Is a UK parent liable for the conduct of its foreign subsidiary? (Update)


Author: Frances Jenkins


In the recent Court of Appeal judgment of Okpabi v Royal Dutch Shell Plc[1], the court examined the issue of whether there was an arguable case that Royal Dutch Shell (Shell), as the UK parent company of a Nigerian subsidiary, owed a duty of care to those affected by oil leaks from pipelines and associated infrastructure in the Rivers State of Nigeria.

The Claimants were the inhabitants of areas in Nigeria affected by oil leaks who then brought claims against Shell on the basis that Shell, notwithstanding its position as parent company rather than the operating company directly responsible, owed them a duty of care because it controlled the production subsidiary incorporated in Nigeria responsible for the operation of pipelines and infrastructure in Nigeria from which the leaks occurred. In the alternative, the Claimants claimed that Shell had assumed a direct responsibility to protect the Claimants from the environmental damage caused by the leaks.

Ultimately, the Court of Appeal decided that the Claimants had not managed to establish an arguable case that there was a duty of care owed by Shell to the Claimants as the Claimants had failed to establish the requisite level of proximity and that it was just and reasonable to impose such a duty upon the parent company. With regard to control, Simon LJ commented that in light of all of the evidence, particularly the documentary evidence, there was nothing to suggest that Shell had a sufficient degree of control of the operation of pipelines and infrastructure. In particular, he noted that the issuing of mandatory policies could not mean that a parent has taken control of the operations of a subsidiary such as to give rise to a duty of care. With regard to responsibility, Sir Geoffrey Vos commented that it would be surprising if a parent company were to go to the trouble of establishing overseas subsidiaries if it intended itself to assume responsibility for the operations of each subsidiary.

It is worth noting that the Court of Appeal referred to and distinguished the present case from Lungowe v Vedanta Resources plc[2] (addressed in our previous Alerter ‘Is a UK parent liable for the conduct of its foreign subsidiary?’) on the basis that Shell’s Nigerian subsidiary (not Shell itself) operated the pipeline pursuant to a joint venture agreement with the Nigeria National Petroleum Corporation (which held the majority interest) and two other parties; whereas in the Vedanta case the parent company held the majority interest of 80% in the subsidiary which directly carried out the operations in question. Furthermore, there was more documentary evidence that the Vedanta parent company was involved in the work of the subsidiary. Moreover, the witness evidence in Vedanta specifically explained how the parent company imposed its own management and operational policies on the subsidiary.

Following Vedanta, the Okpabi case should provide reassurance to parent companies that they will not automatically assume a duty of care in respect of operations conducted by a subsidiary simply by virtue of ownership of that subsidiary. However, parent companies should still be aware that the court can impose such a duty – albeit in limited circumstances – if it can be demonstrated that the parent imposes a high degree of control over and responsibility for the subsidiary’s operations.


[1]Okpabi and others v Royal Dutch Shell Plc and another [2018] EWCA Civ 191

[2] Lungowe v Vedanta Resources plc [2017] EWCA Civ 1528

 

Frances Jenkins, Associate, Fladgate LLP (fjenkins@fladgate.com)

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