Ever Given latest.

Yesterday, 23 May, the appeals chamber of the Ismailia Economic Court upheld a ruling issued by the Ismailia Court of First Instance on May 4, rejecting the appeal made by the owners of the ship (Shoei Kisen Kaisha) against keeping the ship under arrest. In a second case that was filed by the Suez Canal Authority (SCA) to keep the seizure of the ship valid, the Court recused itself and referred this case back to the Economic Court of First Instance to be considered on May 29.

The Suez Canal Authority initially demanded $916 million in compensation, which it later lowered to $600 million which would cover the salvage operation, costs of stalled canal traffic and lost transit fees for the week the Ever Given blocked the canal. It seems the claim for reputational damage totalling $300 million may have been jettisoned.

The vessel’s owners have denied that the accident was their fault and are claiming fault on the part of the SCA in allowing the vessel the ship to enter the canal amid bad weather, and claim that at least two tugs suitable for the vessel’s size should have been supplied. Owners are claiming $100,000 in initial compensation for losses related to the vessel’s seizure.

Charterers orders to wait off berth not an extra contractual service; time falls within the laytime and demurrage regime.

London Arbitration 14-21 involved a claim by owners that time spent waiting on charterer’s orders following tender of NOR at the discharge port was a non-contractual service which should be remunerated by way of quantum meruit. This would be at the demurrage rate and would include bunkers consumed while waiting.

The Tribunal rejected the claim. Laytime had already started to run when the charterers ordered the vessel to wait off berth. This was not a non-contractual order as in The Saronikos [1986] 2 Lloyd’s Rep 277 and Glencore Energy UK Ltd v OMV Supply & Trading Ltd [2018] 2 Lloyd’s Rep 223. The charterers were entitled to use the whole of the agreed laytime, whether  by holding the ship off the berth, or by berthing her and not working her for some time, or by berthing her and working her immediately. Once laytime had started to count the charterers were entitled to use it in full. Even if owners had been right, they would not have been entitled to anything for bunker consumption. Assuming the demurrage rate was to be taken as a genuine pre-estimate of damages for detention, it had to follow that running expenses, including bunker costs, were to be taken as included in the agreed rate.

Smart claims for bill of lading freight by owners.

If an owner’s bill of lading incorporates the freight provisions of a time charterer’s voyage charter, can owners intervene to require payment of the freight to themselves rather than to the time charterer? That was the issue recently before Butcher J in Alpha Marine Corp v Minmetals Logistics Zhejiang Co Ltd (MV Smart) [2021] EWHC 1157 (Comm) (05 May 2021).


Claim were made by owners against charterers in respect of the loss of the vessel for breach of the safe port warranty. the Tribunal found that the Charterers had provided a safe port warranty in respect of Richards Bay and that there were some shortcomings in the running of the port. However, the Master had been negligent in his handling of the Vessel and it was this that caused the grounding of the Vessel. Owners had issued bills of lading which stated ‘freight as per charter’.  After the vessel was lost the Owners gave notice to the bill of lading holder, the voyage charterer to pay full freight to them. At that time only a sum in respect of bunkers was due to Owners.  Charterers claimed damages in respect of losses sustained as a result of owners’ intervention in respect of freight due under the bill of lading through the incorporation of the terms of the voyage charter. They also claimed in tort on the basis of procuring breach of contract by the voyage charterer and/or knowingly and/or unlawfully interfering with the Voyage Charter. The Tribunal found that Owners were not entitled to revoke Charterers’ right to obtain the bill of lading freight or to direct it be paid to the Owners. This is because the Charterparty contained an implied obligation that Owners would not revoke unless hire and/or sums were due to them under the Charterparty

On appeal, Butcher J considered three possible terms constraining owners’ exercise of their rights to intervene to claim freight under the bill of lading. First, the “all freight” implied term whereby if the Charterers were in default of their obligations under the Charterparty, then the Owners would be entitled to collect the entirety of the freight, even if it exceeded the amount of the Owners’ claim against the Charterers arising out of their default. Second, “All Freight (Sum Identified) Implied Term”) by which the Owners were not entitled to revoke the Charterers’ authority to collect any freight unless a sum was due to the Owners under the Charterparty and the relevant sum was identified at the time of any revocation of the Charterers’ authority; and (3) the “Dollar for Dollar” Implied Term whereby the Owners were only entitled, in the event of a default by the Charterers, to revoke the Charterers’ authority to collect freight in respect to an amount up to, but no more than, the amount due from the Charterers under the Charterparty.

