Okpabi v Shell – a new era for global environmental claims?
Okpabi and others v Royal Dutch Shell Plc and another [12.02.21]
The Supreme Court has today handed down its decision in Okpabi and others (Appellants) v Royal Dutch Shell Plc and another (Respondents) [12.02.21].
The claimants represent approximately 45,000 people who allege oil spills in Rivers State, Nigeria, have caused widespread environmental damage which has not been adequately remediated. They allege the cause of the oil spills is the negligence of second defendant Shell Petroleum Development Company of Nigeria Ltd (SPDC) registered in Nigeria. SPDC is a subsidiary of first defendant Royal Dutch Shell Plc (RDS).
The claimants allege RDS owe them a duty of care (and therefore, that they can sue in the courts of England and Wales) because it exerts significant control over SPDC – including on pollution and environmental matters and the operation of SPDC’s oil infrastructure. To give just three examples from an extensive list, the claimants allege (1) RDS has a global policy covering environmental matters, (2) its executive committee has overall responsibility for the global implementation of environmental standards and (3) RDS had knowledge about oil pollution from SPDC infrastructure. The defendants strongly contest the allegations, stating, for example SPDC is responsible for its own operations.
The claimants sought permission to serve SPDC outside the jurisdiction under the Civil Procedure Rules, as it was a “necessary or proper party”. To this, the claimants had to show that as UK “anchor defendant” the claims against RDS raised a “real issue” to be tried (i.e. a real prospect of success). The High Court found it “not reasonably arguable there is any duty of care upon RDS”. The Court of Appeal, having reviewed the extensive evidence, also denied such permission on essentially similar grounds.
The Supreme Court’s decision
The Supreme Court deferred hearing this matter until it had issued its judgment in another matter on jurisdiction, Lungowe v Vedanta Resources plc , going as far as to suggest the guidance Vedanta provided could have resolved the present matter. Considering Vedanta and the amount of material put before the Court of Appeal, the Supreme Court emphasised the need for proportionality where permission for service out of the jurisdiction is sought – with the “analytical focus” for the question of whether there is a “real prospect of success” to be on the Particulars of Claim (which would be supported by a statement of truth).
The High Court and Court of Appeal had been wrong, in the context of a jurisdiction challenge, to conduct a mini-trial on the available evidence (and without disclosure having taken place), meaning it adopted an inappropriate approach to contested factual issues, and the documentary evidence, rather than focussing on the arguability of the claim. This occurred in part because the Claimants’ Particulars of Claim was not updated as the evidence evolved.
Overturning the approach of the Court of Appeal, and applying Vedanta, the Supreme Court considered this matter was to be determined on general principles of tort law concerning imposition of a duty of care. There is nothing special about the parent/ subsidiary relationship for this purpose. As between parent and subsidiary companies, this is the way in which the parent uses the opportunity to take over, control or supervise the management of the operations of the subsidiary. The Court of Appeal had therefore taken the wrong analytical approach by framing the question under the three stage test in Caparo Industries plc v Dickman  (focussing on questions of “proximity” and whether it was “fair, just and reasonable” to impose a duty on RDS).
Given the above, the Court of Appeal was wrong to decide there was no “real issue” to be tried. Under Vedanta principles, the claimants’ pleaded allegations that RDS had management/joint management of SPDC’s activities and that RDS had group-wide environmental policies, which it sought to ensure SPDC implemented, sufficed to demonstrate a “real issue”. This was bolstered by the claimants’ witness evidence and some supportive documentary evidence, with the prospect of relevant disclosure being provided in the course of the proceedings.
Shell will now face an action in the England and Wales courts for the actions of its subsidiary in Nigeria. This case is a significant development in the field of environmental litigation. The decision will encourage further groups of litigants to seek to hold global corporations to account for pollution and environmental loss in developing nations. Such actions will add to the pressure on corporations to diversify to or transition completely to carbon neutral sources of energy.
For insurers and reinsurers, a live question is now the extent to which UK based carbon majors (and other corporations) are involved in the environmental policies of their global subsidiaries. This decision has the potential to give rise to additional claims on global insurance programmes, and to increase the magnitude of such claims.