Hague Court of Appeal upholds duty of care of parent company in case over Nigerian oil spills
The three judgments in this case, entitled Four Nigerian Farmers and Milieudefensie v. Shell, involved similar facts regarding oil spills in Nigeria. Cases A & B concerned an oil spill at the village of Oruma in 2005; C & D, a spill at the village of Goi in 2004; E & F, spills at the village of Ikot Ada Udo in 2006 and 2007. Milieudefensie – the Netherlands branch of the NGO Friends of the Earth – supported all of the claimants in their cases.
The claimants alleged that both Shell Nigeria (SPDC) and its parent company Royal Dutch Shell (RDS) were liable for causing damage to local farmlands and fishing grounds through their negligent maintenance of oil pipelines and wellheads, and their inadequate and untimely response to the spills, as well as poor attempts to clean up the damage caused by the spills. Shell argued that the damage had been caused by sabotage, a defence that had been successful in the initial District Court case of 2013.
The Nigerian Oil Pipelines Act states that the holder of an oil pipeline license would be liable to pay compensation “to any person suffering damage as a consequence of any breakage of or leakage from the pipeline or an ancillary installation” unless such damage was “on account of his own default or on account of the malicious act of a third person”. Such sabotage / “malicious act(s)” regarding oil pipelines are a common occurrence in Nigeria; these are committed, as the Court of Appeal put it, “to steal oil or to receive compensation from oil companies for the oil pollution in the form of money or paid contracts for remediation work to be carried out after a spill.”
Nevertheless, the Court of Appeal overturned the earlier District Court decisions in A & B and C & D, holding the burden of proof for sabotage to be “beyond reasonable doubt” as is applied by the Nigerian courts – stating (in A & B) that whilst sabotage was indeed “the most likely hypothesis for the occurrence of the leak...in the absence of direct information it has not been established / proven beyond reasonable doubt.” In E & F the Court ruled that the oil spills had indeed been caused by sabotage.
As regards Shell’s response to the oil spills, in both A & B and C & D the Court found that SPDC had acted negligently in its delayed response to the spills and ordered that it should install a ‘Leak Detection System’.
In A & B, Shell attempted to explain its delay in response by stating that its employees had been denied access to the site by the local deputy chieftain when sent to verify the initial leakage. This refusal of access was ostensibly due to the employees’ failure to provide a traditional “access gift” and thereafter due to SPDC’s failure to make amends for an earlier oil spill in 2000. However the Court of Appeal pointed to a 2003 report commissioned by SPDC highlighting these issues of access to oil sites in the Niger Delta as proof that Shell should have anticipated such issues; it also stated that as there had been a spill in 2000, SPDC were aware that a leakage could occur again and therefore it was “foreseeable that failure to install an LDS would lead to (significant) damage to local residents.”
In C & D, where there was, in the eyes of the court, an unnecessary delay in SPDC providing an on-site assessment of the leak by helicopter, the Court of Appeal held that the three factors of the Caparo test for the existence of a duty of care were indeed fulfilled and that SPDC had violated this duty of care through this delay – thus committing the tort of negligence.
When it came to the clean-up by Shell after the spills, the Court found that, applying industry standards, Shell’s duty of care to ensure adequate clean-up did not go beyond the actions it had already taken.
As regards the liability of parent companies, the Court referred to the UK Supreme Court case of Vedanta v Lungowe in stating that a duty of care may be incurred by a parent company where there is sufficient proximity to the claimants or where it is “fair, just and reasonable” to do so. The Court also drew attention to the Supreme Court’s reluctance to “shoehorn all cases of the parent's liability into specific categories…(t)here is no limit to the models of management and control which may be put in place within a multinational group of companies.”
In Four Nigerian Farmers and Milieudefensie v. Shell, the Court of Appeal found that due to the fact that the subsidiary SPDC had not acted wrongfully, there was no duty of care incurred by the parent. On the response to the spill – and specifically regarding the lack of Leak Detection Systems in place at the time of proceedings – it found that there was a limited duty of care to the claimants.
Read the judgment of A & B here; C & D here; and E & F here.