Must do better. Dutch Court of Appeal’s verdict on the Netherlands State’s efforts on climate change.

 

 

An interesting contrast to the UK climate change case in Plan B recently noted in this blog. On 9 Oct, the day after the IPCC released its report setting out why global warming must not exceed 1.5 C over pre industrial levels, and how challenging achieving that is going to be, the Amsterdam Court of Appeal gave its decision in State of Netherlands v Urgenda Foundation, (Case number : 200.178.245/01 – English translation available at ). Urgenda had brought a class action seeking an order that that the Netherlands State be ordered to achieve a reduction so that the cumulative volume of Netherlands greenhouse gas emissions would be reduced by 40%, or at least by 25%, by end-2020, relative to 1990 levels. The Netherlands had initially set a 30% relative target but after 2011 the target was reduced to 20% to align it with the EU’s target in the Emissions Trading Scheme Directive 2003/87, as subsequently amended.

 

The District Court ordered the State to reduce to 25% . The Court of Appeal has now rejected the State’s appeal. The State had acted unlawfully under Book 6 Section162 of the Dutch Civil Code and also under two articles of the ECHR, which has direct affect in the Netherlands: article 2 which sets out the right to life and also under art 8. Class actions could not be brought before the Court in Strasbourg, but could be brought before the Dutch Courts. Although the 25% target exceeded the EU’s 20% target the State was not precluded from taking more ambitious measures, providing this did not interfere with the EU’s ETS system, which it would not. Of particular interest is the Court of Appeal’s reference to the role of negative emissions technologies in combatting global warming.

 

[49] In the report of the European Academies Science Advisory Council (‘Negative emission technologies: What role in meeting Paris Agreement targets?’), entered into evidence by Urgenda as Exhibit 164, the following is noted about negative emissions:
“(…)We conclude that these technologies [Court: negative emission technologies, or NETs] offer only limited realistic potential to remove carbon from the atmosphere and not at the scale envisaged in some climate scenarios (…)” (p. 1)“Figure 1 shows not only the dramatic reductions required, but also that there remains the challenge of reducing sources that are particularly difficult to avoid (these include air and marine transport, and continued emissions from agriculture). Many scenarios to achieve Paris Agreement targets have thus had to hypothesise that there will be future technologies which are capable of removing CO2 from the atmosphere.” (p. 5)
(…) the inclusion of CDR [Court: removal of CO2 from the atmosphere] in scenarios is merely a projection of what would happen if such technologies existed. It does not imply that such technologies would either be available, or would work at the levels assumed in the scenario calculations. As such, it is easy to misinterpret these scenarios as including some judgment on the likelihood of such technologies being available in the future.” (p. 5)
The State has failed to contest this by not providing adequate substantiation. Therefore, the Court assumes that the option to remove CO2 from the atmosphere with certain technologies in the future is highly uncertain and that the climate scenarios based on such technologies are not very realistic considering the current state of affairs.

 

In the UK Plan B decision the Court referred to the Committee on Climate Change’s view that the UK’s planned reduction would be challenging but would be accelerated after 2030 by, inter alia, carbon capture. Plan B have lodged an appeal against the court’s refusal to grant judicial review. The reference to the challenge of reducing greenhouse gas emissions from marine transport is also interesting in the light of what is currently happening in the IMO, as noted in our blog.

Who is an “operator” under OPA 1990? Dumb barges and dumb tug.

 

Who is an “operator” under OPA 1990? Dumb barges and dumb tug.

 

In January 2013, a tugboat owned by Nature’s Way was moving two oil-carrying barges owned by Third Coast Towing down the Mississippi River. The barges were “dumb” barges lacking the ability for self-propulsion or navigation. The barges collided with a bridge, resulting in one of the barges discharging over 7,000 gallons of oil into the Mississippi. Nature’s Way and its insurer, and Third Coast Towing and its insurer were all designated by the Coast Guard as “responsible parties” under the 1990 Oil Pollution Act (‘OPA’). Nature’s Way subsequently spent over $2.99 million on the clean-up, and various governmental entities spent over an additional $792,000. In May 2015, Nature’s Way submitted a claim to the National Pollution Funds Center (NPFC) seeking reimbursement of over $2.13 million on the grounds that its liability should be limited by the tonnage of the tugboat and not the tonnage of the barges and also claiming relief from any obligation to reimburse the government for the additional $792,000-plus. Those claims were denied by the NPFC based upon its determination that Nature’s Way was an “operator” of the oil-discharging barge at the time of the collision.

