Liability of UK parent companies for subsidiaries: jurisdiction of the English courts

In 2019 the UK Supreme Court allowed the claimants in Lungowe v Vedanta Resources plc [2019] UKSC 20 to proceed with an action in England against Zambian defendants (see blog post The Supreme Court: attracting litigation to the UK? 25 June 2019)

Now, in Okpabi & Ors v Royal Dutch Shell plc & Anr [2021] UKSC 3 the UKSC have reinforced the approach which was adopted in Vedanta in determining the question of how and when claimants can use a claim against a UK-based parent company to create the necessary jurisdiction to sue a foreign subsidiary in the English courts.

Background

The Nigerian claimants were granted permission to serve a claim form on a Nigerian company, The Shell Petroleum Development Company of Nigeria Ltd ("SPDC"). The claims were for losses said to have been suffered as a result of oil spills in Nigeria caused by negligence on the part of SPDC.

Ordinarily the English courts would have no jurisdiction to deal with claims by Nigerian claimants against a Nigerian domiciled company arising out of damage which occurred in Nigeria. But, as in Vedanta, the claimants had also sued a UK domiciled company, Royal Dutch Shell plc ("RDS"). RDS is the Shell group parent company and the claimants alleged a breach of a direct common law duty of care. The existence of the duty of care was based on RDS having exercised significant control over material aspects of SPDC's operations in Nigeria.

The jurisdictional gateway

In obtaining permission to serve proceedings on SPDC the claimants had relied on the jurisdictional gateway set out in English Practice Direction 6B.

Permission can be granted to serve a claim on a defendant out with the jurisdiction where they are a "necessary or proper party" to claims against another defendant over whom the English courts already have jurisdiction. The UK-based defendant in these circumstances is often referred to as the "anchor defendant".

In January 2017 the High Court set aside the claimants' service of the claim forms on SPDC and the Court of Appeal subsequently refused the claimants' appeal against that decision.

The Court of Appeal held that the claimants had no arguable case that RDS owed them a duty of care. Without the existence of an arguable case against RDS, there was no jurisdictional gateway allowing the claimants to sue SPDC in the English courts.

The claimants appealed to the UKSC.

Potential liability of parent companies

The potential for parent companies to be found liable for activities carried out by their subsidiaries was the key issue considered by the UKSC when deciding the jurisdiction dispute appeal.

The UKSC reiterate that it is not a distinct category of liability nor does it raise novel issues of law. Instead, it is to be determined "on ordinary, general principles of the law of tort regarding the imposition of a duty of care."  There is no special test applicable to the tortious responsibility of a parent company for the activities of its subsidiary.

As had already been said in Vedanta, whether that duty of care arises in any particular situation depends on "…the extent to which and the way in which"  a parent company has decided to "…take over, intervene in, control, supervise or advise the management of the relevant operations (including land use) of the subsidiary."

The proper approach to the jurisdiction question

On the basis of the claimants' pleaded case against RDS and the limited documents disclosed, the UKSC, unlike the Court of Appeal, were persuaded that the claimants had done enough to justify a finding that there were real issues to be tried as between the claimants and RDS. The court considered that further support for that conclusion came from the existence of witness statements and the real prospect of further disclosure of relevant documents.

Since the court was persuaded that there was a real issue to be tried as against RDS that meant that the claimants were entitled to use the procedural jurisdictional gateway and serve claims forms on SPDC. The existence of a potential claim against the UK domiciled parent company allowed the connected claim against the Nigerian subsidiary to be dealt with in the English courts despite the parties and subject matter of the claim being Nigerian.

Not merely a jurisdiction issue

Although the decision in Okpabi involved consideration of a technical procedural jurisdiction issue it highlights once again that UK corporates with overseas subsidiaries need to pay close attention to the corporate governance of group companies.

The approach of the court adopted in both Vedanta and Okpabi, seem likely to encourage claimants to seek to explore directing proceedings, including class actions, against UK parent companies. Doing so will allow them to seek to invoke the jurisdiction of the English courts to hear claims against subsidiaries that might ordinarily be dealt with by a foreign court. And parent companies of course will then be required to defend those proceedings and run the risk of being exposed themselves to the publicity and any awards of damages that may follow.