Introduction
Recent legal developments in European countries challenge the principle of separate legal personality by extending liability to parent companies for harm caused by the operation of foreign countries.
This post focuses on some cases brought before the Netherlands and English courts. These cases involve Nigerian residents and farmers seeking compensation from both Dutch and English-based Royal Dutch Shell (hereinafter Shell) and its Nigerian subsidiary (hereinafter SPDC) for frequent oil spills that caused alleged environmental damage to the Niger Delta and surrounding local communities.
In light of the recent decision of the UK Supreme Court in the Vedanta case, we argue that CSR policies are becoming a tool used by courts to determine whether the parent company owe a duty of care to victims in a foreign state in which their subsidiaries operate. This point is becoming crucial for establishing adjudicative jurisdiction over the subsidiary, but it may be used also to recognize the responsibility of the parent company.
To this end, we will look first at the approach of the Dutch courts which paved the way to a socially responsible approach to the parent companies’ duty of care (Part 1). Then, we will look at the approach developed by the English and Wales courts which contrastingly tends to illustrate the persistence of a conservative approach to such standard (Part 2). We’ll finally focus on the recent decision rendered by the UK Supreme Court in a similar case Vedanta v. Longowe, providing some pointers for how the Shell cases may be decided on the merits (Part 3).
(Part 1) The Dutch Courts: Paving the way to a socially responsible approach to the parent companies’ duty of care to the oil spills’ victims
In a decision of January 30, 2013, rendered in the case Akpan et al. v. Royal Dutch Shell case, the District Court of The Hague found in conformity with its procedural law, that the close connection between the claims against the parent and the subsidiary justified a joint hearing. It further argued that Article 6 (1) of the Brussels I Regulation applied since it was foreseeable that the subsidiary might be sued in a forum where one of its related entities is domiciled. The District Court justified this foreseeability by way of referencing the current international trend of foreign liability. However, the District Court denied that the Nigerian law – the agreed law between the parties but also the law of the place where the oil spills and the damage occurred – provided for a parental duty of care to the victims in a foreign state in which their subsidiaries operate (§4.33).
This conclusion was reversed by the Court of Appeal of The Hague. In its decision of December 18, 2015, the Court underlined the increasing problems that oil spills present to humans and the environment by citing other cases in the field of foreign direct liability (§3.6). Here, the direct reference to international legal developments to justify the application of a civil procedural provision is a daring approach, mirroring the dynamically evolving nature of the common law system. In this perspective, the Court of Appeal nuanced the District Court’s ruling on the duty of care. It pointed out that even though “it cannot be ruled out in advance that a parent company may, in certain circumstances, be liable for damages resulting from acts or omissions of a subsidiary” (§3.2), such a duty of care may exist “if the parent company has made the prevention of environmental damage by the activities of group companies a spearhead” (§3.2). On the basis of this statement, the Appeal Court ordered Royal Dutch Shell to disclose specific audit reports and other operational documents. It has done so to investigate whether its policies commensurate control over its subsidiaries to thereby confirm its alleged duty of care to victims of foreign countries where the subsidiaries operate.
