Supreme Court rules in Okpabi v Royal Dutch Shell Plc and SPDC

The decision of the Supreme Court in Okpabi & Others v Royal Dutch Shell Plc & SPDC was handed down this morning.

The Supreme Court has, unsurprisingly, confirmed that the law is as stated in its recent decision of Lungowe & Others v Vedanta Resources Plc & KCM [2019] UKSC 20. Applying the principles laid down in Vedanta, the Claimants’ case can proceed in this jurisdiction.

In this blog post (produced in record time), Kate Boakes analyses the new decision and its implications. She also looks back at the line of cases constituting the “Vedanta model” of claims against UK-domiciled parent companies.

This decision represents what is, for now at least, the final chapter in a series of long-running decisions regarding the liability of UK-based parent companies for the acts or omissions of their overseas subsidiaries in the context of jurisdiction challenges. The scope of such cases has been clarified by the Supreme Court in the last two years, first in Vedanta, and now in Okpabi.

As explained in a previous post, the origins of the Vedanta/Okpabi jurisdiction model lie in the Court of Appeal’s decision in Chandler v Cape Plc [2012] EWCA Civ 525, in which it was held that the parent company of the Cape group, which manufactured asbestos products, owed the employee of one of its subsidiaries a duty of care in respect of his health and safety, and was liable in negligence for his development of asbestosis following his exposure to asbestos dust in the workplace. This was the first reported case in which a parent company was found to owe a direct duty of care of this nature.

Lady Justice Arden gave the following four indicia of when such a duty might arise;

(1) the businesses of the parent and subsidiary are in a relevant respect the same;

(2) the parent has, or ought to have, superior knowledge on some relevant aspect of health and safety in the particular industry;

(3) the subsidiary’s system of work is unsafe as the parent company knew, or ought to have known; and

(4) the parent knew or ought to have foreseen that the subsidiary or its employees would rely on its using that superior knowledge for the employees’ protection.

Mr Chandler’s reasons for pursuing Cape Plc had nothing to do with jurisdiction: the company that employed him had been dissolved and the relevant employer’s liability insurance policy contained an exemption in respect of asbestosis.

But the decision, coupled with art. 4(1) of the Recast Brussels Regulation, provided an opening for jurisdiction to be established in cases involving wrongs which occurred overseas in non-EU Member States, which could be attributed to the failings of a UK-based parent company.

This is because art. 4(1) of the Recast Brussels Regulation was held by the Court of Justice in Owusu v Jackson (Case C-281/02) [2005] QB 801 to confer a right on any claimant (regardless of their domicile) to sue an English domiciled defendant in England, free from jurisdictional challenge upon forum non conveniens grounds.

In reliance on Owusu and Chandler, several cases – particularly in the business and human rights context – have successfully been brought in this jurisdiction using parent companies as an anchor for their foreign subsidiaries. Despite the existence of such litigation, for a time there was a dearth of reported cases in which the English courts had been asked to consider issues of jurisdiction in this particular context.

This changed in 2016, when the defendants in Vedanta brought an unsuccessful jurisdiction challenge before Coulson J (as he then was). This decision was swiftly followed in January 2017 by the defendants’ successful jurisdiction challenge before Fraser J in Okpabi and in February 2017 by AAA v Unilever Plc [2017] EWHC 371 (QB), in which a parent company was found to owe no duty of care in respect of harm suffered by its subsidiary’s employees during post-election violence on a Kenyan tea plantation.

Each of these three decisions was appealed and they progressed through the appellate courts.

Vedanta was the first to reach the Supreme Court. This was a group action concerning pollution emanating from a copper mine in Zambia. The Supreme Court’s judgment was handed down in April 2019, dismissing the defendants’ jurisdiction challenge. It was held that there was sufficient material identified by Coulson J in support of the view that the claimants’ case on parent company liability was arguable, so he made no error of law in assessing whether there was a real triable issue against Vedanta. However, it was held that as a result of a number of factors, including that Vedanta had offered to submit to the jurisdiction, Zambia would have been the proper place for the litigation, if substantial justice were available to the parties in that country. There was cogent evidence that there was a real risk that justice would not be obtainable in Zambia. Accordingly, the litigation could proceed in this jurisdiction

In the course of its decision, the Supreme Court clarified and expanded the scope of the parent company liability duty thus:

Even where group-wide policies do not of themselves give rise to such a duty of care to third parties, they may do so if the parent does not merely proclaim them, but takes active steps, by training, supervision and enforcement, to see that they are implemented by relevant subsidiaries. Similarly, it seems to me that the parent may incur the relevant responsibility to third parties if, in published materials, it holds itself out as exercising that degree of supervision and control of its subsidiaries, even if it does not in fact do so. In such circumstances its very omission may constitute the abdication of a responsibility which it has publicly undertaken.

It was stressed that determining what level of intervention in the management of the subsidiary had occurred was a pure question of fact, with Lord Briggs making “no apology for having suggested during argument that it is blindingly obvious that the proof of that particular pudding would depend heavily upon the documents” and emphasising that it was not appropriate to embark on a mini-trial of these factual issues at a jurisdiction hearing.

