Okpabi v Shell in the Supreme Court: Limits of civil liability of the UK parent companies for overseas environmental pollution
On 23 June 2020, the UK Supreme Court heard an appeal of the Nigerian communities in a high-profile case Okpabi v Shell (“Okpabi”) which concerns environmental impacts of the extractive operations of the Shell Group companies in Nigeria. The Supreme Court now must decide if the case against Royal Dutch Shell Plc (“RDS”), an English-domiciled parent company, and Shell Petroleum Development Company of Nigeria Ltd (“SPDC”), its Nigerian subsidiary, will be tried on the merits in the English courts. This blog summarises the arguments advanced by the parties in the court room and the wider implications of the case.
History of the proceedings
The claimants in Okpabi are Nigerian citizens who commenced in the English courts two sets of proceedings against RDS and SPDC on behalf of the Ogale community and the Bille Kingdom. RDS is a parent company of the Shell Group incorporated in the UK, and SPDC is an exploration and production company incorporated in Nigeria, and is a subsidiary of RDS. Both claims allege serious and ongoing pollution and environmental damage caused by oil spills arising from pipelines and associated infrastructure in and around the claimants’ communities. The claim against RDS is based on the tort of negligence under the Nigerian common law alleging assumption of the direct duty of care to prevent the environmental damage caused to the claimants. SPDC is also sued under the Nigerian law as a license holder and the operator of the pipeline.
The claim against RDS is brought in the English courts under the rules of domicile in Brussels I Regulation Recast, which is a key instrument for setting the rules of jurisdiction in cross-border disputes in the EU Member States. SPDC is joined in litigation as a ‘necessary or proper party’ pursuant to English common law. Under this gateway, it is essential for the claimants to establish that there is a real issue to be tried against RDS as an anchor defendant. The English courts, therefore, must consider the merits and reasonableness of the claims against RDS in order to resolve the problem of jurisdiction.
Both the High Court and the Court of Appeal found that the English courts do not have jurisdiction to hear the claims against RDS and SPDC, because the claimants had not established an arguable case that RDS owed a duty of care to third parties affected by the Nigerian operations of SPDC. The majority of the Court of Appeal’s judges set a highly restrictive test for parent company liability and required evidence of a significant involvement of RDS in the day-to-day operations of SPDC and actual control over imposition and enforcement of mandatory design and engineering practices in the Nigerian operations. The claimants in Okpabi have relied on various publicly available documents issued by RDS, such as group-wide guidelines and manuals which applied to SPDC. The Court of Appeal, however, dismissed the evidential value of these documents, as well as environmental commitments made by RDS, in demonstrating an arguable case on the assumption of a duty of care. In 2019, the Supreme Court allowed the claimants to appeal.
Lungowe v Vedanta case
It is important to mention that appeal in Okpabi has been granted following the Supreme Court’s unanimous decision in Lungowe v Vedanta (“Vedanta”), another high-profile case concerning limits of the parent company liability for the acts and omissions of an overseas subsidiary. In Vedanta, almost two thousand Zambian rural farmers alleged personal injury, damage to property, loss of income, and loss of amenity and enjoyment of land arising out of the operation of the Nchanga Copper Mine in Zambia. The claimants focused on an alleged breach of duty of care owed by the English-domiciled parent company Vedanta Resources plc (“Vedanta”) to ensure that the mining operations of Konkola Copper Mines (“KCM”), its Zambian subsidiary, did not cause harm to the environment or local communities. The central argument of the claim is that Vedanta exercised a high level of managerial control directly over KCM’s operations in Zambia, including the implementation of health, safety and environmental policies. Both the High Court and the Court of Appeal ruled that claims against both defendants could proceed in the English courts. In April 2019, the landmark judgment from the Supreme Court upheld decision of the lower courts.
