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.

Wading through the (polluted) mud: the Hague Court of Appeals rules on Shell in Nigeria

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.

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

On 29 January, the Court of Appeals (Gerechtshof) of The Hague delivered its judgments in the case of Four Nigerian Farmers and Milieudefensie v. Shell. These judgments are of seminal importance for improving accountability of transnationally operating businesses for violations of human and environmental rights. This is because it is the first appeals case in Europe that resulted in a victory on the merits for the victims, but also the first case to hold that a parent company was under a duty of care with regard to foreign claimants. In this blog, I will summarize the judgment, address some key points and analyse its potential impact on future litigation.

Preliminary notes

The three judgments are over 150 pages, which is exceptionally long by Dutch standards. Here I focus on the merits of the case and have skipped the jurisdictional questions, discussed here and elsewhere on this blog. I have also not extensively examined the (failed) challenges of the defendant to various claimants’ standing, or Shell’s argument on the purported exclusivity of the Oil Pipelines Act (OPA). Lastly, I have limited discussion about the evidence provided by the parties, although to a large extent this case is about factual findings of the court.

Factual background and case history

The case concerns three separate incidents of oil spills in the Niger Delta, and the court delivered three separate but partially overlapping judgments. The first (‘Cases A and B’) concerns an oil spill from an underground pipeline near Oruma in 2005; the second (‘Cases C and D’) concerns an oil spill from an underground pipeline near Goi in 2004; the third (‘Cases E and F’) concerns an oil spill from a wellhead near Ikot Ada Udo. These spills caused severe damage to local farmlands and fishing grounds. The claimants were Nigerian (fish) farmers, who held both Shell Nigeria (SPDC) and its parent company Royal Dutch Shell (RDS) liable for negligent maintenance of the pipelines and wellhead, inadequate response to the spills and insufficient clean-up, thereby causing that damage. They were supported in their claims by Dutch NGO Milieudefensie (Friends of the Earth Netherlands).

The District Court of the Hague in 2013 initially only upheld one claim from Cases E and F, that of Friday Alfred Akpan (discussed here). It dismissed all other claims, accepting Shell’s defence that the respective spills were likely caused by sabotage, and rejecting liability of parent company RDS. After first issuing several interlocutory decisions, most importantly on jurisdiction and applicable law in 2015, the Court of Appeal has now reversed the holdings of the District Court. On 29 January 2021, it held SPDC liable for damage caused by oil spills in Cases A to D and ordered payment of damages to the claimants, the amount to be determined in a separate hearing (schadestaatprocedure). It also orders both SPDC and RDS to install a leak detection system (LDS) in the pipeline central to Cases A and B. In Cases E and F, the court issues an interlocutory decision ruling that these spills were caused by sabotage, but requests additional information from the parties on the extent of the damage and subsequent clean-up actions. In the remainder of this post, I will only discuss Cases A to D, the oil spills in Oruma and Goi.

Liability of SPDC

As per its 2015 interlocutory decision, the court applies Nigerian law to the case’s substantive questions. The claimants had primarily argued their case on the basis of the federal OAP, which outlines obligations for operators of oil infrastructure; and on common law torts, specifically the torts of negligence, nuisance and trespass to chattel. To determine the liability of SPDC for both spills, the court looks primarily at the OPA, SPDC being the operator of the pipelines in the sense of the OPA.

First, the court examines liability for causing the oil spills. It considers that art. 11(5)(c) OPA imposes a strict liability standard for operators of oil pipelines. The operator can be exempt from liability in cases of sabotage, which Shell argued was the most likely cause of the spills in Oruma and Goi. The court however holds that under Nigerian law sabotage should be proven beyond reasonable doubt, as was argued by the claimants. While the court notes that the available expert reports indeed suggested that sabotage was a likely cause of the spills, it holds that this does not meet the standard of ‘beyond reasonable doubt’. It thus concludes that SPDC could not evade the strict liability standard of art. 11(5)(c) OPA, and that it is liable for damages arising out of the spills. The court does not consider it necessary to examine liability for any of the common law torts. It considers obiter that in either case it would likely not have found SPDC liable on this basis, given that sabotage was still a likely cause of the spill.

Second, regarding Shell’s response to the oil spills, the court notes that art. 11(5)(c) of the OPA is not applicable and that the claims regarding the response should be assessed in light of common law torts, specifically negligence. In both cases (A and B; and C and D), the court finds that SPDC owed a duty of care to the claimants, and acted negligently in its response to the spills. In the case of the Oruma spill, SPDC was aware of the risk of spills and potential problems with on-site inspection following a suspected spill, yet neglected to install a ‘Leak Detection System’ or take other sufficient measures. This would have allowed a more immediate response to leaks and spills, even if access to the site was (temporarily) impossible. In the case of the Goi spill, the court notes that while SPDC did perform an on-site inspection by helicopter to assess the leak, this could have been done at least a day earlier. The court additionally orders that SPDC should install an LDS system in the Oruma pipelines to prevent future spills; it had already done so in the Goi area in 2019.

Lastly, the court discusses the clean-up undertaken by Shell after the spills. Here, the court finds that while there was still some pollution in both regions, the duty of care Shell had to ensure adequate clean-up did not extend beyond the actions it had already undertaken, as assessed by applicable industry standards. The court also dismisses the claimants’ arguments that the remaining pollution constituted a violation of the farmers’ right to a clean environment, leaving aside whether such a right could be horizontally invoked under Nigerian law.

