Lowering the bar (in a good way): the UK Supreme Court Decision in Okpabi v. Shell

Tweet

It is a pleasure to welcome back Dr Lucas Roorda as a guest poster on “Rights as Usual”. Dr Roorda (@LRoordaLaw)  is an Assistant Professor and postdoctoral researcher at Utrecht University. This post is his.

************************************************************************

Parent companies incurring common law duties of care to foreign claimants have gone from a distant hypothetical to a very real possibility. Two weeks ago, the Dutch Court of Appeal was the first court to hold on the merits that RDS, the parent company of the Shell group, incurred a duty of care to farmers in the Niger Delta. Now the UK Supreme Court (UKSC) has ruled in the case of Okpabi v. Shell that it is at least arguable that RDS had a duty of care towards the inhabitants of the Ogale and Bille communities, confirming its decision in Vedanta v. Lungowe, and allowing their case to proceed in English courts. In this blog I discuss the UKSC’s decision and its implications, and compare it to the Dutch Court of Appeals decision.

The background

I have discussed Okpabi case here and here, so I’ll refer to those blog posts for more detailed discussions of the facts and the lower courts’ decisions. The claims concern significant oil pollution in the Niger Delta, allegedly caused by Shell’s negligence in maintaining pipelines and other oil infrastructure – broadly similar to the Milieudefensie case in the Netherlands, discussed here. Also similar to that case is that the claims were jointly filed against Shell’s Nigerian subsidiary SPDC, and Anglo-Dutch parent company RDS. The defendants disputed the jurisdiction of English courts, arguing that the Nigerian claimants had no ‘arguable case’ against RDS, to which SPDC could then be a ‘necessary and proper party’. The defendants argued that the claimants’ claim that RDS had incurred a duty of care, pursuant to Caparo v. Dickman and Chandler v. Cape, had no prospect of succeeding, and was filed only as an anchor for the court to assert jurisdiction over subsidiary SPDC. Both the High Court and the Court of Appeal sided with the defendants. They held that the Nigerian claimants had insufficiently demonstrated that RDS could have incurred a duty of care and dismissed the case.

The decision of the UK Supreme Court

The UKSC has now reversed the Appeal decision, holding that the claim against RDS contains a sufficiently ‘triable issue’ and remitting the case to the High Court. In a unanimous decision delivered by Lord Hamblen, the Court first reiterates its holding in Vedanta v. Lungowe of last year that parental duties of care are not a distinct category of negligence liability, but instead are to be determined by ordinary principles of tort law (para. 25; see also para. 141-143). Thus, such duties are not governed by the stringent threefold test of Caparo v. Dickman (requiring foreseeable harm; proximity between the parties; and imposing liability is ‘fair, just and reasonable’) but rather by the broader guidance of Vedanta (note that the Dutch Court of Appeal also got this wrong, relying primarily on Caparo). The Court emphasizes that this guidance does not itself create new, distinct categories of liability but should be read as non-limitative and indicatory of the range of circumstances under which a duty of care can arise.

The bulk of the judgment concerns the Court’s assessment of the way the Court of Appeal assessed the level of control allegedly exercised by RDS. The Court had already noted in Vedanta that it would be inappropriate for courts to engage in ‘mini-trials’ in response to a challenge to jurisdiction over a foreign defendant. In Okpabi however, not only did the Court of Appeal fail to determine that the High Court’s ‘findings’ in fact constituted a mini-trial (paras. 110-111), but in reviewing those findings it engaged in a mini-trial of its own (para. 112). The Court of Appeal made several (inappropriate) determinations regarding the witness statements, factual evidence and documentation presented before concluding that no viable argument could be made that RDS had sufficient control over SPDC and incurred a duty of care.

On the documentary evidence specifically, the UKSC is highly critical of the Court of Appeal’s approach. The Court of Appeal had been wrong to scrutinize the documentary evidence to this degree, before the appellants had access to internal company documents through disclosure (paras 128-129). In fact, the UKSC notes, such documents are crucial to demonstrate operational control over a subsidiary (para. 134), and the appellants had even provided some they obtained through third parties (including audit reports submitted in the Dutch case). Rather than dismissing the case, the Court of Appeals should have concluded that the well-argued existence of such documents was sufficient to let the claimants move on to disclosure, and to be able to further substantiate their claims. Already for that reason, the Court overturns the Court of Appeal’s decision.