(Part 2) The English and Wales Courts: illustrating the persistence of a restrictive approach
The Shell oil spill dispute was also brought before the English and Wales judges. By a decision of the High Court of London of January 26, 2017, and a decision of the Court of Appeal of London of February 14, 2018, rendered in the Okpabi case, English Courts imposed challenges on their jurisdiction when ruling that they could not proceed to hear the claims against Royal Dutch Shell and its Nigerian subsidiary. According to the English judges, to ascertain jurisdiction an arguable parental duty of care to the victims of the harm caused by the Nigerian subsidiary must be demonstrated, in accordance with English procedural law [1]. The High Court established that “a duty of care is more likely to be found in respect of employees, a defined class of persons, rather than others not employed” (§116). Using a different argumentation, the Court of Appeal affirmed this decision. It confirmed the high burden placed on the claimants to establish an arguable case on the duty of care at such an early stage in the proceedings. Both judges found that the claimants did not demonstrate an arguable parental duty of care and that there was thus, ‘no real issue to be tried’. This restrictive conception to the duty of care is best explained by this “mini-trial of the legal substantive points”. [2]
A similar conservative interpretation can be observed in relations to the weight given to Shell’s CSR policies. When analyzing these policies, the High Court stated that “although those statements have undoubtedly been made and cannot be ignored, they relate to the activities of the group. They do not relate to the activities or operations of Shell” (§97). The prominence given to the principle of separate legal personality prevented to establish a parental duty of care on the basis of CSR engagements. To assess whether Shell assumes control over SPDC based on its policies, thereby crystallizing a duty of care, the Court of Appeal found it important to “distinguish this situation from the more abstract (although no less important) concepts of moral responsibility: for example, to reduce global warming and to protect the environment” (§88). Unlike the Dutch judges, the Court of Appeal of London eliminates any ambiguity as “the issuing of mandatory policies plainly cannot mean that a parent has taken control of the operations of a subsidiary […] such as to give rise to a duty of care in favour of any person or class of persons affected by the policies” (§89). The policies concerning the security of SPDC’s operations were issued because it affected “Shell’s reputation and the output of an important source of oil […] the concern was to ensure that there were proper controls and not to exercise control” (§125). Yet, restrictively interpreting policies taken by the parent company in line with its CSR engagement, either as a non-engaging moral compass or as a tool merely used to sponge out reputational concerns simply wipes out their effectivity.
(Part 3) The UK Supreme Court: Resolving the conflicting transnational decisions through the adoption of a socially responsible approach?
Shortly after the conservative decision rendered by the Court of Appeal of London in the Okpabi case, roughly 40 English and other international NGOs sent a letter to the Supreme Court supporting the claimants’ application to appeal. The Supreme Court responded that it would defer it until its Vedanta decision rendered on April 9, 2019.
In this arguably similar case to the Shell ones – it concerns the liability of the Global miner Vedanta Resources for environmental damage by its Zambian subsidiary, the Court upheld its jurisdiction and to determine the parental duty of care, it looked at the extent to which the parent “availed itself of the opportunity to take over, intervene in, control, supervise or advise the management of the relevant operations […] of the subsidiary” (§49). It added that “the parent may incur the relevant responsibility to third parties if, in published materials, it holds itself out as exercising that degree of supervision and control of its subsidiaries, even if it does not, in fact, do so. In such circumstances, its very omission may constitute the abdication of a responsibility which it has publicly undertaken” (§53).
This landmark decision, like the Dutch one, gives teeth to CSR engagements through its ‘judicial activism’ which will not only reverse the conservative preliminary decision of the English Court but also positively impact the outcome of Shell cases on the merits. Using soft law instruments to support the existence of a duty of care is a significant progression in the attempt of enforcing proclaimed human rights responsibilities of businesses. Transnational courts have embarked on a rocky yet evolving journey, which could hopefully lead towards incorporating into domestic tort law, the pressing social needs transpiring from these transnational direct liability cases.
[1] See on these judgments, E. Aristova, “Tort Litigation against Transnational Corporations in the English Courts: The Challenge of Jurisdiction”, Utrecht Law Review, vol. 4, issue 2, 2018, p.11-15.
[2] Ibid.
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Dear Eden,
Thank you and well done for this piece, I enjoyed reading it!
I found it striking that claimants bringing cases against parent companies, are doing it to obtain justice that may not be granted because of courts’ restrictive interpretation approach.
Nevertheless, could it be possible that the restrictive approach is to avoid globalisation being affected? This could be because companies from developed countries may likely be hindered from expanding into developing countries, who in turn need the entrance of these companies for economic development. However, what development could there be if the land is being damaged and people die, as a result?
Claims like the above demonstrate that there is an urgent need of international law to govern cross-border corporate activities but most importantly, that these human rights laws should have a greater role in them.
Dear Ivy S. Aboagye,
Thank you for your kind words and your thought-provoking comment.
The restrictive approach used in the UK judgment of the Shell case is, indeed, striking which is why many NGOs sent a letter to the Supreme Court to contest this decision. However, in light of the recent Vedanta decision, the outcome of such a restrictive decision might be positively altered. That being said, I also agree on the pressing need of developing an international legally binding instrument to regulate transnational corporations (TNCs) and other companies with respect to human rights. The developments on the new United Nations Binding Treaty process on transnational corporations and human rights will be interesting to follow in that respect.