28 Feb 2017

In His Royal Highness Emere Godwin Bebe Okpabi and Others v Royal Dutch Shell PLC and Shell Petroleum Development Company of Nigeria Ltd 2017 EWHC 89 (TCC) the High Court considered whether the ultimate holding company of the worldwide Shell Group, Royal Dutch Shell PLC (RDS), was liable for the acts and/or omissions of a Nigerian company in the Shell Group; Shell Petroleum Development Company of Nigeria Ltd (SPDC). 

Background

Two sets of proceedings were brought by a number of named individuals against RDS and SPDC as a result of pollution and environmental damage affecting large areas of land and the health and livelihood of many people in and around the Niger Delta in Nigeria, caused by oil spills from SPDC’s oil pipelines and associated infrastructure.

The first proceedings were brought by 20 named claimants both for themselves and on behalf of the people of the Ogale community in Nigeria, which has a population of around 40,000. The first of the named claimants, HRH Okpabi, is King of the Ogale community in Nigeria. A second set of proceedings was brought by 2,335 different claimants. The claimants in both sets of proceedings were all resident in and citizens of Nigeria. The claims were brought under Nigerian statute and common law.

The claimants, relying on earlier litigation relating to oil spills in Nigeria against SPDC (Bodo litigation), argued that the claims had a much better prospect of progress and success if undertaken in the English courts, rather than in Nigeria, where legal proceedings were subject to delays, and sought redress in this jurisdiction in the form of both injunctive relief and damages. 

RDS is incorporated in and has its registered office in the UK and has board meetings either in the Netherlands or elsewhere in the world. It is listed on the London Stock Exchange as well as other stock exchanges worldwide. SPDC is a Nigerian-registered exploration and production company incorporated in Nigeria and licensed to undertake the relevant oil related activities in Nigeria. SPDC operates in Nigeria through a joint venture with other Nigerian-registered oil companies. RDS is not a member of the joint venture and has no relevant licence in Nigeria. RDS is not a direct shareholder of SPDC but holds shares in Shell Petroleum NV, a Dutch company, which itself holds shares in SPDC. The Shell Group comprises holding companies, operating companies and service companies. There are 1,367 different companies which are located in 101 different countries. Both defendants, RDS and SPDC, challenged the jurisdiction of the English courts.

Governing law

The parties were agreed that the claims against SPDC were governed by the law of Nigeria. It is only so far as the claims against RDS were concerned that there was any dispute about the substantive law.

Under article 7 of the Rome II Regulation (regulation (EC) 864/2007), the law applicable to a non-contractual obligation arising out of environmental damage is the law of the country where the damage occurred 'unless the person seeking compensation for damage chooses to base his or her claim on the law of the country in which the event giving rise to the damage occurred'. The claimants maintained that this entitled them to elect to proceed against RDS under English law as the alleged acts and omissions by RDS occurred in England. However, the evidence of the defendants was that nothing had been done by RDS in England at all and the claim against RDS must be governed by Nigerian law. 

Because the parties had agreed that Nigerian law would follow, or at least include as an essential component, English law, it wasn't necessary for Fraser J to determine the applicable law definitively. It was agreed that, if there was no claim against RDS in English law, there would be no claim against RDS under Nigerian law, as Nigeria is also a common law jurisdiction and would follow English law in this respect. It was therefore agreed that the court should apply English law principles to the claims against RDS. 

Jurisdiction

Claims against non-domiciled defendants can be heard by the courts in England if there is an 'anchor defendant'. In order to proceed against SPDC in England, the claimants relied, therefore, on the 'necessary or proper party' gateway in paragraph 3.1(3) of Practice Direction 6B. This provides, firstly, that a claimant may serve a claim form out of the jurisdiction (ie on SPDC) with the permission of the court, where a claim is also made against another defendant (ie RDS, the 'anchor defendant' in this context) and that claim form is served otherwise than in reliance on that paragraph. As RDS, the 'anchor defendant', was served within the jurisdiction, this requirement was satisfied. Secondly, there must be a 'real issue' between the claimant and the anchor defendant (RDS), which it is reasonable for the court to try, and the claimant wishes to serve the claim form on another person (ie SPDC) 'who is a necessary or proper party to the claim'.

The existence of RDS and the claim against it are fundamental to the operation of the rule. Accordingly, Fraser J, following the Court of Appeal in Erste Group Bank AG, London Branch v JSC ‘VMZ Red October’ and others [2015], held that the case against RDS should be considered first to establish whether there was a real issue between the claimants and RDS which it was reasonable for the court to try. If RDS was an 'anchor defendant', this would enable SPDC to be joined to the proceedings and the claims heard in the English High Court. Whether the claims against SPDC would be heard in London, therefore depended on there being a real issue between the claimants and RDS.

