On 14 February 2018, a UK Court of Appeal dismissed the Okpabi v Royal Dutch Shell (RDS or Shell) appeal on the basis that RDS could not be held legally responsible for the actions of its Nigerian subsidiary, the Shell Petroleum Development Company of Nigeria (SPDC). Claims against RDS and SPDC were brought on behalf of two Nigerian communities (the Ogale and Bille communities) in 2016, alleging serious human rights harm stemming from decades of oil pollution in the Niger Delta. They were brought to the UK courts on the basis that RDS, with its headquarters in London, allegedly controlled and directed its fully-owned Nigerian subsidiary, SPDC.

This decision is highly concerning for two main reasons. Firstly, it denies the Ogale and Bille communities an opportunity for justice in a case where the chances of obtaining meaningful reparation in Nigeria are virtually non-existent. Secondly, it backtracks on prior UK court decisions on parent company liability and makes regressive statements with potentially serious repercussions for broader corporate accountability efforts. Below is a brief account of these concerns.

Dismissal before full disclosure of corporate documents

The Court of Appeal dismissed the claims based on the absence of evidence to demonstrate operational control of Shell over its subsidiary. However, the parties had not yet had an opportunity to access the documentation that would shed light on this very fact. Such a high evidentiary burden on claimants alleging parent company liability at such an early stage in the proceedings is unjust and unrealistic. This evidence is generally solely in the hands of the corporate defendant who will not disclose it unless forced to by law. If courts do not ensure access to all relevant documentation at the relevant stage in the proceeding, they may take important decisions based on facts the parties have not yet had an opportunity to substantiate. Rather than redeeming the information asymmetry that typically exists between powerful corporate defendants and claimants in this type of dispute, the Court of Appeal’s decision reinforces and entrenches this inequity, and therefore injustice. 

A highly restrictive legal test for parent company liability

UK courts have gradually advanced useful parent company liability principles, with Chandler v Cape plc being the strongest precedent yet. However, the Court of Appeal disregarded principles established in this case. While issuing inadequate standards can give rise to parent company liability under Chandler without the need for active control or enforcement, the Court of Appeal denied that liability may arise when that control or enforcement does not exist. Under Chandler, it is sufficient that the parent (who enjoys superior expertise) fails to advise its subsidiary in relation to its harmful practices. This test more accurately reflects the reality behind many cases of corporate human rights abuse. In many of these cases, it is not the active engagement of a parent company in the abuse, but its failure to act to prevent it when it could that results in serious harm. Unfortunately, the Court of Appeal chose to backtrack on this important point.

A position that contradicts international standards

The view expressed by the Court of Appeal that a parent company duty of care may only arise in cases of active control or enforcement would promote a “hands off” approach to the human rights impacts of subsidiaries. This runs counter to the international consensus, reflected in key international frameworks such as the UN Guiding Principles on Business and Human Rights (UNGPs) and the OECD Guidelines for Multinational Enterprises (OECD Guidelines), that requires a “hands on” approach to corporations’ human rights impacts. These instruments call on companies to take proactive due diligence steps to ensure they avoid infringements on human rights across their global operations. They specifically target companies in a position of control or leverage over the activities of their subsidiaries. Should it stand, the Court of Appeal’s ruling would have the exact opposite effect of discouraging parent companies from concerning themselves with, and taking action to avoid, the adverse human rights impacts of their subsidiaries. 

Relevance of international standards for parent company liability

The majority in the Court of Appeal expressed the highly concerning view that international standards on responsible business conduct are irrelevant to the existence of an arguable duty of care. This position is out of sync with the UK government’s position on business and human rights and an example of the sort of policy incoherence principle 8 of the UNGPs advocates against. Key international instruments, such as the UNGPs and OECD Guidelines, have been recognized and endorsed by both governments, including the UK government, and businesses, including Shell. They have in fact been elaborated with the full participation and direct input of businesses. It is contradictory for a UK court (as for any other court) examining a case of alleged corporate human rights abuse to dismiss as irrelevant international normative frameworks that have been specifically designed to deal with these situations. Courts can only but look to these instruments to inform their parent company liability decisions.  

Reflecting the letter and spirit of business and human rights standards

The Nigerian communities have now taken their fight for justice to the UK Supreme Court.  The Nigerian claimants are hoping, as many of us do, that the Supreme Court will appreciate the significance of this case and grant permission to appeal. This will allow the parties to determine with full and proper consideration of the facts the role that Shell played in the harm caused to Nigerian communities. If the appeal goes ahead, let us also hope that the Supreme Court sees and corrects the injustices of the lower court’s decision and better reflects, in its parent company liability reasoning, the letter and spirit of international business and human rights standards.