The Supreme Court handed down a unanimous judgment in Okpabi and Others (Appellants) v Royal Dutch Shell Plc and Another (Respondents) [2021] UKSC 3 on 12 February 2021. This judgment is worth paying attention to if your organisation is based in the UK and has overseas subsidiaries which may face claims from claimants overseas. This case adds to the growing body of case law concerning the use of a UK-domiciled parent company as an “anchor defendant”, to obtain the jurisdiction of the English courts to hear claims brought against an overseas subsidiary.

The Supreme Court considered the jurisdiction of the English courts to hear claims in tort brought against a UK-domiciled parent company for liability arising from actions of its overseas subsidiary.  The Supreme Court applied the principles set out in the existing leading authority in this area, Lungowe v Vedanta Resources plc [2019] (you can find our previous coverage on the Vedanta case here). 

The Supreme Court in Okpabi held that the lower courts had erred in their analysis, and that there was in fact a real issue to be tried. Therefore, the requirements for jurisdiction were established and the litigation will now proceed to a full trial in the English courts.

Background

This appeal arose from two sets of group litigation, brought by the Ogale community and the Bille Kingdom in Nigeria, against the Shell Petroleum Development Company of Nigeria Ltd (“SPDC”), a Nigerian registered company, and its parent company Royal Dutch Shell Plc (“RDS”), a UK-domiciled company. The claims against SPDC and RDS were brought for widespread environmental damage allegedly arising from numerous oil spills in the vicinity of the appellant claimants’ communities. The appellant claimants alleged that those oil spills were caused by the negligence of SPDC, which operated the oil pipelines and infrastructure. The appellants contended that RDC owed them a common law duty of care because it exercised significant control over material aspects of SPDC’s operations and/or assumed responsibility for SPDC’s operations. 

" This judgment is worth paying attention to if your organisation is based in the UK and has overseas subsidiaries which may face claims from claimants overseas. This case adds to the growing body of case law concerning the use of a UK-domiciled parent company as an “anchor defendant”, to obtain the jurisdiction of the English courts to hear claims brought against an overseas subsidiary. "

The appellants commenced proceedings against RDS in the English courts and applied for permission to serve proceedings on SPDC out of the jurisdiction. In order for jurisdiction to be established against SPDC under the “gateway” contained in paragraph 3.1(3) of Practice Direction 6B of the Civil Procedure Rules, the appellants had to establish that their claims against RDS as the “anchor defendant” raised a real issue to be tried, and had a real prospect of success, following the approach confirmed in Vedanta. 

The High Court and the Court of Appeal both refused permission to serve proceedings out of the jurisdiction on SPDC on the basis that the claims against RDS had no real prospects of success. The Supreme Court deferred the appellants’ application to appeal the decision until after the Vedanta decision had been handed down.

The appeal before the Supreme Court focused on two main issues: 

1. Whether the Court of Appeal materially erred in law; and
2. If so, whether it was wrong to decide that there was no real issue to be tried.

Supreme Court decision

Issue 1: Material error of law

The Supreme Court held that the Court of Appeal materially erred in law for the following reasons:

• It was drawn into conducting a mini trial, evaluating the weight of the evidence rather than focusing on the pleaded case. At the interlocutory stage, factual assertions should be accepted unless demonstrably untrue or unsupportable.
• It erred in its approach in discounting the disclosure of documentation which had not yet been disclosed but was likely to be material. 
• There is no “reliable limiting principle” that a parent company could never incur a duty of care in respect of activities of a subsidiary by merely maintaining group-wide policies and guidelines. The Supreme Court pointed to the Vedanta judgment which noted that company group guidelines may contain errors which, when implemented by a subsidiary, could cause harm to third parties.
• Its inappropriate focus on the issue of control. The Supreme Court drew the distinction between the control of a company (acknowledging that all parent companies essentially control their subsidiaries), and the de facto management of part of its subsidiary’s activities. As set out in Vedanta, the key issue is the extent to which the parent took over or shared management of the activity with the subsidiary.
• There is no distinct category of common law negligence governing the liability of a parent company in relation to the activities of its subsidiaries. This was confirmed in Vedanta.

Issue 2: Was there a real issue to be tried?

The Supreme Court held that on the basis of the pleaded case, there were real issues to be tried, applying the principles in Vedanta(routes 1 and 3). In particular, the Supreme Court noted the appellants’ reliance on RDS internal documents including the RDS Control Framework and the RDS HSSE Control Framework. The Supreme Court also took into account the fact that there were documents which were likely to be disclosed and which would be very relevant.

Practical implications for UK-domiciled international organisations

This case is another reminder that organisations with parent companies in the UK that have a degree of control or influence in the management of their subsidiaries (for example monitoring compliances with company-wide policies) leave themselves directly open to legal challenges from overseas claimants. The recent positive rise in organisations promoting their Corporate Social Responsibility programmes (and in particular the focus on environmental sustainability and climate change), coupled with the rise in activism surrounding environmental issues, may create the perfect storm for a rise in environmental legal actions against UK-domiciled parent companies in the English courts.

The Supreme Court also noted the importance of proportionality in jurisdictional challenges, and noted that the filing of large quantities of evidential material was inappropriate. A welcome reminder in the world of complex international disputes.

by Natalie Beeraje