The World Is Your Oyster? Supreme Court Confirms UK Jurisdictional Gateway for Parent Company Liability

On 12 February 2021, the Supreme Court handed down judgment in the high profile case of Okpabi v Shell,[1] in which it allowed a jurisdictional appeal relating to group claims brought by claimants against a UK domiciled parent company of a multinational group (the Parent) and its Nigerian subsidiary (the Subsidiary). The Supreme Court concluded that the claimants had an arguable case in the English courts on whether the Parent owed a duty of care to communities affected by oil spills caused by the Subsidiary in the Niger Delta.

The leading UK case on Human Rights violations: Vedanta

The definitive question on whether a UK parent company can be sued for business and human rights (Human Rights) violations overseas was addressed by the UK Supreme Court in Vedanta[2] (for more information, see our alert). In Vedanta, the Supreme Court ruled that parent companies may owe a duty of care in respect of their overseas subsidiaries. As a result, a parent company could be potentially held accountable for its public commitments, as set out in a parent’s overarching policy documents and public statements, regarding its subsidiaries and their commitments to the communities they serve.

Background to the Okpabi case

The claims were brought by more than 40,000 individuals from the Ogale and Bille communities in Nigeria against the Parent and the Subsidiary, the latter of which operated oil pipelines in Nigeria through its minority participation in a joint venture. The claimants alleged that the Subsidiary’s negligence had caused oil spills in the Niger Delta resulting in wide-spread contamination, and as such, are seeking damages and remedial works in respect of the same. The claimants also alleged that the Parent owed them a duty of care arising out of the ‘significant control’ that it allegedly exercised, as a parent company, over the Subsidiary’s activities.

Both the High Court and the Court of Appeal declined jurisdiction over the claims against the Subsidiary and held that there was no reasonably arguable case that the Parent owned a duty of care to the claimants to protect them from foreseeable harm caused by the Subsidiary’s operations. The Court of Appeal further found that there was no real issue to be tried between the parties as the evidence presented was insufficient to establish real prospects that the claims would succeed against the Parent.

The UK Supreme Court findings in the Okpabi case

Evidential threshold at the jurisdiction stage

The Supreme Court held that the High Court and the Court of Appeal were wrong in conducting a “mini-trial” by evaluating the evidence at the jurisdictional stage. The Supreme Court found that the test of a “real prospect of success” for jurisdictional purposes was to be considered by reference to the claimants’ pleaded case set out in the Particulars of Claim. Instead, the lower courts made determinations in relation to contested factual evidence, which was a matter for the substantive trial. In doing so, the lower courts disregarded the value of future disclosure from the defendant(s), which is crucial for victims of Human Rights violations to build their case.

Parent company liability

On the principle of parent company liability, the Supreme Court noted that proof of exercise of control over overseas operations is just a starting point. Rather, the court should consider all facts and circumstances that may give rise to a duty of care and should not be predicated on generalised assumptions. Applying Vedanta, the Supreme Court held that “the issue is the extent to which the parent did take over or share with the subsidiary, the management of the relevant activity”, finding that a parent company’s issuance of group wide policies or standards may, in some circumstances, give rise to a duty of care. In addition, the Court clarified that parent company liability in relation to overseas subsidiary activities is not a distinct category of liability in common law negligence.

Real issue to be tried

Based on these findings, the Supreme Court held that the majority of the Court of Appeal had wrongly decided that there was no real issue to be tried, holding that it was reasonably arguable that the Parent did owe the claimants a duty of care. In doing so, the Supreme Court placed some weight on two internal Parent policy documents that set out the company group’s organisational structure, holding that how this organisational structure worked in practice, particularly, in relation to the Subsidiary, raised triable issues.

Commentary

The Supreme Court judgments in Okpabi and Vedanta represent a significant step forward in terms of parent companies potentially being held accountable for the activities of their overseas subsidiaries. This is particularly significant where affected parties may not be able to obtain redress in their local jurisdictions. The Supreme Court’s criticism of “mini-trials” at the jurisdiction stage will also operate to lower the threshold that claimants may need to meet to get their claim off the ground in the first instance. By the same token, multinational corporations with parent companies or headquarters in Human Rights-friendly jurisdictions, such as the UK, may need to carefully consider their organisational and management structures particularly in relation to overseas joint ventures where the question of ‘significant control’ may be unclear. As a practical step, multinational corporations are advised to conduct due diligence of their corporate structure and supply chains, and be prepared to mitigate and redress any failings uncovered.

Post Script: The Dutch Court of Appeal decision

This decision comes shortly after a Dutch appeals court also found the Subsidiary liable for the damage caused by the same oil spills in Nigeria. Although the Dutch court did not hold the Parent directly responsible for the damage caused, it was held to have a limited duty of care to act on prevention and was ordered to install leak detection systems in the oil pipelines to prevent similar oil spills happening in the future. 

Stephanie Pong, London Trainee Solicitor, contributed to the drafting of this alert.

[1] Okpabi and others (Appellants) v Royal Dutch Shell Plc and another (Respondents) [2021] UKSC 3

[2] Vedanta Resources PLC and another (Appellants) v Lungowe and others (Respondents) [2019] UKSC 20