UK Supreme Court Decision Creates Heightened Risk For Canadian Parent Companies With Overseas Subsidiaries

A recent United Kingdom Supreme Court decision has lowered the bar for the argument that a UK company may be responsible for the tortious actions of its overseas subsidiary.

The decision in Okpabi and others v Royal Dutch Shell Plc and another [2021] UKSC 3 dealt with conflict arising from oil spills in Nigeria. The claimants were a Nigerian farming and fishing community, and a group of individuals living in a remote Nigerian riverine community. The defendants were Shell Petroleum Development Company of Nigeria Ltd ("SPDC"), a Nigerian registered company, and Royal Dutch Shell Company Plc ("RDS"), which was the UK based parent company of SPDC.

The claimants alleged that the oil spills were caused by the negligence of SPDC, and of RDS in its exercise of control over SPDC, and sought to bring an action against both defendants in the UK. The issue was whether jurisdiction against SPDC could be established based on the argument that RDS, as the anchor defendant, owed the claimants a duty of care.

Both the High Court and the Court of Appeal found that the relationship between RDS and the claimants was not of sufficient proximity to establish a duty of care. However, the Supreme Court overturned the Court of Appeal's decision.

The Supreme Court found that the Court of Appeal had made several errors in law. One of these errors was conducting a mini-trial and making determinations based on documentary evidence, rather than focusing on the pleadings of the parties. The Court of Appeal and the High Court had also erred in concluding that general policies made by a parent company regarding a group of subsidiaries could not give rise to a duty of care, in failing to recognize that a company that holds itself out as controlling its subsidiaries could incur liability for the actions of subsidiaries without exercising de facto control, and by holding that there was a distinct test to apply in determining whether a parent company had a duty of care to its subsidiary.

Ultimately, the Supreme Court decided that there was an arguable case that RDS owed a duty of care to the Nigerian claimants as a result of its control over SPDC. The UK courts therefore had jurisdiction to hear the claims against both RDS and SPDC.

This decision lowers the threshold for when a parent company may owe a duty of care to claimants based on the actions of its overseas subsidiaries. This could result in more actions against Canadian parent companies whose overseas subsidiaries engage in activities such as resource development. Insurers of Canadian companies with overseas subsidiaries should therefore be prepared to defend an increased number of these claims.

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