Following the judgment last year of the Supreme Court in the case of Vedanta Resources plc & Anor v Lungowe & Ors [2019] UKSC 20 (the "Vedanta Case"), this is the Supreme Court's second judgment within a year on the subject of when a claim in tort against a foreign subsidiary of a parent company domiciled in England may be pursued in the English Courts.

The Supreme Court's decision in the Shell Case reinforces its earlier judgment the Vedanta Case, without taking the substantive law significantly further. Our commentary on the Supreme Court's decision in the Vedanta Case is available here. The procedural impact of the Supreme Court's decision is, however, likely to be significant.

Prior to the Supreme Court's decision in the Shell Case, the success rate for the claimants in these three cases being permitted to take their claims to trial in England was 1 out of 3 (only the Vedanta Case was to proceed to trial). The reversal of the Court of Appeal's decision in the Shell Case now makes the score 2-1 in the other direction, and raises fresh questions as to whether parent companies of multinational groups should be concerned about a flood of such claims in the future. 

The claimants in the Shell case are a group of Nigerian citizens who inhabit the areas of the Niger Delta allegedly affected by oil leaks from pipelines and associated infrastructure operated by Shell Petroleum Development Company of Nigeria Ltd ("SPDC"). SPDC is a subsidiary of Shell which is incorporated in Nigeria and which operates the relevant pipelines and infrastructure on behalf of an unincorporated joint venture in which numerous participating interests are held. Although SPDC is the operator, it is not a majority stakeholder in the venture. The majority stake is held by the national oil company of the Nigerian State. 

Leaks from the pipelines and infrastructure operated by SPDC are said to have impacted the lives, health and local environment of the claimants. The claimants' claim is that both SPDC and Shell are responsible for those leaks, and are obliged to compensate them under the Nigerian law of negligence. 

The claim against Shell is brought on the basis that Shell owed the claimants a duty of care either because it exercised significant control over material aspects of SPDC’s operations and/or assumed responsibility for SPDC’s operations. Shell sought to dispute the jurisdiction of the English Court under CPR 11(1) and sought declarations that the court had no jurisdiction to try the claims against it, or should not exercise such jurisdiction as it had. 

At first instance Fraser J held that there was no arguable case that RDS owed the Appellants a duty of care. The Court of Appeal had upheld Fraser J.

Lord Hamblen, with whom the rest of the Court agreed, gave the judgment of the Supreme Court (the "Judgment"). He found that the Court of Appeal had erred in at least four ways:

1. Both Fraser J at first instance and the Court of Appeal had allowed themselves to be drawn into a mini-trial of the extensive evidence adduced by the parties. This was beyond the proper scope of the Court's role at this stage. Rather than making an assessment of the evidence, the Court is required simply to assess the claimants' pleaded case and determine whether (i) the pleaded factual allegations were capable of founding the relevant cause of action, and (ii) such allegations were not demonstrably baseless or untrue such that the Court should look behind the pleaded case and the statement of truth.
2. The Court of Appeal was wrong to proceed on the basis that the promulgation by a parent company of group wide policies or standards can never in itself give rise to a duty of care. Such a notion had been subsequently been rejected by the Supreme Court in the Vedanta Case.
3. The Court of Appeal was wrong to conflate the question of control of a company with the de facto management of part of its activities. The former is unlikely to be relevant to the question of a duty of care, the latter is the key question.
4. The Court of Appeal was wrong to (i) treat the question of legal responsibility on the part of a parent company in relation to the activities of its subsidiary as a distinct category of potential liability, and (ii) to attempt to subject the question to the Caparo Industries test for finding the existence of a duty of care in novel circumstances.

Lord Hamblen was satisfied that at least the first of these errors was material to the decision of the Court of Appeal, and had led it wrongly to conclude that the claimants had no reasonable prospect of establishing that Shell owed a duty of care to the Claimants.

When seeking to assess the impact of the Supreme Court's decision, it is important to emphasise the procedural focus of the Court's judgment. This was a decision on a question of jurisdiction, at a very early stage in the proceedings. 

With that in mind, what will be the practical impact of the decisions of the Supreme Court in the Shell Case and the Vedanta Case? The Supreme Court has now twice reminded the lower Courts that, even in complex and delicate cases such as these, the proper approach to the assessment of jurisdictional issues is to assume, in the claimants' favour, that pleaded allegations of fact are true and will be proven at trial (unless demonstrably untrue), and to assess whether, as a matter of law, those facts are capable of supporting the claim that the claimants' seek to pursue. 

