International parent company responsibility: Shell and oil spills in Nigeria
The Dutch Court of Appeal in The Hague has ruled that the Nigerian subsidiary of Royal Dutch Shell is responsible for oil pipeline leaks in the Niger Delta and ordered it to pay unspecified damages to farmers.
Shell has been subject of litigation in Europe for oil spills in Nigeria for quite some time. In 2008, four farmers and Friends of Earth Netherlands (Milieudefensie) brought a case before the Dutch courts seeking reparations for lost income from contaminated land and waterways in the Niger Delta. On 29 January 2021, the Court of Appeal of The Hague took the next step, after it had earlier accepted jurisdiction to hear the claims. In a series of simultaneously issued rulings the Court of Appeal orders Shell Nigeria to compensate damages, and it imposes an obligation on parent company Royal Dutch Shell to improve detection of spills.
Background of the case
Four Nigerian farmers and Friends of the Earth are claiming compensation from both Shell Nigeria and its parent company Royal Dutch Shell for damage they have suffered as a result of the oil spills in the Niger Delta. It concerns oil pipeline spills near the Nigerian villages Oruma and Goi and an oil well spill near the village Ikot Ada Udo in the period 2004 till 2007.
Shell denied any responsibility. According to Shell, the spills were caused by sabotage and therefore Shell is not liable under Nigerian law.
In 2013, the district court of The Hague ruled that Shell Nigeria is liable for the oil spills by the village Ikot Ada Udo and must therefore pay compensation to one of the four farmers. The district court did not find that Shell Nigeria’s guilt could be proven in the cases of the other three farmers. Furthermore, the district court ruled that Royal Dutch Shell cannot be held liable for the activities of Shell Nigeria. Both parties appealed the decision.
In 2015, the Court of Appeal accepted jurisdiction in relation to both the parent company and its Nigerian subsidiary to hear the claims and ruled that the claims should be judged under Nigerian law, in which the Oil Pipeline Act forms an important pillar in these cases. Just to note: in 2017, the English High Court denied jurisdiction in a similar case (UK High Court 26 January 2017, Okpabi v. Shell).
Liability for damages in the villages of Oruma and Goi
On 29 January 2021, the Court of Appeal ruled that Shell Nigeria is liable for the damage suffered in the villages of Oruma and Goi. According to the Court, Shell has not established 'beyond reasonable doubt' that the damage was caused by sabotage. The amount of the damages is will be further litigated in follow-up proceedings (damages assessment proceedings). Royal Dutch Shell is not deemed liable because Shel Nigeria has not acted negligent or unreasonable, so it cannot be assumed that the parent company has breached its duty of care and is therefore not liable.
Lacking clear precedent for parent company liability for a subsidiary under Nigerian law, the Court ‘borrows’ insights from English (case) law (UK Supreme Court 10 April 2019, Vedanta v Lungowe).
Leak detection system
In addition, the Court orders that Shell must install a better leak detection system at the Oruma pipeline, as a result of which future spills should be noticed more quickly. This obligation is imposed on both Shell Nigeria and its parent company Royal Dutch Shell. The Court holds that Royal Dutch Shell has a duty of care to ensure that a leak detection system is installed.
Sabotage oil well at Ikot Ada Udo
Finally, the Court gives an interim ruling with regard to the leakage at the oil well near Ikot Ada Udo. The Court states that it has been established that the leakages that occurred here are due to sabotage. However, the Court did not decide whether Shell can be held liable for the damages that occurred. This part of the case will have a follow-up.
This ruling by the Court falls in a broader trend of international parent company responsibility. Our team has extensive experience with international litigation and (corporate) liability matters. For more information please contact Mijke Sinninghe Damsté, Huib Schrama or Bastiaan Kemp.
Huib SchramaSenior Associate Attorney at law
Huib Schrama, attorney at law, is a member of the Litigation & Risk Management practice group. Huib focuses on corporate law and liability law. He advises and litigates on class actions, directors’ liability, cartel damages, (property) finance and commercial contracts.T: +31 20 578 52 59 M: +31 653 57 36 30 E: email@example.com
Bastiaan KempSenior associate Attorney at law
Bastiaan Kemp, attorney at law, is a member of the Litigation & Risk Management practice group in our Amsterdam office. He focuses on corporate law, including corporate governance and corporate litigation.T: +31 20 578 50 46 M: +31 613 85 43 31 E: firstname.lastname@example.org