Court of Appeal confirms English Court lacks jurisdiction over claims against UK domiciled parent company in relation to acts of subsidiary abroad

The Court of Appeal has held that the English court does not have jurisdiction to hear claims against two companies in the Shell group (domiciled in the UK and Nigeria respectively) relating to alleged pollution in the Niger Delta in Nigeria. A majority in the Court of Appeal (Sales LJ dissenting) found that the claimants were unable to demonstrate a properly arguable case that Royal Dutch Shell, a UK listed company, owed a duty of care to those affected by leaks from pipelines and associated infrastructure operated by its Nigerian subsidiary: Okpabi and others v Royal Dutch Shell Plc and Shell Petroleum Development Company of Nigeria Ltd [2018] EWCA Civ 191.

This decision goes some way to providing clarity on when a parent company may be liable for the acts or omissions of its subsidiaries. The Court of Appeal confirmed that a distinction falls to be drawn between a parent company which controls, or shares control of, the material operations of a subsidiary, and a parent company which simply issues mandatory policies as group-wide operating guidelines for its subsidiaries. The issuing of mandatory policies by a parent company will not be sufficient to establish a duty of care in favour of any person or class of persons affected by those policies; it is necessary to establish that the parent company has taken control (or joint control) of the relevant operations in a much more direct and substantial way. The claimants have indicated that they intend to seek permission to appeal to the Supreme Court.

John Ogilvie and Damian Grave, partners, and James Allsop, a senior associate, in our disputes team consider the decision further below.

Background

The claimants, two large groups of individuals from two different areas in the Niger Delta region, brought proceedings in the High Court in 2015 against: (i) Royal Dutch Shell Plc (“RDS”), a company incorporated in England; and (ii) Shell Petroleum Development Company of Nigeria Ltd (“SPDC”), a subsidiary of RDS incorporated in Nigeria.

Both claims alleged environmental damage resulting from the operations of a joint venture operated by SPDC in Nigeria. The claims against RDS were based principally in negligence. They comprised alleged breaches by RDS of the duty of care which it was said to owe to Nigerian claimants. The duty was said to have arisen from the control which RDS allegedly exercised over SPDC’s operations.

As previously reported (see here), Fraser J at first instance held that there was no arguable duty of care owed by RDS to the individual claimants; the claimants having failed to demonstrate the necessary degree of proximity or that it would be fair just and reasonable to impose a duty of care on RDS. Consequently, the English court lacked jurisdiction to try the claims against SPDC because there was no real issue between the claimants and RDS which it was reasonable for the court to hear. The claimants appealed.

The applicable legal test

The central issue in the appeal was whether the claimants had demonstrated on the evidence available that they had a good arguable case that RDS owed them a duty of care in respect of the losses they claimed to have suffered. In other words, was the claimants’ claim bound to fail?

The Court of Appeal endorsed Fraser J’s approach to establishing the existence of a duty of care in this context: considering the factors identified in Chandler v Cape Plc [2012] EWCA Civ 525 and Thompson v The Renwick Group Plc [2014] EWCA Civ 635, in the context of the three-stage test as set out in Caparo Industries Plc v Dickman [1990] 2 AC 605. However, the appellate judges also accepted (albeit to differing degrees) the claimants’ arguments that Fraser J had made certain general errors of principle, thereby entitling them to re-open his decision.

There was no dispute between the parties that the first limb of the Caparo test, foreseeability, was satisfied. The dispute focussed on the second and third limbs: proximity and whether it was fair, just and reasonable that such a duty should be imposed.

Majority decision (Simon LJ and Sir Geoffrey Vos C)

Proximity

The claimants relied on five factors to demonstrate RDS’s control of SPDC: (1) the issue of mandatory policies, standards and manuals which applied to SPDC; (2) the imposition of mandatory design and engineering practices; (3) the imposition of a system of supervision and oversight of the implementation of RDS’s standards which bore directly on the pleaded allegations of negligence; (4) the imposition of financial control over SPDC; and (5) the high level of direction and oversight of SPDC’s operations.

In considering the “relationship of proximity”, all three appellate judges recognised that a distinction must be drawn between a parent company which controls, or shares control of, the material operations of a subsidiary on the one hand, and a parent company which issues mandatory policies and standards which are intended to apply throughout a group of companies in order to ensure conformity with particular standards. The issuing of mandatory policies cannot of itself mean that a parent has taken control of the operations of a subsidiary (and, necessarily, every subsidiary) such as to give rise to a duty of care in favour of any person or class of person affected by the policies. For a duty of care to arise in line with the analysis in Chandler v Cape Plc, it would be necessary to establish that the parent had taken control (or joint control) of the relevant operations in a much more substantial way.

