Successful challenge to English court jurisdiction over claims against UK domiciled parent company in relation to acts of subsidiary abroad

Two companies in the Shell group (domiciled in the UK and Nigeria respectively) have successfully challenged the jurisdiction of the English court to hear claims against them relating to alleged pollution in the Niger Delta in Nigeria: Okpabi and others v Royal Dutch Shell Plc and Shell Petroleum Development Company of Nigeria Ltd [2017] EWHC 89 (TCC).

We understand that permission to appeal has been granted and that the Court of Appeal will be invited to decide when the English court's jurisdiction will be engaged in claims against a UK-headquartered parent company for the negligent acts (or omissions) of its subsidiary companies around the globe. The present decision suggests that in many cases it may be difficult to establish jurisdiction in such circumstances, particularly where the claimants are unable to establish that there was a close relationship between themselves and the parent company.

John Ogilvie, partner, Claire Stirrup, senior associate, and Dan Kenny, associate, in our disputes team consider the decision below.

Background

These proceedings concerned two group actions, brought by two large groups of individuals from two different areas in the Niger Delta region. Both actions were brought against: (i) Royal Dutch Shell Plc (RDS), a company incorporated in England; and (ii) Shell Petroleum Development Company of Nigeria Ltd (SPDC), a company incorporated in Nigeria. Due to the similar facts of both claims, the jurisdiction proceedings were heard together.

Both claims alleged environmental damage resulting from the operations of a joint venture (operated by SPDC) in Nigeria. RDS is not a member of the joint venture, but is the ultimate holding company of the worldwide Shell Group, and therefore is the ultimate holding company of SPDC.

The claims against RDS were based principally in negligence. They comprised alleged breaches by RDS of the duty of care which it was said to owe to the Nigerian claimants. The duty was said to have arisen from the control which RDS allegedly exercised over SPDC's operations.

RDS and SPDC argued that these claims had nothing to do with the UK and, on this basis, challenged the English court's jurisdiction.

RDS claim: Article 4 of the recast Brussels Regulation

Historically, an English court could stay a claim against a defendant (irrespective of its domicile) on forum non conveniens grounds. However, a number of decisions have held that the effect of the European court's decision in Owusu v Jackson (Case C-281/02) was that there is no discretion to stay a claim on forum non conveniens grounds where the English court has jurisdiction under Article 4 of the recast Brussels Regulation (ie because the defendant is UK-domiciled).

Fraser J, in Okpabi, agreed, finding that there was no scope to apply the doctrine of forum non conveniens to the claim against RDS, as it is domiciled within the jurisdiction.  Accordingly, so long as the claimants could establish that there was a real issue to be tried against RDS, they would establish jurisdiction for their claims against RDS. This would establish an "anchor defendant", so as to allow for SPDC (the Nigerian company) to be joined to the proceedings in England, as a necessary or proper party (pursuant to paragraph 3.1(3) of Practice Direction 6B).

RDS claim: duty of care

As mentioned above, the main cause of action pleaded against RDS was negligence, on the basis that it owed a duty of care to the individuals living in the areas of the Niger Delta affected by the alleged pollution.

It was agreed that, in considering whether a parent company owes a duty of care in respect of acts or omissions by its subsidiaries, the court should apply the test established in Caparo Industries plc v Dickman [1990] 2 AC 605, which requires three limbs to be satisfied. First, the particular damage should be foreseeable; secondly, there should be a relationship of proximity or neighbourhood (ie a close relationship) between RDS and the claimants; and thirdly, the situation should be one in which it is fair, just and reasonable to impose a duty on RDS for the benefit of the claimants.

On the facts before it, the High Court found that the claimants did not meet the requirements of the second and third limbs. In respect of the second limb, the necessary relationship of proximity between RDS and the claimants did not exist. The key factors relied on by the court included:

• the specific company structure (RDS held shares in SPDC via another Shell holding company);
• RDS's position as a holding company (rather than an operating company of SPDC);
• the composition of the Executive Committee of the Shell group of companies; and
• the fact that RDS did not hold any relevant oil exploration/exploitation licences (necessary under Nigerian law) nor did it have a role in "on the ground" operations.

In considering the "relationship of proximity", the court had regard to the four factors identified by Lady Justice Arden in the Court of Appeal in Chandler v Cape [2012] EWCA Civ 525, namely: whether the companies were operating the same businesses; whether the parent had superior or specialist knowledge compared to the subsidiary; whether the parent had knowledge of the subsidiary's systems of work; and whether the parent knew that the subsidiary was relying on it to protect the claimants. Although the factors were not exhaustive, the more factors that were present, the more likely the court would be to find a duty of care existed.

On the facts before it in the present case, the court found that none of the four factors were present.

In finding that RDS did not have the necessary relationship of proximity, the court also appears to have placed weight on the fact that imposing a duty of care on RDS could potentially impose "liability in an indeterminate amount, for an indeterminate time, to an indeterminate class".  Fraser J found this to be "the antithesis to proximity or neighbourhood".

In respect of the third limb, the court found that it would not be fair, just and reasonable to impose a duty. A number of the factors identified in relation to proximity were relevant to this part of the test also. In addition:

• there was a strict liability regime in Nigeria in relation to oil pollution;
• local statutes in Nigeria limited any entitlement to seek compensation from entities other than SPDC, the entity operating the joint venture; and
• RDS was prohibited from conducting any oil operations in Nigeria, and did not have any associated infrastructure in the country.

SPDC claim

On the basis that there was no arguable duty of care owed by RDS to the individual claimants, it was held that there was no real issue that it would be reasonable for the English courts to try; therefore, the English courts had no jurisdiction over these claims.

As stated by Fraser J, "absent the existence of proceedings on foot in England against RDS, there is simply no connection whatsoever between this 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 omission in Nigeria, by a Nigerian company".

Note: This decision was upheld on appeal. See our post on the Court of Appeal decision here.