Liability of parent companies



The Supreme Court in Okpabi v. Royal Dutch Shell Plc [2021] UKSC 3 allowed an appeal against the decision of the Court of Appeal that no arguable case had been demonstrated that a parent company had controlled the operations of its overseas subsidiary to give rise to a duty of care owed to those affected by the subsidiary’s operations: in that case leaks from oil pipelines and associated infrastructure.  The Supreme Court disagreed with the approach of the first instance judge and Court of Appeal which, rather than focusing on the question of arguability or the summary judgment test of “a real prospect of success”, had been drawn into a “mini-trial” of a large amount of evidence. This had been an erroneous approach.  In particular the Court of Appeal had not properly considered whether disclosure might reasonably add to the prospects of success.  Internal corporate documents might well reveal operational control.

Further, the Court of Appeal was found to have erred in law in finding that the promulgation of group wide policies or standards could never of itself give rise to a duty of care.  This was inconsistent with the earlier Supreme Court decision in Lungowe v Vedanta Resources Limited, which had found no such “limiting principle”.  Further, “control” was not the sole test, but rather a starting point in considering whether the parent took over or shared management of the relevant activity.  In particular the business model of RDS, shown by its Control Frameworks, indicated organization on business and functional lines rather than simply corporate status, and supported an arguable case.  How that structure worked in practice would be of paramount importance and was an issue for proper disclosure.

 

Text reference 5-54

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