Will Supermajors Finally Be Held Accountable For Oil Spills?

Will Supermajors Finally Be Held Accountable For Oil Spills?

By Global Risk Insights – May 08, 2021, 12:00 PM CDT

A British Supreme Court ruling has brought to a head a 13-year-old battle to hold Royal Dutch Shell accountable for massive oil spills in the Niger Delta in 2008 and 2009. This creates a precedent for taking multinational corporations to trial in the home countries of their parent companies. This may mark the beginning of a more regulated global environment, in which subsidiary companies responsible for human rights abuses happening abroad could be held more accountable. Whether this will be an effective solution remains to be seen. 

UK Supreme Court Gives Nigerian Farmers the Go-Ahead to Sue Royal Dutch Shell

Britain’s Supreme Court has recently approved a decision to bring Royal Dutch Shell to trial over oil spills in the Niger Delta. The appeal was first made in June 2020 by Nigerian farmers and fisherman. This comes after a London court rejected the claim in 2018, stating that Royal Dutch Shell did not have sufficient control over its subsidiary company in Nigeria – the Shell Petroleum Development Company of Nigeria Limited (SPDC) – to bring it to trial in England. Shell initially denied that it was responsible for spilling 560,000 barrels worth of oil that took place in the Niger Delta in 2008 and 2009. It claimed that these had come as a result of illegal tapping and sabotage to its pipelines. An investigation by Amnesty International, however, revealed that the cause of the oil spills was due to neglect and poor upkeep. In 2015, Shell offered to pay the sum of £4,000 in compensation. This was later rejected and it was forced to pay £55 million worth of compensation to clean up the Delta.

The decision to move the case to the UK Supreme Court was, instead, opposed on the grounds that it did not have sufficient control over the SPDC for the trial to be brought to the UK and that the case should proceed in a Nigerian court. The case in 2018 was rejected on similar grounds, that the SPDC retained autonomy over group standards, policies and practices. The SPDC’s position remains that a “claim by Nigerian communities against a Nigerian company about events in Nigeria should be heard in Nigeria and not the UK”.

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On the other side, the communities affected by the oil spills argue that Royal Dutch Shell maintains a duty of care towards both its employees and the communities linked to it through proximity. Ogale and Billie communities, whose main source of income is subsistence farming and fishing, have lost their livelihoods through the pollution of land and water. These activities cannot be resumed until the oil spill has been cleaned up. Shell has still not begun this process.

Moreover, the communities are reluctant to present their cases to Nigerian courts, due to concerns over how effective these courts might be. Incessant military interventions into the government over the past few years have allowed corruption to spread. Furthermore, the inefficiency of the courts and their weak enforcement mechanisms provide little reassurance that the communities’ needs will be met, with King Okpabi, the ruler of the Ogale community, stating, “the English courts are our only hope because we cannot get justice in Nigeria.”

Criticisms of Oil Corporations in Developing Nations

The presence of Transnational Corporations, such as Royal Dutch Shell, in developing countries are criticised mainly for their priority to maximise profits at the expense of the local populations. This boils down to four factors: low salaries, pollution to the environment, risks to health and safety and human rights abuses.

SPDC appears to have consistently underpaid their workers, by hiring them through community contracts with local community leaders. Often contractors do not pay their workers on time or, in one case, some reported that they were not paid for several months following the death of their king and his son. Shell has tried to make up some of the wage losses but many still require compensation.

SPDC has also been slow in dealing with environmental issues such as the oil spills in 2008 and 2009. While companies like BP committed US$20 billion to clean the Deepwater Horizon spill in the Gulf or Mexico, Shell has not settled on a concrete sum towards compensation and clean-up of the Niger Delta.

Oil spills have also caused health and safety issues for the local population. Communities, who have traditionally collected their drinking water from underground rivers, have been put at risk. A leading oil spill expert, Kay Hotzmann, previously employed by Shell Nigeria, has implored the mass screening of the Bodo community following the oil spills.

Despite the questionable behavior of large multinational corporations, they do provide benefits such as an inflow of capital to the local economy, job opportunities and improvements to infrastructure. It would be unwise, therefore, to attempt to remove these corporations from developing nations altogether. A more realistic solution would be to increase accountability for their actions.

The main obstacles to this, however, are a lack of global controls, the mobility of corporations and a lack of incentive for governments to regulate these actors. Lack of global controls speaks to the obstacles associated with regulating these corporations, i.e., there is no enforcement mechanism for doing so. In terms of mobility, governments are unlikely to impose strict regulations on these corporations for fear that they might relocate. Finally, leaders across the world are largely disinterested in regulation policies and practices. 

More Regulation for Transnational Corporations

The decision to take the Shell – Bodo case to trial in the UK signals a general trend to hold multinational companies accountable for their actions. This case follows from the Vedanta case, which unanimously concluded that parent companies owed a duty of care towards its overseas claimants.

This move is very likely to lead to greater regulation of multinational companies, since it addresses the key areas in which corporations can sidestep responsibility for damage caused to local populations and environments. It provides a means by which governments can regulate international actors. Furthermore, courts in countries such as the UK are more able to overcome the aforementioned obstacles through greater access to resources and more effective enforcement mechanisms to back their legal proceedings. The EU has moved in the same direction, with a similar case against Shell in the Netherlands.

Nevertheless, there is ground for caution. Mobility is still a factor in companies’ ability to avoid harmful legal cases. Countries such as the US are much less likely to allow these types of cases to be taken up in court. This is largely due to the rule of forum non conviens, which allows cases that do not directly insinuate the parent company to be rejected. This does not apply in the UK or EU where cases can be continued without direct insinuation of the parent company. It is, therefore, a possibility that companies will try to relocate to countries such as the US if they continue to face penalization at home.

By Global Risk Insights

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