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Case law: Court clarifies when UK holding companies owe duty of care to those damaged by the acts of their subsidiaries

UK holding companies should consider whether their potential liability to third parties who suffer damage and loss because of the acts or omissions of their subsidiaries, in light of the tests set out in a recent High Court ruling.

Legal Alert

This update was published in Legal Alert - April 2017

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

Nigerian citizens brought proceedings against a UK holding company in the High Court in England and Wales. They claimed the company was liable for environmental damage and pollution allegedly caused by oil spills by its Nigerian subsidiary because it owed a duty of care to the Nigerians living in the area where its subsidiary operated.

The High Court ruled that the UK holding company only owed the Nigerians a duty of care if:

  • there was a 'proximate relationship' between them
  • the damage was foreseeable, and
  • it would be fair, just and reasonable to infer a duty of care in the circumstances overall

It set out the relevant factors which would affect whether a holding company was liable for its subsidiary's acts (and omissions) included whether:

  • both the holding and subsidiary company carried on the same business (ie. the one causing the damage)
  • the holding company's relevant knowledge or expertise was greater than its subsidiary's
  • the holding company had in-depth knowledge of its subsidiary's systems of work, and/or
  • the holding company knew (or ought to have known) that the subsidiary depended on it to make sure no damage occurred in relation to that activity

The more factors that applied, the more likely a holding company was liable for damage caused by its subsidiary.

The High Court found that the holding company in this case only had what it described as a superficial overview of its subsidiary's business. It did not carry out any similar work in the relevant area, did not have the depth of specialist knowledge its subsidiary had (and the subsidiary did not in any way rely on the knowledge and expertise that the holding company had), and did not hold shares in the subsidiary directly - only through other group companies.

Taking these factors into account, there was not a sufficiently 'proximate' relationship between the UK holding company and the Nigerians bringing the claim, and it did not owe them a duty of care.

Importantly, the Court stated that the fact that the corporate and environmental social responsibility policies followed within the group were established by the holding company did not of itself mean the holding company owed a duty of care to anyone damaged by a breach of those policies by another group company. Even in cases where there was a possibility that it might do so, this could be avoided by including an appropriate disclaimer.

Operative date

  • Now

Recommendation

  • UK holding companies should consider whether they may be liable to third parties who suffer damage and loss because of the acts or omissions of their subsidiaries, applying the tests set out in a recent High Court ruling

Case ref: HRH Emere Godwin Bebe Okpabi & Ors v Royal Dutch Shell Plc & Anor [2017] EWHC 89

Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.