The Court further reiterates that the Caparo test was the inappropriate test for determining whether RDS could incur a duty of care. It also notes that the Court of Appeal focused too much of the issue of ‘control’ over the subsidiary and its entire operations; instead, a duty of care could result from various ways in which a parent company is involved in the management of the harmful activities (para. 147). This could be through active intervention, but equally as a result of flawed group-wide policies, or even when a parent company holds itself out to third parties to exercise control over its subsidiaries, but then failed to do so. With that in mind, the Court concludes that the appellants had indeed raised a ‘real issue to be tried’ as to whether RDS incurred a duty of care.

Analysis: the only reasonable outcome

From my perspective, this seems to be the only reasonable outcome. As I noted in my blog on that decision, the Court of Appeals had set the evidentiary bar for an arguable case that a duty of care existed so high that one could better speak of the claimants requiring a ‘winnable’ case; both with regard to the stringent test for a duty of care, and with regard to the evidence required to even present an arguable case. The Supreme Court now lowers the bar to a much more attainable level, preventing lengthy ‘mini-trials’ that drain time and resources of the parties as well as the courts seized, and providing victims with easier access to internal company documents. As noted by Ekaterina Aristova and Carlos Lopez in their excellent blog on the Okpabi judgment, the Court thereby takes an approach more in line with international jurisprudence: claimants can rely on publicly available documents to raise a legitimate issue on the level of control a parent company could exercise, and substantiate whether that indeed occurred in this case after disclosure. This is also the approach suggested by Sales LJ in his dissenting judgment, which I advocated for in my blog, and which is now explicitly endorsed by the Supreme Court (para. 155).

Whilst these holdings could already have a significant impact on future litigation, it is the Court’s confirmation of Vedanta regarding the circumstances under which a parent company can have a duty of care that is likely to spark more litigation. Most litigation of this type revolved around the Caparo test, modified by Chandler v. Cape regarding proximity – including, as noted, erroneously by the Dutch Court of Appeals in Milieudefensie v. Shell. Quite predictably, such litigation has yielded few results for claimants. The Court now confirms that a much broader range of circumstances and activities can create a duty of care, which makes it both easier to argue and adaptable to circumstances of different cases. Moreover, there is no principled reason to assume that a company purporting to exercise oversight over foreign contractors, and being in a position to do so in practice, could not also incur a duty of care with regard to harmful activities by that contractor, even if there is no formal control or ownership. It is regrettable that this holding came only after the Dutch Court of Appeals decision, which still relied on the Caparo test, despite the court referring to Vedanta as well.

Jurisdiction questions remain

We should be mindful of the limitations of this holding. The decision explicitly mentions that after remitting, other jurisdictional issues may still have to be dealt with by the High Court as they were not part of these proceedings. Amongst other issues, this includes Shell’s objections to an English court asserting jurisdiction over its Nigerian subsidiary SPDC. On this issue, Vedanta may actually aid the defendants more than the claimants. As I discussed here and here, the Supreme Court ruled that the risk of irreconcilable decisions no longer automatically means that cases against foreign co-defendants need to be litigated together with the main defendant (stating that it is no longer a ‘trump card’). In Vedanta, the risk of not getting substantive justice in Zambia however meant that the case had to continue in English courts.

This application of the forum non conveniens test may lead to a different outcome in Okpabi. Jurisdictionally, the situation is similar to Vedanta: the claimants themselves create the risk of parallel proceedings and irreconcilable judgments by electing to bring their case in English courts, whereas they could have litigated against both defendants in Nigerian courts. The claimants will thus have to show that no substantive justice is possible in Nigerian courts, which Shell disputes; in that respect, it can point to a number of recent decisions by Nigerian courts in favour of local communities and against Shell, to argue that prospects for the litigants there are much better than they would have been in Zambia for the Vedanta litigants. There would be a profound irony in this argumentation: not only has Shell repeatedly ignored rulings of Nigerian courts, but it also recently instituted investor-state arbitration proceedings against Nigeria, on the grounds that recent proceedings against the company had been unfairly conducted. So in essence, Shell’s argument is that Nigerian courts are good enough to litigate complex pollution cases, up until the point where the company loses.

Conclusion

Last month’s decision in the Milieudefensie case and the Supreme Court’s decision in Okpabi constitute major steps in ensuring that duties of care on parent companies can be plausibly argued before home state courts. Both the more realistic level of scrutiny a court should apply to such claims and the broadened scope of actions that can lead to a duty of care may mean that future claims arguing parent company liability become much more viable. Of course, the jurisdiction question still hangs over such cases, especially since the UK is no longer subject to the Brussels-I Regulation and forum non conveniens can be applied to claims against UK-domiciled parent companies.