Okpabi – a ‘real issue to be tried’

In Okpabi and others v Royal Dutch Shell Plc and another [2021] UKSC 3, the claimants, 40,000 Nigerians, alleged that oil spills had occurred from pipelines operated in the vicinity of their communities, causing environmental damage. It was alleged that these spills were caused by the negligence of the pipeline operator, the Shell Petroleum Development Company of Nigeria Ltd (SPDC), a Nigerian-registered company, which was a subsidiary of Royal Dutch Shell Plc (RDS), a UK-domiciled company and the parent company of the multinational Shell group of companies. The appellants said that RDS owed them directly a common law duty of care, because it exercised significant control over material aspects of SPDC’s operations.

Proceedings were originally issued in 2015 against RDS and then served within the jurisdiction. The appellants also applied for permission to serve the claim form on SPDC outside the jurisdiction on the basis that SPDC was a ‘necessary or proper party’ to the claims against RDS for the purposes of the jurisdictional ‘gateway’ contained in paragraph 3.1(3) of Practice Direction 6B. It was common ground between the parties that, in order for jurisdiction against SPDC to be established under this gateway, the appellants had to establish that their claims against RDS, the ‘anchor’ defendant, raised a ‘real issue to be tried’. This meant that the appellants’ claims had to have a real prospect of success in accordance with the summary judgment test.

The appellants’ application to serve outside the jurisdiction was initially granted by the court, but SPDC then applied to set aside the order or, alternatively, to have the proceedings against them stayed. Around the same time, RDS sought an order that the court did not have jurisdiction or should not exercise jurisdiction to try the claims against RDS.

In January 2017, Fraser J concluded that although the court had jurisdiction to try the claims against RDS (as a company incorporated in the UK), it was not reasonably arguable that there was any duty of care upon RDS. That meant that the conditions for granting permission to serve the claim on SPDC outside the jurisdiction were not made out. Orders were made setting aside service of the claim forms on SPDC and striking out the appellants’ statements of case insofar as they related to RDS.

On appeal against that decision, the majority of the Court of Appeal held that there was no arguable case that RDS owed the appellants a common law duty of care to protect them against foreseeable harm caused by the operations of SPDC. Consideration of the appellants’ application for permission to appeal was deferred by the appeal panel of the Supreme Court until after judgment in a similar case, Lungowe v Vedanta Resources plc [2019] UKSC 20.  

Lord Hamblen, giving the unanimous decision of the UK Supreme Court, said that there were two principal issues: (1) whether the Court of Appeal materially erred in law; and (2) if so, whether the Court of Appeal was wrong to decide that there was no real issue to be tried.

Lord Hamblen examined the specific allegations and evidence produced by the appellants about the relationship between RDS and SPDC, which the appellants said demonstrated that RDS had deliberately structured the Shell Group in a way that enabled RDS to direct, control and intervene in the management of subsidiaries’ operations. They had also adduced evidence that RDS exercised tight supervision and control of SPDC’s operations. This was disputed by the respondents who produced their own evidence to the contrary. There were also submissions from interveners, the International Commission of Jurists and the Corporate Responsibility Coalition Ltd.

Lord Hamblen examined the decisions of Fraser J and the Court of Appeal. Where, as in this case, the jurisdictional issue was whether there was a triable issue as against a defendant, it was important to observe judicial restraint and to avoid mini trials. The problem with the appealed decisions was that the courts below had been led into conducting a mini trial of contested factual evidence that was not appropriate on an interim application. The Court of Appeal appeared to have assumed that because the documentation so far obtained by the appellants did not provide evidence of the exercise by RDS of control over the operations of SPDC, it followed that further documentation provided on disclosure would be unlikely to do so. That did not follow. Although there had been no disclosure relating to such matters, the appellants were able to identify specific internal documentation which was likely to be material to the claims made. Consequently, the Court of Appeal had made an error of law.

Although it was unnecessary for the granting of this appeal, Lord Hamblen considered other alleged errors of law.

The first was the Court of Appeal’s analysis of the principles of a parent company’s liability in its consideration of the factors and circumstances which might give rise to a duty of care. The Court of Appeal’s approach to this issue was inconsistent with that taken in the Vedanta case. The Court of Appeal had also erred in relation to its analytical framework for determining whether a duty of care existed in cases of this type and its reliance on the threefold test found in Caparo Industries plc v Dickman [1990] 2 AC 605. Lord Hamblen said that in the Vedanta case, the liability of parent companies in relation to the activities of their subsidiaries was not, of itself, a distinct category of liability in common law negligence. Such a case did not involve the assertion, for the first time, of a novel and controversial new category of case for the recognition of a common law duty of care.

Finally, there was a real issue here to be tried. It had not been shown that the averments of fact made in the particulars of claim should be rejected as being demonstrably untrue or unsupportable. Consequently, the appeal would be allowed.

Malcolm Johnson is a senior solicitor at Hudgell Solicitors