Supreme Court confirms UK parent company liability for acts or omissions of a foreign subsidiary: considerations for due diligence, restructurings and compliance

March 04, 2021

Executive Summary

In an important judgment relating to the English court’s jurisdiction over an environmental tort claim, the UK Supreme Court has confirmed recent authority that a UK-domiciled parent company can be liable in tort for acts or omissions by a foreign subsidiary.1 The decision rejects a traditional strict approach to corporate separation with the courts looking instead at how a group of companies are managed and operated in practice. In addition, the case highlights that deficiencies in group-level compliance policies and procedures can create liability for UK parent companies where they are implemented by a foreign subsidiary who causes loss to third parties. This point is of particular interest at a time when corporates are coming under increasing scrutiny and pressure regarding their policies and frameworks to address Environmental, Social and Governance (“ESG”) issues. The judgment also raises areas of consideration for private equity, restructuring and similar firms when conducting pre-acquisition due diligence or restructurings involving groups of companies with potential exposure at the subsidiary level to these sorts of mass tort claims. 

Key takeaways 

The key points for groups, companies, directors, shareholders and investors in the light of the Okpabi decision are:

  • The corporate veil may no longer shield parent companies from liability for their subsidiary’s conduct. The English courts’ typically strict approach to recognising the principle of corporate separation is called into question and a more factual approach to determining a parent company’s liability for the acts of its subsidiary based on its de facto management will now be taken into account. The emphasis on the fact sensitive nature of the assessment leaves a degree of uncertainty for parent companies, depending on their group-wide policies and the extent of their involvement in the activities of their subsidiaries.This decision suggests that corporate groups which operate vertically (e.g. via global business lines) may be more likely to be found to exercise relevant control over, and therefore be held responsible for, the actions or omissions of subsidiaries. This approach is likely to lead the English courts to accept jurisdiction in relation to more claims against UK-domiciled entities, making England a more attractive forum for mass tort/group litigation claims against parent companies. 

  • The English court’s approach to corporate liability highlights the importance of comprehensive and effective management and monitoring of global compliance programmes. Against the backdrop of corporates facing increasing scrutiny of their approach to sustainability, ESG and financial crime compliance programmes, the approach set out in the Supreme Court’s ruling highlights the need to ensure global compliance programmes are comprehensive and operationally effective and that gaps and weaknesses identified through ongoing monitoring (e.g. internal audit) or through other means are addressed promptly. In addition, this decision emphasises the overall benefit of more active corporate governance and effective controls and reporting.

  • Investors in, or purchasers of, companies often plan to profit through restructuring and disposal of subsidiaries. Additional assessment of future potential liability for the parent notwithstanding such restructuring is vital in the light of both this and the Vedanta judgments. The approach now prevalent in the Supreme Court proves that the 2012 Cape decision,11 which extended a duty of care to a parent, was not an egregious aberration borne out of sympathy as many suggested at the time.

Background facts

The case arises from two sets of proceedings brought by communities (totalling over 42,000 individuals) in Nigeria. The Claimants brought proceedings in the English courts against Shell Petroleum Development Company of Nigeria Ltd (“SPDC”), a Nigerian company operating oil pipelines in the Niger delta, and its UK-domiciled parent company, Royal Dutch Shell Plc (“RDS”). The Claimants allege that oil spills occurred from oil pipelines and associated infrastructure operated in the vicinity of their communities, causing widespread environmental damage as a result of SPDC’s negligence. The Claimants’ case against RDS is that it owed them a common law duty of care because it exercised significant control over material aspects of the subsidiary’s operations and/or assumed responsibility for the subsidiary’s operations. The Shell Defendants challenged the jurisdiction of the English court on the basis that there was not a real issue to be tried against the UK-domiciled parent company as anchor defendant and, therefore, no jurisdiction as against SPDC as a “necessary or proper party” pursuant to the relevant jurisdiction gateway.2