 

The District Court held that Nature’s Way was an “operator” and its decision has been upheld by the Court of Appeals for the Fifth Circuit in US v Nature’s Way 21 Sept 2018. Case: 17-60698. OPA does not define the term “operator” but the Supreme Court in United States v. Bestfoods, 524 U.S. 51, 66 (1998) analysed the definition of the term in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), as follows:

In a mechanical sense, to “operate” ordinarily means “[t]o control the functioning of; run: operate a sewing machine.” American Heritage Dictionary 1268 (3d ed. 1992); see also Webster’s New International Dictionary 1707 (2d ed. 1958) (“to work; as, to operate a machine”). And in the organizational sense more obviously intended by CERCLA, the word ordinarily means “[t]o conduct the affairs of; manage: operate a business.”

 

Applying that analysis, the ordinary and natural meaning of an “operator” of a vessel under the OPA would include someone who directs, manages, or conducts the affairs of the vessel, and would thereby include the act of piloting or moving the vessel. Nature’s Way undisputedly had exclusive navigational control over the barge at the time of the collision, and, as such, it was a party whose direction (or lack thereof) caused the barge to collide with the bridge. It was, therefore, “operating” the barge at the time of the collision based on the ordinary and natural meaning of the term.

 

The Fifth Circuit rejected Nature’s Way’s argument that its conduct in moving the barge was more akin to the “mere mechanical activation of pumps,” and it could not be deemed to have been “operating” the barge because it was merely moving the barge as per Third Coast’s directions, and it did not exercise control over its environmental affairs or inspections.

Nature’s Way directed precisely the activity that caused the pollution—it literally was the party that crashed the barge into the bridge. It was clearly “operating” the barge at the time of the collision and therefore constituted a “responsible party” under OPA.

 

“Everywhere you go, you can be sure with Shell.” No arguable duty of care in respect of Nigerian oil pollution leaks.

 

The issue of a parent company’s potential direct liability in tort in respect of acts of one of its subsidiary companies has recently come before the Court of Appeal in Okpabi v Royal Dutch Shell and Shell Petroleum Development Company of Nigeria Ltd , [2018] EWCA Civ 191. The Nigerian claimants suffered from harm from pollution arising from oil leaks from Nigerian land pipelines due to the illegal process of “bunkering” by which oil is stolen by tapping into the pipelines.

The claimants wanted to sue  Shell’s Nigerian subsidiary SPDC, who operated the pipelines, in the English courts rather than in Nigeria. To this end they sued the English holding company, Royal Dutch Shell (‘RDS’), in the English courts. RDS would now serve as an ‘anchor defendant’ and the claimants obtained leave to serve SPDC out of the jurisdiction under para 3.1 of Practice Direction 6B, on the ground that there was between the claimant and RDS a real issue which it was reasonable for the court to try and the claimant wished to serve SPDC as a necessary or proper party to that claim.

RDS applied under CPR Part 11(1) for orders declaring that the court had no jurisdiction to try the claims against it, or should not exercise such jurisdiction as it had. At first instance Fraser J found that there was no arguable duty of care owed by the parent company Royal Dutch Shell Plc to those affected by the operations of its subsidiary in Nigeria.( [2017] EWHC 89 (TCC), noted in this blog on 2 February 2017. The governing law would be that of Nigeria, but the issue was decided under English law, because the legal experts for the parties were agreed that the law of Nigeria would follow, or at least include as an essential component, the law of England in this respect.

The Court of Appeal has now upheld the decision by a 2-1 majority, Sales LJ dissenting. The Court of Appeal applied the three stage Caparo Industries v Dickman test for assessing novel duties of care[1990] 2 AC 605 (HL) which set out three requirements, all of which had to be satisfied. (1) Was it foreseeable that if the defendant failed to take reasonable care, the plaintiff would be injured by the acts or omissions of the defendant (the foreseeability factor)? (2) Was there a relationship between the plaintiff the defendant characterized by the law as one of “proximity” or of being “neighbours” one to another (the proximity factor)? (3) as a matter of legal policy it would be fair and just to impose a duty of care on the defendant (the policy factor)? The duty of care argued for by the claimants foundered on the proximity requirement.

