Hard times for Shell. On 12 February 2021, two weeks after the Court of Appeal of The Hague found Shell subsidiary and parent company liable for oil spills in Nigeria in a landmark ruling, the UK Supreme Court, in a much awaited ruling, confirmed that proceedings against the parent company could continue before UK courts for similar issues raised by Nigerian farming and fishing communities, as real issues were to be tried.
This jurisdiction appeal dealt with the question of whether claimants have an arguable case that the parent company Royal Dutch Shell (RDS) owed them a common law duty of care so as properly to found jurisdiction against its foreign subsidiary, Shell Petroleum Development Company of Nigeria Ltd (SPDC).
In 2017, the High Court found that, although the court had jurisdiction to try the claims against RDS, it was “not reasonably arguable that there is any duty of care upon RDS”. Therefore, English courts lacked jurisdiction to try the claims against SPDC (§14). In 2018, the Court of Appeal reached the same conclusion (§18).
Errors in determining the arguability of the claim
In relation to the litigation of jurisdiction issues, the Supreme Court recalled the importance of observing judicial restraint and avoiding mini-trials, as it is not the facts and evidence that need to be assessed but rather the prospect of success of the claim (§20-23).
Then, the court found that the Court of Appeal erred in law as it conducted a mini-trial by assessing the weight of the evidence and exercising of a judgement based on that evidence which was not what was required at this stage of proceedings. Importantly, the judges added that, save in exceptional circumstances where demonstrably untrue or unsupportable, factual statements made in support of the claim should be accepted as putting forward an arguable case (§107-109).
Further, the court considered that the Court of Appeal failed to adequately evaluate contested factual evidence, “preferring and accepting the evidence of the RDS witnesses and doing so in circumstances where there had been no opportunity for cross-examination” (§121). Moreover, while the importance of internal corporate documents is well recognised in the context of cases concerning the negligence liability of a parent company for the acts of its subsidiary, the Court of Appeal failed to consider the relevance of future disclosures such as internal corporate documents (§127-134).
Errors in analysing a parent company’s liability
Considering the Vedanta case, the Supreme Court found that the Court of Appeal erred in law by asserting that the promulgation by a parent company of group wide policies or standards can never in itself give rise to a duty of care (§143). Indeed, Lord Briggs pointed out in Vedanta (§52) that “Group guidelines … may be shown to contain systemic errors which, when implemented as of course by a particular subsidiary, then cause harm to third parties.”
Additionally, the Court of Appeal wrongly focussed on the issue of control by the parent company over its subsidiary. The Supreme Court stressed as mentioned in Vedanta that it all depends on “the extent to which, and the way in 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.” (§146).
The Supreme Court explained that control is just a starting point, the issue being the extent to which the parent did take over or share with the subsidiary the management or the relevant activity. Indeed, the court underlined that control of a company and de facto management of part of its activities are two different things and that while a subsidiary may have de jure control of its activities, it can delegate de facto management of part of them to its parent (§147).
Finally, as the liability of parent companies in relation to the activities of their subsidiaries is not a distinct category of liability, it does not require “the assertion, for the first time, of a novel and controversial new category of case for the recognition of a common law duty of care” (§151).
A real issue to be tried
Considering that it has not been demonstrated that the factual statements made in support of the claim were untrue, the appellants’ pleaded case fortified by two RDS internal documents so far disclosed, and the very real prospect of further relevant disclosures being provided, the Supreme Court ruled that there were real issues to be tried (§153-154).
Confirmation and clarification of Vedanta
In this decision, the Supreme Court confirmed that the routes to parent company liability established in Vedanta are valid and provided some guidance, notably rejecting a narrow operational control by the parent company over the subsidiary. Additionally, the court stressed the importance of disclosure of internal documents and set a rather low bar for claimants at this stage of proceedings.
While further jurisdiction questions may arise as regard to claims against SPDC, the decision opens the door a little more for claimants seeking corporate accountability.
To be continued.