Facing up to responsibility: Parent liability for overseas subsidiary actions in the English courts

27 April 2021

The Supreme Court's decision in Okpabi v Royal Dutch Shell Plc¹ provides further insight into the circumstances in which English courts will accept jurisdiction to hear claims against UK parents for the harmful activities of overseas subsidiaries.

In this article we focus on four key takeaway points from the decision and consider the question – is it now easier to sue a UK parent in the English courts for the actions of its overseas subsidiaries?

Summary of key points:

It now appears easier for claimants to cross the threshold of what constitutes an arguable claim, when trying to bring a claim in the English courts for the harmful activities of a UK parent company's overseas subsidiary.
In the tort of negligence, there is no special test or distinct category of liability for parent companies in relation to the activities of their subsidiaries.
In parent liability claims, control of the subsidiary is only a starting point. The key issue is the extent to which the parent takes over or shares management of the relevant activity, which may or may not be demonstrated by parental control. This analysis could arguably have wider implications for other entities who assume responsibility for subsidiary activities.
Parent companies need to balance carefully different considerations when it comes to disseminating and implementing group-wide policies or standards. Parents need to minimise the risk of duty of care claims for the activities of subsidiaries, while at the same time ensuring that various legal and regulatory requirements are met and they have an appropriate approach to group and subsidiary governance and risk.
The cases discussed here are jurisdictional challenges. The substantive question as to whether the UK parent owed a duty of care to the claimants remains to be decided at a full trial.

The Okpabi decision

In February 2021, the Supreme Court held that two communities in Nigeria can bring proceedings in the English courts against Royal Dutch Shell and a Nigerian operating subsidiary for negligence and that the Court of Appeal had been wrong in deciding that there was no real issue to be tried. The local communities claim that oil spills from the Nigerian subsidiary's operations caused widespread environmental damage and contaminated water sources. Now the claimants have shown an arguable case that Royal Dutch Shell, the UK domiciled parent company, owed them a common law duty of care, and that the Nigerian subsidiary is a necessary and proper party to the English proceedings, their claims can proceed to a full trial.

When claimants want to bring a claim in the English courts for the harmful activities of an overseas subsidiary of a UK parent company, the claimants have to demonstrate the existence of a real triable issue against the anchor defendant, the UK parent company. In this type of claim, there needs to be an arguable case that the UK parent owed a direct duty of care to the claimants. If that is established, the overseas subsidiary can then be joined under the "necessary or proper party" jurisdictional gateway² to the English proceedings. Before Okpabi, there were two other similar jurisdictional challenges concerning parental responsibility before the Supreme Court in 2019, with differing outcomes.

Background: The 2019 decisions

In Vedanta v Lungowe³, proceedings were brought by farming communities in Zambia for negligence and breach of statutory duty, against English parent company Vedanta Resources plc and a Zambian operating subsidiary, Konkola Copper Mines Plc (KCM). KCM operated a copper mine which the claimants alleged had polluted their only water sources. The Supreme Court allowed the claims to proceed to trial, finding a triable issue in whether Vedanta sufficiently intervened in the management of the copper mine to have incurred a common law duty of care to the claimants or a fault-based liability under Zambian legislation. It is worth noting in Vedanta that England was not considered by the Supreme Court to be the proper place to bring the claims against Vedanta and KCM, but the claimants' lack of access to substantial justice in Zambia, including Zambian law not permitting conditional fee arrangements with lawyers, led the Supreme Court to accept the jurisdiction of the English courts. The Vedanta case clarified the law in this area and it is the principles and guidance set out in Vedanta that have now been reaffirmed in Okpabi, a case with similar substantive issues.

By contrast, in AAA v Unilever⁴, the Supreme Court refused the claimants' permission to appeal from the Court of Appeal's decision, upholding the English parent Unilever's jurisdictional challenge. This was decided shortly after Vedanta. In the aftermath of the Kenyan presidential elections in 2007, a tea plantation operated by a Kenyan subsidiary of Unilever was invaded by mobs, who subjected employees and visitors to horrendous violence. Those employees and visitors tried to bring proceedings against Unilever and its Kenyan subsidiary in the English courts, claiming that they should have foreseen the risk of violence and alleging a breach of duty of care to protect them by failing to have adequate crisis management plans in place. However, the claimants failed to establish a real issue to be tried against the anchor defendant Unilever and when permission to appeal was refused by the Supreme Court, their claims in the English courts ended there. This case demonstrates a point made in Vedanta, that whether a parent owes a direct duty of care to claimants is dependent on the facts of each case. The Supreme Court's decision does not mean that it would necessarily have reached the same conclusion as the lower courts on whether a duty of care existed, it means that the appeal did not raise an arguable point of law of general importance. Possibly, had the lower court had the benefit of the decision in Vedanta before hearing the case, it may have come to a different conclusion.

Some key takeaway points from Okpabi

So after the Supreme Court's decision in Vedanta and refusal of permission to appeal in Unilever, what can we take away from the more recent case of Okpabi? It should be noted that in Okpabi, the Supreme Court was hearing an appeal from a decision of the Court of Appeal decided before the Supreme Court's clarifications of this area of law in Vedanta.

The need to focus on the arguability of the claim and avoid mini-trials

The Supreme Court in Okpabi highlights the lack of focus of the inquiry of the lower courts, accusing the parties of "swamping" the court with evidence. The effect of this was to draw the courts into a mini-trial which was not the correct approach and led the Court of Appeal to materially err in law in its analysis of the procedure for determining the arguability of the claim. In conducting an evaluation and judgement based on the weight of the evidence, it failed to focus on the arguability of the claim and to wrongly discount the prospect of there being further relevant evidence on disclosure. In addition, the Supreme Court cautions against the danger of summarily determining issues in parent/subsidiary cases such as this, without the disclosure of internal documentation.