The claimants’ based their case on the duty of care owed by RDS to them on the fact that

“… [RDS] exerts significant control and oversights over [SPDC’s] compliance with its environmental and regulatory obligations and has assumed responsibility for ensuring observance of proper environmental standards by [SPDC] in Nigeria. [RDS] carefully monitors and directs the activities of [SPDC] and has the power and authority to intervene if [SPDC] fails to comply with the Shell Group’s global standards and/or Nigerian law.”

The claimants relied on five main factors to demonstrate RDS’s arguable control of SPDC’s operations: (1) the issue of mandatory policies, standards and manuals which applied to SPDC, (2) the imposition of mandatory design and engineering practices, (3) the imposition of a system of supervision and oversight of the implementation of RDS’s standards which bore directly on the pleaded allegations of negligence, (4) the imposition of financial control over SPDC in respect of spending which, again, directly relevant to the allegations of negligence and (5) a high level in the direction and oversight of SPDC’s operations.

Having reviewed the evidence submitted by the claimants Simon LJ concluded that none of the claimants’ five factors, either individually or cumulatively demonstrated a sufficient degree of control of SPDC’s operations in Nigeria by RDS to establish the necessary degree of proximity. There was no arguable case that RDS controlled SPDC’s operations, or that it had direct responsibility for practices or failures which were the subject of the claim. Simon LJ noted an important distinction between a parent company which controls, or shares control of, the material operations on the one hand, and a parent company which issues mandatory policies and standards which are intended to apply throughout a group of companies in order to ensure conformity with particular standards. “The issuing of mandatory policies plainly cannot mean that a parent has taken control of the operations of a subsidiary (and, necessarily, every subsidiary) such as to give rise to a duty of care in favour of any person or class of persons affected by the policies. [88]”.

A similar point was made by Sir Geoffrey Vos. The issue of mandatory policies, standards and manuals were of a highlevel nature and did not indicate control; control rested with SPDC which was responsible for its own operations.

“The promulgation of group standards and practices is not, in my view, enough to prove the “imposition” of mandatory design and engineering practices. There was no real evidence to show that these practices were imposed even if they were described as mandatory. There would have needed to be evidence that RDS took upon itself the enforcement of the standards, which it plainly did not. It expected SPDC to apply the standards it set. The same point applies to the suggested “imposition” of a system of supervision and oversight of the implementation of RDS’s standards which were said to bear directly on the pleaded allegations of negligence. RDS said that there should be a system of supervision and oversight, but left it to SPDC to operate that system. It did not have the wherewithal to do anything else.[205]”

 

Opkabi is one of three transnational tort claims involving attempts to sue a foreign subsidiary company using the English parent company as an ‘anchor’ defendant. In Lungowe v Vedanta and AAA v Unilever the court accepted that there was an arguable case that the anchor defendant owed a duty of care, although in AAA the claim foundered on the lack of foreseeability of the harm suffered by the claimants at the hands of third parties in the post-election violence in Kenya after the 2007 elections. An appeal is due to be heard later this year.

As a sidenote, in similar proceedings brought against SPDC in the Netherlands, using RDS as an ‘anchor defendant’, the Dutch Court of Appeal in December 2015 concluded that the claims against RDS were not bound to fail. They reasoned.

“Considering the foreseeable serious consequences of oil spills to the local environment from a potential spill source, it cannot be ruled out from the outset that the parent company may be expected in such a case to take an interest in preventing spills (or in other words, that there is a duty of care in accordance with the criteria set out in Caparo v Dickman [1990] UKHL 2, [1990] 1 All ER 56), the more so if it has made the prevention of environmental damage by the activities of group companies a spearhead and is, to a certain degree, actively involved in and managing the business operations of such companies, which is not to say that without this attention and involvement a violation of the duty of care is unthinkable and that culpable negligence with regard to the said interests can never result in liability.”

 

The claimants’ solicitors in Opkabi, Leigh Day, have indicated their intention to apply for leave to appeal to the Supreme Court.

 

 

And the levy was dry. OPA Trust Fund levy expires.

