Sins of our Subsidiaries – Okpabi v Shell: parent company liability for actions of foreign subsidiaries
On 12 February 2021, the Supreme Court handed down its judgment on jurisdiction in the case of Okpabi and others v Royal Dutch Shell Plc and another  UKSC 3. This is an important decision procedurally: the Court ruled that oil-polluted Nigerian communities can sue Shell in the English courts in spite of it being Shell’s subsidiary that carried out operations in Nigeria.
This is not yet a victory, save in a crucial procedural sense. We are yet to have the substantive trial. But after a five-year legal battle, the decision is confirmation for communities, like Nigeria’s Ogale and Bille communities, that their claims against a British parent company for the actions of a subsidiary in Nigeria can proceed in the English courts – they are not constrained to seek remedy only in their local courts, and they can properly join the parent company to the proceedings against the subsidiary.
In 2015, a group of over 40,000 citizens of Ogale and Bille brought claims in the English courts against the UK company, Royal Dutch Shell, and its Nigerian subsidiary, the Shell Petroleum Development Company of Nigeria Limited (SPDC), including allegations that:
— Decades of pollution caused by repeated oil spills and leaking pipes through RDS’ negligence, severely affected the communities’ lives, health and local environment.
— There was inadequate cleaning and/or remediation.
— The UK parent company, RDS, owed them a duty of care because it exercised significant control over material aspects of SPDC’s operations and/or assumed responsibility for the same.
RDS did not dispute that pollution had been caused but did argue (amongst other things) that:
— It was a mere holding company for a firm that should be judged under Nigerian law, who have a better understanding of the local environment.
— It could not be responsible for its Nigerian subsidiary and/or environmental pollution caused by third-party acts of theft, sabotage and pipeline interference or failure to enforce and implement health and safety audits.
— While it had mandatory policies and guidelines in place, its enforcement and implementation, including health and safety risk assessments and audits were left to its subsidiaries.
What does the judgment say?
The Supreme Court agreed that the cases brought by the Billie and Ogale communities presented a “triable issue” and could proceed in the English courts.
That is a low bar. A duty on the parent has not yet been found as existing or, if so, breached. What has been held is limited to being that the claimant’s pleaded case presents an arguable case. The winner of that argument is still unknown.
In relation to the duty of care issue in particular, the Supreme Court relied on the judgment and reasoning in an earlier landmark case on jurisdiction testing similar issues: Vedanta Resources Plc and another v Lungowe and others  UKSC 20. This case related to alleged acts of environmental damage in Zambia associated with a copper mine. Whilst there is no special test applicable to the tortious responsibility of a parent company for the activities of its subsidiaries, the Supreme Court considered the so-called “Vedanta Routes” to show the claimant’s pleaded case as showing a triable issue on the duty of care point, on basis of the parent company (allegedly, it bears repeating…):
1. Taking over management or joint management of the relevant activity;
2. Providing defective safety / environmental advice or policies which were implemented as a matter of course by the subsidiary;
3. Promulgating group-wide safety/environmental policies and taking active steps to ensure their success; and
4. Holding out that a particular degree of supervision and control is exercised over the subsidiary.
Those watching this space will doubtless be familiar with the Vedanta decision. That case also has not yet gone to full trial. Regardless, this decision along with Vedanta may force other UK multinational companies to rethink how they operate abroad, and how they control and manage the activities of their subsidiaries. A UK parent being potentially accountable for acts and omissions of overseas subsidiaries in high risk developing countries is likely to ring alarm bells for UK directors. Care therefore needs to be taken over corporate governance issues and whether, and to what extent, a parent company actually takes over, intervenes, controls or advises the management of subsidiaries. You cannot ring fence risk by corporate structure alone; management practices that cross parent/subsidiary company lines will potentially blur those lines when looking at duty of care issues.
There is nothing to limit the principles in either Okpabi or Vedanta to the Energy and Mining sectors. Along with a continuing global focus on environmental issues, this decision may also see the floodgates, if not opened then at least re-examined, in relation to overseas claimants seeking redress from UK parent companies in respect of loss and damage caused overseas by their foreign subsidiaries across the full spectrum of activities and sectors.
Oil and Gas Lead, Euan Palmer, joined the Disputes team in June 2020 and specialises in advising oil and gas companies on contentious and non-contentious issues. He has significant experience in drilling disputes in Nigeria and Nigerian law, as well as many other countries. If you would like to discuss any issues discussed in this update, please do get in touch.
This update is for general purposes and guidance only and does not constitute legal or professional advice. You should seek legal advice before relying on its content. This update relates to the prevailing circumstances at the date of its original publication and may not have been updated to reflect subsequent developments. If you have general queries about our updates, please email: firstname.lastname@example.org