Now trending: parent company liability following Milieudefensie

Hausfeld recently published a Perspectives focusing on the human rights implications of the decision in Milieudefensie et al. v Royal Dutch Shell Plc[1] (Milieudefensie). In this piece, we will discuss the ramifications of the judgment on parent company liability and examine the wider trend towards such liability.

In Milieudefensie, it was held by the Hague District Court that Shell’s parent company, Royal Dutch Shell (RDS), owed a duty (similar to that of a duty of care under English law) to the claimants under the Dutch Civil Code to take steps to prevent climate change, a duty previously attributed to states. Recent decisions in the UK Supreme Court relating to parent company liability have focused on the initial question of whether a duty of care might be owed in certain circumstances, rather than the standard of conduct such duty owed might require of a parent company. In Milieudefensie, both of these aspects were considered.

The Dutch court differentiated between emissions from the Shell group and the wider group of entities within their business network (including end-users) and recognised that RDS’s responsibility for emissions from the Shell group was higher than for emissions from the wider group of entities. The wider Shell group includes subsidiaries spread all over the world with a presence ranging from Asia over Europe to North America.

The claimants in Milieudefensie argued that through RDS’s role as the parent company, it established the general policy of the Shell group as well as specific policies relating to climate change. The Dutch court concluded that RDS had a decisive role in the climate policy of the Shell group on the basis that RDS drew up business principles for the Shell companies, investment guidelines in support of the energy transition, and a Sustainability Report in 2019 in which the RDS Board is designated in a ‘Climate Change Management Organogram’ as having ‘oversight of climate change risk management’.

Wider trend

The UK Supreme Court recently considered similar matters, albeit in the context of jurisdiction challenges, in Lungowe v Vedanta Resources plc[2] (Vedanta) and Okpabi and others v Royal Dutch Shell Plc and another[3] (Okpabi).

In Vedanta, claims were brought by Zambian citizens against Konkola Copper Mines plc (“KCM”), incorporated in Zambia, and its parent, Vedanta Resources plc, incorporated in the UK. The claims concerned toxic discharge into waterways, upon which rural farming committees relied for drinking and farming, by the Nchanga Copper Mine owned by KCM. Hausfeld acted as legal representatives for part of the claimant communities.

In Okpabi, claims were brought by two Nigerian communities against Royal Dutch Shell plc, the UK domiciled parent company of the Shell Group, and Shell Petroleum Development Company of Nigeria Ltd (SPDC), its Nigerian subsidiary. The claims concerned oil spills by SPDC which contaminated their land and water. Hausfeld were representing one of the interveners in this case.

The UK Supreme Court’s decision in Vedanta confirmed that parent companies may owe a common law duty of care to people adversely affected by their subsidiaries’ activities, if they are held to influence said activities to a sufficient degree. This decision was affirmed in Okpabi.  In making these decisions, the Supreme Court was careful to point out that these were not novel duty of care situations: a duty of care by parent companies already exists.

This may be differentiated from Milieudefensie where an unwritten standard of care had to be established based on acts by RDS that were contrary to “generally accepted” conduct; an assessment of the parent company’s acts and relating circumstances was required rather than an assessment of the relationship with the subsidiaries which carry out such acts. In Milieudefensie, human rights and soft law principles played an important role in establishing the duty of care and assigning this to RDS; for further information on the Dutch court declaring a “responsibility of business enterprises to respect human rights”, please read our Perspectives piece here.

The UK Supreme Court in Vedanta offered supporting guidance, which was described in Okpabi as the “Vedanta routes”. These were summarised as:

  1. RDS taking over the management or joint management of the relevant activity of SPDC;
  2. RDS providing defective advice and/or promulgating defective groupwide safety/environmental policies which were implemented as of course by SPDC;
  3. RDS promulgating group-wide safety/environmental policies and taking active steps to ensure their implementation by SPDC, and
  4. RDS holding out that it exercises a particular degree of supervision and control of SPDC.

Similarly to Milieudefensie, the Supreme Court in Okpabi, applying Vedanta route 3, held that RDS had group-wide influence through the policies it publishes. This suggests a trend towards looking at internal corporate governance and policy to establish liability because, as the Dutch court held in Milieudefensie, subsidiaries’ actions are ultimately determined by RDS as parent company, in this case this includes decisions about the energy package and new investments in explorations and fossil fuels. However, it is worth noting that both Vedanta and Okpabi concerned questions of jurisdiction, and therefore were only required to address whether the claimants had an arguable case, a relatively low threshold for claimants to meet. It remains to be seen whether the English courts would be willing to go as far as the Dutch courts in a trial on the merits.

Common themes

Okpabi and Vedanta highlighted that there is a difference between control, existent with all parent-subsidiaries, and de facto management. This will be a question of fact, dependent on disclosure not available at an early stage of the proceedings. The Shell Group’s vertical organisational structure, in which all of its subsidiaries are managed as if they are a single commercial undertaking, can indicate that boundaries like legal personality may become irrelevant. RDS’s argument that the corporate policy underlying the damage is a preparatory act, the adoption of which does not cause damage, was dismissed by the court as too narrow. The corporate policy itself was held to be an independent act contributing to the damage. The court further noted that RDS knew and was expected to know the adverse effects of its own activities or resulting from its business relationships. Companies should take appropriate actions based on this knowledge. In Milieudefensie, the Hague District Court mentioned the different approach that needs to be taken where business enterprises do not contribute to an adverse human rights impact but are directly linked to this through other entities. Due to the policy-setting influence by RDS, its leverage on subsidiaries’ actions is high, thus it is responsible for their actions in the same way as it is responsible for its own.

Conclusion

It seems likely that, following this trend, the number of claims relating to parent company liability will continue to increase.  In addition, the proliferation of group policies and documents, shared between parent companies and their subsidiaries, may result in English courts inferring the existence of a “control” relationship for the purposes of disclosure. These developments may provide an opportunity to those affected by the actions of subsidiaries who cannot obtain redress in their local jurisdiction.

Milieudefensie, Vedanta and Okpabi follow on from the decisions in AAA & Others[4] and Kadie Kalma[5]. These decisions demonstrate that the Dutch and English courts are at the forefront of a wider, global direction of travel as seen in jurisdictions such as the US, Canada, and New Zealand. The recent jurisprudence in this area indicates that this trend may be more than just a fad. 

With thanks to Emilio Miranda-Graham and Lisa Mildt for their assistance with this blog.

Footnotes

[1] The Hague District Court 26 May 2021, ECLI:NL:RBDHA:2021:5339.

[2] [2019] UKSC 20.

[3] [2021] UKSC 3.

[4] AAA & Others v Unilever PLC & Another [2018] EWCA Civ 1532

[5] Kadie Kalma & Others v African Minerals Ltd & Others [2020] EWCA Civ 144