Okpabi v. Shell: a setback for business and human rights?

Sandakan_Sabah_Shell-Station-Labuk_Road-01Last week, Justice Fraser writing for the London High Court dismissed Okpabi v. RDS and SPDC, a claim of a group of Nigerian plaintiffs against Anglo-Dutch oil giant Shell and its Nigerian subsidiary. This dismissal has prompted strong responses by NGOs involved in the region such as Amnesty International, calling it a severe setback for victims in their search for remedies against corporate human rights violations. This contribution shortly looks at the decision on jurisdiction in this case, and how it contrasts against comparable cases on some procedural and substantive issues.

The claim, spearheaded by King Okpabi of the Ogale community, alleged that Shell through its local subsidiary Shell Petroleum Development Company of Nigeria (SPDC) as well as through its parent company Royal Dutch Shell (RDS) acted negligently with respect to the plaintiffs in maintaining oil pipelines, thereby causing severe cases of pollution. This pollution moreover robbed some of the plaintiffs of their livelihood, as they were dependent on the polluted lands for farming and fishing activities. The plaintiffs alleged that while this was primarily the responsibility of SPDC as local operator of the pipelines, RDS as parent company was in a position to prevent such pollution through adequate health and safety policies. Shell’s counter-argument was that there was no real issue to be litigated against RDS, and that in absence of such an issue the court could not exercise jurisdiction over SPDC. This latter argument now seems to have been accepted by the court, as it dismissed the case for lack of jurisdiction.

That ruling is remarkable because it departs from preliminary decisions by a Dutch civil court in Akpan v. Shell concerning the same defendants and similar facts, as well as from another recent High Court decision in Lungowe v. Vedanta, a case involving mining operations in Zambia. In both cases, claims against the parent company were used to ‘anchor’ the claim against the foreign-incorporated subsidiary, and bring it within the courts’ jurisdiction. In the Akpan case, also known as the Milieudefensie case against Shell, jurisdiction over SPDC was based on article 7(a) of the Dutch Code of Civil Procedure. In Lungowe v Vedanta, parent company Vedanta was named as a co-defendant to a tort claim against its subsidiary Konkola Copper Mines PLC. While Lungowe has thus far only resulted in a preliminary ruling and Akpan is still on appeal, these cases raised hopes that consolidation of claims could be used to bring subsidiaries before the courts of their parent companies’ home states and find remedies there. Does the preliminary decision in Okpabi mean that this route has now become less attractive for future cases?

As noted by Justice Fraser in Okpabi, the trouble with jurisdictional constructions like the connected claims doctrine is that they merit an incursion into the substance of the case. Thus, whilst the court went out of its way to clarify that this was in no way a ruling on the merits, the preliminary decision on jurisdiction discussed here mostly concerned the substantive viability of the plaintiffs’ claims against RDS and SPDC. Both are separate legal personalities, where RDS is a shareholder in SPDC via a separate holding company, and SPDC operates semi-independently in a joint venture with other companies in Nigeria. RDS as a parent company and shareholder in SPDC is not automatically liable for conduct of its subsidiary, per the so-called ‘corporate veil’..

Instead of ‘piercing’ this corporate vail, the plaintiffs in Okpabi, like the plaintiffs in Akpan and Lungowe, argued that RDS as a parent company owes a separate duty of care to the plaintiffs. Basing their reasoning heavily on the criteria for a duty of care drawn from Chandler v Cape PLC, the plaintiffs argued that RDS had superior knowledge with respect to environmental policies of its subsidiary, which in turn relied on those policies in the conduct of its operations. Because of that role, RDS was better placed to prevent harms to others than SPDC itself, and should have taken certain actions to avoid that harm.

Justice Fraser did not dispute that environmental and personal harms had taken place in Nigeria, but placed great emphasis on the particular working relationship between RDS and its subsidiary SPDC and the resulting division of responsibilities. In contrast to the plaintiffs, he ruled that RDS’ role in SPDCs operation is at best minimal, and certainly not on an operational level. It could thus not be said that RDS was in a superior position compared to SPDC to prevent the impugned harms from happening. Moreover, even if that would be the case, there was no reason to assume that SPDC effectively relied on RDS, or to infer such from RDS’ position in the corporate group. Therefore, it would not be reasonable to assume that RDS was indeed in such close proximity to SPDC’s operations and the plaintiffs’ harms, as to make it reasonable to impose a duty of care on RDS (see paras. 116-117).

