Environmental Law News Update

In this latest Environmental Law News Update, Christopher Badger and Charles Morgan consider the liability of a parent company for environmental harm, amendments to the CPR for Aarhus costs protection and the possibility of a new Environmental Act.

Am I my subsidiary’s keeper? The Court of Appeal considers again the liability of a parent company for environmental harm

In Okpabi v Royal Dutch Shell plc and Shell Petroleum Development Company of Nigeria Ltd [2018] EWCA Civ 191 the Court of Appeal revisited the ground traversed in Lungowe and others v Vedanta Resources plc [2017] EWCA Civ 1528 (see our earlier blog), albeit with the opposite outcome on the facts i.e. the conclusion (by a 2:1 majority) that the English-domiciled parent holding company (RDS) could not even arguably be liable in respect of the activities of its Nigerian operating company (SPDC). The case does not really refine or develop the law as stated and applied in Lungowe but powerfully demonstrates the need for a very careful scrutiny of the facts before conclusions can be drawn about the degree to which a parent is either “responsible for” or “in control of” the activities of its subsidiaries so as to found tortious liability.

The background to the case was the activities of SPDC in Nigeria and its operation of oil pipelines, leaks and spills from which had caused considerable pollution to the environment through which they passed. As in Lungowe, it could be observed that SPDC (a company registered in Nigeria) was the obvious defendant and Nigeria was the obvious forum for dispute resolution. The basis of RDS’s liability and the foundation of English jurisdiction was said to be its assumption of a duty of care by virtue of the nature of its relationship with its subsidiary.

The context of the decision was an application by RDS under CPR Part 11(1) for a declaration that the English High Court lacked jurisdiction, or should not assume any jurisdiction which it had. The Court of Appeal concluded that the relevant test was effectively the same as that for summary judgment i.e. whether the claim was bound to fail or had “no realistic prospects of success”. Having protested loudly at the amount of material put before the court on the application, the Court of Appeal nevertheless devoted three days of hearing time to its determination and its three members gave separate judgments totalling 51 pages in length, each of which delved deeply into the content of that very same documentation, including additional material which was put in at a very late stage. Any lawyer acting in a similar future application would be bold to depart from a comprehensive approach to the presentation of evidence but will also have to be prepared for resulting criticism.

The claimants relied upon the well known three-fold Caparo test of foreseeability, proximity and fairness/justice/reasonableness. The Court of Appeal was satisfied that foreseeability was present but the majority (Simon LJ and Sir Geoffrey Vos C) held that there was insufficient proximity.

The majority found persuasive the point that some of the arguments deployed in favour of rendering RDS liable in respect of the activities of SPDC in Nigeria would do equal duty in relation to the activities of any of its subsidiaries and thus (in the words of Simon LJ) “proved too much”. Both Simon LJ and Sir Geoffrey Vos C also concluded that the imposition of liability would not be “fair, just and reasonable” under the third limb in Caparo, particularly because (per Sir Geoffrey Vos C) of the “unlikelihood …. of an international parent … undertaking a duty of care to all those affected by the operations of all its subsidiaries”. However since even an “assumption” of tortious responsibility is imposed by law rather than “undertaken” voluntarily, the significance of “likelihood” in this context is unclear.

Sales LJ (dissenting) concluded that EDS could be treated as an “anchor defendant” to allow the claims against both companies to proceed. He considered that the evidence revealed a potential case which was “more than merely speculative”. He was particularly persuaded that there was a case to be examined as to joint or shared control by way of direction and guidance (a possibility canvassed in Lungowe) and observed that the distribution of some responsibilities were “on functional business lines rather than by reference to corporate personalities”. Sales LJ was also willing to attach weight to the content of the corporate literature produced by RDS. Indeed if Sales LJ were the trial judge, it seems by no means improbable that the arguments of the claimant might ultimately have prevailed. Given that, wider interesting questions of jurisprudence arise as to the conceptual soundness of any conclusion by a mere majority that a case has no realistic prospects of success (even though their fellow judge in the Court of Appeal thinks that it has).

Whilst the issues in this decision are most likely to arise in the context of jurisdictional disputes, the principles of law are equally applicable in the domestic sphere and may on the right facts be engaged in any circumstances where an operating subsidiary is insolvent or insubstantial but there is a viable parent or holding company (or even, arguably, controlling individuals – it is difficult to discern anything in the judgments which confines the principles to corporate entities, VTB Capital plc v Nutritek International Corporation [2013] 2 AC 337 notwithstanding).

The full judgments can be found here.

Civil Procedure Rules amended for Aarhus costs protection

The Civil Procedure (Amendment) Rules 2018 (SI 2018/239) made on 23 February 2018 come into force on 6 April 2018. They are intended to clarify the Civil Procedure Rules in response to the September 2017 judgment in R (The Royal Society for the Protection of Birds, Friends of the Earth Ltd and another v Secretary of State for Justice and another [2017] EWHC 2309 (Admin), in which a number of NGOs challenged February 2017 amendments to the CPR for Aarhus Convention claims.

Rule 45.42(1)(b), which describes the financial information a claimant is required to provide if seeking the benefit of the costs protection provisions, is removed and replaced with a provision that mirrors the requirements for applications for costs capping orders in judicial review claims which are not Aarhus Convention claims.

A provision is introduced into rule 45.22(2) that confirms that the court may only vary the costs cap (or remove altogether the limits on liability) on an application by a claimant or defendant.

At the end of rule 45.44 a provision is inserted to make it clear that an application to vary such a costs cap (or remove a limit) must be made at the outset and determined by the court at the earliest opportunity; and that an application may only be made at a later stage in the process if there has been significant change in circumstances.

The statutory instrument can be found here

A new Environment Act on the horizon

At a meeting on 1 March, Michael Gove conceded that the 25-Year Environment Plan is “not a perfect document”. He also stated that he “absolutely gets” the need for a nature law to ensure that the ambitions in the plan are met.

This leaves green bodies in a tantalising position. Holding out the prospect of a new Environment Act brings with it the possibility of legislation directed at setting a range of targets and milestones with a view to improving nature in a manner similar to the Climate Change Act 2008.

However, it will take time for such legislation to be put in place, certainly beyond March 2019 (the point at which we will leave the EU). The government has already promised to consult this year on the functions, remit and powers of a new environmental watchdog, as well as the nature, scope and content of a new policy statement of environmental principles and has rejected calls to enshrine environmental principles into UK law, as recently proposed by peers in an amendment to the European Union (Withdrawal) Bill. However, there must be some concern that the government will struggle to get sufficient measures in place on Brexit day to ensure equivalence (or at least the veneer of equivalence).

It had originally been proposed that this consultation would take place at the start of this year. Now, no date has been given, other than to say that it will be at some point this year.

The problem is that we may end up with a hastily-concocted halfway house of a national environmental watchdog in March 2019.  This interim position may only be permitted to exist on the back of a promise for an all-encompassing wonder of a new Environment Act. The alternative possibility would be some form of continuing role for the European Commission, but in the present climate this does not look likely.

Have you seen our latest Environmental Law Video Newscast – a monthly round-up of the latest developments in environmental law. February’s edition can be viewed here. Future editions will be available at the end of each month on our website.

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