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UK Supreme Court issues new decision on parent company liability in Okpabi and others v. Royal Dutch Shell Plc and another

Significant developments continue in the field of human rights and environmental litigation in the UK.  On 12 February 2021, the Supreme Court issued its unanimous judgment in Okpabi and others v. Royal Dutch Shell Plc and another [2021] UKSC 3, declaring that a claim brought by over 40,000 residents of two communities in the Niger Delta against two Shell group companies over alleged oil spills could proceed to the merits stage.

The case concerns claims against the UK parent of the Shell group, Royal Dutch Shell Plc (“RDS”) and its Nigerian subsidiary, the Shell Petroleum Development Company of Nigeria Ltd (“SPDC”).  The claimants sought compensation for oil spills that allegedly occurred from oil pipelines and associated infrastructure operated by SPDC in the vicinity of their communities.

In a high-profile decision, the Supreme Court reversed the Court of Appeal’s judgment and accepted that English courts had jurisdiction over the case, as the claim was arguable enough to proceed to a full trial.  The Supreme Court held that the majority of the Court of Appeal had erred in conducting a “mini-trial”, as this was inappropriate at the interlocutory stage.  Instead, the Court of Appeal should have accepted assertions made by the claimants as arguable, unless they were demonstrably untrue or unsupportable.

The Supreme Court also examined and applied principles concerning parent liability as set out by its previous judgment in Lungowe v. Vedanta Resources Plc [2019] UKSC 20.  It found that the Court of Appeal had been wrong to state that the promulgation of group-wide policies could never give rise to a duty of care.  In addition, the Court of Appeal had focused inappropriately on the issue of control to determine liability of the parent company.  Instead, the relevant question was the extent to which a parent company was involved in the de facto management of the material activity.  Finally, following its reasoning in Vedanta, the Supreme Court found that liability of a parent company in relation to the activities of its subsidiaries was not a distinct category of common law negligence and that the Court of Appeal had been wrong to consider the parent company’s duty of care by reference to the threefold test in Caparo Industries plc v. Dickman [1990] 2 AC 605.

The Okpabi decision, together with the judgment in Vedanta, provides guidance on the circumstances in which a parent company may be held liable for acts or omissions of its foreign subsidiary.  The judgment highlights again that multinational companies need to assess the human rights and environmental risks associated with their subsidiaries’ overseas operations carefully.  It is probably no longer premature to say that, given the Business and Human Rights issues being decided in the English and a number of other courts, it will be increasingly considered reckless and not diligent behaviour for enterprises with overseas operations to ignore these developments and not seek advice from suitably experienced lawyers as to how to manage their operations so as to limit their exposure to such claims.  This includes active engagement with local laws and international guidelines, adequate due diligence and other procedures and mechanisms throughout their corporate structure to monitor compliance, establish Business and Human Rights audits, conduct investigations and address grievances.