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International Pollution Claims – the English Courts’ Jurisdiction (by Peter Laverack, Pupil)

On 26th January 2017, Mr Justice Fraser of the English High Court handed down a judgment concerning the dumping of “hundreds of thousands of barrels of refined crude oil products” that resulted in “an environmental catastrophe” (in the words of the UN Environment Programme) [15]. The claim was brought on behalf of 42,500 claimants.  If the scale of the damage and the number of claimants are not noteworthy enough, the fact that an English court was involved at all certainly is.  That is because the environmental damage happened 4,000 miles away in Nigeria. The judgment in question is Okpabi and others v Royal Dutch Shell Plc and Shell Petroleum Development Company of Nigeria Ltd [2017] EWHC 89 (TCC).  

Although Fraser J ultimately dismissed the claims for lack of jurisdiction, his judgment leaves open the prospect of English parent companies being sued in the English courts for environmental damage caused overseas by their subsidiaries.  The judgment is rich in guidance both for corporates on how to structure themselves to avoid extra-territorial litigation in England and for foreign claimants on how to assess whether an English parent company is a suitable target.

Piercing the corporate veil and extra-territorial jurisdiction

In bringing their claims, residents of the Niger Delta sought to pierce the corporate veil by holding Royal Dutch Shell Plc (“RDS Plc”) responsible for the actions of its Nigerian subsidiary (“Shell Nigeria”).  They also sought to extend the English courts’ jurisdiction to levy damages against English parent companies for their global group operations.  The claimants had to overcome two well-established principles of English law: (1) that a company has a separate legal personality, so that shareholders are not liable for the company’s wrongs, and (2) that English courts, in general, have no extra-territorial jurisdiction.

It was common ground that if any Shell entity was responsible, it was Shell Nigeria and that an English court has no jurisdiction over its conduct in Nigeria absent its agreement.  The claimants sought to overcome this problem by bringing proceedings in England against RDS Plc –  an English company – as an “anchor defendant” [16]-[18].  Doing so would more readily allow Shell Nigeria to be added as a second defendant pursuant to CPR 6.36 and PD 6B3.1(3).  The claim therefore hung on whether there was a legitimate cause of action against RDS Plc that was triable in England.  The claimants argued that RDS Plc was negligent in its supervision of Shell Nigeria (it was disputed whether this claim would be governed by Nigerian or English law), and that England was an appropriate forum to hear that claim.  

England an appropriate forum, at least until Brexit

Dealing first with the issue of forum, the court held in the affirmative.  This conclusion was based on Article 4 of the Recast Brussels Regulation, an instrument of EU law, which provides that “persons domiciled in a Member State shall, whatever their nationality, be sued in the courts of their Member State”.  England was thus an appropriate forum.  Moreover, England could no longer be excluded due to Nigeria being a more appropriate forum under the common law principle of forum non conveniens.  Fraser J’s finding derived from a decision of the Court of Justice of the European Union, Osuwu v Jackson [2005] QB 801, in which it was held that this common law principle is irrelevant when applying the Brussels Regulation [64]-[68].  This finding begs the question whether post-Brexit the forum non conveniens principle will be reinvigorated so that English parent companies will be less exposed to English litigation with a foreign subject matter.

A duty of care for acts of foreign subsidiaries

On the issue of negligence, the court found against the claimants and therefore, ultimately, declined jurisdiction.  Interestingly, Fraser J’s finding turned on the specific facts of this case rather than an overarching principle of law, thus leaving open the possibility of English jurisdiction in other factual circumstances. 

To establish a cause of action in negligence the claimants had to demonstrate that RDS Plc owed them a duty of care.  The well-known test in Caparo Industries Plc v Dickman [1990] 2 AC 605 was applied: (1) foreseeability of damage, (2) proximity of the parties, and (3) that it should be fair, just and reasonable to impose a duty; it was accepted that there is no meaningful difference between Nigerian and English law in this area.   

On the facts, Fraser J held that the test had not been satisfied. On limb (2), RDS Plc was not proximate to the claimants, as it does not directly own Shell Nigeria (there is an intermediary subsidiary), has only two officers sitting on Shell’s global Executive Committee, does not conduct operations in Nigeria and is not permitted to do so for lack of a licence, and is not a member of the joint venture engaged in the relevant activities [114].  On limb (3), the judge held that it was not fair, just and reasonable to impose a duty of care, as the claimants already benefit from the statutory liability imposed on Shell Nigeria under Nigerian law, RDS Plc is merely a holding company, and RDS Plc did not have superior or specialist knowledge compared with Shell Nigeria [116]-[115]. 

English jurisdiction rare, but may be necessary for access to justice

Although he dismissed the claim, the judge did not completely rule out imposing such a duty of care on parent companies in other factual circumstances.  He took the view that such a duty is more likely when the claimant is employed by the wrong-doing subsidiary, but he acknowledged that it might arise outside of these circumstances, too.  The case of Lungowe and others v Vedanta Resources plc and Konkola Copper Mines plc [2016] EWHC 975 (TCC) is one such case where the test was satisfied vis-à-vis non-employees, namely residents near the subsidiary’s mining operations in Zambia.  Per Fraser J, a distinguishing feature between Vedanta and the present case was the availability of conditional fee arrangements in Nigeria, which allow impecunious claimants to access justice.  (Toby Fisher of Landmark Chambers acted for a third-party in early hearings.)

Conclusions

Fraser J’s judgment (and Vedanta) demonstrates that English parent companies may, in certain circumstances, be held liable in the English courts for their subsidiaries’ wrongs overseas.  The judgment has now been appealed to Court of Appeal, which may bring fresh guidance.  In the meantime, corporates can seek to minimise the risk of English litigation by following Fraser J’s guidance on corporate structure and operations.  At the same time, foreign claimants can be encouraged that if an English parent company operates so as to satisfy Caparo’s three-limb test, the English courts may well compensate them for environmental damage suffered in their home jurisdictions - at least while the UK remains bound by EU law governing jurisdiction.