 

 

The US Oil Pollution Act of 1990 set up a trust fund to take care of expenses beyond the costs that might be covered by the responsible party spilling any oil. This was funded by the federal Oil Spill Liability Trust Fund levy of 9cts per barrel. The levy expired on 31 December 2017 and has not been renewed. There is currently about $5.7 billion in the fund.

Scope of OPA expanded. The US Foreign Spill Protection Act 2017.

 

On 12 December 2017 President Donald Trump signed into law the Foreign Spill Protection Act of 2017. This  amends the Oil Pollution Act of 1990 to make foreign facilities that are located offshore and outside the exclusive economic zone (EEZ) liable for removal costs and damages that result from oil spills that reach (or threaten to reach) U.S. navigable waters, adjoining shorelines, or the EEZ. Specifically, the following parties may be held liable: (1) the owners or operators of the foreign facilities, including facilities located in, on, or under any land within foreign countries; and (2) the holders of a right of use and easement granted under applicable foreign law for the area in which the facility is located. The Act extends to abandoned foreign facilities. The Act also expands the definition of  an “offshore facility” under the Clean Water Act so as to cover facilities seaward of the US EEZ. The expansion applies to the  subsections of s.311 of the Clean Water Act relating: to administrative and civil penalties for spills of oil and/or other hazardous substances; federal removal authority; civil enforcement ; the savings clause for existing state, local and federal law.

Maritime or non-maritime? The status of oilfield contracts in Louisiana

 

 

On 8 January 2018 the Fifth Circuit  en banc (In re Larry Doiron, Inc., http://caselaw.findlaw.com/us-5th-circuit/1885307.html (5th Cir. Jan. 8, 2018 No. 16-30217)) reworked the test for determining whether oilfield contracts are maritime or non-maritime in nature. Under maritime law knock for knock indemnity clauses in oil field service contracts are valid, but under anti-indemnity statutes in some states, such as Louisiana and Texas, they are invalid.

 

The case involved flowback operations performed in state waters on a fixed platform. The master service contract for the flowback work did not call for any vessel involvement. However, during the job the flowback contractor, STS, found a crane was needed to manipulate some of the flowback equipment. A tug and barge were needed to get the crane to the platform and the platform owner had to charter in vessels to allow the flowback contractor to do its work. required the platform owner (Apache) to subcontract with Larry Doiron Inc to charter in the necessary vessels to allow STS to do its work under the MSC.   During the ensuing operations, an STS technician was injured, and LDI sought indemnity from STS under the terms of the Apache-STS MSC (which provided for indemnity from STS to Apache and any of Apache’s subcontractors).

 

The Fifth Circuit set out a new two part test to determine whether or not the contract is maritime in nature. First, is the contract one to provide services to facilitate the drilling or production of oil and gas on navigable waters? Second, if the answer to the above question is “yes,” does the contract provide or do the parties expect that a vessel will play a substantial role in the completion of the contract? If so, the contract is maritime in nature.

 

Applying this new test to this case, the oral work order called for STS to perform downhole work on a gas well that had access only from a platform. After the STS crew began work down hole, the crew encountered an unexpected problem that required a vessel and a crane to lift equipment needed to resolve this problem. The use of the vessel to lift the equipment was an insubstantial part of the job and not work the parties expected to be performed. Therefore, the contract was non maritime and controlled by Louisiana law which barred the indemnity under Louisiana Oilfield Indemnity Act.

The difficult we do immediately. The impossible, at least offshore, takes a little longer.

It can be disconcerting to find, towards the beginning of the report of a decision in the Supreme Court, something like this:

image

Don’t despair. The point at issue in the August 3 case of MT Hojgaard AS v EON Climate and Renewables UK Robin Rigg East Ltd [2017] UKSC 59  was actually quite straightforward.

Problems appeared in a wind-farm off the Cumbrian coast, which were traceable to weaknesses in the foundations. The owners, E-ON, sued the constructor, Hojgaard, for breach of contract. In particular they relied on a warranty that the structure had been built to last for 20 years. There was some doubt over the meaning of the warranty (did it mean the thing would last 20 years, as the parties thought, or that its design was such that it ought to do so, as Lord Neuberger opined?); but the point didn’t matter, since here the collapse took place only a very short time after the whole caboodle had been built in the first place.