While this considered only a preliminary decision on jurisdiction, Justice Fraser considered that it was highly unlikely that any subsequent evidence or argument could change his assessment of the role of RDS, meaning that there was clearly no ‘real’ issue to be tried between the plaintiffs and RDS. Furthermore, both parties had agreed that if the claim against RDS was manifestly without merit, it could not be used to ‘anchor’ the claim against subsidiary SPDC (see para. 118). As SPDC is a Nigerian company and the facts had happened in Nigeria, there was no other ordinary ground for jurisdiction that would make the court competent to rule on the dispute between the plaintiffs and SPDC.

Herein lies the difference with Justice Coulson’s decision in Lungowe v. Vedanta, which reached the opposite conclusion regarding a similar sort of claim. While here as well the court recognized the difficulties of establishing a duty of care based on Chandler, it ruled that in this case at least there was a ‘real issue to be tried’ against parent company Vedanta (see para. [60]); in contrast, no such real issue was found in Okpabi. Similarly, Justice Coulson discussed the relation between parent company Vedanta, and subsidiary KCM, but found much more involvement of Vedanta with its subsidiary then was found between RDS and SPDC in Okpabi. On this basis, Justice Coulson concluded that the claim against Vedanta was not only used as a way to anchor jurisdiction against its subsidiary KCM, and allowed the case to proceed.

The Dutch courts in Akpan meanwhile, including the Court of Appeals in its preliminary ruling of 18 December 2015, resolved this question slightly differently. Both the District Court and the Court of Appeals considered it unlikely that a claim against RDS on the basis of Chandler would succeed, they did consider it to be a real issue to be tried. In the eventual decision on the merits, the District Court indeed dismissed the claims against RDS. However, it also held that the court’s competence to adjudicate the claims against SPDC per article 7 Rv did not end once the claims against RDS were dismissed on the merits. Consequently, the only question that mattered for the court was whether at the time of the preliminary decision, there was a real dispute between the plaintiffs and RDS. As it concluded that there was, the claim against SPDC could be joined with this dispute.

That the respective courts came to different conclusions in Lungowe, Akpan and Okpabi does not mean that future claims joining parent companies and subsidiaries are impossible in the future. Indeed, the court in Okpabi refused to comment on the law of Vedanta as requested by both parties, neither confirming nor overruling it. Instead, it distinguished Okpabi factually, with regard to the particular operational relationship between RDS and SPDC as opposed to that between Vedanta and KCM.

Both assessments can be criticized and as the High Court’s decision in Okpabi is currently on appeal, no doubt the plaintiffs will vigorously attack the reasoning of the High Court on these points. This goes especially for the characterization of the working relationship between RDS and SPDC, on which point the court essentially followed the defendants’ point of view. One might argue that the Chandler test of proximity is too restrictive to accurately describe the involvement of parent companies like RDS in their subsidiaries; especially if Justice Fraser’s restrictive interpretation is.

Similarly, one might argue that Justice Fraser went above and beyond the jurisdictional question and included too much of the discussion on the merits in the preliminary decision, where it should have been deferred to the substantive arguments – similar to the Dutch civil courts’ decision in Akpan. Of course, it is not up to the court to create liabilities where they didn’t previously exist, but one gets the suspicion that in contrast to the courts in Akpan and Vedanta, the High Court in Okpabi takes a very conservative approach to the merging trend of transnational private liability of corporations for human rights violations. The conclusion drawn in Okpabi may provide an incentive for parent companies not to get very involved in the direct operations of their subsidiaries. After all, the less involved they are with health, safety and environmental policies down the production line, the less chance of being held liable – and the less chance of having a claim against the subsidiary anchored with the claim against the parent. This may be true toxic effect of rulings like Okpabi, not just the precedent effect of the ruling per se.

Okpabi as well as Akpan and Lungowe are currently on appeal and the final outcome of these cases, both on jurisdictional and on substantive issues may be wholly different than the current situation. What is clear though, is that bringing claims against parent companies for misconduct of their subsidiaries is fraught with difficulties, even though it may be hypothetically possible. Okpabi demonstrates that this may now also have consequences for claims against subsidiaries as well, insofar as they are brought together with a claim against the parent company. This means that either plaintiffs have to find different ways beyond Chandler of arguing the existence of a duty of care, or find different grounds for jurisdiction for claims against foreign-incorporated subsidiaries. Otherwise, it may indeed be the case that courts of parent companies’ home states become inaccessible for victims of extraterritorial human rights violations.