Butcher J rejected the implication of any term.  Owners’ duty to account to the charterer for any excess in the amount of freight collected over the amount due under the charterparty meant that the present charterparty, or other time charters in similar form, did not lack commercial or practical coherence without an implied term restricting the owners’ right to intervene.  If owners claimed freight in excess of sums due to them under the time charter the owners would have to account for the balance to the time charterers, and that was the charterers’ protection.

The Award was set aside insofar as it awarded damages for breach of the implied term found by the Tribunal; and the matter was remitted to the Tribunal for reconsideration of the Charterers’ freight counterclaim on the alternative Tortious Basis, having regard to this judgment.

No-go Lugano?

The UK’s application, submitted on 8 April 2020, to join the Lugano Convention in its own right appears to be foundering on opposition from the EU. Although the three non-EU Members (Iceland, Norway and Switzerland) have expressed support for admitting the UK, the European Commission is less favourably disposed, and its consent is essential if the UK is to become a party to the convention. On 12 April the Commission stated.

“The Commission has conducted a thorough assessment of the request and has discussed it with Member States. It will come forward with a Communication in the coming weeks.

It is worth noting, however, that the Lugano Convention is a tool used within the EU-EFTA/EEA context. The UK has chosen to leave the EU, the Single Market and the Customs Union. It has chosen to have a more distant relationship with the EU than EEA-EFTA countries. These choices have to be taken into account when determining the EU’s position.”

The final decision, however, lies with the European Council, which comprises EU Member State heads of state or government and is expected soon. We wait with bated breath.

Deadfreight. Charterer’s nominated berth frustrates owner’s option as to quantity to load.

In London Arbitration 7/21 a vessel was chartered to carry coal. The owners were given the option to load between 27,000 and 33,000 mt of cargo, and the charterers were bound to provide a safe port/berth at the specified terminal. The owners exercised their option to load 33,000 mt

Prior to the fixture being concluded the owners had emailed the charterers’ agents at the loading port and had been advised that the maximum draft at the terminal was in excess of 13 m. The agents indicated that the vessel would berth at a specified berth where the vessel would have had no problem in loading 33,000 mt.

Charterers ordered vessel to load at a different berth where there was a lower maximum sailing draft and failed to change the berth nomination. There was a shortfall of 1,590 mt of cargo.

The tribunal held that the owners were entitled to exercise their option as to cargo quantity unfettered, and the charterers were bound to load whatever amount the owners opted for up to 33,000 mt. If, by their choice of berth, the charterers prevented the vessel from loading that quantity, they put themselves in breach of that obligation. By ordering the vessel to a berth where the draft was so limited as to stop the vessel loading 33,000 mt, the charterers frustrated the exercise of the owners’ option. Charterers were liable to owners in damages for the shortfall in cargo loaded

Off-hire and arrests unconnected with the vessel detained.

On 15 December 2018, while under time charter to Navision the “Mookda Naree” was arrested at Conakry in respect of a claim against sub-sub charterers Cerealis, and remained under arrest for nearly a month. The claim related to an alleged shortage claim against them by SMG in respect of cargo discharged at Conakry from a previous, unrelated vessel. The head charter and the sub-charter were time charters on the Asbatime form with additional clauses. In both cases, additional clause 47 put the ship off hire inter alia upon her being detained or arrested by any legal process, until the time of her release, “unless such … detention or arrest [was] occasioned by any act, omission or default of the Charterers and/or sub-Charterers and/or their servants or their Agents.” Additional clause 86 of the head charter, not included in the sub-charter, provided as follows:

“Trading Exclusions

When trading to West African ports Charterers to provide adequate security guards during port stays in these countries to protect the vessel her crew and cargo.

When trading to West African ports Charterers to accept responsibility for cargo claims from third parties in these countries (except those arising from unseaworthiness of vessel) including putting up security, if necessary, to prevent arrest/detention of the vessel or to release the vessel from arrest or detention and vessel to remain on hire.

…”

By cl.43 the Inter-Club Agreement was incorporated into the head charter.

Owners claimed that the vessel never went off-hire and that Navision was liable in damages for breach of cl.86. It was common ground that in the context of both time charters, Cerealis was a “sub-Charterer” within the clause 47 proviso.

