the more generic the activities of the parent company, the less likely the court is to find that a duty exists. From a human rights and access to justice perspective, this places a huge burden on the often poorer claimants.
Case citation: Okpabi v Royal Dutch Shell Plc  EWCA Civ 191