Rights as Usual

It is a pleasure to welcome back Dr Lucas Roorda as a guest poster on “Rights as Usual”. Dr Roorda (@LRoordaLaw)  is an Assistant Professor and postdoctoral researcher at Utrecht University. This post is his.

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On 29 January, the Court of Appeals (Gerechtshof) of The Hague delivered its judgments in the case of Four Nigerian Farmers and Milieudefensie v. Shell. These judgments are of seminal importance for improving accountability of transnationally operating businesses for violations of human and environmental rights. This is because it is the first appeals case in Europe that resulted in a victory on the merits for the victims, but also the first case to hold that a parent company was under a duty of care with regard to foreign claimants. In this blog, I will summarize the judgment, address some key points and analyse its potential impact on future litigation.

Preliminary notes

The three judgments are over 150 pages, which is exceptionally long by Dutch standards. Here I focus on the merits of the case and have skipped the jurisdictional questions, discussed here and elsewhere on this blog. I have also not extensively examined the (failed) challenges of the defendant to various claimants’ standing, or Shell’s argument on the purported exclusivity of the Oil Pipelines Act (OPA). Lastly, I have limited discussion about the evidence provided by the parties, although to a large extent this case is about factual findings of the court.

Factual background and case history

The case concerns three separate incidents of oil spills in the Niger Delta, and the court delivered three separate but partially overlapping judgments. The first (‘Cases A and B’) concerns an oil spill from an underground pipeline near Oruma in 2005; the second (‘Cases C and D’) concerns an oil spill from an underground pipeline near Goi in 2004; the third (‘Cases E and F’) concerns an oil spill from a wellhead near Ikot Ada Udo. These spills caused severe damage to local farmlands and fishing grounds. The claimants were Nigerian (fish) farmers, who held both Shell Nigeria (SPDC) and its parent company Royal Dutch Shell (RDS) liable for negligent maintenance of the pipelines and wellhead, inadequate response to the spills and insufficient clean-up, thereby causing that damage. They were supported in their claims by Dutch NGO Milieudefensie (Friends of the Earth Netherlands).

The District Court of the Hague in 2013 initially only upheld one claim from Cases E and F, that of Friday Alfred Akpan (discussed here). It dismissed all other claims, accepting Shell’s defence that the respective spills were likely caused by sabotage, and rejecting liability of parent company RDS. After first issuing several interlocutory decisions, most importantly on jurisdiction and applicable law in 2015, the Court of Appeal has now reversed the holdings of the District Court. On 29 January 2021, it held SPDC liable for damage caused by oil spills in Cases A to D and ordered payment of damages to the claimants, the amount to be determined in a separate hearing (schadestaatprocedure). It also orders both SPDC and RDS to install a leak detection system (LDS) in the pipeline central to Cases A and B. In Cases E and F, the court issues an interlocutory decision ruling that these spills were caused by sabotage, but requests additional information from the parties on the extent of the damage and subsequent clean-up actions. In the remainder of this post, I will only discuss Cases A to D, the oil spills in Oruma and Goi.

Liability of SPDC

As per its 2015 interlocutory decision, the court applies Nigerian law to the case’s substantive questions. The claimants had primarily argued their case on the basis of the federal OAP, which outlines obligations for operators of oil infrastructure; and on common law torts, specifically the torts of negligence, nuisance and trespass to chattel. To determine the liability of SPDC for both spills, the court looks primarily at the OPA, SPDC being the operator of the pipelines in the sense of the OPA.

First, the court examines liability for causing the oil spills. It considers that art. 11(5)(c) OPA imposes a strict liability standard for operators of oil pipelines. The operator can be exempt from liability in cases of sabotage, which Shell argued was the most likely cause of the spills in Oruma and Goi. The court however holds that under Nigerian law sabotage should be proven beyond reasonable doubt, as was argued by the claimants. While the court notes that the available expert reports indeed suggested that sabotage was a likely cause of the spills, it holds that this does not meet the standard of ‘beyond reasonable doubt’. It thus concludes that SPDC could not evade the strict liability standard of art. 11(5)(c) OPA, and that it is liable for damages arising out of the spills. The court does not consider it necessary to examine liability for any of the common law torts. It considers obiter that in either case it would likely not have found SPDC liable on this basis, given that sabotage was still a likely cause of the spill.

Second, regarding Shell’s response to the oil spills, the court notes that art. 11(5)(c) of the OPA is not applicable and that the claims regarding the response should be assessed in light of common law torts, specifically negligence. In both cases (A and B; and C and D), the court finds that SPDC owed a duty of care to the claimants, and acted negligently in its response to the spills. In the case of the Oruma spill, SPDC was aware of the risk of spills and potential problems with on-site inspection following a suspected spill, yet neglected to install a ‘Leak Detection System’ or take other sufficient measures. This would have allowed a more immediate response to leaks and spills, even if access to the site was (temporarily) impossible. In the case of the Goi spill, the court notes that while SPDC did perform an on-site inspection by helicopter to assess the leak, this could have been done at least a day earlier. The court additionally orders that SPDC should install an LDS system in the Oruma pipelines to prevent future spills; it had already done so in the Goi area in 2019.

Lastly, the court discusses the clean-up undertaken by Shell after the spills. Here, the court finds that while there was still some pollution in both regions, the duty of care Shell had to ensure adequate clean-up did not extend beyond the actions it had already undertaken, as assessed by applicable industry standards. The court also dismisses the claimants’ arguments that the remaining pollution constituted a violation of the farmers’ right to a clean environment, leaving aside whether such a right could be horizontally invoked under Nigerian law.