Whilst the ruling in Vedanta was limited to the issue of jurisdiction, the Supreme Court has also significantly clarified the scope of parent company liability. Thus, it was explicitly acknowledged that the issuance by the parent company of the group-wide policies and guidelines on various issues (for instance, minimising health and safety or environmental risks) may give rise to a duty of care, if the parent company also takes active steps to implement these at the subsidiary level through training, supervision and enforcement . In addition, the Supreme Court confirmed that an omission to supervise the subsidiary’s operations, where they are contrary to proclamations published by the parent company, may also give rise to a breach of duty of care . The Supreme Court’s findings in Vedanta expand the restrictive test on parent company liability established by the Court of Appeal in Okpabi. So, it is perhaps not surprising that the Nigerian communities were granted permission to appeal.
Existence of an arguable duty of care owed by RDS to the Nigerian communities
The key question on the appeal was ‘whether and in what circumstances the UK-domiciled parent company of a multi-national group of companies may owe a common law duty of care to individuals who allegedly suffer serious harm as a result of alleged systemic health, safety and environmental failings of one of its overseas subsidiaries as the operator of a joint venture operation’.
The claimants were represented in the Supreme Court by Richard Hermer QC. Their appeal focused on three major points. As a first step, it was acknowledged that Vedanta provided a much-needed clarity on the limits of parent company liability. The Supreme Court in Vedanta determined that establishing a parent company’s duty of care is highly fact-sensitive and largely depends on the precise circumstances of the case, including the nature and extent of the parent’s involvement in the subsidiary’s business. The Supreme Court in Vedanta also refused to ‘squeeze’ all cases of parent company liability into specific categories with pre-defined limits because the organisational and management structures of corporate groups vary significantly. As a result, the duty of care can arise in different case scenarios or – as put by the claimants in Okpabi – through a number of ‘routes’.
The claimants then proceeded to the evidential basis of the claim. They relied on several witness statements and a large number of documents (i.e. the Shell sustainability report, the Health, Safety, Security, Environment and Social Performance Control Framework, public commitments made by RDS regarding its subsidiaries and joint ventures, etc) to establish that there is at least an arguable duty of care owed by RDS for a devastating damage caused to the environment and local communities. The claimants pleaded the case on the basis that Shell Group is a highly integrated group of companies where RDS delegates its powers and authorities to other group companies and individuals but remains expressly responsible for the health and safety matters throughout the group operations by monitoring implementation of the mandatory standards and manuals. Moreover, RDS maintains a centralised health, safety, security and environment system with the relevant knowledge departments sharing the expertise and assisting the subsidiaries and the joint ventures in responding to and managing the oil spills. Consequently, the liability of RDS – at least arguably – could be established through several ‘routes’: enforcement of the mandatory group-wide policies; centralised expertise and top-down intervention in the health, safety, security and environmental areas; joint management of the response to the oil spills. Following a question from Lord Hodge, Richard Hermer QC confirmed that claimants do not plead existence of systemic errors in the group manuals and policies adopted by RDS. There is simply not enough evidence to make such allegations at this stage, and further disclosure by the company of the corporate policies and information about the oil spills is required.
Finally, the claimants have also argued why the Court of Appeal decision erred in failing to recognise the existence of an arguable duty of care. First, the conclusion that the group-wide policies cannot give rise to the parent company liability is incompatible with the Vedanta decision. Second, the narrow focus on control in assessing parent company liability is too restrictive and does not allow considering other ways in which the parent company can avail itself of the opportunities to intervene in the subsidiary’s activities. The third critique related to the Court of Appeal’s failure to recognise that future disclosure of the Shell Group’s corporate documents is essential in determining the scope of parent company liability in the case. In this context, Richard Hermer QC referred to the decision in Akpan v Shell, which was brought in the Netherlands against RDS and SPDC alleging companies’ liability for severe pollution of farms and fishing water in three Nigerian villagers. In 2015, the Dutch Court of Appeal ordered additional disclosure of corporate documents of the Shell Group that may shed light on the nature of the relationship between RDS and SPDC.
The Shell Group was represented in the Supreme Court by Lord Goldsmith QC. The defendants’ response raised several important issues. First, it was argued that claim against RDS is a speculative one and should be tried in Nigeria. SPDC is a separate legal entity with 3,000 employees, substantial assets, and recognised expertise in the oil industry. The underlying dispute concerns the liability of the Nigerian company for the spills occurred in Nigeria and damage caused to the Nigerian individuals and communities. The appropriate forum for this type of cases is Nigeria where access to justice is available to the claimants.
