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News Update Class Actions

Shell liable for oil spills in Nigeria
11 二月 2021
11 February 2021

On 29 January 2021, The Hague Court of Appeal held Shell Nigeria liable for the damage caused by oil spills near the Nigerian villages of Goi and Oruma. The Court of Appeal ordered the company to compensate the three Nigerian claimants. Moreover, the Court of Appeal ordered Shell Nigeria and its parent company Royal Dutch Shell to install a leak detection system in the Oruma pipelines. The claims were governed by Nigerian law.

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Parallel cases Goi and Oruma

The cases concern oil leakage from underground pipelines near the Nigerian villages of Goi in 2004 and Oruma in 2005. These leakages caused significant environmental damage. Three Nigerian farmers and the Dutch association Milieudefensie (Friends of the Earth Netherlands) claimed that the oil spills were due to wrongful acts and negligence by Shell Nigeria, its former parent companies and its current parent company, Royal Dutch Shell ("RDS"). They started two parallel proceedings before The Hague District Court. The Nigerian claimants brought claims on their own behalf. Milieudefensie brought collective claims in the interests of the members of the Oruma and Goi communities. The District Court rejected their claims, but the parties lodged a successful appeal before The Hague Court of Appeal, which granted part of the claims.

Interim judgments on jurisdiction, applicable law and admissibility

The Court of Appeal had taken the first hurdles in 2015, when it assessed its international jurisdiction, the applicable law and the admissibility of the claims. The Court of Appeal accepted jurisdiction to hear not only the claims against RDS, with its headquarters in The Hague, but also against Shell Nigeria because the claims were sufficiently connected. The claims were governed by Nigerian law, except for procedural matters, which were governed by Dutch law. The Court of Appeal therefore assessed the procedural admissibility of the collective claims under Article 3:305a (old) Dutch Civil Code ("DCC").

Under Article 3:305a (old) DCC, the class members' interests must be sufficiently similar, but the defendants did not challenge this similarity. By testing the adequacy of representation, the Court of Appeal also found that the class members' interests were sufficiently safeguarded. The fact that Milieudefensie does not have activities in the areas concerned and does not have a base in that region did not mean that it lacked the knowledge and skills to bring these collective claims.

The Court of Appeal rejected the defendants' argument that a collective action cannot be brought before a Dutch court to safeguard a purely local interest abroad that is not linked to the Netherlands. The court considered the link with the Netherlands sufficient since the existence and scope of the duty of care owed by RDS was part of the debate. The fact that the claims must be assessed under Nigerian law did not affect this decision. Please note that in contrast to Article 3:305a of the (old) DCC, WAMCA, the Act on collective damages claims (Wet afwikkeling massaschade in collectieve actie) which entered into force in 2020, does require such a link. If the defendant is based in the Netherlands, but most of the class members live abroad or the event for which the collective claim is brought happened abroad, additional circumstances indicating a sufficient link with the Dutch jurisdiction are required.

Shell Nigeria's liability

In its final judgments in 2021, the Court of Appeal held Shell Nigeria strictly liable for the damage in Goi and Oruma under Article 11(5)(c) of the Nigerian Oil Pipelines Act 1956. Shell Nigeria would not have been strictly liable if it had proved beyond reasonable doubt that third party sabotage had caused the leakage. The Court of Appeal also found that Shell Nigeria was liable for the damage because it had breached its duty of care in its response to the leakages under Nigerian common law.

The Court of Appeal therefore ordered Shell Nigeria to pay compensation for the damage suffered by the three Nigerian claimants. The amount of compensation will be determined in follow-on proceedings. Milieudefensie did not claim compensation for the Goi and Oruma community members because Article 3:305a of the (old) DCC did not yet allow a collective damages action. This has since become an option under the WAMCA. The current ruling can therefore be used as a stepping stone to follow-on damages proceedings (collectively by assignments/mandates or individually) or a class settlement agreement.

In the Oruma case, the Court of Appeal found that Shell Nigeria also continuously breached its duty of care because it still had not installed a leak detection system in the Oruma pipelines. It therefore ordered the company to install such a system in the Oruma pipelines within a year after the judgment, subject to a penalty.

Parent company liability

The Court of Appeal found that since Nigerian common law does not have precedent cases on parent company liability, English precedents have persuasive authority. The Court of Appeal concluded from Vedanta v Lungowe [2019] UKSC 20, a 2019 UK Supreme Court decision, that a parent company breaches its duty of care towards third parties if its subsidiary committed a tort against those parties, the parent company knew or should have known this and the parent company intervened in the subsidiary's relevant business operations.

In both the Goi and the Oruma case, the Court of Appeal found that the claimants had not provided enough proof that Shell Nigeria's former parent companies knew or should have known that their subsidiary breached its duty of care, and therefore rejected those claims.

However, the Court of Appeal accepted that RDS had parent company liability because of its response to the Oruma oil spills. Shell Nigeria breached its duty of care by not installing a leak detection system. RDS knew this, because from at least 2010 it intervened concretely in the internal discussions about whether the Nigerian pipelines should be provided with a leak detection system. However, RDS did not use its authority to compel Shell Nigeria to install this system, even though it knew or should have known that its absence would cause severe adverse effects to the people living in the Oruma area in the likely case of yet another leak. The Court of Appeal therefore also ordered RDS to install a leak detection system within a year after this judgment.

The discussion above focuses on two decisions by The Hague Court of Appeal on 29 January 2021: ECLI:NL:GHDHA:2021:132 (Oruma), and ECLI:NL:GHDHA:2021:133 (Goi). In a third parallel procedure concerning oil spills in Ikot Ada Udo, The Hague Court of Appeal issued an interim judgment on the same date: ECLI:NL:GHDHA:2021:134.

Houthoff's large class action team has in-depth and broad experience advising and representing companies and financial institutions and defending and settling class actions. Most of those class actions have a cross-border reach, which requires thorough private international law and jurisdiction strategies. We will keep you informed about the latest developments in Dutch class action law and related private international law topics. Please feel free to contact Albert and/or Paul if you have any questions.

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Written by:
Albert Knigge

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