Parent company liability – the UK Supreme Court clarifies approach to jurisdictional challenges

On 12 February 2021, the UK Supreme Court handed down its decision in Okpabi v Royal Dutch Shell Plc in favour of the claimants, allowing their claims relating to environmental damage in Nigeria allegedly caused by a Nigerian joint venture, operated by a Nigerian subsidiary (SPDC) of Royal Dutch Shell plc (RDS), to proceed against RDS in the English courts. The claim alleges that RDS owes a duty of care to individuals affected by the acts of SPDC (see our blog post on the Court of Appeal’s decision for additional detail on the factual background).

The key takeaways from the judgment are as follows.

• The Supreme Court reiterated, with some additional guidance, the principles established in Lungowe v Vedanta Resources Plc regarding when such a duty of care might be owed by parent companies under English law (see our blog post on Vedanta).
• It also emphasised the importance of proportionality when assessing the question of whether the English court has jurisdiction, ruling it inappropriate to hold a 'mini-trial' on contested factual issues. Instead, when determining the key question of whether there is a real prospect of success, the court should assume the facts are as alleged in the particulars of claim 'unless, exceptionally, they are demonstrably untrue or unsupportable'.
• As such, this decision is likely to make it more difficult for parent companies to rely on the 'no real prospect of success' strand of argument when challenging the jurisdiction of the English courts.

When might a duty of care arise?

The claimants argued that a duty of care arose on RDS’s part through four specific ‘routes’, framed by reference to the criteria set out in Vedanta:

1. RDS taking over the management or joint management of the relevant activity of SPDC;
2. RDS providing defective advice and/or promulgating defective groupwide safety/environmental policies which were implemented as of course by SPDC;
3. RDS promulgating group-wide safety/environmental policies and taking active steps to ensure their implementation by SPDC; and/or
4. RDS holding out that it exercises a particular degree of supervision and control of SPDC.

In its decision, the Supreme Court took the opportunity to reiterate the principles established in Vedanta (which was heard after the Court of Appeal’s judgment in Okpabi was handed down). The Supreme Court again emphasised that the question of whether a parent company owes a duty of care under English law should be determined on the general principles of tort law rather than as a distinct category of common law negligence – there is nothing 'special or conclusive' about the parent/subsidiary relationship. Rather, it is a question of the extent to which the parent 'availed itself of the opportunity to take over, intervene in, control, supervise or advise the management of the relevant operations… of the subsidiary'.

Although the Court was not required to determine whether, in fact, a duty was owed (that issue would fall to be determined at trial), it held that there was a real issue to be tried on routes (1) and (3) above, which was enough for the purposes of the appeal against the previous decision to refuse jurisdiction.

The pleaded facts that the court took into account in reaching that conclusion included:

• RDS’s promulgation of extensive and detailed mandatory policies, standards and technical requirements;
• RDS’s monitoring of its subsidiary’s compliance with those policies, standards and requirements;
• RDS’s organising of the Shell Group along ‘Business’ and ‘Function’ lines (rather than legal entities), with those lines directly accountable to RDS’s executive committee;
• RDS’s CEO and executive committee having overall responsibility for implementing health and safety standards and social performance for its subsidiaries;
• the linking of RDS’s executive remuneration scheme to the sustainable development performance of SPDC; and
• RDS’s involvement in responses to emergency oil spills and superior knowledge and experience in the area. 

Although significant uncertainty remains as to the precise circumstances in which a duty of care will exist, these elements provide useful guidance on the factors that courts may take into account when considering these questions in future.

A proportionate approach to these questions 

The Supreme Court picked up where it left off in Vedanta by stressing the need for judicial restraint and to avoid 'mini-trials' when dealing with jurisdictional challenges. In doing so, it criticised the Court of Appeal for conducting such a detailed factual enquiry on an interlocutory application.  

When considering whether there is a real issue to be tried, the test should be the same as the test for summary judgment, ie whether the claim has a real prospect of success. In turn that issue should be considered on the basis that the facts as alleged are true unless they are 'demonstrably untrue or unsupportable', adding that it would generally not be appropriate for a defendant to dispute the facts alleged through evidence of its own.

Comment

Building on Vedanta, this judgment provides further examples of fact patterns which are capable of giving rise to an arguable duty of care on the part of a parent company under English law. It stops short of engaging in a forensic analysis of whether a duty actually existed, because such an assessment is not necessary at the jurisdictional stage.

Like Vedanta and other cases before it, the judgment brings into sharp focus the issues which multinational enterprises face when developing their management structures, group-wide policies and practices and weighing potential litigation risk. 

These issues are also very relevant in other jurisdictions; only last month the Dutch Court of Appeal held that RDS owed a similar duty of care to those impacted by separate oil spills in the Niger Delta (see our blog post on that decision).

The Supreme Court’s decision arguably reduces the ability of UK domiciled parent companies to challenge jurisdiction on the basis of the 'no reasonable cause of action' strand of argument (although the matter will remain highly fact-specific in each case). 

It is important to note, however, there remain other potential arguments available to defendants facing such claims (including that the claims constitute an abuse of process, and/or that, post-Brexit, there is a greater scope for the English courts to apply the forum non conveniens doctrine). 

It is also the case, of course, that the law applicable to determining whether a duty of care exists on the part of a parent company will typically be the law of the place where the damage is alleged to have occurred. It is only in certain cases, such as the Okpabi matter, where that law will effectively be treated as English law.