Second, the defendants argued that a ‘growing phenomenon of oil terrorism’ is a significant problem in Nigeria. The problem of the environmental pollution caused by the theft, sabotage and illegal activities of the third-party criminals has been dealt by the Nigerian police and military forces for years. Lord Goldsmith QC questioned the ability of RDS to address these systemic problems from London in any effective way. He further contended that any negligence case does not only require imposition of the duty of care, but also the breach of such duty in a relevant way.
When it came to the evidential basis of the claimants’ case, Lord Goldsmith QC has – to significant extent – supported conclusions reached by the majority Court of Appeal. It was asserted that the role of RDS in managing group operations is not exceptional when compared to other multinationals in the industry, such as BP or Chevron. RDS has indeed adopted certain mandatory policies and guidelines, but their enforcement and implementation are left to the group companies. RDS sets general goals in the relevant areas for the subsidiaries and joint ventures, but it does not prescribe how individual entities should domesticate them in the local environment. In other words, RDS requires the group entities to have health and safety audits but the overall control over pipelines and related infrastructure rests with the subsidiaries such as SPDC. Lord Goldsmith QC has also spent some time contrasting the close involvement of Vedanta in the environmental performance of KCM from the relatively limited role played by RDS.
What about the human rights?
One question that has not been invoked either by the parties or the Supreme Court judges is the relevance of the emerging business and human rights standards for the tort litigation against parent companies and their subsidiaries in the national courts. Vedanta and Okpabi are essentially civil liability cases in which the cause of action is framed through the tort law concept of negligence rather than through international law on human rights. They are not explicitly labelled in human rights terms. The human rights violations committed by businesses are translated into the language of domestic tort law. Consequently, the claimants are not compelled to rely on the important international instruments promoting corporate respect for human rights, such as the UN Guiding Principles on Business and Human Rights, the OECD Guidelines for Multinational Enterprises, the UN Global Compact, etc.
The International Commission of Jurists (ICJ) and Corporate Responsibility (CORE) Coalition made a joint submission to the UK Supreme Court arguing that a well-established body of international and domestic standards in the business and human rights field as well as comparative law jurisprudence support the claimants’ case that RDS – at least arguably – owed them a duty of care. In 2019, CORE and ICJ made a similar intervention in the Vedanta case. During oral submissions in January 2019, Lord Wilson noted that this intervention “set out the general direction of travel” towards parent company liability. Unfortunately, the Supreme Court in Vedanta did not make any reference to this important submission in the final judgment, but it now has a second chance to reconsider the interveners’ arguments in Okpabi.
England as a proper forum for litigating business and human rights cases
Access to justice considerations have received only a sketchy attention from the parties in the court room, but they can prove to be decisive in the final judgment of the UK Supreme Court. Following Vedanta, the jurisdiction over an arguable claim against the parent company does not automatically resolve the issue of jurisdiction over the foreign subsidiary. Even if the Supreme Court finds that RDS owes an arguable duty of care to the Nigerian claimants, the outcome of the jurisdictional inquiry will depend on whether England is a proper forum for litigating the case. The English courts look at the balance of connecting factors to decide where the appropriate forum is. In Vedanta, the Supreme Court acknowledged that there is a real risk that substantial justice will be unobtainable in Zambia for the rural villagers who can’t secure funding locally to pursue complex proceedings.
In Okpabi, the claimants are also advancing an argument that access to justice is not available for them in Nigeria by virtue of the deficiencies in the legal system and delays in legal proceedings in Nigeria. It is not clear, however, to what extent the UK Supreme Court will be ready to make a comparative judgement about the efficiency of the legal system of another sovereign state and allow the case to proceed in the English courts. There are important policy considerations about international comity and political and economic interests of Nigeria in the dispute. Okpabi is a landmark judgement, and the UK Supreme Court is now in position to determine the future of tort litigation against UK-based multinationals in the English courts for overseas abuses around the world.