The United Kingdom Supreme Court (UKSC) today released its much anticipated judgment in Okpabi v Royal Dutch Shell Plc, unanimously overturning the Court of Appeal’s previous finding that the English courts did not have jurisdiction over a claim against Royal Dutch Shell Plc (Shell) and its Nigerian subsidiary, Shell Petroleum Development Company of Nigeria Ltd (SPDC).
Relying heavily on its decision in Vedanta Resources v Lungowe in 2019, the UKSC considered that the courts below erred in law and established that there was a real issue to be tried, paving the way for the claim to proceed in the lower courts.
Factual and Procedural Background
The claimants alleged that Shell owed a duty of care to them which arose as a result of Shell’s purported knowledge and control over SPDC’s operations. Shell sought to strike out both claims on the basis that the English Court had no jurisdiction to hear the case, in particular on the grounds that the particular relationship between Shell and SPDC did not allow for a duty of care to arise. This was accepted by the High Court, and then by the Court of Appeal.
The Court of Appeal, prior to handing down its decision in Okpabi, had previously held in Vedanta that it was conceptually possible for a UK-domiciled parent company to owe a duty to overseas claimants, including for environmental damage caused by the foreign subsidiary. The decision in Okpabi therefore turned on the specific facts of the case against Shell.
In the interim, the Vedanta decision was appealed to the UKSC. In a landmark judgment, the Supreme Court upheld the Court of Appeal’s decision and emphasised that the law of negligence did not recognise a distinct category of parent company liability for its subsidiaries. Rather, the question of whether a duty of care arose depended on the extent and way in which a parent availed itself of the opportunity to take over, intervene, control, supervise or advise the management of a subsidiary. Following the UKSC’s clarification of the law in this area, the claimants in Okpabi v Shell were granted permission to appeal. The hearing was held in June 2020.
Supreme Court decision
At its core, the Supreme Court was keen to emphasise that the proceedings were jurisdiction proceedings and the claim was still at an interlocutory stage. Instead of applying the relevant legal test to dispose of the jurisdictional challenge, both the High Court judge and Court of Appeal erred by being drawn into making findings on factual matters, and in effect conducting a mini-trial. The factual disputes between the parties should have been appropriately dealt with at trial, and there was no need for the courts below to weigh in on these issues, particularly in the absence of cross-examination.
In particular, the UKSC found the Court of Appeal had erred by not considering the potential importance of future disclosure of internal company documents, which were likely to be material. Indeed the Supreme Court considered such documents to be of “obvious importance” to these sorts of claims, underscoring the importance of a company’s internal policies and procedures may play in proceedings of this nature and the need for early consideration of ESG risks.
This ground alone was a sufficient error of law to determine the appeal, although the Court also commented on other errors of law made by the lower courts, finding that:
(a) it was inconsistent with Vedanta to suggest that a duty of care could not arise through a parent company issuing group-wide policies or standards;
(b) the exercise of “control” by a parent company over a subsidiary is merely a starting point when applying the Vedanta test and not an overriding factor;
(c) the “parent-subsidiary” relationship does not fall within a special category of liability in the law of tort; and
(d) in that regard, there is no need to apply the tripartite Caparo test, as the liability of parent companies to their subsidiaries is not a “novel” category of liability in common law negligence.
The Court referred to four possible “Vedanta routes” to parent company liability, as identified by the claimants, although reiterated its statement in Vedanta that there was no “special or separate parent/subsidiary duty of care tests” and that these categories were not to be treated as definitive:
- Shell taking over the management or joint management of the relevant activity of SPDC;
- Shell providing defective advice and/or promulgating defective group-wide
safety/environmental policies which were implemented as of course by SPDC;
- Shell promulgating group-wide safety/environmental policies and taking active steps to ensure their implementation by SPDC; and
- Shell holding out that it exercises a particular degree of supervision and control of SPDC.
The Court held that there was a real issue to be tried in respect of categories (1) and (3), declining to make a finding in respect of the other categories. In that regard the Court preferred the dissenting conclusions of Sales LJ, who had been in the minority in the Court of Appeal, who had observed that the vertical business structure of Shell (which the claimants contended showed the businesses were managed as a single commercial undertaking) were at least capable of establishing a duty of care, such a matter to be determined at trial.
The Okpabi decision may well reinforce the perception of England as an attractive forum for bringing claims against parent companies or similar entities. It should be noted that the principles the Supreme Court first established in Vedanta are wide-ranging; indeed, an “equity relationship” is not necessary for liability to arise. Beyond the parent-subsidiary relationship, in principle it is possible that policies or public statements in non-equity business relationships, for instance in the context of a supply chain, could give rise to a duty of care for a business to take measures to prevent human rights impacts in the context of that business relationship. However, prospective claimants should be cognisant of the long-drawn nature of such claims before the English courts - the Court in Okpabi hints that possible further jurisdictional challenges may still be forthcoming in the lower court, and even in the seminal case of Vedanta, the claimants have opted to reach a settlement in lieu of continuing with what would likely have been lengthy substantive proceedings in the English courts.
The UKSC’s approach in this area re-emphasises the need for business to proactively comply with the UN Guiding Principles on Business and Human Rights and other international ESG standards. Alongside the recent decisions in the Netherlands relying on Vedanta to make similar findings of parent company liability against Shell’s Dutch arm, and with the prospect of mandatory human rights due diligence laws coming into force in Europe and elsewhere, similar claims look set to continue.
