The UK Supreme Court has unanimously overturned both the Court of Appeal and the High Court in permitting a claim brought on behalf of over 40,000 individuals living in Rivers State, Nigeria against Royal Dutch Shell Plc and its Nigerian subsidiary for significant environmental and economic damage. The claims will now proceed to full trial in the High Court.
This is an important judgment both for multi-national corporations and for potential claimant groups in the following respects:
the Court clarified how a jurisdictional challenge should be conducted by the parties and also evaluated by the Court – the question is only whether the Claimants have established an arguable case. The Court was critical of both the first instance judge and the majority in the Court of Appeal of conducting a "mini trial" of the evidence at this early stage without having had the benefit of cross examination and full disclosure; and
the case is also the first to be heard by the Court on the question of duties of care owed by UK domiciled parent companies for the actions of its foreign subsidiary since 2019's seminal judgment in Lungowe v Vedanta Resources plc  UKSC 20. Lord Hamblen, who gave the unanimous judgment, supported much of Lord Briggs' findings in Vedanta including that whether there is a duty of care upon the parent is a "pure question of fact".
The judgment appears to suggest that it will only be in the more speculative claims where a court can dispose of the issues at a summary stage. This may encourage Claimant groups because they may be more likely to be able to take the claim to the stage of full disclosure and witness evidence, something that multinational corporates are unlikely to want to happen in an open court.
The Claimants (approximately 40,000 members of the Ogale farming and fishing community and 2,335 individuals who live in the Bille Kingdom in Rivers State, Nigeria) allege that numerous oil spills have occurred from oil pipelines and associated infrastructure operated in the vicinity of the Claimants' communities. These oil spills are said to have caused (and continue to cause) widespread environmental damage, including serious water and ground contamination, and have rendered natural water sources in the region unusable.
The Claimants allege that the oil spills were caused by the negligence of the Nigerian subsidiary of Royal Dutch Shell Plc (Shell), the Shell Petroleum Development Company of Nigeria Limited (SPDC), which operated the pipelines and infrastructure on behalf of a joint venture between it, the state-owned Nigerian National Petroleum Corporation, Total E&P Nigeria Ltd and Nigerian Agip Oil Company.
The Claimants issued proceedings in the English Courts in 2016 against Shell on the basis that it owed them a common law duty of care, and simultaneously sought permission to serve the claim on SPDC out of the jurisdiction. Permission was initially granted by the High Court, and then challenged by SPDC leading to a hearing before Mr Justice Fraser. Fraser J delivered judgment in January 2017 in which he held that whilst the Court did have jurisdiction to hear the claims against Shell, no reasonably arguable case had been put forward by the Claimants.
The Claimants appealed and the Court of Appeal issued a majority judgment (Simon LJ and Chancellor Vos, with Sales LJ (as he then was) dissenting) upholding the High Court's decision in February 2018. Permission to appeal to the Supreme Court was given but only after the Supreme Court's hearing of Vedanta. The Supreme Court eventually heard the case in June 2020.
The approach to jurisdictional challenges
The Supreme Court was very critical of the way in which the case had been conducted in the lower courts. In giving the leading judgment, Lord Hamblen referred to the fact that the parties chose to "swamp the court with evidence", including between the High Court and Court of Appeal proceedings. The fact that the Claimants also "chose not to update their pleadings to reflect the evidence" made things very difficult for Fraser J and the Court of Appeal panel.
The difficulties created by the parties meant that instead of evaluating the question of whether the Claimants had an arguable case, Fraser J "did conduct a mini-trial". He was drawn into an analysis of the evidence and "an exercise of judgment based on that evidence". Lord Hamblen was definitive that "this is not the task at this interlocutory stage".
Lord Hamblen was equally disapproving of the approach taken by Simon LJ and the Chancellor. In re-opening Fraser J's conclusions, Simon LJ and the Chancellor were themselves "drawn into an evidential inquiry" which led to the Court of Appeal: (i) making determinations in relation to contested factual evidence without the benefit of cross-examination which was "not appropriate on an interlocutory application"; and (ii) making assumptions that there was no prospect of further relevant evidence being uncovered during the disclosure process. This led to the Court of Appeal "proceeding to a summary determination on the basis of the appellants having access only to two internal corporate documents".
Parent company liability
Having established that the Court of Appeal had made an error in law in the way in which it had evaluated the case at this jurisdictional stage, Lord Hamblen also considered, obiter, whether the Court of Appeal had also erred in its analysis of the principles of parent company liability and/or whether it had erred in focussing inappropriately on whether Shell had the requisite level of "control" over the actions of SPDC. In doing this, Lord Hamblen held that the Claimants had established that there was a real issue to be tried as to whether RDS had "taken over the management or joint management of the relevant activity of SPDC" and whether RDS had "promulgated group-wide safety / environmental policies and taking active steps to ensure their implementation by SPDC". The following observations made by Lord Hamblen are particularly noteworthy:
- The issuance of "group wide policies or standards" can in certain circumstances be sufficient to give rise to a duty of care. As Lord Briggs held in Vedanta: "[g]roup guidelines…may be shown to contain systemic errors which, when implemented as of course by a particular subsidiary, then case harm to third parties".
- Whether the parent "controls" the subsidiary is not determinative of whether a duty of care arises. The key question is "the extent to which the parent did take over or share with the subsidiary the management of the relevant activity (here the pipeline operation)" (our emphasis). It is therefore possible that the parent and subsidiary typically operate very separately but then on a specific project operate such that they share the management responsibilities. In that case a duty of care upon the parent may arise notwithstanding its typically separate status.
- Repeating the Lord Briggs doctrine in Vedanta that there was no distinct category of liability for common law negligence for a parent for the actions of its subsidiary, Lord Hamblen found that the Court of Appeal was incorrect to approach the question of Shell's liability by reference to the threefold test (foreseeability; proximity; fair, just and reasonable) in Caparo Industries plc v Dickman  2 AC 605.
- As regards Shell's corporate structure, Lord Hamblen adopted the conclusions of Sales LJ (the dissenting judge in the Court of Appeal) where he pointed out that "it is of significance that the Shell group is organised along Business and Functional lines rather than simply according to corporate status". Lord Hamblen then observed the "wide range of responsibilities" held by the CEO and the RDS Executive Committee which included, as stated in the Shell Control Framework (an internal Shell document) "the safe condition and environmentally responsible operation of Shell's facilities and assets". The question of how Shell's organisational structure works in practice was very much in dispute and one to which "proper disclosure is of obvious importance".
Why is the judgment important?
Lord Hamblen's judgment is helpful because it upholds in full the Supreme Court's decision in Vedanta, reiterating that the question of whether a parent company owes a duty of care to third parties affected by the actions of its subsidiary is one which is a pure question of fact, the analysis for which will differ in each case. This suggests that save for in the more speculative cases (e.g. such as the claim brought by the victims of the Mariana Dam collapse in Brazil against BHP Biliton which was thrown out at the jurisdictional stage in 2020) will require a full trial with witness evidence and disclosure in order for the court to be in a position to evaluate whether in fact a duty of care exists. This has implications for multinationals who may not relish the thought of a thorough examination of their internal corporate structures and operational mechanics to be aired publicly in a court.
Potential claimant groups, on the other hand, may be encouraged because this judgment seems to close the door a little more on the potential jurisdictional escape route for corporates faced with such a claim.