The judge at first instance concluded that “it is not reasonably arguable that there is any duty of care upon RDS, the ultimate holding company for the Shell Group, for the acts and/or omissions of the operating subsidiary within the Shell Group for Nigeria, SPDC.”3 Accordingly, the judge determined that the claims against RDS and SPDC could not proceed in the English courts. The Claimants appealed the decision and the Court of Appeal considered that the judge at first instance had erred in his approach to reviewing the evidence and, as such, decided to review the evidence itself, including fresh evidence adduced for the appeal. The evidence reviewed by the Court of Appeal included over 40 witness statement and expert reports. The majority of the Court of Appeal ultimately confirmed the first instance decision that there was no arguable case that RDS owed the Claimants a common law duty of care to protect them against foreseeable harm caused by the operations of SPDC. The majority noted that it would be surprising if a parent company were to go to the trouble of establishing a network of overseas subsidiaries with their own management structures if it intended itself to assume responsibility for the operations of each of those subsidiaries. 4

The Claimants’ appeal to the Supreme Court was deferred pending the Court’s decision in Vedanta Resources v Lungowe5 which similarly considered whether a UK-based parent company could be sued by Zambian citizens who alleged that they had suffered as a result of toxic emissions from a copper mine operated by a Zambian subsidiary of the UK parent. The Supreme Court in Vedanta decided that there was a real issue to be tried against the UK parent company and, in doing so, the Court referred to the Court of Appeal’s judgment in Okpabi and noted that there is no ‘limiting principle’ that prevents a parent owing a duty of care in respect of the activities of a subsidiary arising from the promulgation of group-wide policies and guidelines. 6

Following that judgment, the Supreme Court confirmed that it would hear the Claimants’ appeal in Okpabi. The Claimants amended their case in light of the Vedanta ruling, arguing that there were four ‘routes’ by which the parent company could be shown to owe the Claimants a duty of care: (i) by taking over the management or joint management of the relevant activity of SPDC; (ii) by providing defective advice and/or promulgating defective group-wide safety/environmental policies which were implemented as of course by SPDC; (iii) by promulgating group-wide safety/environmental policies and taking active steps to ensure their implementation by SPDC; and (iv) by holding out that it exercises a particular degree of supervision and control of SPDC. The Claimants relied on their allegations that RDS exercised a high degree of control, direction and oversight in respect of SPDC’s pollution and environmental compliance and the operations of its oil infrastructure. 

Supreme Court decision

The Supreme Court granted the appeal, finding that the Court of Appeal materially erred in law and that there was a real issue to be tried. 

The material error of law identified by the Supreme Court was in respect of the procedure for determining at the interlocutory stage whether the claim was arguable. The Supreme Court held that the Court of Appeal had been drawn into conducting a mini-trial instead of accepting the factual assertions made in support of the claim other than in the exceptional circumstances where it could be shown that they were demonstrably untrue or unsupportable. The Supreme Court also held that another consequence of the Court of Appeal conducting a mini-trial was that it had adopted an inappropriate approach to the documentary evidence in that it had essentially discounted the possibility of further relevant documentary evidence being identified during disclosure. The judgment notes that the relevant test at this stage during a jurisdictional challenge is “are there reasonable grounds for believing that disclosure may materially add to or alter the evidence relevant to whether the claim has a real prospect of success?7 The judgment highlights that internal corporate documents are important in determining whether a parent company should be liable for the acts or omissions of its subsidiaries and, as such, the Court of Appeal erred when it determined the issue on the basis of the Claimants only having access to two internal Shell documents.

