Do Corporations have Duties to those Affected by their Subsidiaries’ Operations Overseas?

On 26 January 2017, the High Court of England and Wales dismissed claims brought by Nigerian claimants against UK-registered Royal Dutch Shell Plc (“Shell”) and its Nigerian-registered subsidiary Shell Petroleum Development Company of Nigeria Ltd (“SPDC”).  On the same day, in Canada, the Court of Appeal for British Columbia permitted claims brought by Guatemalan claimants against Canada-registered Tahoe Resources Inc. (“Tahoe”) and its Guatemalan-registered subsidiary Minera San Rafael S.A. (“MSR”) to continue to the merits stage.  Whilst unrelated, both decisions add to the growing case law in both jurisdictions affecting multinational corporations with overseas operations.

English High Court dismisses cases against Shell and its subsidiary

Two cases were brought against Shell and SPDC.  The first, His Royal Highness Emere Godwin Bebe Okpabi and others v (1) Royal Dutch Shell plc (2) The Shell Petroleum Development Company of Nigeria Ltd, concerns 20 individuals acting on behalf of themselves and approximately 40,000 members of the Ogale community.  The second, Lucky Alame and others v (1) Royal Dutch Shell plc (2) The Shell Petroleum Development Company of Nigeria Ltd, concerns 2,335 claimants with regards to the Billie Kingdom.  In both cases, the claimants sought compensation for pollution and environmental damage caused by oil spills emanating from the defendants’ oil pipelines and associated infrastructure in communities in Nigeria.  They alleged that Shell breached its duty of care to them.

The claimants relied on Article 4 of the Brussels I recast Regulation (Regulation 1215/2012) to establish jurisdiction over Shell.  Article 4 allows jurisdiction to be established in the place of incorporation of an EU-domiciled defendant.  Against SPDC, the claimants relied on paragraph 3.1(3) of Practice Direction 6B of the Civil Procedure Rules to establish that SPDC was the necessary and proper party to the dispute.  Both defendants challenged the jurisdiction of the court.

The judge held that the main question to be tried was whether the claimants have a legitimate claim in law against the parent Shell.  This is because, under paragraph 3.1(3) of Practice 6B, a foreign defendant, SPDC in this case, can only be added as a necessary and proper party in a dispute between the claimants and another defendant in which there is a real issue that is reasonable for the court to try.  Absent this, there is no claim to which SPDC can be added.  Further, any objections to jurisdiction by Shell would not need to be considered if no legitimate claim could be found.

The judge acknowledged that in English law a parent company can owe a duty of care to those affected by the acts of its overseas subsidiary in certain circumstances.  The judge held that Shell did not owe a duty of care.  The main reason for this was that Shell did not exercise control over the acts of SPDC but merely had the role of a holding company and did not carry out any operational activities.  SPDC was responsible for the operations in Nigeria.  As a result, the judge did not find a legitimate claim against Shell which was reasonable for the court to try and the claims against both Shell and SDPC failed.

Canadian court rules against Tahoe on forum non conveniens grounds

In Garcia v. Tahoe Resources Inc., seven Guatemalan citizens commenced proceedings against Tahoe and its subsidiary MSR in the courts of British Columbia, Canada, alleging they were shot by Tahoe security personnel whilst protesting outside a mine operated by MSR in Guatemala.  The claimants alleged that Tahoe’s Guatemala Security Manager ordered the shootings and Tahoe and MSR had expressly or implicitly authorised the use of force or were negligent in preventing it.  Further, they claimed that Tahoe was vicariously liable for the acts of the security personnel and owed the claimants a duty of care and breached it.

Tahoe had previously successfully challenged jurisdiction on forum non-conveniens grounds. On 9 November 2015, the Supreme Court of British Colombia held that Guatemala was the more appropriate forum for the claim.  The claimants appealed.

One of the main reasons Tahoe’s previous challenge had been successful was because Tahoe’s Guatemala Security Manager had been arrested in Guatemala and charged with criminal assault.  Six of the claimants were added as joint claimants in the Guatemala case seeking compensation for his alleged wrongdoing.  The Security Manager escaped and fled to Peru.  An arrest warrant was issued and he was arrested in Peru.  Guatemala launched extradition proceedings, which have not yet been successful, and suspended the case against him.  The claimants applied for permission to admit new evidence in relation to this development during the appeal process.

The Court of Appeal judge granted permission for this new evidence and held that the new evidence cast serious doubts as to whether the claimants could apply for compensation for their injuries in the case in the Guatemalan courts.  The judge also held that the Supreme Court judge had erred in finding that Guatemala was an appropriate forum.  This is because of the limited disclosure procedures available to the claimants, the expiration of the limitation period for bringing a civil suit and the real risk that the claimants would not obtain justice in Guatemala.  The judge granted the appeal permitting the claim to continue in the Canadian courts.

What next?

The claimants in the Shell case have been given permission to appeal and it is anticipated that a hearing will take place in summer 2017.  In 2016, a case against Vedanta Resources and its Zambian subsidiary was allowed to continue in the UK courts.  This is also on appeal.

Tahoe has released a public statement that it “is currently reviewing the decision and, following this review, will make a determination on whether to seek leave to appeal”. Pending this decision, the Tahoe case joins two other transnational tort litigation cases which have been permitted to continue to the merits stage in the Canadian courts.

Both decisions add to the growing case law on the issue of transnational tort litigation.  Despite ruling that there was no legitimate claim against Shell, the courts of England and Wales, as well as the courts in Canada, have acknowledged that a parent company can owe a duty of care to those affected by the acts of its overseas subsidiary in certain circumstances.  Absent any legislation on the issue, how multinational companies should manage their overseas human right risks in light of these cases remains complex.  These cases do offer some assistance and careful analysis of their content can help guide general counsels when seeking to implement human rights risk mitigation strategies into their companies’ operations.