The claimants' arguments

The claimants' arguments included:

  • RDS was not a "true holding company" and exercised a high degree of control and direction over SPDC's environmentally harmful activities. RDS had ultimate responsibility for ensuring that SPDC's operations in Nigeria did not cause foreseeable harm to the claimants and exercised significant control over the affairs of its subsidiaries through the RDS Executive Committee, which is the central decision making body of the Shell Group of companies. As a result, RDS owed the claimants a common law duty of care in respect of the oil pollution that caused damage to the claimants and it breached that duty of care. In particular:
  1. RDS failed to ensure that repeated oil leaks from SPDC's infrastructure were cleaned up so as to minimise the risk to the claimants' health, land and livelihoods; and
  2. RDS failed to take appropriate measures to address the well-known systemic problems of its operations in Nigeria which led to repeated oil spills. The problems included inadequate maintenance of equipment, deficient decommissioning of disused infrastructure, operation of faulty equipment, failure to protect pipelines from third party interference and failure to implement adequate systems for detecting leaks and shutting down pipelines.
  • RDS was liable through its supervision of SPDC and its policies, not because RDS's personnel were negligent in relation to the operation of Nigerian oil assets. RDS was responsible to the claimants for what SPDC has done or omitted to do.
  • Statements were made by RDS and the Shell Group in public statements and corporate documents (eg the 2014 Sustainability Report and Stock Exchange announcements) that emphasise the ultimate responsibility of the RDS board and the degree and extent of control exerted by RDS over SPDC as well as the Shell Group's commitment to environmental issues. Such statements deal with matters such as the global policy of the Shell Group concerning the environment and health.
  • In the previous Bodo litigation, SPDC had voluntarily submitted to the jurisdiction of the English High Court and admitted liability resulting in those claims being settled. Amongst other points this showed a degree of co-ordination between the two companies and that SPDC had considered the English Court an appropriate forum for those Nigerian law based claims.

Duty of care of a parent company

The law does not impose liabilities on companies simply by reason of their common membership of the same group. The existence of a duty of care will depend on the circumstances. The parties agreed that the starting point was the House of Lords decision in Caparo Industries PLC v Dickman [1990] and the three-fold test of foreseeability, proximity and reasonableness. The three-fold test requires the following elements to be satisfied:

  1. The damage should be foreseeable.
  2. There should exist between the party owing the duty and the party to whom it is owed, a relationship of proximity or neighbourhood.
  3. The situation should be one in which it is "fair, just and reasonable" to impose a duty of a given scope upon one party for the benefit of the other.

The judge said that the second and third limbs of the test were problematic for the claimants. In relation to proximity, the relationship between RDS, the ultimate holding company of the Shell Group, and the large number of claimants was not close. Also:

  • RDS does not directly hold shares in SPDC. 
  • RDS does not conduct any operations. Fraser J considered the fact RDS does not conduct any operations and is in fact not permitted to do so in Nigeria due to licensing requirements and was not part of the Joint Venture in Nigeria was of particular note (see Chandler v Cape Plc below).  
  • The two officers of RDS that sit on the RDS Executive Committee constituted a minority of the membership.
  • Quoting the classic expression of Cardozo CJ in Ultramares Corporation v Touche [1931], in the New York Court of Appeals, imposing a duty of care on RDS would potentially impose "liability in an indeterminate amount, for an indeterminate time, to an indeterminate class" which would be the antithesis to proximity.

In considering the third limb of whether it was just, fair and reasonable to impose a duty of care upon RDS:

  • SPDC, as the operating company of a pipeline in Nigeria, had strict liability for oil spills (excluding illegal activities) under the law of Nigeria. 
  • Again, the absence of RDS operating in Nigeria, lack of involvement in the Joint Venture and the fact that RDS merely held the shares in its subsidiaries “as if it were an investment holding company” were important factors.
  • It was difficult to see how the test of fairness, justice and reasonableness could justify the claimants in seeking further and far wider damages from RDS than those to which they were entitled from SPDC. 

In Chandler v Cape Plc [2012] the Court of Appeal recognised a duty of care held by a parent company. Importance was placed on the parent/subsidiary relationship and whether the subsidiary was run purely as a division of the parent company. Arden LJ listed the following four factors, the presence of some or all of which would bring a case more closely within the scope of a duty of care owed by a parent company:

  1. The businesses of the two are in a relevant respect the same.
  2. The parent had or ought to have superior or specialist knowledge compared to the subsidiary.
  3. The parent had knowledge of the subsidiary’s systems of work.
  4. The parent knew or ought to have foreseen that the subsidiary was relying on it to use that superior knowledge to protect the claimants. 

Fraser J found that none of the four factors identified by Arden LJ were present in the relationship between RDS and SPDC for the following reasons:

  1. RDS is not operating the same business as SPDC. RDS does not have any operations in Nigeria or any infrastructure in Nigeria. Indeed, RDS does not have operations anywhere. It is the subsidiary companies that perform operations in different countries and that own the infrastructure.  RDS does not operate any business other than holding shares and dealing with financial matters that affect it as the ultimate holding company.
  2. RDS does not have superior or specialist knowledge compared to the subsidiary, SPDC. On the contrary, SPDC’s state of knowledge is far more specialist than, and wholly superior to, that of RDS in relation to a licensed oil company operating in Nigeria.
  3. Given the extent and scale of the many companies within the Shell Group, RDS could only have a superficial overview of SPDC’s operations. There was no evidence of a high level of oversight or control by RDS as alleged by the claimants.
  4. RDS could not be said to have known that SPDC was relying on it to protect the claimants. There was no evidence to suggest SPDC had ever relied on RDS and the notion that it would do so in relation to its operations in Nigeria, as a wholly autonomous subsidiary with considerable income and sizeable assets of its own, was fanciful.

