Disputes 2017: Mass tort claims

A key decision is expected on whether the English courts will accept jurisdiction for claims arising from alleged mass torts in developing nations.

In brief

  • The High Court is considering its jurisdiction to hear environmental tort claims against Shell and its Nigerian subsidiary, arising from the subsidiary’s Nigerian operations.

  • This represents a major test case; there is limited case law on the jurisdiction of English courts to hear claims against English parent companies relating to the alleged overseas acts of an overseas subsidiary.

  • The High Court’s decision on jurisdiction could lead to an increase in claims against English-headquartered multinationals relating to the operations of their overseas subsidiaries.

The jurisdiction applications

Two Nigerian communities have 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 are seeking 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 four day hearing starting on 21 November 2016.

The hearing centred on two key points of dispute: (i) the extent to which Royal Dutch Shell is responsible for the activities of its subsidiaries (such that it owes a duty of care to residents in the subsidiary’s sphere of operations); and (ii) the claimants’ access to justice in Nigeria.

The claimants allege that SPDC operated the pipelines under the close control and supervision of RDS and that RDS thereby owed a duty of care to those affected by SPDC’s operations. The claimants have complained that the Nigerian courts do not offer an effective remedy because, they allege, the procedure is protracted and the judiciary corrupt. The claimants have argued under the Rome II Regulation and the Private International Law (Miscellaneous Provisions) Act 1995 that England and Wales is the correct forum because:

  • this is the jurisdiction where RDS’s tortious acts occurred
  • this is the jurisdiction most closely connected with the torts committed by RDS, and
  • it would be contrary to public policy to apply the law of Nigeria to the claim against RDS if, as Shell argues, Nigerian legislation excludes any claim in tort against an English domiciled parent that knowingly and negligently permits its Nigerian subsidiary to cause environmental damage.

Shell wants the cases to be heard in Nigeria, and has argued that “allegations concerning Nigerian plaintiffs in dispute with a Nigerian company, over issues which took place in Nigeria, should be heard in Nigeria”. Shell has argued that Royal Dutch Shell is “an Anglo-Dutch-domiciled holding company without any employees” and a separate legal entity that should not be held liable for all the activities of more than 1,000 subsidiary companies worldwide.

Existing case law

The RDS litigation is by no means the first mass tort claim brought with a view to establishing jurisdiction in England for a claim against a parent company. In Cape v Chandler it was established that parent companies can owe a duty of care to the employees of their subsidiary companies, ie they may have a freestanding liability in tort arising out of their subsidiaries’ operations. However, there is no case law establishing an equivalent duty in respect of third parties.

In the ongoing case of Lungowe v Vedanta Resources PLC and Konkola Copper Mines PLC, 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. The claim against Vedanta was brought principally in negligence on the basis that Vedanta breached a duty of care which it was said to owe to the villagers.

In its jurisdiction challenge, Konkola argued that the case was fundamentally Zambian: the claimants were Zambian, the alleged damage occurred in Zambia and Zambian law applied to claim. The judge stated that were it not for the claim against Vedanta, the fundamental focus of the Konkola claim would be Zambia. However, due to the inclusion of the claim against Vedanta, England was an appropriate jurisdiction for hearing the claims.

Vedanta challenged the court’s jurisdiction on the basis that the claim against it was so weak that it did not raise a real issue to be tired; Vedanta also argued that the claim was primarily a device designed to bring the claim against Konkola before the English courts. The judge rejected these arguments. As to the existence of a duty of care owed by Vedanta, the judge held that it was not appropriate to consider the merits in any detail, so long as the claim was arguable in English law. At the same time, the judge conceded that the claimants would struggle to establish the factors established in Chandler v Cape. This case suggests that a low threshold may be applied when determining the court’s jurisdiction in respect of RDS.

The Dutch case of Akpan v Royal Dutch Shell and Shell Petroleum Development Company of Nigeria, Ltd, (2013) LJN BY9854 (Netherlands) shows that the English courts are not alone in accepting jurisdiction for these types of claims. In that case, the plaintiffs commenced proceedings against SPDC and RDS for two oil spills in the District Court of the Hague, which upheld jurisdiction for both entities despite finding that no duty of care was owed by RDS to the plaintiffs. The court’s reasoning was that it was foreseeable for RDS and SPDC that they might be sued in the Dutch courts in connection with liability for the oil spills. The court discussed the ruling of the European Court of Justice (ECJ) in Painer (C-145/10) in which the ECJ found that what matters for allocation of jurisdiction is whether the defendants could foresee that they might be sued in the Member State where at least one of them was domiciled. This ruling, together with Akpan, suggests that EU domestic courts may become more receptive to claims of this nature.

What it means for you

A decision on the jurisdiction applications in the RDS litigation is expected within the next few months. The 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. At present, most of these cases have been settled before a judicial decision. Accordingly, the court’s decision could determine the future of this trend.

If jurisdiction is upheld, this may lead to an increase in parent companies being sued in the English courts for the acts of their overseas subsidiaries. However, the popularity of the English courts will also depend on how the claims are treated once they are considered on their merits, and particularly the liability of parent companies for the actions of overseas subsidiaries. In the Akpan case in the Netherlands the court applied English law principles on parent liability (adopted under Nigerian law). The court considered the relationship between the parent and the claimants too remote to establish a duty of care, since the parent was generally concerned with global strategy and would not have had greater knowledge than its subsidiary about the specific risks of operations in Nigeria. If the English courts restrain any expansion of the principle in Chandler v Cape, any increase in mass tort claims could be short lived.

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.