On 12 February, the Supreme Court handed down its judgment in a high profile jurisdictional challenge relating to group claims brought against Royal Dutch Shell Plc and its Nigerian subsidiary in connection with alleged pollution in the Niger Delta. The decision will be of great interest – and potential concern – to all UK domiciled holding companies, particularly those in the extractive sector and others with businesses entailing environmental risks.
The Supreme Court unanimously allowed the claimants’ appeal, finding that the English court does have jurisdiction over the claims. It held that (1) the Court of Appeal materially erred in law by conducting a mini-trial in relation to the arguability of the claim at the jurisdiction stage, and (2) it was reasonably arguable that the UK domiciled Shell parent company owed a duty of care to the claimants: Okpabi and others v Royal Dutch Shell Plc and Shell Petroleum Development Company of Nigeria Ltd  UKSC 3.
The decision provides further consideration of the circumstances in which a parent company may owe a duty of care to those affected by the acts or omissions of its foreign subsidiary, an issue that the Supreme Court considered in its recent judgment in Vedanta Resources PLC and another (Appellants) v Lungowe and others (Respondents)  UKSC 20 (“Vedanta”) (which was heavily relied upon by the Supreme Court in this case).
The present decision emphasises that, in assessing at a jurisdictional stage whether there is an arguable duty of care owed by the parent company, the judge should not be drawn into a mini-trial to evaluate the factual evidence adduced, but should accept the factual assertions made in support of the claim by the claimants “unless, exceptionally, they are demonstrably untrue or unsupportable”. This will constrain defendants in seeking to challenge the factual basis on which claims are advanced, and many will be concerned that they are more vulnerable to weak and speculative claims being allowed to proceed in the English courts as a result of this judgment.
Further, UK domiciled holding companies will wish to scrutinise carefully the indicia by which it was established that a sufficiently arguable parent company duty of care existed in this case. The Supreme Court held that there was an arguable case that the parent company had: taken over the management or joint management of the relevant activity of the subsidiary; and/or promulgated group wide safety / environmental policies and took active steps to ensure their implementation such that a duty of care could arise.
The Supreme Court also adopted the analysis and conclusions of Sales LJ, who had dissented in the Court of Appeal, and who emphasised the significance of the fact that the Shell group is organised vertically on business and functional lines, rather than simply by corporate status. In the Supreme Court’s view, there was a triable issue as to whether this vertical organisational structure made it a group business that was in management terms a single commercial undertaking, with separate legal personality becoming largely irrelevant.
While UK parent companies will wish to give careful consideration to their own management structures, policies and practices in light of this judgment, significant uncertainty endures as to the precise circumstances in which a parent company duty of care will in fact arise. There is no special or separate legal test applicable to the tortious responsibility of a parent company for the acts of its subsidiary, and each case will need to examined on its own facts. Continue reading