The tribunal heard separate references by the sub charterer against the time charterer, and by the time charterer against the owners. They held that the clause 47 proviso applied, so that the vessel was not off hire after 12:00 hrs on 17 December 2018, because by that time her detention under arrest thereafter was occasioned by Cerealis’ failure promptly to deal with or secure SMG’s claim so as to procure her release.

In the head charter reference, the arbitrators held that the second paragraph of cl.86 applied, and was not limited to claims concerning cargo carried under the head charter. Therefore, the vessel was off -hire for the entire period under arrest.

On appeals by sub-charterers and time charteres against the awards, Andrew Baker J held, [2021] EWHC 558 (Comm) 10.3.21, that the tribunal had correctly concluded that the detention of “Mookda Naree” after 12:00 hrs on 17 December 2018 was occasioned by Cerealis’ failure to act. It ought reasonably to have acted to deal promptly with the claim being made against it by SMG, that being an “act or omission or default of … sub-Charterers” within the meaning of the proviso to clause 47 of both charters. As regards s.86 under the head charter which concerned the award of hire up to 12,00 on 17 December 2018 it was clear that clause 86 was intended to create a different regime to that generally applicable by reason of clause 47. The vessel never went off-hire during the period of the arrest.

The arbitrators had erred in their construction of clause 86 and should have said that SMG’s claim, though it related to a cargo that had been carried to a West African port, was not a cargo claim within clause 86 of the charter between the Owner and Navision because it did not concern “Mookda Naree’s” West African trading pursuant to that charter but a different ship altogether. It was therefore not a claim allocated to be Navision’s full responsibility by clause 86, any more than it would have been a claim to be dealt with under the Inter-Club Agreement pursuant to clause 43 in the absence of clause 86. Navision’s appeal against the award in the head charter reference succeeded to the extent that because the arbitrators misconstrued clause 86 they wrongly held that the ship never went off hire, whereas they should have held that when arrested she went off hire under clause 47 until the proviso bit from 12:00 hrs on 17 December 2018. They had also wrongly held that Navision had a liability for damages to be assessed for breach of clause 86.

Updated BIMCO versions of TOWCON, TOWHIRE and BARGEHIRE forms. Work in progress on new Force Majeure clause.

BIMCO have released new versions of their TOWCON, TOWHIRE and BARGEHIRE forms. New to TOWCON 2021 are a provision for mid-voyage bunkering on longer tows, and a mechanism for calculating compensation due to slow steaming or deviation. BARGEHIRE 2021 now contains clearer wording relating to off-hire surveys, repairs and redelivery. These have often been a source of dispute in the past.

BIMCO has also announced details of progress on its new Force Majeure clause. It takes the approach that neither party may terminate the contract while the vessel is carrying cargo. It notes that termination by owners with cargo on board will entail their continuing responsibility for the cargo as bailees, with no rights of recourse against charterers for discharge costs.

The new bolt-on to the clause sets out a number of liberties if force majeure prevents the completion of loading, or the departure from the load port, or discharge, for more than 21 days from when force majeure notice was declared. Extra costs incurred thereby should be allocated in accordance with the contract, in particular terms as to allocation of responsibility for loading or discharge, such as FIOST terms.

Any extra costs incurred in exercising any of the liberties should be allocated in accordance with the contract. This will require examining how the responsibility for loading and discharge has been allocated in the underlying contract, for example, if it is on FIOST (Free In Out Stowed and Trimmed) terms.

The BIMCO sub committee also considered how the draft clause would relate to other BIMCO clauses in the same contract such as the war, piracy and infectious or contagious diseases clauses. These allow owners to reject proceeding to a risk area, and if they do, to provide a cost allocation mechanism. By contrast the purpose of the Force Majeure clause is to protect a party from liability in damages in case of force majeure, and as a last resort to allow termination, something complementary to the other BIMCO clauses, and not in conflict with them.

The sub-committee noted that it is for the parties to decide whether a Force Majeure clause belongs in a period time charter, and the triggers for the clause have been set deliberately high. Firstly, the party claiming force majeure must prove the existence of the force majeure event; that the event was beyond its control; that it could not have been foreseen; and that its effects were unavoidable. Secondly, the right to terminate will only be available if performance becomes impossible, illegal or radically different, or substantially affects the whole contract during an agreed number of days.

