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Supreme Court gives judgment addressing liability of parent companies for damage caused by subsidiaries

Okpabi & Ors v Royal Dutch Shell Plc & Anor [2021] UKSC 3

Related Member(s):
Edward Craven
Related Practice Area(s):
Public and Private International Law
Court:

The appellants appealed against the Court of Appeal’s majority decision that there was no arguable case that the first respondent (R1), a UK company, owed them a duty of care in relation to damage caused by oil spills along the Nigerian coastline.

The spills caused widespread environmental damage and contamination. According to the appellants, they were caused by the negligence of the second respondent (R2), a Nigerian company which operated the pipeline and infrastructure. R2 was a subsidiary of R1. The appellants brought proceedings, claiming that R1 owed them a duty of care because it exercised significant control, or assumed responsibility, over material aspects of R2’s operations and had failed to protect them from the risk of foreseeable harm arising from them.

The High Court set aside the claims against R1 as having no real prospect of success.

In the Court of Appeal, the majority upheld the High Court’s decision that the appellants had failed to show an arguable case that they would establish at trial a sufficient proximity in the relationship between the parties to demonstrate that R1 owed them a duty of care. Sales LJ dissented, considering that it was at least arguable that R1 directed R2 in relation to important aspects of its management of the pipeline, specifically in relation to controlling the risk of oil spills, and that the appellants were in a proximate relationship with whoever controlled those operations.

Permission to appeal to the Supreme Court was granted in the light of Vedanta Resources Plc v Lungowe [2019] UKSC 20, in which it was held that the existence of a duty of care in the parent/subsidiary context depended on the extent to which the parent controlled or supervised the subsidiary’s operations.

HELD: Appeal allowed. Where permission for service out of the jurisdiction was sought, the analytical focus should be on the particulars of claim and any supporting witness statement and whether, on the basis that the facts alleged were true, the asserted cause of action had a real prospect of success.

The Court of Appeal materially erred in law in that it was drawn into conducting a mini-trial which led it to the adoption of an inappropriate approach to the contested factual issues and to the documentary evidence. In relation to the contested factual issues, the majority of the Court of Appeal preferred and accepted the evidence of various RDS witnesses, notwithstanding the fact that there had been no opportunity for cross-examination and minimal disclosure from RDS. Such an approach was inappropriate at this stage in the proceedings.

The Court of Appeal had also erred in indicating that a parent company’s promulgation of group-wide policies or standards could never in itself give rise to a duty of care.

The respondents’ submissions and evidence did not demonstrate that the averments of fact made in the particulars of claim should be rejected as demonstrably untrue or unsupportable. The appellants’ case established that there was a real issue to be tried.

Edward Craven and Richard Hermer QC were involved in this case.