This is of course simply a restatement of the orthodox approach.  It has long been understood that the requirement to show a "good arguable case" in order to obtain permission to serve out of the jurisdiction is in effect the corollary of the summary judgment test. But it raises the prospect that cases of this nature are now very likely to be tried, unless obviously unmeritorious, given the low 'hurdle' that they face in order to progress beyond questions of jurisdiction. 

Is this a good thing? These claims will be extremely expensive (for all parties) to try, likely to take up significant Court resources and potentially disruptive to the affairs of defendants. That is no basis for complaint if the claims turn out to be well founded. However, these recent decisions of the Supreme Court will be seen by some as an invitation to "have a go", possibly without proper consideration as to whether they should proceed to a trial.

There remain at least two potential means of ensuring that they only proceed if well founded:

• Requiring that claims are properly pleaded before granting permission to serve out and other jurisdictional issues. It has been a hallmark of these cases thus far that the case pursued by the claimants on jurisdiction is developed in evidence to a point where it is very different from what has been pleaded (see, for example, Lord Hamblen's observations at paragraph 105 of the Judgment). The Courts could be more proactive in requiring claims to be properly pleaded when considering jurisdictional questions, and ideally before permission to serve out is granted at all. This will also, rightly, place a heavy burden on claimants applying without notice for permission to serve out of the jurisdiction.
• Applying careful thought, as Laing J did at first instance in the Unilever Case, to whether harm could have been avoided by the defendant taking the reasonable care which the claimants claim it failed to take. In other words, claimants should be required to plead a detailed explanation as to how they say the defendant should have acted and why that would have made a difference. Where there is obvious doubt that the harm complained of could have been avoided, even if a defendant had behaved as it is contended it should have behaved, then that may still be a sound basis for finding that there is no good arguable case. This may not have made a difference to the result in the Shell Case, but there will be many cases, such as the Unilever Case, where the claimants' case may be exposed as flimsy when viewed through this lens.

The unavoidable consequence of the Supreme Court's decisions in the Shell Case and the Vedanta Case is that cases like this will now be much easier to get off the ground, and this is likely to spark increased interest from litigation funders and claimant law firms.

Parent companies of multinational groups therefore face a dilemma. They must decide whether or not to take steps to protect themselves from the increased risk that they will face unmeritorious claims that cannot, following these two decisions of the Supreme Court, be nipped in the bud at the interim stage.

Those who do attempt to take such steps have an almost impossible balance to strike following the decisions of the Supreme Court in the Shell Case and the Vedanta Case:

• Vertical management structures organised on a group wide, functional basis, rather than by reference to specific operating subsidiaries, may lead a parent company to expose itself to claims that it owes duties to those harmed by the acts or omissions of its subsidiaries. But how is a certain degree of vertical integration to be avoided in large multinational groups, and how much is too much? How else are such organisations to achieve integration, co-ordination and efficiency? Is it efficient or even commercially viable to say that, in order to avoid the risk of being found to owe a duty of care to persons harmed by the acts or omissions of any one of its subsidiaries, multinational organisations should allow local subsidiaries to be run entirely autonomously by independent and empowered local management teams? 
• The answer no longer necessarily lies in the use of group wide policies or frameworks, within which subsidiaries are required to operate.  But the existence of such policies or frameworks will not necessarily prevent a parent company being fixed with a duty of care to those harmed by the activities of those subsidiaries. Nuanced questions now seem likely to arise as to how they are implemented, whether in practice such policies or frameworks become a vehicle for centralised control of the operational management of the subsidiary in question to the exclusion of the local management team, and whether, in requiring their implementation, the parent has in fact taken responsibility for certain aspects of its subsidiaries' affairs. These are very narrow distinctions to articulate in theory, let alone seek to implement in practice.
• There is an increasing expectation on multinational organisations to 'take ownership' of their activities around the world, and to demonstrate their commitment to, for example, sustainability, ethical working practices or good environmental stewardship. Yet it now appears that, if a parent company were to profess, for these purposes, to exercise a particular degree of oversight or supervision over certain aspects of their subsidiaries' affairs, then they are exposed to an argument that they have thereby assumed responsibility for that aspect of a subsidiary's affairs.

In practice, the decisions of the Supreme Court in the Shell Case and the Vedanta Case raise as many questions for multinational groups as they provide answers. The answers will not be easy to identify and will likely require careful analysis of the particular circumstances of the corporate group in question. 

Nevertheless, multinational organisations may take comfort from the fact that these cases arise at an interim stage; the Supreme Court did not decide that Shell did owe a duty of care to the claimants in the Shell case, but that it was arguable it did. The real test will come when the Shell Case and the Vedanta Case proceed to trial.