Court declines jurisdiction over Nigerian mass tort claim

​A much awaited court decision on jurisdiction signals difficulties for claims against UK parent companies over the actions of their subsidiaries.

In brief

  • In Okpabi and others v Royal Dutch Shell plc and another the High Court has declined jurisdiction to hear environmental tort claims against Shell and its Nigerian subsidiary, arising from the subsidiary’s Nigerian operations.
  • This was seen as a major test case; there is limited case law on the jurisdiction of the English courts to hear claims against English parent companies relating to the alleged overseas acts of an overseas subsidiary.
  • The case is a helpful statement of the circumstances in which a parent company will owe a duty of care for the operations of its subsidiary.

The jurisdiction applications

Two Nigerian communities commenced separate High Court proceedings against Royal Dutch Shell PLC (RDS) and its Nigerian subsidiary, Shell Petroleum Development Company of Nigeria Ltd (SPDC), a joint venture with Nigerian shareholders and the Nigerian government. The Ogale and Bille communities sought damages and remedial works in respect of oil spills from SPDC-operated pipelines.

RDS and SPDC made applications to dispute the jurisdiction of the court in respect of both claims. The court heard these jurisdiction applications together during a three day hearing starting on 22 November 2016.

The court’s approach

Fraser J stated that the gateway for service out of the jurisdiction under paragraph 3.1(3) of CPR Practice Direction 6B requires that the court consider the merits and reasonableness of the claim against the English anchor defendant as well as whether the additional foreign defendant is a “necessary or proper party” to the claim against the anchor defendant. Fraser J said that the correct approach to determining jurisdiction in these circumstances is to examine the nature of the claim which arises against the anchor defendant in isolation (ie on the assumption that there will be no additional joinder of a foreign defendant).

The parties agreed that the claims against SPDC were governed by Nigerian law, but the position regarding claims against RDS was less clear. The parties’ experts agreed that on the issue of parent liability Nigerian law would largely follow English law. On this basis, Fraser J stated that it was unnecessary to determine applicable law at this stage of the proceedings since if there was no arguable duty of care on the part of RDS to the claimants under English law there would be no cause of action under Nigerian law. The parties agreed that if Fraser J’s judgment was such that there was no arguable duty of care on the part of RDS, this would mean there would be no anchor defendant and SPDC’s applications challenging jurisdiction would succeed. Accordingly, the determination that no duty of care was owed by RDS was dispositive of the applications.

Fraser J considered the relevant case law, in particular Caparo v DickmanChandler v Cape and Lungowe v Vedanta. Vedanta is a recent, ongoing case in which the High Court rejected jurisdiction challenges by a UK parent (Vedanta) and its Zambian subsidiary (Konkola) concerning group claims brought by 1,826 Zambian villagers in respect of alleged environmental pollution. Fraser J confirmed Coulson J’s statement of the relevant law in Vedanta as follows:

  • In order to establish a duty of care the claimants need to satisfy the three-part test in Caparo v Dickman (foreseeability, proximity and reasonableness).
  • Depending on the facts, a parent company may be liable for the operations of its subsidiary. Chandler v Cape provides four descriptive factors that may indicate the presence of a duty of care owed by the parent company, which are relevant to the proximity and reasonableness limbs of the Caparo test.
  • Such a claim is more likely to succeed if advanced by former employees, but claims made by residents are still arguable (eg Lubbe v Cape).

Fraser J added an additional consideration to the above. Following the Court of Appeal in Thompson v The Renwick Group Plc, he stated that when determining the existence of a duty of care “the purpose of the enquiry is to see whether “the parent company is better placed, because of its superior knowledge or expertise” than the subsidiary is in respect of the harm, and “moreover where, because of that feature, it is fair to infer that the subsidiary will rely upon the parent deploying its superior knowledge” in order to avoid the harm”. Fraser J clarified that this gives rise to a two-fold sequential approach when applying the test and guidelines set out in Caparo v Dickman and Chandler v Cape.

The issues

Fraser J decided that limbs 2 (proximity) and 3 (reasonableness) of the Caparo test were not made out. This was because RDS is a separate and distinct legal entity that does not supervise the operations of SPDC. RDS does not conduct any operations. As a holding company with no employees RDS merely holds shares in its subsidiaries in the manner of an investment company. In contrast, the evidence showed that SPDC had specialist knowledge and experience regarding its Nigerian operations. Under Nigerian law SPDC was the only Shell entity licensed to operate in Nigeria, where the statutory framework prohibits non-licensed companies (ie RDS) from operating. This statutory framework also meant that SPDC had strict liability for the oil spills.

Given these circumstances the factors identified in Chandler v Cape were not present:

  • The businesses of RDS and SPDC were not, in any relevant respect, the same
  • SPDC had the specialist knowledge and expertise in respect of Nigerian operations
  • RDS did not have more than superficial knowledge of or control over SPDC’s operations, and
  • RDS could not be expected to know that SPDC was relying on its expertise to protect the claimants.

Fraser J concluded that there was no arguable duty of care on the part of RDS to the claimants under English law, such that there was no real issue to be tried.

Access to justice

The submissions had also focused on the issue of access to justice in Nigeria. Although the findings on parent liability were dispositive, Fraser J expressed his views on this point with a focus on funding. In Vedanta, Coulson J stated obiter that there was "clear and cogent evidence" that the claimants would not obtain access to justice in Zambia, mainly because the claimants were impecunious and there was no funding available the Zambian claimants to access justice. However, Fraser J considered that there was not an equivalent access to justice issue in Nigeria, since CFAs are permitted and available in Nigeria. Fraser J was reluctant to accept the claimants’ arguments that the inefficiency of the Nigerian courts raised further access to justice issues, as he considered delay commonplace in many overseas legal systems.

What it means for you

The Shell claims are part of an increasing trend of parties seeking to hold multi-national companies liable for the conduct of their foreign subsidiaries in developing countries. Most of these cases have been settled before a judicial decision. The court’s decision in this case might discourage this trend from developing in the future.

It is also important to note that this was an individual decision based on particular facts. It remains possible that the courts will expand the principle in Chandler v Cape, such that a duty of care is imposed on a parent company for the acts of its subsidiaries in respect of third parties. Indeed, the position is by no means final. The claimants have indicated their intention to appeal the court’s decision, while the Vedanta decision is listed for appeal in July 2017.

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This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.