Insights

Okpabi v Royal Dutch Shell [2021] UKSC 3 reads like a bomb that has just exploded for multinational companies globally

The decision in Okpabi v Royal Dutch Shell [2021] UKSC 3 (Shell) reads like a bomb that has just exploded in the boardrooms of multinational companies globally.

In it, the UK Supreme Court confirmed its watershed decision in Vedanta Resources PLC v Lungowe [2019] UKSC 20, (Vedanta) that:

“‘the liability of parent companies in relation to the activities of their subsidiaries is not, of itself, a distinct category of liability in common law negligence’. The liability for parent companies raises no novel issues of law and is to be determined on ordinary, general principles of the law of tort regarding the imposition of a duty of care. In the context of parent/subsidiary relationships, whether a duty of care arises: ‘… depends on the extent to which, and the way in which, the parent availed itself of the opportunity to take over, intervene in, control, supervise or advise the management of the relevant operations (including land use) of the subsidiary.'”

Like Vedanta, which involved pollution in Zambia by a mine operated by a Zambian subsidiary of a parent company based in the UK, Shell involved pollution in Nigeria by oil operations of a Nigerian subsidiary of a parent company based in the UK.

Both decisions have immense implications for the ability of parent companies to hide behind the corporate veil to avoid liability for harm caused by their subsidiaries in other (often very poor) countries.

Shell not only confirms the principles in Vedanta but should make it much easier in practice for future plaintiffs to commence their case and not be overwhelmed by a mountain of one-sided evidence thrown at the court by a large multinational to kill the litigation before disclosure and a trial have occurred.

In Shell, the UK Supreme Court deplored the mountain of evidence and submissions that had been tendered at the interlocutory stage of establishing whether the UK courts were an appropriate forum for the dispute (rather than Nigeria). The court stated that interlocutory decisions involving jurisdictional disputes should focus on the pleadings and not be turned into “a mini trial” in which a court makes determinations in relation to contested factual evidence.

Lord Hamblen (with whom Lord Hodge, Lady Black and Lord Briggs agreed) stated in allowing the appeal from the UK Court of Appeal (which had descended into evaluating the evidence to find the claims were not reasonably arguable, therefore the UK was not an appropriate forum):

[107] The result is that instead of focusing on the pleaded case and whether that discloses an arguable claim, the court is drawn into an evaluation of the weight of the evidence and the exercise of a judgment based on that evidence. That is not its task at this interlocutory stage. The factual averments made in support of the claim should be accepted unless, exceptionally, they are demonstrably untrue or unsupportable

If Vedanta was a pathfinder leading the way, this reads like carpet bombing of liability for parent companies based in the UK for harm their subsidiaries cause in other countries.

Both Vedanta and Shell have immense implications for liability of multinational corporations and parent companies globally as well as “practical access to justice” for people impacted by the operations of subsidiaries in often very poor countries.

Daniel Leader, a partner at Leigh Day, which acted for the plaintiffs in both cases, said the ruling in Shell:

“represents a watershed moment in the accountability of multinational companies. Increasingly impoverished communities are seeking to hold powerful corporate actors to account and this judgment will significantly increase their ability to do so.”

Both Vedanta and Shell involved pollution by subsidiaries. In the context of the rising tide of climate litigation globally, their reasoning has important implications for liability of parent companies of multinational coal, oil and gas companies for greenhouse emissions caused by their subsidiaries’ operations globally.

Congratulations to Leigh Day, the UK firm and their lead counsel, Richard Hermer QC, who acted for the plaintiffs in both Vedanta and Shell for these incredible human rights wins.

While it remains to be seen if this approach will be followed in Australia and other common law countries, the reasoning of the UK Supreme Court, based firmly in well-established principles of tort for negligence, is compelling.

 

Dr Chris McGrath

Barrister

Higgins Chambers

14 February 2021