This second aspect is similar to the doctrine of frustration but BIMCO state that “However, there is an important difference – if a party can bring itself within that termination provision, it will be able to terminate immediately, from day one. Under frustration, the contract would only be considered frustrated and terminated after a very long time compared to the overall contract period. There are two termination provisions in the clause and the other one provides a longstop right to terminate after an agreed amount of time has passed. The number of days will have to be negotiated depending on the contract in question.”

The BIMCO Force Majeure Clause and the additional bolt-on provision will be presented for adoption in May this year.

Supreme Court overrules Court of Appeal on interaction of crossing and narrow channel rules in COLREGs.

 Evergreen Marine (UK) Limited (Appellant) v Nautical Challenge Ltd (Respondent)

[2021] UKSC 6

On 11 February 2015, the appellant’s large container vessel, Ever Smart, and the respondent’s VLCC (very large crude carrier), Alexandra 1, collided at sea at night just outside the entrance/exit channel to the port of Jebel Ali in the United Arab Emirates.

Ever Smart was outbound from Jebel Ali and had been navigating along the channel at a speed over the ground of 12.4 knots at the time of the collision. Alexandra 1 was inbound to Jebel Ali but had not entered the channel as she was waiting in the pilot boarding area to pick up a pilot, and was moving over the ground very slowly, approaching the channel at a speed over the ground of 2.4 knots, but with a varying course. Visibility was good enough for the vessels to have seen each other from about 23 minutes before the collision. For the whole of that period, the two vessels were approaching each other on a steady bearing.

The High Court held Ever Smart 80% liable for the damage caused by the collision and Alexandra 1 20% liable. The Court of Appeal agreed on both issues and on apportionment. Two issues arose on appeal.

1. The interplay between the narrow channel rules and the crossing rules.

2. Whether the crossing rules only engaged if the putative give-way vessel is on a steady course.

The Supreme Court in which Lords Briggs and Hamblen gave the judgment, addressed the second issue first.

The Supreme Court held that there was no ‘steady course’ requirement. In The Alcoa Rambler the Privy Council had held that the crossing rules did not apply because the putative give-way vessel (the vessel which would be required to keep out of the way if the crossing rules applied) could not determine that she was on a steadily crossing course with the putative stand-on vessel, as that vessel was concealed behind other anchored vessels until the last moment before the collision. Importantly, there was no opportunity for the putative give-way vessel to take bearings of the putative stand-on vessel. In the present case Alexandra 1 had been approaching Ever Smart on a steady bearing for over 20 minutes before the collision, on a crossing course, enough to engage the crossing rules even though she was not on a steady course. For the same reasons the stand-on vessel need not be on a steady course to engage the crossing rules either.

On the first issue, the  interplay between the narrow channel rules and the crossing rules, at first instance and in the Court of Appeal it had been  held that the narrow channel rules displaced the crossing rules, relying on The Canberra Star [1962] 1 Lloyd’s Rep 24 and Kulemesin v HKSAR [2013] 16 HKCFA 195. However, the Supreme Court noted that these cases concerned a vessel intending to enter and on her final approach to the entrance, shaping her course to arrive at the starboard side of it. They did not apply where the approaching vessel was waiting to enter rather than entering. The crossing rules should not be overridden in the absence of express stipulation, unless there was a compelling necessity to do so.

Here, Alexandra 1 was the approaching vessel, intending and preparing to enter the channel but, crucially, waiting for her pilot rather than shaping her course for the starboard side of the channel, on her final approach. Accordingly, there was no necessity for the crossing rules to be overridden as the narrow channel had not yet dictated the navigation of the approaching vessel.

That vessel could comply with its obligations under the crossing rules, whether it was the give-way vessel or the stand-on vessel. Nor did the crossing rules need to be displaced as regards the vessel leaving the channel. The crossing rules were only displaced when the approaching vessel was shaping to enter the channel, adjusting her course so as to reach the entrance on her starboard side of it, on her final approach. Here, the crossing rules applied and Alexandra 1, as the give-way vessel, was obliged to take early and substantial action to keep well clear of Ever Smart.

The Supreme Court unanimously allowed the appeal. Apportionment of liability would be redetermined by the High Court.

A “maritime COVID” case in the Admiralty Court. First of many?