Liability of RDS

The court examines whether Royal Dutch Shell, parent company of the Shell group, is also liable for the oil spills. Such liability can be based on English precedent, which the court notes has persuasive authority in Nigeria’s common law system. The question is then whether the parent company also owed a duty of care to the claimants. A duty of care can be incurred if the company is in sufficient proximity to the claimants, for example by intervening in its subsidiary’s operations, and if imposing that duty is ‘fair, just and reasonable’. As the court notes, the UK Supreme Court confirmed in Vedanta v. Lungowe that parent companies can owe a duty of care to persons affected by harmful activities of foreign subsidiaries.

The claimants had argued that RDS, through its position in the Shell group and interventions with its Nigerian subsidiary, had incurred a duty of care, but the court dismisses this argument with regard to causing the spills. It notes that for a parent to incur a duty of care, the subsidiary must have acted wrongfully. However, as seen above, the court did not find that SPDC had acted wrongfully. Instead, it found that SPDC incurs strict liability as an operator under the OPA. With regard to the response to the spill, the court does find a limited duty of care. Based on internal documents, bonus policies and a witness statement, the court concludes that after 2010 RDS was actively trying to limit the amount of oil spills in SPDC’s operations, amongst other things by installing Leak Detection Systems (LDS) in its pipelines. The court thus finds that with respect to the installation of an LDS in the Oruma pipeline, where it had not been installed at the time of the proceedings, RDS had a duty of care to the claimants. It orders Shell to insure it is installed within a year.

Small steps, giant leaps

The Court of Appeals’ judgment is a monumental victory for the victims and their communities, and by extension for Milieudefensie. The court found in their favour on two of the three central issues after over a decade of litigation and uncertainty, although the finding that Shell conducted adequate clean-up after the spills must be disappointing. Whether this will actually result in an award that is sufficient to cover the personal and economic losses incurred both directly after the spills and in the decade since then remains to be seen, but it certainly appears that the award will be more than symbolic. Not that this case is devoid of symbolism: it is the first foreign direct liability case to result in an enforceable decision on the merits, in favour of the claimants. All comparable cases have either been dismissed, settled or are still being litigated. That alone signifies how impactful this case may be, and what a big leap it is towards more corporate accountability.

Moreover, this case is the first case where a parent company was found to owe a common law duty of care to claimants residing in a third state, specifically local communities affected by its subsidiary’s operations. English courts had contemplated this possibility in Connelly v. RTZ and Lubbe v. Cape, and the UK Supreme Court confirmed this in Vedanta v. Lungowe. Until this case, however, no court had concluded on the merits that a parent company was in sufficient proximity to its employees or local communities to incur such a duty. This holding thus staves off the fears that transnational corporate duties of care are a mere hypothetical, theoretically possible but never actually occurring in the real world. In my view, this is potentially the most lasting aspect of the case.

While of course enormously important to the victims, the court’s findings regarding SPDC’s liability are of limited legal relevance to other ongoing and future cases. These findings mostly concern the particular rules (the OPA) and facts (Shell’s actions regarding the spills) of this case. This is not a point of criticism: in a case as complicated and contentious as this one, it is sensible for the court to keep its ruling (if not its word count) relatively narrow. It does mean that in a different case, say in a different country with different local laws, concerning a different industry with different operational policies, or concerning even slightly different facts, the outcome may be completely different to this case.

Even the court’s finding of a parental duty of care, while significant, should be approached with some caution. It is of course only relevant for cases where the applicable law is the common law and English precedent can be applied. The way the court then applies that precedent is arguably problematic, specifically where it sides with Shell in holding that the subsidiary must itself have committed a tort before the parent can incur a duty of care. This does not follow directly from the English cases cited by the court, nor does the court clarify why finding that SPDC was subject to strict liability with regard to oil spills precludes a duty of care for RDS. Where it does find a duty of care, that finding stems from RDS’ specific interventions in SPDC’s operations after 2010, rather than from its central position of authority in the corporate group. I have argued on this blog before that finding a duty of care based on actual interventions of the parent, rather than its capacity to intervene, could create an incentive for parent companies not to interfere with their foreign subsidiaries (or only very generally), as this could potentially lead to liability later.

Separately, it must be noted that the proceedings took so long – 16 years since the first spill, 11 years since the litigation started – that several initial claimants passed away before this decision was issued, and litigation was continued by their next of kin. Part of this duration is inherent to the complexity of this case, part of this is arguably due to Shell dragging out the litigation, by arguing procedural points and being slow to produce internal documents requested by the claimants. It is of course fully within Shell’s rights to litigate potentially far-reaching issues like jurisdiction, and the court itself also requested a significant amount of additional evidence to be produced. What is certain is that the length of procedures like this disproportionately works to the detriment of individual claimants, as is painfully demonstrated by this case.

Conclusion

This decision takes a notable step towards more corporate accountability for human rights and environmental impacts. It was rightly celebrated, not just by the victims in this procedure who waited 13 years for a proper remedy, but also in the wider communities of the Niger Delta. As I pointed out in this blog, several significant legal and practical questions remain, from the availability of information necessary to viably argue a case to the precise extent of parental duties of care. But this outcome may well bolster other victims to bring their cases before home state courts, and push the trend towards more corporate accountability further forward.