Simon LJ concluded that, on the evidence before the court, none of the five factors identified by the claimants, individually or cumulatively, demonstrated a sufficient degree of control of SPDC’s operations in Nigeria by RDS. While RDS may have been concerned over the losses in Nigeria, had a desire to ensure proper systems were in place and had established an overall system to ensure best uniform practices, the claimants failed to show an arguable case that RDS controlled SPDC’s operations.

Sir Geoffrey Vos C (for similar but not identical reasons to Simon LJ) agreed that the claimants had failed, in each of the five areas they sought to rely on, to establish proximity. In particular, he rejected the suggested that the promulgation of group standards and practices was sufficient to require the “imposition” of mandatory design and engineering practices. There was no evidence that RDS sought to enforce the standards; it merely expected SPDC to apply them. Similarly, although RDS said that there should be a system of supervision and oversight, it left SPDC to operate that system.

Fair, just and reasonable

In rejecting the claimants’ argument that it would be fair, just and reasonable to impose a duty of care on RDS, Sir Geoffrey Vos C pointed to the inherent unlikelihood of an international parent company like RDS undertaking a duty of care to all those affected by the operations of all its subsidiaries. Notably, he also stated that he considered that “the court had a responsibility in a case of this kind not to strive to find a reason to allow jurisdiction.”

Simon LJ also rejected the claimants’ arguments in relation to this limb of the Caparo test. He held that while the importance of multi-national parent companies conducting themselves consistently with international standards, including in relation to corporate social responsibility, was unobjectionable as a matter of abstract principle, it was a doubtful foundation for the imposition of a duty of care.

Minority decision (Sales LJ)

Sales LJ, dissenting, considered that the claimants had a good arguable case that RDS owed them a duty of care at all material times and that this duty was breached. Accordingly, he held that the claimants were entitled to sue RDS in this jurisdiction and treat it as an anchor defendant for the purposes of potentially bringing a claim against SPDC.

With respect to proximity, Sales LJ disagreed with Fraser J’s view that the recognition of a duty of care on the part of RDS would potentially impose “liability in an indeterminate amount, for an indeterminate time, to an indeterminate class”, per Cardozo CJ in Ultramares Corp v Touche (1931) 174 NE 441. It was well arguable, as a matter of English law, that SPDC would owe a duty of care to those people whose property in the vicinity would be damaged by the oil spillage. Neighbouring landowners would also likely be in a relationship of proximity and could not be said to be an indeterminate class of persons. If RDS could be shown to have taken over practical control of the management of SPDC, or to have exercised joint control, it was well arguable that RDS would be likewise in a relationship of proximity with the claimants, or at least a significant number of them.

While Sales LJ agreed that simply setting global standards (even standards which purported to be mandatory) to guide the conduct of operating subsidiaries would not be sufficient to lead to the imposition of a duty of care against RDS, he nevertheless considered that such global standards were significant in the context of the claimants’ overall case. Sales LJ held that the existence of such standards was capable of providing a mechanism for the projection of real practical executive control by RDS over the affairs of SPDC, if RDS wished to. RDS could review how global standards were implemented in Nigeria and, as deemed necessary, use them as a basis to impose operational measures. Further, Sales LJ considered it plausible to infer that there may well have been particularly close monitoring and direction by RDS of the implementation of its mandatory instructions on the ground in the case of SPDC, even if the implementation of the mandatory instructions was not so enforced in the case of other, less troublesome subsidiaries.

Case management

There was criticism of the volume of material filed by the parties at both first instance and on appeal. In particular, Simon LJ indicated that in jurisdiction cases where the central issue is whether a duty of care is owed by an anchor defendant to a claimant, it is expected that the facts would be set out in the Particulars of Claim with the respondent being given an opportunity to respond in a witness statement and the applicant, if desired, providing the same in reply. Notably, Simon LJ called for “watchful case management” and steps to be taken to limit what is placed before the court in future.

John Ogilvie
John Ogilvie
Partner
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+44 20 7466 2359
Damian Grave
Damian Grave
Partner
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+61 3 9288 1725
James Allsop
James Allsop
Senior associate
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+44 20 7466 2588

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