The claim thus looked straightforward, but here a difficulty arose. Like all major construction projects, the constructor had to observe detailed specifications. In this case the specification was named J101 (a technical specification prepared by acknowledged experts DNV — don’t ask further), which not only embodied the fearsome formula above, but which turned out to have a major defect in it. And the problems were due to this defect. Hojgaard argued that E-ON could hardly complain where Hojgaard had merely followed instructions: E-ON riposted that that was all very well, but a warranty was a warranty, and this one had been broken.

The Supreme Court confirmed what construction lawyers had always assumed was the case (see decisions such as Cammell Laird v Manganese Bronze [1934] AC 402 and Steel Co of Canada v Willand Management [1966] SCR 746): namely, that the warranty continued to apply even though in a sense inconsistent with the specification and thus impossible to satisfy. And, in the view of us at Maricom, rightly so. If a sophisticated business chooses to promise that something will happen come hell or high water, the fact that it turns out to have promised the impossible should not let it off the hook: that’s what warranties are all about.

The case is not of earth-shattering significance. DNV smartly changed its specifications in late 2009, so the particular issue here won’t affect wind-farm contracts signed after that date. As for the future, lawyers for constructors would do well to advise them to change their wording, making it clear that in so far as customers order structures to a particular specification, any warranties are qualified so as to prevent those customers both eating their cake and having it. If lawyers don’t do this, their PI insurers can expect some embarrassed phone calls; if construction companies don’t follow any such advice then that’s their look-out. But the decision in the Hojgaard case could still have some ramifications in respect of some older structures; to that extent at least it’s worth filing away a note.

Offshore drilling and Jones Act

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U.S. Customs and Border Protection (CBP) is proposing to modify and revoke previous Headquarter ruling letters relating  to the exception to the Jones Act for the carriage between two U.S. points of “vessel equipment,” which has not been considered “merchandise”.

 

The modifications will affect the use of foreign flagged vessels in offshore drilling under the Jones Act (46 U.S.C. 55102), through  revocation of prior rulings that:

transport of pipe for repair of offshore sites was not considered engagement in coastwise trade;  the installation of anodes on a subsea pipeline did not constitute an engagement in coastwise trade because the activity was in the nature of the repair;

a foreign flagged vessel may engage in laying and repairing of pipe in territorial waters and installing pipeline connectors to offshore drilling platforms and subsea wellheads;

if the sole use of a vessel is underwater repairs to offshore or subsea structures, then it is not considered a use in coastwise trade;

if the sole use of a vessel is in the installation or servicing of a wellhead assembly at a location within U.S. waters, then it is not considered a use in the coastwise trade.

 

CBP has extended the time for comments on these proposals  to April 18, 2017

 

 

 

Demurrage claim under HEAVYCON 2007

London Arbitration 7/17 involved a demurrage claim under a Heavycon 2007 charter, the first reported decision on this form. The charter involved carriage of two jack-up rigs from Malaysia to India. Indian customs regulations required the vessel to call at an intermediate port to be converted from a “foreign” to “coastal” run. After the rigs had been discharged at the discharge port, the vessel would then have to go back to Port X so that she could be reconverted from “coastal” to “foreign”.  Owners made two demurrage claims. The first was for demurrage accruing at the discharge port which charterers sought to resist, in part, on the basis that it was caused by “reasons beyond the control of the [charterers] such as adverse weather conditions and … deficiency of the Master … officers and crew”.  However, cl13 provided

(b) Demurrage shall be payable for all time used in excess of the free time. Demurrage shall also be payable for any delay whatsoever not caused by the Owner, including waiting on weather…

(c) Free Time shall not count and if the Vessel is on demurrage, demurrage shall not accrue for time lost by reason of deficiency of the Master, officers or crew or strike or lockout of the Master, officers or crew or by reason of breakdown of the Vessel or its equipment.

Demurrage would run from the expiry of free time to the completion of discharge unless charterers could bring themselves within a relevant exception, which they could not.

Owners second demurrage claim was in respect of time from completion of discharge to sailing from the second Indian port at which the vessel was reconverted from “coastal” to “foreign”. The tribunal found that demurrage came to an end on completion of discharge but the majority found that there would be a quantum meruit claim for performance of extra-contractual services. On the return journey, the vessel did not have to take any detour since the intermediate Indian port was directly in the line of the return route and there would be no quantum meruit for the voyage, but there would be for the time spent at that port.

