Nathan Masih-Hanneghan (Cooke, Young, & Keidan LLP) comments on the implications of the recent ‘Okpabi and others vs Royal Dutch Shell Plc and another’1 case in the Supreme Court for mining companies.
In the latest judgement in a series of cases dealing with parent company liability, the Supreme Court has ruled that the Court of Appeal erred in its approach to the question of whether a UK domiciled parent company could owe a common law duty of care to those affected by acts or omissions of its foreign subsidiaries.
In assessing whether the claim was arguable enough to proceed, the Supreme Court stressed that English law does not presume that a parent company cannot be liable for harms caused by its subsidiaries. Instead, there are, at least in theory, legal routes available to claimants seeking to demonstrate that a parent company owes a duty of care to those affected by its overseas entities. As such, the case is significant for those in the mining industry with a global presence.
Two communities residing in the Niger Delta brought proceedings against Royal Dutch Shell (RDS) for environmental damage and systemic pollution caused by oil spills from pipelines operated by The Shell Petroleum Development Company of Nigeria (SPDC), RDS’s Nigerian subsidiary. In both the High Court and the Court of Appeal, the claimants were said to be unable to demonstrate a properly arguable case that RDS owed them a duty of care.
The Supreme Court, however, disagreed, and discussed ways in which such a duty could be owed by a parent company in circumstances where its foreign subsidiary has caused harm; what the claimant, following principles discussed in the landmark case of Vedanta Resource Plc vs Lungowe,2 referred to as ‘Vedanta routes’. The four ‘routes’ were as follows:
- A parent company takes over the management or joint management of the relevant activity of its subsidiary.
- A parent company provides defective advice and/or promulgates defective group-wide safety/environmental policies which are then implemented as of course by its subsidiary.
- A parent company promulgates group-wide safety/environmental policies and takes active steps to ensure the implementation of those policies by its subsidiary.
- A parent company holds out that it exercises a particular degree of supervision and control of its subsidiary.
Following a review of RDS’ internal control frameworks and group-wide policies, the court concluded that there was a serious question as to whether RDS’ corporate structure allowed for meaningful delegation of authority to SPDC. Consequently, there was a real issue to be tried under ‘Vedanta routes’ (1) and (3).3
Building on the momentum of Vedanta, Okpabi could potentially make it easier to bring claims in the UK against parent companies for harms allegedly caused by their subsidiaries. To better manage these legal risks, multinationals in the mining industry (particularly those with subsidiaries in more turbulent jurisdictions) should assess their current corporate structures, operating policies and published material (both internal and external) and consider how these could affect their legal liability. In particular, it will be useful to consider:
- Reviewing internal materials to ascertain whether they line up with the intended corporate structure and lines of authority. If the separate legal personality of a subsidiary is undermined by internal decision-making hierarchies, it may be said that a parent company has taken on a duty of care for the actions of that subsidiary.
- How group-wide human rights policies are worded, and what commitments they may arguably demonstrate on the part of the parent company. Companies should also be mindful that other published material, such as sustainability reports, may also be held up as evidence of such commitments.
- Whether internal decision-making processes could give the impression that subsidiaries do not have real autonomy from the parent entity. Again, companies should consider how internal management policies might be perceived, particularly in the context of a dispute.
This is not to say that global mining companies should seek to circumnavigate their human rights and environmental commitments. Human rights focussed legislation continues to proliferate (for example, the EU ‘Conflict Minerals Regulation’, which sets out mandatory reporting and human rights due diligence requirements for importers of tin, tungsten, tantalum and gold (3TG) into the EU, recently came into effect on 1 January 2021) and many stakeholders will expect companies to adhere to meaningful CSR commitments.
However, it remains the case that multinationals operating in the mining sector are among those most exposed to human rights and environmental disputes. In highlighting the increased willingness of the English Courts to hear claims against parent companies for the acts of their overseas subsidiaries, Okpabi is an important reminder of the need for those companies with complex supply chains to adopt increasingly robust measures in order to manage human rights and environmental risks.
- (2021) UKSC 3.
- Vedanta Resources PLC vs Lungowe and others, (2019) UKSC 20.
- It should also be noted that, while the Court did not find that routes (2) and (4) were open to the claimants in this instance, this does not diminish the fact that such potential routes to liability present live legal risks.
Read the article online at: https://www.globalminingreview.com/special-reports/09032021/the-vedanta-route-okpabi-vs-royal-dutch-shell-plc/