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Shell Faces Oil-Spill Compensation Claims

Updated October 11, 2012, 12:55 p.m. ET

By SELINA WILLIAMS

LONDON—Royal Dutch Shell RDSA +0.28% PLC Thursday appeared in court in the Netherlands for the first time over the actions of one of its foreign subsidiaries, facing compensation claims for environmental damage from oil spills in Nigeria.

The case could set a legal precedent over how Dutch companies are held responsible for the actions of their foreign subsidiaries.

The suit has been brought by environmental group Friends of the Earth Netherlands and four Nigerian farmers, who are seeking compensation over claims that oil spills from Shell pipelines in Nigeria have damaged their livelihood. They also say they want the Anglo-Dutch oil company, headquartered in The Hague, to complete a cleanup of the spills.

Shell argues that the three oil spills in question were caused by sabotage of pipelines and as such it isn’t liable to pay compensation. A spokesman for the company said its Nigerian subsidiary has cleaned up the pollution at the three locations and that this has been certified by the Nigerian authorities.

The case is important because it is the first time a Dutch multinational is being sued in the Netherlands over the actions of an overseas subsidiary. It could set an important legal precedent, said Channa Samkalden, a lawyer at law firm Bohler, which is representing the Nigerian farmers.

“If the verdict of the Dutch court turns out to be beneficial for my clients, a major precedent will be set,” in relation to how companies are held legally responsible in the Netherlands for the actions of international subsidiaries, said Ms. Samkalden.

The verdict will be delivered Jan. 13, 2013.

The oil spills at Oruma, Goi and Ikot Ada Udo in the Niger Delta took place between 2004 and 2007. The total amount of oil spilled in all three incidents combined was about 1,100 barrels.

In addition to demands of a more thorough clean up of the spill site, Friends of the Earth is asking the judge to rule that Shell must improve maintenance and safety of its Nigerian pipelines, some of which are decades old.

Shell said a joint investigation found that sabotage was the cause of the spills in each of the three cases. In the first case a hole had been bored into the pipeline, in the second it had been cut with a hacksaw and in the third a valve had been manually opened, the investigation found. The joint investigation team included members of the local community, local authorities and Shell.

Pipelines are commonly tapped in Nigeria to steal the oil inside. Many parts of the Niger Delta have a thriving trade in oil stolen this way, known locally as “bunkering”. A report by the United Nations Office on Drugs and Crime in 2009 estimated as much as 150,000 barrels of oil a day were being stolen in that manner.

The local environmental damage in the Niger Delta from oil spills is well documented. A 2011 report from the U.N. Environment Program, which was funded by Shell, said cleaning up the damage caused by more than 50 years of oil production in one part of the vast Niger Delta would require $1 billion of spending in the first five years.

Shell has said the vast majority of the pollution in its Nigeria operations in recent years has been caused by oil theft and militant attacks. Around 1.6 thousand metric tons of oil were spilled into the Niger Delta in 2011 as a direct result of sabotage or theft, three quarters of total onshore spills, Shell said in its annual sustainability report.

Friends of the Earth Netherlands said that the videos and photographs from the joint investigation into the oil spills at Oruma, Goi and Ikot Ada Udo don’t provide incontrovertible evidence of sabotage in all three cases.

Write to Selina Williams at [email protected]

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