Fraser J said when approaching the four factors listed by Arden LJ, the purpose of the enquiry is to see whether the parent company is better placed, because of its superior knowledge or expertise, than the subsidiary is in respect of the harm and, if so, whether it is fair to infer that the subsidiary will rely upon the parent deploying its superior knowledge. He emphasised that in Chandler v Cape Plc [2012] and also in another Court of Appeal case which considered the same issue, Thompson v The Renwick Group plc [2014], the Court of Appeal made an express distinction where the parent company is simply holding shares in other companies. 

Other points from the judgment

On passing judgment on other legal systems

Fraser J warned of passing qualitative judgments on the legal systems of other sovereign nations and highlighted that the claimants potentially have redress available to them against SPDC in Nigeria. 

On decisions of the RDS Executive Committee

Fraser J said in his judgment that the Executive Committee is making decisions on behalf of the Shell Group and he did not equate decisions taken by the Executive Committee of the Shell Group with decisions taken by RDS. The Shell Group and RDS are not the same legal entity. The Executive Committee is led by the Chief Executive Officer of RDS and although the Chief Financial Officer of RDS is also a member, there are six other members who do not therefore fall under the scope of RDS at all. The two officers of RDS were in a minority.

On public statements and group policies

Adopting global policies in relation to the environment and health relate to the activities of the Shell Group, not to RDS as such. They would not weigh heavily, if at all, in the balance when considering whether a duty of care is arguable. In relation to Stock Exchange announcements, public statements are a function of the listing rules and are not normally sufficient to establish a duty of care. It is highly unlikely that compliance with the Stock Exchange's disclosure standards could of itself be characterised as an assumption of a duty of care by a parent company over the subsidiary companies referred to in those public statements. In the case of RDS, there was also a specific disclaimer included to the effect that although statements included collective expressions such as 'Shell' or 'Shell Group' for convenience, each company in the Shell Group is a separate and distinct entity.

On the Bodo litigation and SPDC voluntarily submitting to the jurisdiction of the English Court in that earlier litigation 

The voluntary submission of SPDC to the jurisdiction in that case cannot govern, or substantially influence, any of the factors under consideration on these applications. Any party is free to clothe the courts of England and Wales with jurisdiction voluntarily. Sometimes this is done contractually by means of, for example, an express jurisdiction clause before any dispute arises. Sometimes it is done after a dispute has arisen, either before or after proceedings are issued. To weigh an earlier voluntary submission to the jurisdiction by SPDC heavily in the balance on these applications would be wrong in principle.

On the principle that the companies were separate legal entities

Fraser J quoted from the judgment of the Court of Appeal in Adams v Cape Industries plc [1990] when the issue of 'a single economic unit' was considered

…the court is not free to disregard the principle of Salomon v A. Salomon & Co Ltd merely because it considers that justice so requires. Our law, for better or worse, recognises the creation of subsidiary companies, which though in one sense the creatures of their parent companies, will nevertheless under the general law fall to be treated as separate legal entities with all the rights and liabilities which would normally attach to separate legal entities.

Also, in Bank of Tokyo Ltd v Karoon [1987] Robert Goff LJ said:

[Counsel] suggested beguilingly that it would be technical for us to distinguish between parent and subsidiary company in this context: economically, he said they were one. But we are concerned not with economics but with law. The distinction between the two is, in law, fundamental and cannot here be bridged.

Decision

Fraser J concluded that RDS and SPDC are two entirely separate legal entities and that it was not reasonably arguable that there was any duty of care on RDS for the acts and/or omissions of the operating subsidiary within the Shell Group for Nigeria, SPDC. Membership of the same group does not of itself make RDS responsible for acts or omissions of a subsidiary. It had been agreed that if there was no arguable duty of care on the part of RDS under English Law, then there would not be any cause of action in common law under the law of Nigeria.

There was therefore no 'real issue' between the claimants and RDS which it was reasonable for the court to try and therefore, RDS was not an 'anchor defendant' for the purpose of establishing jurisdiction. There was no connection between the English court’s jurisdiction and the claims brought by the claimants, who are Nigerian citizens, for breaches of statutory duty and/or in common law for acts and omissions in Nigeria by SPDC. The claims against RDS did not therefore proceed and the challenge to jurisdiction by SPDC therefore succeeded.

Fraser J made it clear that his conclusion did not express any view on the merits of the case in terms of minimising or ignoring the effects upon the claimants of the conditions in the Niger Delta. The claimants did at least potentially have redress available to them in Nigeria against SPDC.