Parents and subsidiaries. No liability in tort for Nigerian pipeline pollution.

When will a parent company be liable in tort in respect of acts of one of its subsidiary companies? Fraser J has provided some answers to this question in Okpabi v Royal Dutch Shell and Shell Petroleum Development Company of Nigeria Ltd,  [2017] EWHC 89 (TCC). The case involved pollution claims arising from oil leaks from Nigerian land pipelines due to the illegal process of bunkering by which oil is stolen by tapping into the pipelines. The principal target was Shells’ Nigerian subsidiary SPDC who operated the pipelines but the claimants wanted the case to be heard in the English courts rather than in Nigeria. To do this they brought proceedings against the English holding company, Royal Dutch Shell, which would serve as an “anchor defendant” to allow claims against SPDC to be joined to those proceedings. In a jurisdictional challenge by the two defendants the issue arose as to whether there was an arguable duty of care on the part of RDS to the claimants under Nigerian law which for these purposes was the same as English common. If not, there would be no ‘anchor defendant’ and SPDC’s applications challenging jurisdiction would succeed, due to the lack of connection of the claims against SPDC with this jurisdiction.

The claimants argued that Royal Dutch Shell owed a direct duty of care to them, relying heavily on the Court of Appeal’s decision in Chandler v Cape [2012] 1 WLR 3111, in which a parent company was found to owe such a duty to employees of its subsidiary company. They alleged that RDS had failed to ensure that repeated oil leaks from SPDC’s infrastructure were expeditiously and effectively cleaned up so as to minimise the risk to the claimants’ health, land and livelihoods and, further, had failed to take appropriate measures to address the well-known systemic problems of its operations in Nigeria which led to repeated oil spills.

Fraser J applied the threefold Caparo test to finding the existence of a duty of care.

1. The damage should be foreseeable; 2. There should exist between the party owing the duty and the party to whom it is owed a relationship of proximity or neighbourhood; 3. The situation should be one in which it is “fair, just and reasonable” to impose a duty of a given scope upon the one party for the benefit of the other.

The second and third of these limbs were problematic for the claimants. The evidence from those at SPDC’s evidence was to the effect that it, rather than RDS, took all operational decisions in Nigeria, and RDS performed nothing by way of supervisory direction, specialist activities or knowledge, that would put RDS in any different position than would be expected of an ultimate parent company. It was SPDC that had the specialist knowledge and experience – as well as the necessary licence from the Nigerian authorities – to perform the relevant activities in Nigeria that formed the subject matter of the claim.

Nor could a duty of care be said to arise from public statements by made both by the Shell Group and by RDS about the Group’s commitment to environmental issues, and the organisation of the Shell Group, such statements being a function of the listing regulations of the London Stock Exchange.  First these statements were qualified by the following wording “Royal Dutch Shell plc and the companies in which it directly and indirectly owns investments are separate and distinct entities. But in this publication, the collective expressions “Shell” and “Shell Group” may be used for convenience where reference is made in general to those companies. Likewise, the words ‘we’, ‘us’, ‘our’ and ‘ourselves’ are used in some places to refer to the companies of the Shell Group in general. These expressions are also used where no useful purpose is served by identifying any particular company or companies.” Second, it was highly unlikely that compliance with such disclosure standards mandated for listing on the London Stock Exchange could of itself be characterised as an assumption of a duty of care by a parent company over the subsidiary companies referred to in those statements.

As regards Chandler v Cape, the claimant there was a former employee, which, by definition, involved a closer relationship than parties affected by operational activities. A duty of care was more likely to be found in respect of employees, a defined class of persons, rather than others not employed who are affected by the acts or omissions of the subsidiary.  None of the four factors identified by Arden LJ in Chandler as leading to a duty of care on the parent company was present here. 1. RDS was not operating the same business as SPDC. 2. RDS did not have superior or specialist knowledge compared to the subsidiary SPDC. 3. RDS could have only a superficial knowledge or overview of the systems of work of SPDC.  4. RDS could not be said to know that SPDC was relying upon it to protect the claimants.

Accordingly, there was no arguable duty of care on the part of RDS and with the disappearance of the anchor defendant the claims against SPDC could not proceed in England. The claimants’ solicitors, Leigh Day, have stated that they will appeal.