One of the features of the pandemic has been to throw some businesses into insolvency. This recently became an issue in P&O Princess Cruises International Ltd v The Demise Charterers of the Vessel ‘Columbus’ [2021] EWHC 113 (Admlty) (26 January 2021)  as regards lay-up charges for cruise vessels at the Port of Tilbury following the collapse of the CMV cruise line.

(1) P&O Princess Cruises International Ltd v The Demise Charterers of the Vessel ‘Columbus’ [2021] EWHC 113 (Admlty) (26 January 2021) Admiralty Registrar Davison

In March 2020 the pandemic caused cruise line CMV to suspend operations. Layup at the Port of Tilbury was agreed verbally at the rate of £3,000 per vessel per week. The Port did not look with favour on extended lay-bys as these tended to interfere with the trading upon which the Port’s business model was based. Vessels on extended lay-by blocked berths that could otherwise have been in use for working vessels whose quick turnaround enabled the Port to charge for embarking and disembarking passengers and goods and for other services. On 19 June 2020, the Vessels were detained by the Maritime and Coastguard Agency for non-payment of crew wages. A month later, the CMV empire collapsed. Some of the CMV companies went into administration on 20 July 2020. Shortly after in an exchange of emails the Port, pursuant to the “Extra Charges Schedule” found on its website and disseminated to regular port users (which included the Vessels’ former agents) by Notice to Mariners purported to switch the Vessels from the agreed lay-over rate of £3,000 per week to the “published tariff” rate which involved a dramatic increase over the previous agreed rate.

The combined effect of sections 26 and 31 of the Harbours Act 1964 summarised by Lightman J in The Winnie Rigg [1999] QB 1119 at 1125B:

“The Act of 1964 in section 26 provides that harbour authorities shall (notwithstanding any provision in earlier legislation) be free to charge such “ship, passenger and goods dues” as they think fit (subject only to the provision of a right of objection under section 31 to the Secretary of State.”

The issues were whether this power was subject to a requirement of reasonableness and the effect, if any, of the amendment from 26 June 2020 of the Insolvency Act 1986 by the Corporate Insolvency & Governance Act 2020.

(1) The relevant Port Regulation 5.6 required “reasonable prior notice” which was manifestly not complied with because the email gave less than 12 hours’ notice and the letters gave no notice at all. Less than 12 hours’ notice would not qualify as “minimum practicable”, let alone reasonable, notice. In the circumstances then prevalent a reasonable period would have been 28 days. The notice of variation was effective in accordance with that period of notice and was not required to be limited. Regulation 5.6 is not qualified by a requirement that charges may only be varied by an amount which is reasonable. The wording of 5.6 was clearly intended to give the Port complete freedom to increase the charges as it saw fit, on reasonable notice.

Although the email and the letters referred to the “published tariff”, had they used words such as “charges per Extra Charges Schedule” or similar the result would be no different. In that scenario, no one on the Vessels’ side could have thought that the part of the Schedule referring to “negotiated” rates for “extended lay-by” was the applicable part – because the negotiated rate had just been withdrawn. Equally, this was not a case of a failure to leave a berth at the required time “on completion of cargo operations”. That left only the rate for a vessel “detained at the port”. The Vessels had indeed been detained at the Port

If and to the extent that it was necessary for the Port to rely upon the Regulations’ statutory origin for their binding effect, then Section 22 of the 1968 Act would not prevent that as it makes the binding effect of the 2005 Regulations subject to a requirement that “a relevant extract from subsisting regulations” was “included in each schedule of charges published by the Port Authority”. In 1968 that would, no doubt, have taken the form of the Regulations (or at least Regulation 5) being cited alongside the Extra Charges Schedule or perhaps included in the same booklet or fixed to the same notice board. The Extra Charges Schedule stated in the top line, immediately below the title, that it was to be read in accordance with the Port of Tilbury’s General Terms and Conditions – 2005 Edition. That was, and was acknowledged to be, a reference to the 2005 Regulations which were on the same website. That plainly satisfied the requirements of Section 22, the statutory intention of which was to bring the 2005 Regulations to the attention of the Port’s users and to make them readily accessible.

(2) The position was not affected by the new Section 233B (3) inserted into the Insolvency Act 1986 which provides that

(3) A provision of a contract for the supply of goods or services to the company ceases to have effect when the company becomes subject to the relevant insolvency procedure if and to the extent that, under the provision—

(a) the contract or the supply would terminate, or any other thing would take place, because the company becomes subject to the relevant insolvency procedure, or (b) the supplier would be entitled to terminate the contract or the supply, or to do any other thing, because the company becomes subject to the relevant insolvency procedure.”