Liability of RDS

The court examines whether Royal Dutch Shell, parent company of the Shell group, is also liable for the oil spills. Such liability can be based on English precedent, which the court notes has persuasive authority in Nigeria’s common law system. The question is then whether the parent company also owed a duty of care to the claimants. A duty of care can be incurred if the company is in sufficient proximity to the claimants, for example by intervening in its subsidiary’s operations, and if imposing that duty is ‘fair, just and reasonable’. As the court notes, the UK Supreme Court confirmed in Vedanta v. Lungowe that parent companies can owe a duty of care to persons affected by harmful activities of foreign subsidiaries.

The claimants had argued that RDS, through its position in the Shell group and interventions with its Nigerian subsidiary, had incurred a duty of care, but the court dismisses this argument with regard to causing the spills. It notes that for a parent to incur a duty of care, the subsidiary must have acted wrongfully. However, as seen above, the court did not find that SPDC had acted wrongfully. Instead, it found that SPDC incurs strict liability as an operator under the OPA. With regard to the response to the spill, the court does find a limited duty of care. Based on internal documents, bonus policies and a witness statement, the court concludes that after 2010 RDS was actively trying to limit the amount of oil spills in SPDC’s operations, amongst other things by installing Leak Detection Systems (LDS) in its pipelines. The court thus finds that with respect to the installation of an LDS in the Oruma pipeline, where it had not been installed at the time of the proceedings, RDS had a duty of care to the claimants. It orders Shell to insure it is installed within a year.

Small steps, giant leaps

The Court of Appeals’ judgment is a monumental victory for the victims and their communities, and by extension for Milieudefensie. The court found in their favour on two of the three central issues after over a decade of litigation and uncertainty, although the finding that Shell conducted adequate clean-up after the spills must be disappointing. Whether this will actually result in an award that is sufficient to cover the personal and economic losses incurred both directly after the spills and in the decade since then remains to be seen, but it certainly appears that the award will be more than symbolic. Not that this case is devoid of symbolism: it is the first foreign direct liability case to result in an enforceable decision on the merits, in favour of the claimants. All comparable cases have either been dismissed, settled or are still being litigated. That alone signifies how impactful this case may be, and what a big leap it is towards more corporate accountability.

Moreover, this case is the first case where a parent company was found to owe a common law duty of care to claimants residing in a third state, specifically local communities affected by its subsidiary’s operations. English courts had contemplated this possibility in Connelly v. RTZ and Lubbe v. Cape, and the UK Supreme Court confirmed this in Vedanta v. Lungowe. Until this case, however, no court had concluded on the merits that a parent company was in sufficient proximity to its employees or local communities to incur such a duty. This holding thus staves off the fears that transnational corporate duties of care are a mere hypothetical, theoretically possible but never actually occurring in the real world. In my view, this is potentially the most lasting aspect of the case.

While of course enormously important to the victims, the court’s findings regarding SPDC’s liability are of limited legal relevance to other ongoing and future cases. These findings mostly concern the particular rules (the OPA) and facts (Shell’s actions regarding the spills) of this case. This is not a point of criticism: in a case as complicated and contentious as this one, it is sensible for the court to keep its ruling (if not its word count) relatively narrow. It does mean that in a different case, say in a different country with different local laws, concerning a different industry with different operational policies, or concerning even slightly different facts, the outcome may be completely different to this case.

Even the court’s finding of a parental duty of care, while significant, should be approached with some caution. It is of course only relevant for cases where the applicable law is the common law and English precedent can be applied. The way the court then applies that precedent is arguably problematic, specifically where it sides with Shell in holding that the subsidiary must itself have committed a tort before the parent can incur a duty of care. This does not follow directly from the English cases cited by the court, nor does the court clarify why finding that SPDC was subject to strict liability with regard to oil spills precludes a duty of care for RDS. Where it does find a duty of care, that finding stems from RDS’ specific interventions in SPDC’s operations after 2010, rather than from its central position of authority in the corporate group. I have argued on this blog before that finding a duty of care based on actual interventions of the parent, rather than its capacity to intervene, could create an incentive for parent companies not to interfere with their foreign subsidiaries (or only very generally), as this could potentially lead to liability later.

Separately, it must be noted that the proceedings took so long – 16 years since the first spill, 11 years since the litigation started – that several initial claimants passed away before this decision was issued, and litigation was continued by their next of kin. Part of this duration is inherent to the complexity of this case, part of this is arguably due to Shell dragging out the litigation, by arguing procedural points and being slow to produce internal documents requested by the claimants. It is of course fully within Shell’s rights to litigate potentially far-reaching issues like jurisdiction, and the court itself also requested a significant amount of additional evidence to be produced. What is certain is that the length of procedures like this disproportionately works to the detriment of individual claimants, as is painfully demonstrated by this case.

Conclusion

This decision takes a notable step towards more corporate accountability for human rights and environmental impacts. It was rightly celebrated, not just by the victims in this procedure who waited 13 years for a proper remedy, but also in the wider communities of the Niger Delta. As I pointed out in this blog, several significant legal and practical questions remain, from the availability of information necessary to viably argue a case to the precise extent of parental duties of care. But this outcome may well bolster other victims to bring their cases before home state courts, and push the trend towards more corporate accountability further forward.