Guest post by Liesbeth Enneking
On January 30th, the The Hague district court rendered a verdict in five civil liability procedures that had been brought by a number of Nigerian farmers and the Dutch NGO Milieudefensie against Royal Dutch Shell (RDS) and its Nigerian subsidiary Shell Petroleum Development Company of Nigeria (SPDC). The reasons for these procedures were four incidents in which oil had spilled from SPDC-operated pipelines in the Nigerian Niger Delta, causing damage to the neighbouring farmers’ lands and fishponds, compromising their livelihoods. The plaintiffs had asked the court, among other things, for a declaratory judgment holding that the defendant companies had acted unlawfully towards them and could be held liable for the resulting damage.
In its ruling, the district court dismissed the plaintiffs’ claims in four of the five procedures. On the basis of the evidence presented to it, the court came to the conclusion that the oil spills were a result of sabotage, and not a result of faulty maintenance as had been argued by the plaintiffs. This, in combination with the fact that under Nigerian law the operator of an oil pipeline is not liable, in principle, for harm resulting from oil spills caused by sabotage, led the court to dismiss the claims against SPDC. It also dismissed the claims against the parent company RDS, finding that under Nigerian tort law a parent company does not in principle have a legal obligation to prevent its subsidiaries from causing harm to third parties except under special circumstances, which the court did not find to exist.
In the fifth procedure, however, which related to two oil spills in 2006 and 2007 from an abandoned wellhead near the village of Ikot Ada Udo, the The Hague district court did grant the plaintiff’s claims, albeit only in part, ordering SPDC to pay compensation for the resulting loss. Although starting from the assumption that the immediate cause of the oil spills had been sabotage, the court in this specific case decided that SPDC was liable for the damage caused to the plaintiff’s crops and fishponds as a result of the oil spills. According to the court, SPDC had been negligent in leaving behind the wellhead without adequately securing it, thus making it simple for saboteurs to unscrew its valves. This led the court to conclude that in failing to take sufficient precautions against the risk of sabotage, SPDC had violated the duty of care it owed to neighbouring farmers.
On this basis, the The Hague district court concluded last Wednesday that SPDC had committed the tort of negligence viz-à-viz one of the farmers involved in the dispute and can be held liable for the damage he has suffered as a result. The exact amount of the compensation that is to be paid will be established in follow-up proceedings for the determination of damages. Notwithstanding the fact that all other claims made by the Nigerian farmers and Milieudefensie in these procedures have been dismissed, including those against the parent company RDS, The Hague district court’s ruling is groundbreaking.
Over the past two decades, Western societies around the world have seen a trend towards transboundary civil liability cases against (the parent companies of) multinational corporations. These so-called ‘foreign direct liability cases’ are typically brought before Western society courts by citizens from developing host countries who have suffered harm as a result of those multinationals’ local activities there. The main reason for pursuing these claims is that the host country plaintiffs are typically unable to address and obtain redress for the harm caused to them in their own countries before their local courts.
The reasons for this include the fact that they may not expect to receive a fair trial by an impartial court locally, that the local legal system may not be up to dealing with such complicated claims, that the local subsidiary may have ceased to exist or that they seek to hold the parent company accountable so as to make a statement and perhaps bring about structural changes in the multinational’s environmental, health & safety, human rights and/or labour policies.
The vast majority of these cases have so far been pursued in the US, where an obscure 1789 federal statute called the Alien Tort Statute (ATS) has since its ‘rediscovery’ in the 1980s provided non-US citizens (‘aliens’) with a legal basis for bringing before US federal courts civil liability claims relating to international human rights violations perpetrated anywhere in the world. A high-profile example are the claims against a large group of multinationals including General Motors, IBM and DaimlerChrysler for their alleged involvement in human rights violations perpetrated by the South African Apartheid regime.
In the spring of 2013, the US Supreme Court is expected to consider a number of fundamental questions relating to the interpretation of the ATS, including its applicability in foreign direct liability cases, in the case of Kiobel v. Shell. This case relates to Shell’s alleged involvement in human rights violations perpetrated by the Nigerian military regime in the 1990s against environmental activists who were protesting against the environmental degradation caused by oil exploration activities in the Nigerian Niger Delta.
