Communities in Rivers State, Nigeria, sued Royal Dutch Shell Plc in England over oil spills from pipelines operated by its Nigerian subsidiary, and sought to join that subsidiary to the claim. The Supreme Court held that they had an arguable case that the UK parent owed them a duty of care, so the claim should not have been stopped at the jurisdiction stage. The Court did not decide whether any duty was in fact owed or broken.
The communities and the companies
The Ogale and Bille claims concerned people in Rivers State, Nigeria. They alleged that oil spills from pipelines and associated infrastructure polluted the water and land on which their communities depended.
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The Nigerian operating company, SPDC, was a subsidiary of UK-domiciled Royal Dutch Shell (RDS). The claimants sued both. Their case against RDS concerned the parent’s own involvement in the management of pipeline operations. English and Nigerian law were treated as materially the same on that issue.
Why the claim was brought in England
The claim forms, issued in October and December 2015, were served on RDS because it is domiciled in the jurisdiction. To serve SPDC abroad, the claimants needed permission under the “necessary or proper party” gateway in paragraph 3.1(3) of Practice Direction 6B. That required a real issue to be tried against RDS, the anchor defendant: a real prospect of success, the summary-judgment test. The pleaded case was that RDS exercised significant control over material aspects of SPDC’s operations, or assumed responsibility for them, including by imposing mandatory health, safety and environmental policies, standards and manuals which failed to protect the claimants from foreseeable harm.
In the courts below the argument had centred on the Caparo test, particularly proximity and whether a duty would be fair, just and reasonable. The Supreme Court had since decided Lungowe v Vedanta Resources plc. Lord Hamblen explained that Vedanta shows parent-company liability is not a separate category of negligence. It depends on the extent to which, and the way in which, the parent took the opportunity to take over, intervene in, control, supervise or advise the management of the subsidiary’s relevant operations. The claimants recast their case under four Vedanta headings: taking over or jointly managing the activity; issuing defective group-wide policies or advice which the subsidiary implemented as a matter of course; issuing such policies and actively securing their implementation; and holding itself out as exercising a particular degree of supervision and control. Those headings were convenient labels, not special legal tests.
What the courts below decided
The High Court set aside permission to serve SPDC outside the jurisdiction and struck out the claims against RDS. It considered the duty unarguable. Other objections, including whether England was the appropriate forum, were left undecided.
The Court of Appeal held that Fraser J had gone wrong in his treatment of the evidence, including by excluding material from before the group’s 2005 restructuring and by discounting publicly available corporate documents produced for listing obligations. It reviewed the evidence itself. Simon LJ and Sir Geoffrey Vos, the Chancellor, still held that there was no arguable duty. They treated mandatory group standards as high-level guidance rather than control of SPDC’s operations, and were concerned that a duty could create indeterminate liability. Sales LJ dissented. He considered there was a good arguable case of practical or joint control, and a real possibility that disclosure would support it.
The Court of Appeal conducted a mini-trial
Lord Hamblen, with whom Lord Hodge, Lady Black and Lord Briggs agreed, held that the Court of Appeal had materially erred in the procedure for deciding whether the claim was arguable. Where particulars of claim exist, the question is whether the cause of action has a real prospect of success if the facts alleged are true. Those facts should be accepted unless they are demonstrably untrue or unsupportable. The court should not hold a mini-trial, weigh contested evidence, or make findings without disclosure and cross-examination.
The courts below had assessed the weight of disputed evidence about how the group operated. Witnesses had not been cross-examined and the claimants did not yet have the parent company’s internal documents. At this stage evidence pointing to documents that might change the picture should not have been discounted.
The claimants identified particular material they expected disclosure to reveal. Two internal frameworks had already emerged which went beyond what the parent’s witnesses had addressed. There were reasonable grounds to believe further disclosure might materially affect the assessment.
The legal approach, viewed after Vedanta
The procedural error was enough, so Lord Hamblen did not decide whether other errors affected the result. He did identify respects in which the Court of Appeal’s approach did not fit the later guidance in Vedanta. Group-wide policies are not incapable of giving rise to a duty: they may contain systemic errors which cause harm when implemented as a matter of course. Control is a starting point, not the whole question. A parent may share or take over management of an activity even though the subsidiary remains legally in control, and may incur responsibility by publicly holding itself out as supervising the subsidiary. There is no presumption against a duty merely because a parent has created subsidiaries or because the group is large. This was not a novel category requiring the Caparo three-stage test and an extra level of analysis.
Why there was a real issue to be tried
Lord Hamblen held that the pleaded facts had not been shown to be demonstrably untrue or unsupportable. Together with the two RDS control frameworks, they raised a real issue to be tried on the first and third headings: taking over or jointly managing the relevant activity, and promulgating group-wide policies while taking active steps to secure implementation. He did not rule on the other two headings, because the pleading had not been built around them, and no systemic errors in the policies had yet been pleaded.
The group’s organisation was significant. Shell is organised on Business and Function lines as well as by legal entity. Formal decisions are taken by the relevant company, but organisational approval, given through the Business or Function line, generally comes first. The chief executive and Executive Committee have responsibilities which include the safe and environmentally responsible operation of Shell’s facilities and assets. The claimants said this vertical structure was comparable to a group managed as a single undertaking. How it worked in practice, and how far RDS and its senior organs were involved in SPDC’s decisions, was disputed and required disclosure. Lord Hamblen preferred Sales LJ’s analysis to that of the majority.
Verdict: The Supreme Court allowed the appeal. The pleaded case raised a real issue for trial about RDS’s management of the operations or its role in implementing group policies. Liability was not decided. Any outstanding jurisdictional objections maintained by the defendants would have to be remitted.
Source: Okpabi and others v Royal Dutch Shell Plc and another [2021] UKSC 3
