Update on the responsibility to respect and parent company liability: what the Court of Appeal's judgment in Okpabi and others v Royal Dutch Shell Plc and another means for UK multinationals

In October 2017, we wrote that the Court of Appeal in Lungowe and others v. Vedanta and KCM [2017] EWCA (Civ) 1528 risked creating a "Catch 22" for English domiciled multinationals - by fulfilling the responsibility to respect human rights under the UN Guiding Principles (UNGPs) and implementing a group human rights policy, the parent company could inadvertently create a duty of care under English law giving the English courts jurisdiction over claims against both parent and subsidiary. On Valentine's Day 2018, the same Court handed down its judgment in Okpabi and others v Royal Dutch Shell Plc and another [2018] EWCA Civ 191. It goes some way to resolving this risk and offers helpful guidance to UK multinationals on how to fulfil the UNGPs without increasing their legal risk.

Background

In January 2017, the High Court decided in favour of Shell and its Nigerian subsidiary, upholding challenges to the jurisdiction of the English courts over claims by victims of oil leaks from pipelines in the Niger Delta. The judge found that the claimants had failed to present a properly arguable case that Shell owed them a direct duty of care. Absent proceedings against a UK-domiciled anchor defendant, there was no connection between the claims against the Nigerian subsidiary and the English courts. The claimants appealed on the basis that the judge had erred in his analysis.

The appeal was dismissed.  A majority of the Court of Appeal (Sales J dissenting) agreed with the judge's conclusion (albeit that they disagreed with aspects of his analysis). All three justices applied the ‘seven propositions’ material to the existence of a parent company duty of care set out by the same Court in Vedanta [83].  This was not challenged by either party and should now be considered settled law. 

Does adopting a group human rights policy increase the likelihood of a parent owing a direct duty of care?

It was the third of these propositions (that a parent might owe a duty to a third party directly affected by the operations of a subsidiary in circumstances where the ‘parent company has taken direct responsibility for devising a material health and safety policy the adequacy of which is the subject of the claim or controls the operations which give rise to the claim’) which prompted concerns that English multinationals would be dissuaded from fulfilling their responsibility under the UNGPs, including to devise, publish and implement group human rights policies.

Notably, the Court in Shell did not restrict the application of this proposition to ‘health and safety’ policies, instead referring generally to ‘policies the adequacy of which is the subject of the claim’ [88, 132], and considering evidence from Shell's sustainability report (amongst other, non-health and safety specific, documents). On this basis, there would be nothing to prevent an English court from considering a company's human rights policy in determining whether a duty of care arises to prevent human rights violations which also give rise to a cause of action under the applicable law. 

However, all three judges agreed that the mere existence of such policies does not create a duty of care. Simon LJ held that:

‘The issuing of mandatory policies plainly cannot mean that a parent has taken control of the operations of a subsidiary (and, necessarily, every subsidiary) such as to give rise to a duty of care in favour of any person or class of persons affected by the policies’. [89]

The Court distinguished between a parent company which takes steps to ensure that there are proper controls in place by establishing an overall system of mandatory policies, processes and uniform practices, on the one hand, and a parent company which actually seeks to exercise control, on the other [125, 140]. Only in the case of the latter might a duty of care arise (for example, where a parent company implements the policy or carries out due diligence on a subsidiary's behalf).  

So, the short answer to the question posed above is ‘no’. UK multinationals should not be deterred by these cases from adopting global human rights policies and frameworks. However, in practice, they should ensure that:

1. the policies are applicable to all group companies rather than specific companies; and
2. the responsibility for implementing these policies (including by carrying out due diligence) rests at subsidiary level. As we wrote previously, not only will this reduce the risk of a duty of care arising, it will likely be more effective in preventing an adverse human rights impact in the first place. To ensure that operating company personnel can effectively discharge this function, businesses should consider allocating resources to ensure that they are properly trained in human rights due diligence and prevention.

This post comes to us from Hogan Lovells, and has been co-authored by Peter Hood and Julianne Hughes-Jennett.