Also in other Western societies such as Australia, Canada and the UK courts have been asked to deal with claims by plaintiffs from developing host countries who seek to address and obtain redress for harm caused to people and planet there by multinationals that are incorporated or headquartered in or otherwise connected to the forum country. Due to a lack of an ATS-equivalent, these non-US foreign direct liability claims have typically been pursued on the basis of general principles of tort law and the tort of negligence in particular. Recent examples include the Probo Koala toxic waste dumping incident, which led not only to the criminal prosecution of the international oil trading company Trafigura in the Netherlands but also to the pursuit of civil claims against Trafigura before the London High Court by a large group of Ivorian citizens. A group action brought against Shell by 11,000 Nigerians from the Bodo community in relation to two serious oil-spill incidents in the Niger Delta is currently pending before that same court.
The foreign direct liability claims against Shell in which the The Hague district court has now rendered a verdict are the first to have been brought before a court in the Netherlands, a fact that makes them unique. Already in 2009, the court issued a ruling stating that it had jurisdiction not only over the Netherlands-based parent company but also over the Nigerian subsidiary, due to the close connection between the claims against both entities. Even regardless of their outcome, the fact that the plaintiffs have succeeded in bringing their foreign direct liability claims against RDS and SPDC before the The Hague district court is a novelty that may signal to other plaintiffs in potential future cases that it is possible to bring this type of claim in the Netherlands. This is especially important at a time when controversy surrounding the ATS is increasing, rendering it a less reliable basis for future foreign direct liability claims.
What is also novel is the fact that the The Hague district court has rendered a ruling on the merits of these claims. Of all of the foreign direct liability cases that have been brought in other Western societies so far, only a handful have reached the trial stage; the far majority have either been dismissed at a preliminary (pre-trial) stage or settled out of court. Of course, what makes this case particularly salient is the fact that SPDC, Shell’s Nigerian subsidiary, has been held liable by the court for having failed to exercise proper care towards (one of) the plaintiffs, and has been ordered to pay compensation for the damage suffered. Although this may not seem like such a sweeping result, it is one of the very first instances that a corporate entity within a multinational group, albeit a subsidiary, has been held liable in a foreign direct liability claim.
As regards the issue of parent company liability, which is particularly interesting from a legal perspective as it is a relatively novel and uncharted concept, the court leaves the door ajar. It has explicitly rejected Shell’s contention that the plaintiffs’ claims against the parent company RDS were manifestly prospectless. According to the court, a parent company may under certain circumstances be held liable under Nigerian (and English) tort law for harm caused to third parties by the activities of its subsidiaries, as is made clear by a recent case in the UK in which a parent company was held liable for asbestos-related injuries suffered by an employee of one of its subsidiaries. The court also considers, however, that under the particular circumstances of these claims (including the court’s conclusion that the spills were caused by sabotage), there is no reason to depart from the general principle in Nigerian (and English) tort law that there is no general duty of care to prevent others from suffering harm as a result of the activities of third parties.
All in all, even though the The Hague district court’s ruling in the Shell Nigeria case does not necessarily set a precedent in a strictly legal sense (due to the fact that it is a rendered by a Dutch court on the basis of Nigerian tort law), it is likely to have a broad impact. It represents another step on a path that leads from soft law standards on the social responsibilities of internationally operating business enterprises towards hard law consequences. Moreover, it will provide a signal to legal practitioners, legal academics and especially Western society courts dealing with this type of claims that the trend towards these foreign direct liability cases is a real one. After all, it shows that both subsidiaries and parent companies of Western society-based multinationals may be held accountable before courts in their home countries, not only in principle but also in practice. This message is likely to strike a note not only among lawyers, but also among multinationals, NGOs, policymakers and the general public in both developing host countries and Western society home countries.
Liesbeth Enneking is a postdoctoral research fellow at UCALL, Utrecht University’s Centre for Accountability and Liability Law. In May 2012, she defended her PhD thesis on foreign direct liability and the role of tort law in promoting international corporate social responsibility and accountability. The text of this blog will be incorporated into an article on this issue; please do not quote without prior permission from the author.