Although section 233B of the Insolvency Act 1986 was capable of qualifying the right of a supplier of services to terminate or “do any other thing” in respect of a company which had entered administration, that was not relevant here because the counterparties to the contracts were two CMV companies Mythic and Lyric, neither of which were in administration.

Admiralty Registrar Davison concluded, somewhat reluctantly, that the Port was entitled to its lay-up charges, stating.

58.       By implementing an increase from the agreed rate to the “tariff” rate, the Port, which already had a privileged position under statute, has considerably advanced that privileged position at the expense of other creditors. That observation is tempered by the fact that the Port was willing to reduce its rate to £10,000 per week (which, had it been necessary, I would have designated a “reasonable rate”) provided that the arrears were brought up to date. It was not the Port’s fault that that did not happen. Nevertheless, the overall recovery of the Port remains disproportionate to the services provided, the size of the available funds from the sales of the Vessels and the other claims against those funds.

59.       The Admiralty Court has no residual jurisdiction to moderate a claim so characterised. This claim, as with any claim, has to be assessed in accordance with the Port’s legal rights. I have found those rights to be clear.

Another bad week for Shell. Supreme Court allows Okpabi appeal

Yesterday, the Supreme Court, for whom Lord Hamblen gave judgment, allowed the appeal in the Okpabi Nigerian oil spill case against Shell’s UK parent, Royal Dutch Shell, Okpabi & Ors v Royal Dutch Shell Plc & Anor [2021] UKSC 3 (12 February 2021). This comes shortly after the decision of the Dutch Court of Appeal in parallel proceedings involving oil spills in other parts of Nigeria with claims against Shell’s Dutch parent and its Nigerian subsidiary.

The Supreme Court criticised the approach of both the court at first instance and of the Court of Appeal in allowing what was in effect a mini-trial based on the voluminous evidence before the Court. This was incorrect for interlocutory proceedings. Legally, in the light of the Supreme Court’s decision in Vedanta  which was given after the Court of Appeal’s judgment in Okpabi, various errors of law were apparent in the approach of the majority of the Court of Appeal.

The case made against RDS was that it owed the claimant a common law duty of care because, as pleaded, it exercised significant control over material aspects of SPDC’s operations and/or assumed responsibility for SPDC’s operations, including by the promulgation and imposition of mandatory health, safety and environmental policies, standards and manuals which allegedly failed to protect the appellants against the risk of foreseeable harm arising from SPDC’s operations. The issue of governing law pointed to the application of Nigerian law under the Rome II Regulation and it was agreed that the laws of England and Wales and the law of Nigeria wee materially the same.  The majority of the Court of Appeal (Simon LJ and the Chancellor) held that there was no arguable case that RDS owed the appellants a common law duty of care to protect them against foreseeable harm caused by the operations of SPDC. Sales LJ delivered a dissenting judgment in which he explained why he considered there was a good arguable case that RDS did owe the appellants a duty of care.

The pleaded case and the legal argument in the courts below focused on the then understood threefold test for a duty of care set out in Caparo Industries plc v Dickman [1990] 2 AC 605 and, in particular, whether there was sufficient proximity and whether it would be fair, just and reasonable to impose a duty of care. This was incorrect in the light of this court’s decision in Vedanta, where Lord Briggs had stated [49] “the liability of parent companies in relation to the activities of their subsidiaries is not, of itself, a distinct category of liability in common law negligence”.

The appellants recast their case based on Vedanta with the following four routes:

(1)              RDS taking over the management or joint management of the relevant activity of SPDC;

(2)              RDS providing defective advice and/or promulgating defective group-wide safety/environmental policies which were implemented as of course by SPDC;

(3)              RDS promulgating group-wide safety/environmental policies and taking active steps to ensure their implementation by SPDC, and

(4)              RDS holding out that it exercises a particular degree of supervision and control of SPDC.