The Supreme Court also identified the following errors of law in the Court of Appeal’s judgment (but did not determine whether these errors were material):

  1. The majority in the Court of Appeal appeared to accept (erroneously) that there was a general principle that a parent company could never incur a duty of care in respect of the activities of a subsidiary by merely promulgating group-wide policies and guidelines. The Supreme Court in Okpabi followed their decision in Vedanta on this issue.8 

  2. The majority in the Court of Appeal focused inappropriately on the issue of the level of control that a parent exerts over its subsidiary in determining whether the parent can be liable for the acts/omissions of the subsidiary. The Supreme Court highlighted that the control of a company and the de facto management of part of its activities are two different things. The issue is the extent to which the parent company did take over or share with the subsidiary the management of the relevant activity (here the pipeline operation), which depends on the specific facts of the case. A subsidiary may maintain de jure control of its activities, but nonetheless delegate de facto management of part of them emissaries of its parent.  

  3. There were (erroneous) suggestions in the Court of Appeal judgment that there is a special category of parent company liability in tort. The Supreme Court followed its decision in Vedanta again which quoted with approval the judgment of Sales LJ in AAA v Unilever plc: “There is no special doctrine in the law of tort of legal responsibility on the part of a parent company in relation to the activities of its subsidiary, vis-à-vis persons affected by those activities.”9 In circumstances where there was no new and distinct category of liability in common law negligence, the Supreme Court noted that it was inappropriate of the Court of Appeal to analyse the case using the three-stage test in Caparo v Dickman as it required “no added level of rigorous analysis beyond that appropriate to any summary judgment application in a relatively complex case.”10

The Supreme Court also held that there is a real issue to be tried as it is reasonably arguable that RDS owed the Claimants a duty of care. The Supreme Court based its decision, in part, on two RDS internal documents showing that the Shell group has a vertical organisational structure which involves significant delegation of authority. It found that whilst ‘formal binding decisions’ are taken at corporate level, they are taken on the basis of prior advice and consent from the business and functional line and organisation authority generally precedes corporate approval. 


1) Okpabi and others v Royal Dutch Shell plc and another [2021] UKSC 3. 

2) Paragraph 3.1(3) of Practice Direction 6B sets out the test as follows: “The claimant may serve a claim form out of the jurisdiction with the permission of the court under rule 6.36 where – …(3) A claim is made against a person (‘the defendant’) on whom the claim form has been or will be served (otherwise than in reliance on this paragraph) and – (a) there is between the claimant and the defendant a real issue which it is reasonable for the court to try; and (b) the claimant wishes to serve the claim form on another person who is a necessary or proper party to that claim.”

3) [2017] EWHC 89 (TCC), at paragraph 122. 

4) Sales LJ dissented and was of the view that the Claimants had a good arguable case that RDS did owe them a duty of care. 

5) [2019] UKSC 20. 

6) The Supreme Court’s judgment stated: “Mr Gibson sought to extract from the Unilever case and from [the Court of Appeal’s decision in the Okpabi v RDS case], a general principle that a parent could never incur a duty of care in respect of the activities of a particular subsidiary merely by laying down group-wide policies and guidelines, and expecting the management of each subsidiary to comply with them…Again, I am not persuaded that there is any such reliable limiting principle. Group guidelines about minimising the environmental impact of inherently dangerous activities, such as mining, may be shown to contain systemic errors which, when implemented as of course by a particular subsidiary, then cause harm to third parties.”

7) [2021] UKSC 3, at paragraph 128. 

8) “In Vedanta statements such as these were relied upon to argue that there was ‘a general principle’ that ‘a parent could never incur a duty of care in respect of the activities of a particular subsidiary merely by laying down group-wide policies and guidelines, and expecting the management of each subsidiary to comply with them’. At para 52 of Vedanta Lord Briggs said that he did not consider that ‘there is any such reliable limiting principle’. He pointed out that: ‘Group guidelines … may be shown to contain systemic errors which, when implemented as of course by a particular subsidiary, then cause harm to third parties.’” [2021] UKSC 3, at paragraph 145. 

9) See [2019] UKSC 20, at paragraph 50. 

10) See [2021] UKSC 3, at paragraph 151 (quoting from paragraph 60 of the Supreme Court’s judgment in Vedanta). 

11) Chandler v Cape plc [2012] EWCA Civ 525.

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