The Supreme Court rendered its most recent judgment in the area of parent company liability for acts or omissions of foreign subsidiaries, rendering a judgment in the case of Okpabi and Others (Appellants) v Royal Dutch Shell Plc and Others (Defendant).
The case concerns a claim by a group of more than 40,000 citizens of the communities of Ogale and Bille in Rivers State, Nigeria, who claim to have suffered a loss caused by the operation of the pipeline and related infrastructure by Royal Dutch Shell (“RDS”) Nigerian subsidiary of Nigeria Shell Petroleum Development Company (“SPDC”).
The SPDC challenged the jurisdiction of the English courts to hear the claim. In the first instance and in the Court of Appeals, it was determined that there was no real issue against the English parent defendant, which is one part of the test for determining jurisdiction against the Nigerian branch.
In deciding to allow the lawsuit to continue in England, the Supreme Court found that it was not presented on the basis of submissions and evidence that the facts established in the details of the lawsuit were probatively untrue or unsupported. Therefore, it was not established that there was no real problem against the English parent company. In particular, the vertical corporate structure of the group and the way in which powers were delegated clearly raised contentious issues.
In addition, it was found that the majority in the Court of Appeals committed a number of material errors in the law, most importantly conducting a mini-trial, which led to its decision being based on the evidence presented at this stage, rather than whether the pleaded case revealed disputed claim.
In the judgment, Lord Hamblen specifically warned against making a decision in cases of this kind based on a very limited number of documents published in the early stages of litigation, emphasizing the importance of internal corporate documents in cases concerning alleged parent liability for subsidiary actions / omissions.
The Supreme Court found that the Court of Appeals had committed other legal errors, including:
- focusing on the issue of control as critical, when in fact control was only the starting point – the relevant issue is the extent to which the parent has taken over or shared with the subsidiary the management of the relevant activity, which may or may not. demonstrated by the parent controlling the branch;
- It seems to accept the “general principle” that a company could never bear the duty to take care of subsidiary activities by maintaining policies and guidelines for the whole group, which is an approach that is not in line with the Supreme Court’s decision in Vedanta (which was pronounced after the decision of the Court of Appeals in Okpabi); i
- it appears that it treats the liability of the parent company in relation to the activities of its subsidiary as its own separate category of negligence of customary law, again contrary to the (subsequent) decision in Vedanta.
The effect of the Okpabi judgment
The judgment of the Supreme Court confirms the principle established Vedanta that the English parent company may be liable for the acts / omissions of its foreign subsidiaries.
There was really no doubt after Vedanta verdicts, but the Supreme Court is now crystal clear in Okpabi that in determining jurisdiction, a mini-trial should not be conducted, but a case assessment should be made based on whether there is a reasonable question for trial.
The Supreme Court also reiterated the following principles:
- the court should consider whether, according to the facts of the case as presented, there is a real issue to be tried – there should be no mini-trials and this obstacle will be overcome unless the allegation is manifestly untrue;
- there is no special category of negligence when considering the liability of the parent company for the acts of its subsidiary – cases in this area should be assessed as for all other cases of extramarital customary negligence; i
- there is no general principle that a company can never take on the duty of caring about the activities of its subsidiary by maintaining policies and guidelines for the entire group.