When can a parent company be responsible for acts of its subsidiary? (HRH Emere Godwin Bebe Okpabi v Royal Dutch Shell Plc)

In this case, the High Court considered the circumstances in which a parent company could be liable in tort for the acts and/or omissions of its subsidiary.

Original news

HRH Emere Godwin Bebe Okpabi & Ors v Royal Dutch Shell Plc & Anor [2017] EWHC 89 (TCC)

In this case, the High Court considered the circumstances in which a parent company could be liable for the acts and/or omissions of its subsidiary.

Background

In this case proceedings were brought in the High Court against Royal Dutch Shell plc (RDS), the ultimate holding company of the Shell Group, and its operating subsidiary, Shell Petroleum Development Company of Nigeria Ltd (SPDC). The claimants were seeking damages arising as a result of ongoing pollution and environmental damage caused by oil spills emanating from the defendants' oil pipelines and associated infrastructure in Nigeria.

The defendants argued that the English courts did not have jurisdiction to hear the case and that the approach of bringing a claim against the parent company, RDS, was a device being used cynically by the claimants to bring claims, that would otherwise have no connection whatsoever with England, to trial in the English courts. A central issue in the case was therefore whether RDS could be liable in tort for the acts/omissions of its subsidiary.

Existing caselaw

Mr Justice Fraser considered a number of previous cases on this issue and said that the starting point was the three-fold test set out in Caparo Industries Plc v Dickman [1990] 2 AC 605, namely that:

  • the damage should be foreseeable
  • there should exist between the party owing the duty and the party to whom it is owed a relationship of proximity or neighbourhood
  • the situation should be one in which it is 'fair, just and reasonable' to impose a duty of a given scope upon the one party for the benefit of the other

Fraser J noted that in Chandler v Cape Plc the Court of Appeal had stated that in appropriate circumstances the law may impose on a parent company responsibility for the health and safety of its subsidiary's employees. Those circumstances included situations where:

  • the businesses of the parent and subsidiary were in a relevant respect the same
  • the parent had, or ought to have had, superior knowledge on some relevant aspect of health and safety in the particular industry
  • the subsidiary's system of work was unsafe as the parent company knew, or ought to have known
  • the parent knew or ought to have foreseen that the subsidiary or its employees would rely on its using that superior knowledge for the employees' protection

Fraser J noted that in Lungowe and others v Vedanta Resources plc and Konkola Copper Mines plc, the High Court had stated that such a claim in negligence against a parent company arising out of the operations of its subsidiary was more likely to succeed if advanced by former employees. However, depending on the facts, claims made by residents, rather than former employees, were still arguable.

A two-fold approach

Fraser J stated that when approaching the four factors identified in Chandler v Cape as indicating the existence of a duty of care, a two-fold approach should be taken:

  • firstly, was the parent company better placed, because of its superior knowledge or expertise than the subsidiary in respect of the harm
  • if so, was it fair to infer that the subsidiary would rely upon the parent deploying its superior knowledge in order to avoid the harm

Although the factors in Chandler v Cape were non-exhaustive, the presence of some, or all, of those factors, would bring any particular case more closely within the scope of a duty of care owed by a parent company. The higher the number of those four factors that were present, the more likely that would be.

What did the court decide?

Fraser J concluded that it was not reasonably arguable that there was a duty of care upon RDS for the acts and/or omissions of its operating subsidiary, SPDC.

Applying the second limb of the three-fold test in Caparo, Fraser J said that the following factors suggested that the relationship between RDS and its operating subsidiary was not a close one:

  • RDS did not hold shares directly in SPDC, but instead through another company
  • RDS did not conduct any operations
  • although two officers of RDS sat on the Executive Committee of the Shell Group (the central decision making body of the Shell Group of companies), these two constituted a minority of that membership
  • RDS was not permitted to conduct operations in Nigeria as it did not hold the relevant licence
  • there was a joint venture in existence engaged in such activity in Nigeria of which RDS was not a member
  • imposing a duty of care upon RDS would potentially impose 'liability in an indeterminate amount, for an indeterminate time, to an indeterminate class'; to apply the classic expression of Cardozo CJ in Ultramares Corporation v Touche. There were 1,366 other companies in the Shell Group, and the service and operating companies amongst that number performed activities in 101 different countries

Applying the third test of Caparo, Fraser J considered that it would not be 'fair, just and reasonable' to impose a duty of care of the nature alleged by the claimants upon RDS:

  • SPDC had statutory liability under the law of Nigeria for oil spills (which was one of strict liability). Concepts of fairness, justice and reasonableness did not therefore require (or argue in favour of) the imposition of a duty of care upon the ultimate holding company, RDS
  • 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 are entitled from SPDC
  • RDS was prohibited, by the law of Nigeria, from performing operations in that country. RDS simply did not have any oil pipelines and associated infrastructure in Nigeria at all
  • RDS merely held shares in its subsidiaries at if it were an investment holding company
  • the relevant activities were carried out by SPDC as part of the joint venture with the Nigerian state

Considering the four factors in Chandler v Cape, Fraser J highlighted the following factors:

  • RDS was not operating the same business as SPDC. RDS was the ultimate holding company, and did not operate any business other than holding shares, and dealing with the financial matters that affected it as the ultimate holding company. SPDC was the company in Nigeria that was licensed to carry out the relevant operating activities, and which was a minority member of the joint venture in which the Nigerian State owned corporation was a member
  • RDS did not have superior or specialist knowledge compared to the subsidiary SPDC. SPDC's state of knowledge was far more specialist than, and wholly superior to, that of RDS so far as Nigeria was concerned
  • RDS could have only a superficial knowledge or overview of the systems of work of SPDC. Given the scale of the activities of the many companies in the Shell Group, the degree of knowledge held by RDS, rather than SPDC its specialist operating subsidiary, could never sensibly be considered as comprehensive, or anything other than knowledge at a very high or superficial level
  • RDS could not be said to know that SPDC was relying upon it to protect the claimants. There was simply no evidence that SPDC ever did rely upon RDS. SPDC was a wholly autonomous subsidiary with considerable income and sizeable assets of its own

Fraser J therefore concluded that the claims against both RDS and SPDC would fail and should not be allowed to proceed in the English courts.

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