Okpabi and others v Royal Dutch Shell Plc and another

A parent company’s possible duty of care for harm caused by its subsidiary is governed by ordinary negligence principles. There is no special parent-company test, rigid category or presumption based on corporate structure. The inquiry concerns the extent to which the parent took over, intervened in, controlled, supervised or advised the management of the relevant operations.

Where arguability is governed by the summary judgment standard, the court should focus on the pleaded case and avoid a mini-trial. Properly pleaded factual allegations should ordinarily be accepted unless demonstrably untrue or unsupportable. The court must also consider reasonable grounds for believing that disclosure may materially add to or alter the evidence.

Nigerian communities brought claims concerning environmental damage allegedly caused by oil spills from infrastructure operated by Shell Petroleum Development Company of Nigeria Ltd. They alleged that its UK-domiciled parent, Royal Dutch Shell Plc, owed them a common law duty of care because it exercised substantial control over, or assumed responsibility for, relevant operations. An arguable claim against the parent was required to obtain permission to serve the Nigerian subsidiary outside the jurisdiction as a necessary or proper party.

Fraser J held that no duty was reasonably arguable, set aside service on the Nigerian company and struck out the claims against the parent. By a majority, the Court of Appeal dismissed the appeal in [2018] EWCA Civ 191; Sales LJ dissented. The Supreme Court considered whether the majority had erred in law and whether the pleaded claim raised a real issue to be tried.

1. Appeal allowed. Lord Hamblen, with whom Lord Hodge, Lady Black and Lord Briggs agreed, held that the Court of Appeal majority had materially erred by conducting an evidential mini-trial. At this interlocutory stage the court should ordinarily focus on the pleaded case. Factual averments should be accepted unless, exceptionally, they are demonstrably untrue or unsupportable. The courts below had instead evaluated competing evidence, made findings without disclosure or cross-examination, and preferred the respondents’ evidence on disputed matters.
2. The applicable standard was whether the claim against the anchor defendant had a real prospect of success. The court could not disregard reasonable grounds for believing that fuller investigation and disclosure might materially add to or alter the relevant evidence. Internal corporate documents were particularly important where the alleged duty depended on how the parent’s group structures and delegated authority operated in practice.
3. Parent-company liability for a subsidiary’s activities is not a distinct category of negligence. Ordinary tort principles apply. The inquiry concerns the extent to which, and manner in which, the parent took over, intervened in, controlled, supervised or advised management of the relevant operations. Control of the subsidiary as a company differs from de facto management of part of its activities. No general assumption or presumption arises from the bare parent-subsidiary relationship.
4. Group-wide policies cannot invariably be excluded as a source of responsibility. Policies may contain systemic errors which cause harm when routinely implemented. A parent may also incur responsibility by publicly holding itself out as exercising supervision and control, even if it does not do so. These possible routes were explained, but no ruling was necessary on them because the pleaded case was not structured on that basis and did not identify systemic errors.
5. The pleaded allegations, the control frameworks, witness evidence and realistic prospect of material disclosure established a real issue to be tried concerning whether the parent took over or jointly managed relevant operations and actively ensured implementation of group policies. The matter was to be remitted if the respondents maintained jurisdictional objections left unresolved below.

1. United Kingdom Supreme Court: The appeal was allowed. The majority decision of the Court of Appeal was set aside, and the matter was to be remitted if the respondents maintained the unresolved jurisdictional challenges.
2. Court of Appeal: By a majority in [2018] EWCA Civ 191, the court held that there was no arguable case that the UK parent owed a duty of care. Sales LJ dissented.
3. High Court, Technology and Construction Court: Fraser J held that a duty of care was not reasonably arguable, set aside service on the foreign subsidiary, and struck out the statements of case against the parent: [2017] Bus LR 1335.