The author of this post is Olivera Boskovic, who is Professor of Private Law at the Université de Paris.
On 12 February 2021, the Supreme Court of the United Kingdom delivered its judgement in Okpabi and others v. Royal Dutch shell and another. The action was brought by two Nigerian communities against Royal Dutch Shell, the UK-domiciled parent company of a multi-national group of companies and its Nigerian subsidiary. The appellants claimed that numerous oil spills in the vicinity of their communities had caused environmental harm leading to damage to health and property.
The first question was a jurisdictional one. Could the UK courts hear the case? This depended, among other questions, on “whether the claimants had an arguable case that a UK domiciled parent company owed them a common law duty of care so as to properly found jurisdiction against a foreign subsidiary company as a necessary and proper party to the proceedings”.
As underlined by Eva-Maria Kieninger, contrary to the decision in Vedanta, the Supreme Court did not clearly distinguish in Okpabi, as it should have, jurisdiction over the parent company and jurisdiction over the subsidiary. Having said that, at first instance and on appeal, it was held that “there was no arguable case that RDS owed the appellants a common law duty of care to protect them against foreseeable harm caused by the operations of SPDC”. On the contrary, the Supreme Court answered this question affirmatively and allowed the appeal.
A very important part of the jurisdictional question is thus solved in favour of the appellants. However, the final result is uncertain since the High court after remitting may still have to address some jurisdictional issues, at least concerning the subsidiary, such as forum non conveniens and/or access to justice in Nigeria which were not addressed in these proceedings.
The decision is in line with the landmark case Vedanta Resources PLC and another (Appellants) v Lungowe and others (Respondents), decided in 2019.
Concerning the duty of care, at the jurisdictional stage, the key points to remember are the following :
- When determining the arguability of the claim at the interlocutory stage, the court should focus on the particulars of the claim, rather than the weight of the evidential case. Factual assertions on which the claim is based should be accepted by the court unless, exceptionally, they are demonstrably untrue and unsupportable and this will be the case only in very exceptional cases. Mini-trials should be avoided. On the documentary evidence it is particularly important to note that the preferred test is “are there reasonable grounds for believing that disclosure may materially add to or alter the evidence relevant to whether the claim has a real prospect of success » (§128)? (For the purpose of comparison, on the difficulties of access to documents which could establish the exact way of functioning of the group of companies in the French context see an interesting example Paris Court of Appeal, 17 September 2020, no. 19/20669)
- The existence of duty of care depends on the circumstances. There is no limiting principle such as the one the Court of Appeal relied on when deciding that the issuance of group wide policies can never give rise to a duty of care. Secondly the Court of Appeal focused inappropriately on the issue of control which in fact should only be the starting point. A duty of care may arise regardless of the issue of control as in the situation where the parent holds itself out as exercising that degree of supervision and control over its subsidiaries even if it does not in fact do so.
- As already stated in Vedanta, “the liability of parent companies in relation to the activities of their subsidiaries is, not of itself a distinct category of liability in common law negligence”. The general principles which determine such liability are “not novel” and hence do not require “an added level of rigorous analysis”
Jurisdiction: A Comparative Perspective
After Vedanta and Okpabi one can now say that English courts seem more prepared to hear cases brought at the same time against UK based companies and their over-seas subsidiaries. This is a very important step. Under the Brussels regime, no longer applicable in the UK, jurisdiction for an action brought against a UK domiciled company was easy to establish, but it was associated with the extreme difficulty of establishing liability (However, it is worth noting that the future is unclear; will the UK join the Lugano Convention or will it go back to common law rules on jurisdiction ?).
On the other hand, jurisdiction for an action brought against over-seas subsidiaries was very uncertain. Indeed, jurisdiction against foreign companies for damage sustained in a foreign country by foreign claimants was considered as problematic not only in the UK but in many countries.
In France, before the 2017 Duty of vigilance Act was adopted the main rules for jurisdiction based on the domicile of the defendants, the place of the harmful event or the nationality of the claimant did not allow French courts to assert their jurisdiction in such cases. Two possible grounds for jurisdiction, co-defendants and the risk of denial of justice, did exist, but both were very uncertain.
In 2017 the French Parliament adopted the Duty of Vigilance Act requiring certain large companies to identify risks that their business creates for human rights and the environment and prevent violations. Under certain conditions these companies can be liable for damage caused by their subsidiaries or companies in their supply chain. This means that, since 2017, mother companies can be considered as proper defendants. Hence, within the limited scope of the Duty of vigilance Act the co-defendants rule should be able to found the jurisdiction of the French courts over foreign subsidiaries. Outside of its scope, the situation remains uncertain.
At EU level, a recent proposal was made to introduce a forum necessitatis in the Brussels I recast which would, under certain conditions, give jurisdiction to Member States’ courts to decide on business-related civil claims on human rights violations brought against undertakings located in third-countries, but within the supply chain of an EU undertaking. It was also proposed to amend the Rome II Regulation (see the posts of Geert Van Calster, Giesela Rühl, Jan von Hein, Chris Thomale, Eduardo Álvarez-Armas). Both of these proposals were rejected last week.
Choice of Law
Accepting jurisdiction is only the beginning. The next step, which will be more difficult, is establishing liability. The liability of the subsidiary will, no doubt, be governed by the law of the place of the damage, which is also the law of the place of the causal event and the law of the place of the domicile of the subsidiary.
However, concerning the liability of the mother company one can hesitate. In Okpabi, the court considered that liability was governed by Nigerian law, which was identical to English law.
For environmental torts, Article 7 of the Rome II Regulation gives the claimant a choice between the law of the place of the damage and the law of the place of the causal event. Although this rule seems favourable to the claimants, the definition of the terms “causal event” gives rise to many questions. Is the causal event necessarily the material act that triggered the environmental damage or could one consider that decisions and environmental policy can constitute the causal event?
For other types of damage, the general rule in Article 4, and therefore the law of the place of the damage, applies. This means that in situations where one cannot consider that the local law is identical to the law of the domicile of the mother company, the choice of law question might be problematic.
In the light of these considerations, it appears that the discussion about the modification of the Rome II regulation proposed by the Committee on legal affairs of the European Parliament and rejected last week was a very important one (Although, the suggested rule was far from perfect, the idea of introducing such a rule was, to say the least, worth considering. On this modification see among others O. Boskovic, ‘La loi applicable aux «actions pour violations des droits de l’homme en matière commerciale»’, Recueil Dalloz 2021, p. 252).
Even though courts are starting to address these questions with existing tools (It is worth noting that the first appeals decision resulting in a victory on the merits for the victims in a foreign direct liability case was rendered on 29 January 2021 by the Hague Court of Appeal in the case of Four Nigerian Farmers and Milieudefensie v. Shell), a well drafted European choice of law rule would be very welcome. The same could be said of a European approach of mass tort litigation, the risk of which is raised by this decision. But this is yet another story.