By the time the Vedanta decision had been handed down, the Court of Appeal had dismissed the claimants’ respective appeals in AAA v Unilever and Okpabi. Each group of claimants applied for permission to appeal to the Supreme Court.

The claimants’ application for permission to appeal to the Supreme Court in AAA v Unilever was dismissed in July 2019, bringing that litigation to an end in the English Courts, albeit a claim for reparations has since been taken to the UN.

Okpabi was given permission to proceed to an appeal hearing.

The Okpabi appellants are c. 42,000 Nigerian citizens who live in the Ogale and Bille communities in Nigeria, in areas which they allege are affected by oil leaks from pipelines and associated infrastructure that the Shell Petroleum Company of Nigeria Limited (SPDC) operates in and around the Niger Delta. The claimants allege that the leaks have impacted their lives, health and local environment and they have brought claims against SPDC and Royal Dutch Shell Plc (RDS), the parent company of the Shell group. The claims are based on the tort of negligence and under the common law of Nigeria, which for the purposes of the jurisdiction challenge was assumed to be the same as the law of England and Wales.

RDS applied under CPR r. 11(1) for orders declaring that the court had no jurisdiction to try the claims against it, or should not exercise such jurisdiction as it had.

The decision for the Supreme Court to determine was expressed as follows:

Whether and in what circumstances the UK-domiciled parent company of a multi-national group of companies may owe a common law duty of care to individuals who allegedly suffer serious harm as a result of alleged systemic health, safety and environmental failings of one of its overseas subsidiaries as the operator of a joint venture operation.

The Judgment of the Supreme Court, with which Lord Hodge, Lady Black and Lord Briggs agreed, was given by Lord Hamblen.

In the light of the Vedanta decision, the claimants had recast their case, contending that a duty of care arose by what they described as “Vedanta routes (1) to (4)”, namely:

  • (1) RDS taking over the management or joint management of the relevant activity of SPDC;
  • (2) RDS providing defective advice and/or promulgating defective group-wide 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
  • (4) RDS holding out that it exercises a particular degree of supervision and control of SPDC.

Lord Hamblen summarised the facts and matters the Claimants relied upon in support of each of these contentions at [29] to [69].

The Supreme Court held that the majority of the Court of Appeal had erred in law in that they had been drawn into approaching the application as a mini-trial of a preliminary issue. The judge had made “findings” on the evidence before him and, in evaluating his decision, the Court of Appeal was drawn into embarking on its own evidential inquiry, rather than focussing on whether on the face of the pleadings there was a triable issue. This approach led the court into “making determinations in relation to contested factual evidence that were not appropriate on an interlocutory application”. Further, insufficient regard was given to the importance of disclosure, a point which was emphasised by Lord Briggs in Vedanta.

In addition, the Court of Appeal had erred in its analysis of the principles of a parent company’s liability in its consideration of the factors and circumstances which may give rise to a duty of care. These errors of law are set out at [141] to [152]. They serve to emphasise the scope of the Vedanta decision.

For example: to the extent that the Court of Appeal indicated that the promulgation of group-wide policies or standards can never in itself give rise a duty of care, this was inconsistent with the decision with Vedanta and was wrong. Further, the Court of Appeal had focussed too heavily on the issue of control. As Lord Briggs stated in Vedanta at [53], “… the parent may incur the relevant responsibility to third parties if, in published materials, it holds itself out as exercising that degree of supervision and control of its subsidiaries, even if it does not in fact do so.”

Finally, the Supreme Court considered whether the case set out in the pleadings established that there was a real issue to be tried. It held that there was a real issue on Vedanta routes (1) and (3) but declined to make any ruling in relation to routes (2) and (4). The litigation will therefore proceed in the High Court.

The effect of the decisions in Vedanta and Okpabi is that the room for a defendant parent company to argue that a claim against it has no real prospect of success has been considerably narrowed. The good news for claimants is that this should result in fewer cases being held up for several years while parent company liability battles work their way through the appellate system.

This does not necessarily mean that a parent company’s only choice is to accept that it must settle a case or fight it to trial. Recent posts on the Jalla case (a limitation challenge) and the Fundão dam litigation (struck out as an abuse of process) illustrate alternative routes by which cases will be resisted on the right facts.

Finally, it is important to note a practice point which emerged in the course of the Supreme Court’s judgment in Okpabi, regarding the need to update the pleadings as the evidence develops in the course of an interlocutory application. The claimants explained that as the evidence developed, they chose not to update their pleaded cases in order to avoid producing various iterations of the Particulars of Claim. However Lord Hamblen stated in clear terms that: “if they wanted to advance a case which was not reflected by their existing pleading then they should have amended it. In that way the proper focus of the inquiry can be maintained”. There is no obvious reason why this principle should be restricted to the jurisdiction context and it should therefore be followed in any summary judgment application.

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