Apart from corporate material from the Shell group there was also the evidence of Professor Jordan Siegel who produced an expert report in 2008 in litigation in the United States involving RDS’s immediate predecessors as SPDC’s parent companies. He considered that these documents showed that “The Royal Dutch/Shell Group of Companies tightly controls its Nigerian subsidiary, SPDC. This control comes in the form of monitoring and approving business plans, allocating investment resources, choosing the management, and overseeing how the subsidiary responds to major public affairs issues.” He summarised various corporate documents that post-dated his 2008 report and explains that, “there has been no material change in the senior management of the Shell Group’s ability to tightly control SPDC” since that report. Hes tated that the role of the RDS ExCo is “fundamentally the same” as the predecessor Committee of Managing Directors.

Apart from the error of conducting a mini-trial, there were two other errors of law alleged by the appellants.

The first alleged error is in the Court of Appeal’s analysis of the principles of a parent company’s liability in its consideration of the factors and circumstances which may give rise to a duty of care. The second alleged error is in the court’s overall analytical framework for determining whether a duty of care exists in cases of this type and its reliance on the Caparo threefold test.

The approach of the Court of Appeal had to be considered in the light of the guidance subsequently provided by this court in Vedanta. To the extent that the Court of Appeal indicated that the promulgation by a parent company of group wide policies or standards can never in itself give rise to a duty of care, that was inconsistent with Vedanta.  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.” This is what the appellants have described as Vedanta route (2).

Secondly, the majority of the Court of Appeal may be said to have focused inappropriately on the issue of control. Simon LJ appears to have regarded proof of the exercise of control by the parent company as being As Lord Briggs pointed out in Vedanta, it all depends on: “the extent to which, and the way in which, the parent availed itself of the opportunity to take over, intervene in, control, supervise or advise the management of the relevant operations … of the subsidiary.[49]” Control was just a starting point for that question. Lord Hamblen stated:

“The issue is the extent to which the parent did take over or share with the subsidiary the management of the relevant activity (here the pipeline operation). That may or may not be demonstrated by the parent controlling the subsidiary. In a sense, all parents control their subsidiaries. That control gives the parent the opportunity to get involved in management. But control of a company and de facto management of part of its activities are two different things. A subsidiary may maintain de jure control of its activities, but nonetheless delegate de facto management of part of them to emissaries of its parent.” [147]

A specific example of a case in which a duty of care may arise regardless of the exercise of control was provided by what the appellants have described as Vedanta route (4), based on what Lord Briggs stated at para 53:

“… the parent may incur the relevant responsibility to third parties if, in published materials, it holds itself out as exercising that degree of supervision and control of its subsidiaries, even if it does not in fact do so. In such circumstances its very omission may constitute the abdication of a responsibility which it has publicly undertaken.”

The Supreme Court then went on to consider whether these errors were material to the decision of the Court of Appeal.

It held that the case set out in the pleadings, fortified by the points made in reliance upon the RDS Control Framework and the RDS HSSE Control Framework, established that there was a real issue to be tried under Vedanta routes (1) and (3).  It was not necessary to make any ruling in relation to Vedanta routes (2) and (4), and the Court preferred not to do so given that the pleading has not been structured around such a case, although it observed that there was currently no pleaded identification of systemic errors in the RDS policies and standards.

Lord Hamblen concluded [154]:

“Whilst I consider that the appellants’ pleaded case and reliance on the RDS Control Framework and the RDS HSSE Control Framework is sufficient to raise a real issue to be tried, that conclusion is further supported by their witness evidence, as summarised when setting out the appellants’ case above, and, for reasons already given, the very real prospect of relevant disclosure being provided. That prospect is specifically borne out by the evidence of Professor Siegel and the identification of some of the most likely documents of relevance in the Dutch proceedings.”

Prefering, generally, the analysis of Sales LJ  to that of the majority of the Court of Appeal he noted observations of Sales LJ at para 155 that it was significant that the Shell group is organised along Business and Functional lines rather than simply according to corporate status. This vertical structure involves significant delegation

The appellants argued that the Shell group’s vertical organisational structure means that it is comparable to Lord Briggs’ example of group businesses which “are, in management terms, carried on as if they were a single commercial undertaking, with boundaries of legal personality and ownership within the group becoming irrelevant” (para 51).  How this organisational structure worked in practice and the extent to which the delegated authority of RDS, the CEO and the RDS ExCo was involved and exercised in relation to decisions made by SPDC were very much in dispute, as apparent from the witness statements. It wa also an issue in relation to which proper disclosure was of obvious importance. It clearly raised triable issues.