Okpabi v Shell and Lungowe v Vedanta Dispel Three Myths

Last Friday, the Supreme Court decided Okpabi v Shell. This is the most recent of a series of cases on the duty of care that UK parent companies may owe towards tort victims damaged or injured by their subsidiaries.

In less than two years, it is also the second Supreme Court ruling on the question of whether UK courts have jurisdiction to hear extraterritorial cases applying the tort law duty of care to multinational enterprises. In Okpabi v Shell, the Supreme Court reinforced the ruling of its previous case Lungowe v Vedanta. These jurisdictional cases not only clarified when UK courts have jurisdiction over a UK parent company for extraterritorial torts committed by its foreign subsidiaries, but they also provided authoritative guidelines as to how lower courts should decide on the merits of parental liability cases.

The jurisprudence on the tort law duty of care has established three myths that Okpabi v Shell and Lungowe v Vedanta dispelled: first, the myth that English courts would hardly ever assert jurisdiction on torts allegedly committed in foreign countries; second, the myth that parent companies may owe a duty of care towards the employees of a corporate group, but not towards third parties; third, the myth that it is only in a narrow category of cases that claimants could prove the existence of a parent company’s duty of care.

The Myth of Jurisdiction

Can English courts assert jurisdiction over a UK parent company for torts committed by its foreign subsidiary in another country? While the question has been controversial for years, the assumption was that the jurisdictional burden on victims could prove impossible to overcome.

More than twenty years ago, Lubbe v Cape posed this jurisdictional question on the basis of forum non conveniens, a doctrine for which application was substantially limited five years later by the Court of Justice of the European Union in Owusu v Jackson. However, the jurisdictional question remained. After Owusu v Jackson, the focus increasingly became whether, at the jurisdictional stage, the claimants could demonstrate that they have an arguable case against the respondents. This was the main issue in both Okpabi v Shell and Lungowe v Vedanta.

Therefore, in both cases, the parties filed a long list of documents to demonstrate whether the claimants had a chance of success. The Supreme Court rejected this approach and clarified that the applicable test should be summary judgment.

It pointed to the unreasonable time and cost of litigation in both cases. In Okpabi v Shell, the Supreme Court specifically re-formulated the jurisdictional issue in these terms: “… are there reasonable grounds for believing that disclosure may materially add to or alter the evidence relevant to whether the claim has a real prospect of success?” (Okpabi v Shell, para 128). It also added that internal corporate documents are likely to be important in determining the existence of a parent company’s duty of care for the damages or injuries committed by its subsidiary.

The ruling suggests that the Supreme Court is well aware of the jurisdictional burden that victims typically face in transnational human rights and environmental cases filed against multinational enterprises. In fact, human rights scholars have often denounced the cost and time of litigation as one of the fundamental barriers to justice for victims of business and human rights abuses (see e.g. Skinner, Gwynne and others, ‘The Third Pillar: Access to Judicial Remedies for Human Rights Violations by Transnational Business | ICAR’ ).

The Myth of the Employees

In Lubbe v Cape, the House of Lords mentioned in its dicta that tort victims, including not only employees, could sue a parent company for a breach of its duty of care to oversee the activities of its subsidiaries. However, since then, all cases on the parent company’s duty of care, decided on the merits by the Court of Appeal, have concerned employees only (See Chandler v Cape Plc  and David Thompson v the Renwick Group).

This created the following myth: a parent company may owe a duty of care only towards its corporate group employees. In fact, a parent company may have a direct relationship with its subsidiary’s employees. Instead, third parties, such as those suffering from environmental degradation, could not be considered as victims because they typically have no direct relationship with the parent company.

Okpabi v Shell and Lungowe v Vedanta dispelled this myth and clarified that a parent company may owe a duty of care towards anyone damaged or injured by its subsidiaries.

The Myth of the Categories

Caparo Industries plc v Dickman is the leading case on the duty of care. The facts of the case do not concern the liability of a parent company for the actions of its subsidiary. However, Caparo Industries plc v Dickman is fundamental to understand whether a respondent owes a duty of care towards a claimant. For the purpose of this post, it is sufficient to recall just one of the multiple and complex issues ruled in Caparo Industries plc v Dickman by the House of Lords: the categorisation of cases into pockets.

In a nutshell, according to Caparo Industries plc v Dickman, the existence of a duty of care depends on a number of factors that establish a special relationship between claimant and respondent. These factors are not part of a general test applicable to all cases, but rather, they depend on the specific context of each particular case. Therefore, cases could be categorized in, so-called, ‘pockets’ of case law. For each of these pockets, specific factors would be relevant in order to determine the existence of a duty of care (see Stapleton Jane, ‘Duty of Care and Economic Loss: A Wider Agenda’ (1991) 107 Law Quarterly Review.)

With time, Caparo Industries plc v Dickman set another myth: it seemed as if a duty of care must necessarily fit into a category of caselaw to come to existence. The duty of care caselaw on parental liability made no exception. So far, it has focused on defining the category of parental liability by enumerating a number of factors that could establish a sort of ‘test’ for this specific pocket of caselaw.

Okpabi v Shell and Lungowe v Vedanta dispelled also this myth as they clarified that there is no special category of parental liability cases. Rather, courts shall apply the general principles of tort law such as those established in the historical precedent Dorset Yacht Co Ltd v Home Office.

In both Okpabi v Shell and Lungowe v Vedanta, the Supreme Court emphasised that the number of circumstances in which a parent may owe a duty of care towards the victims of tort perpetrated by its subsidiaries are various and should not be limited. For example, the control exercised by a parent company over its subsidiary, the fact that a parent takes over the management of its subsidiary or group wide policies could all be relevant factors, but are not necessary elements, to establish the existence of a duty of care. It is yet to be seen how lower courts will take such factors into account when deciding on the merits of Okpabi v Shell and Lungowe v Vedanta.

However, it is clear that the approach taken by the Supreme Court opens the door to a wide variety of situations where a parent may owe a duty of care towards the tort victims injured or damaged by its subsidiaries.

 

Dalia Palombo is Senior Research Fellow at the Institute for Business Ethics, University of St. Gallen.