Out-Law / Your Daily Need-To-Know

Court dismisses Nigerian claim against UK parent company

Out-Law News | 21 Feb 2018 | 9:44 am | 3 min. read

The Court of Appeal has dismissed a claim brought by two Nigerian community groups against Royal Dutch Shell (RDS) for environmental damage caused by one of its subsidiaries.

The groups were unable to show that RDS rather than the subsidiary, the Shell Petroleum Development Co. of Nigeria Ltd (SPDC), owed them any duty of care. The group's only remedy was to sue SPDC in the Nigerian courts, as the English court had no jurisdiction over SPDC.

The case was, however, a "finely balanced" one, which included a "vigorous" dissenting judgment from appeal court judge Lord Justice Sales, according to energy litigation expert Richard Dickman of Pinsent Masons, the law firm behind Out-Law.com.

"In this case, the argument for a duty of care rested on the degree of control exercised by RDS over its Nigerian subsidiary, and the degree to which its health and safety and other policies were imposed on the subsidiary," he said. "Clearly, the more financial and operational control, and the more policy influence, exerted by the parent over the subsidiary, the greater the risk of such a duty of care being found to exist."

"The main obstacle to bringing these sorts of claims is the fundamental principle that companies have separate legal personality. Courts are generally unwilling to 'pierce the corporate veil' unless the corporate structure is a deliberate device to conceal wrongdoing. To overcome this obstacle, the claimants had to show that the parent company owed a duty of care to the subsidiary's employees or the local community. The court then faced the difficult task of determining whether it was at least reasonably arguable that such a duty of care existed, and therefore whether the court has, or should exercise, jurisdiction over the claim," he said.

Dickman said that the courts had agreed to accept jurisdiction in a number of these cases in the past. For example, in the 2000 Lubbe v Cape Plc case, the House of Lords found in favour of the South African claimants, for whom it would be difficult to pursue their claims in South Africa. However, the courts have only found in favour of the employees of a subsidiary, but not the community affected by the subsidiary's activities, on one occasion, in the 2012 Chandler v Cape Plc case, where the parent company had employed a doctor whose specific role was to protect the employees of the subsidiary.

Multi-national parent companies face claims in England arising out of the activities of their foreign subsidiaries on a fairly regular basis, Dickman said. Suing the parent company can be attractive where the parent company has "a deeper pocket" than the subsidiary, or where it can act as an 'anchor defendant' to ensure that the English courts have jurisdiction to hear the claim, according to Dickman.

The community groups were seeking damages for what they claimed was "serious, and ongoing" pollution and environmental damage caused by oil leaks from pipelines and associated infrastructure in and around the Niger Delta. SPDC operated the pipelines and associated infrastructure as part of a joint venture agreement between itself, the Nigeria National Petroleum Corporation, Total Exploration and Production Nigeria Ltd and Nigeria Agip Oil Company.

The groups had argued that RDS' "knowledge of and control over SPDC's operations and their foreseeable effect on the environment and communities" created a "relationship of proximity" between the parties. SPDC, however, provided evidence that it was responsible for "all operational decisions" in Nigeria; that it, rather than RDS, had the "specialist knowledge and experience" to operate in the country and that it was SPDC, rather than RDS, that held the necessary licence from the Nigerian authorities.

The court found that RDS operated a "centralised system based on industry standards and the Shell Group's own developed best practice". However, this did not point to a "sufficient degree of control of SPDC's operations in Nigeria by RDS to establish the necessary degree of proximity". The idea behind the system was "to ensure that there were proper controls and not to exercise control", the judge said.

"There were reputational concerns (in part in relation to personnel), there was concern about losses of oil and environmental damage, there was a desire to ensure that proper systems were put in place to reduce such losses and environmental damage; and there was the establishment of an overall system which was there to ensure best uniform practices," the court said. "However, the claimants have not demonstrated an arguable case that RDC controlled SPDC's operations, or that it had direct responsibility for practices or failures which are the subject of the claim."

Lord Justice Sales disagreed, finding that the groups had a "good arguable case … that RDS did involve itself in the management of the operation and security of the pipeline and facilities in such a direct and substantial way, exercising a degree of real control in relation to those matters going significantly beyond the mere setting of group-wide standards by the Shell Group's central management teams".