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The Shell Nigeria cases - an important precedent for transnational liability claims

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Marnix de Planque

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07 February 2013

Royal Dutch Shell PLC (Shell PLC) was found not liable for the damage suffered by several claimants caused by four oil spills in Nigeria in the years 2004-2007. Its subsidiary in Nigeria, Shell Petroleum Development Company of Nigeria Ltd (Shell Nigeria), was however found liable towards one of the claimants.

This is the essence of the judgments of the District Court of The Hague which were handed down on 30 January 2013 in the high profile cases brought against Shell PLC and Shell Nigeria by Friends of the Earth Netherlands (Milieudefensie) and four Nigerian fishermen and farmers.

It is the first time that in the Netherlands, the civil courts have ruled on a claim of this type against a multinational for alleged damage suffered by injured parties due to the operations of a non-Dutch subsidiary abroad. Friends of the Earth Netherlands hoped to set an example by holding a multinational such as Shell accountable.

The District Court assumed jurisdiction not only over Shell PLC, with headquarters in The Hague, but also over Shell Nigeria, since both claims related to the oil spills in Nigeria and were therefore closely connected. Under Dutch private international law rules, closely connected claims between an EU and a non EU defendant can be brought before the same court. The court also explicitly ruled that the fact that the claims against Shell PLC were ultimately dismissed did not affect the jurisdiction for hearing the case against Shell Nigeria (as Dutch law leaves no room for forum non conveniens).

In both the claims against Shell PLC and Shell Nigeria, the court applied Nigerian law, as this was the law of the place where the oil spills occurred and damage was caused. The court found that Nigerian law is largely based on English law and therefore analysed English case law extensively. The court reached the conclusion that under English/Nigerian law, there is no general duty of care for a parent company to prevent harm caused by a local company and that such a duty may only be assumed in specific circumstances. It must for example be foreseeable for a parent company that the claimants would suffer harm, and also the legal test of 'proximity' (connection) between the parent and the claimants must be met. In this case, no proximity was deemed to exist between Shell PLC and the claimants in Nigeria. The court considered a crucial factor that the oil spills were not caused by defective maintenance by Shell Nigeria but rather by third parties, as they were the result of sabotage (which is apparently very common in Nigeria).

As regards the claims against Shell Nigeria, these were dismissed for the oil spills in 2004 and 2005. The court ruled that in these instances Shell Nigeria could not have prevented the sabotage and that the response to the spills had been adequate. Shell Nigeria had not committed a tort of negligence. On the other hand, as regards the oil spills in 2006 and 2007, the court ruled that the sabotage of the oil pipelines could have been easily prevented and at little cost, so that Shell Nigeria was held liable. The court has referred the claimants and Shell Nigeria to follow-on proceedings for the assessment of damages (schadestaatprocedure).

All parties to the proceedings can bring an appeal against the judgments before the Court of Appeal in The Hague within three months of the decisions (30 January 2013). Friends of the Earth Netherlands has already announced that it will appeal.

International Trend

The judgments of the District Court of The Hague appear to be part of what looks increasingly like an international trend for multinationals to be held accountable in their home jurisdiction for damage that has been caused by, or is related to the operations of one of their foreign (indirect) subsidiaries abroad. In the UK and the US for example, we have also seen multinationals being sued on the basis of this so-called 'foreign direct liability'.

In England we have seen the Trafigura case (2006) and the Shell-Bodo case (2011). The Trafigura case concerned a class action by 30,000 inhabitants from Ivory Coast against Trafigura Ltd., a UK company, for damage caused by toxic waste allegedly exported to Ivory Coast. This case was settled for approximately GBP 32 million. The Shell-Bodo case concerned a legal claim brought in the UK on behalf of the Bodo Community against both Shell PLC and Shell Nigeria for damage caused by two massive oil leaks in the Niger Delta. It is reported that claimants have agreed to drop their claims against Shell PLC in return for Shell Nigeria's admission of liability and submission to jurisdiction to the UK courts. The case against Shell Nigeria is still ongoing. In the US, the Kiobel case (2002) is pending. Although the claim is based on a different angle (alleged violation of human rights), multinationals will be watching the outcome of these proceedings closely. A decision is to be expected this year.

A claimant may seek to bring proceedings before a EU or US court rather than locally for a variety of reasons. Reasons, for example, may be dissatisfaction with local proceedings, because lack of independence or expertise of the courts, or extensive possibilities to delay. An additional reason for organisations such as Friends of the Earth Netherlands to bring a claim against both the subsidiary and the parent company in the country of the parent company will be to draw attention to the issue of corporate social responsibility in the home market of the multinational.

Practical Implications of the Judgments

Multinationals that have a parent company with its headquarters or corporate seat in the Netherlands should be aware of the possibilities of injured parties who wish to bring a claim against a non-Dutch subsidiary seeking to establish the jurisdiction of the Dutch courts by simultaneously bringing a claim against the parent company based on group liability and against the foreign subsidiary based on tort.

A Dutch court will in principle assume jurisdiction to hear the claim against both the Dutch parent company and the foreign subsidiary. Only if it is clear from the outset that the claim against the parent company lacks all merit, may jurisdiction vis-à-vis the subsidiary be rejected because of abuse of procedural rights. The approach across EU states may vary depending on national rules on jurisdiction in the case of joinder of non EU parties.

The English courts, for example, would probably apply a slightly higher test to jurisdiction than that applied by the Dutch court. To establish prima facie jurisdiction over the subsidiary, the court would have to be satisfied that it is a convenient forum, that the subsidiary was a 'necessary and proper party' to the claim against the UK parent defendant and, as between the claimant and the UK parent, 'there was a real issue that is reasonable for the court to try'.

In the US, however, the situation is very different from the Netherlands. Jurisdiction over foreign subsidiaries of US corporations is precluded unless the subsidiary acts as the alter ego of the parent under its direct control, or independently maintains sufficient jurisdictional contacts with the forum. This is a more stringent test than the Dutch approach, although it is not impossible to make these factual showings.Specifically for foreign direct liability claims against multinationals based on alleged violations of international law, US federal courts have in the past assumed jurisdiction under the US Alien Tort Statute (ATS). The landmark decision of the US Supreme Court in the Kiobel case, to be expected later this year, will determine whether this was justified.

Once jurisdiction is assumed by the Dutch courts, in principle such claims will then be assessed under the laws of the country where the subsidiary is operational (being the country where the damage occurred). This is broadly the same approach taken in other EU jurisdictions (save for Denmark), at least for claims relating to events after January 2009, as under the Rome II Regulation the governing law is in principle the law of the country where the damage occurred. When assessing the risk of group liability of a parent company having its headquarters or corporate seat in the EU, the possible application of the national laws of the jurisdictions where the non-Dutch companies are operational should therefore be taken into account.

Although in the Shell Nigeria case, liability of the parent was not established, multinationals that have their seat or headquarters in the Netherlands continue to run a serious risk of being sued for damage caused or related to operations of their foreign subsidiaries. The publicity generated by this type of claims is high, and this seems exactly what non-governmental organisations such as Friends of the Earth Netherlands aim for. In this case the facts related specifically to sabotage, but more general issues to consider are potential (civil) liabilities for alleged corruption and bribery, violations of labour rights, and damage to the environment and property of local communities. However, proceedings on the basis of transnational torts against parent companies and their foreign subsidiaries are complex, costly and lengthy. One of the complexities is that the domestic court will have to apply foreign law (such as Nigerian/English law by the Dutch courts in this case). In practice therefore, it remains yet to be seen whether transnational tort-based litigation is on the rise.

More details about the cases are set out in the press release (in English) issued by the court.

Andrew Denny