Limitation in environmental damage claims

In recent years, there has been a growing body of case law in favour of large mass claims against UK parent companies for the actions of foreign subsidiaries, particularly with respect to ESG-related issues. However, the Supreme Court’s recent decision in Jalla reminds us that there remains significant hurdles (which the Courts will uphold) for potential claimants to overcome before they can bring these types of claims in England & Wales.

On 10 May 2023, the Supreme Court delivered its judgment in Jalla and another v Shell and another, unanimously rejecting an appeal by the claimants in the case. It held that an oil spill was a single, one-off event which gave rise to a single, one-off cause of action in nuisance. Consequently, the Appellants’ proposed amendments to the claim form were time-barred.

What does this mean for multinational parent companies?

In recent years, there has been a growing body of case law in favour of large mass claims against UK parent companies for the actions of foreign subsidiaries, particularly with respect to ESG-related issues. As noted in our articles here, here and here, the Supreme Court’s decisions in Vedanta Resources and another v Lungowe and others and Okpabi and others v Royal Dutch Shell and another have reduced early procedural barriers to these types of claims. Similar decisions were also handed down in Municipio De Mariana v BHP Group and Josiya and others v British American Tobacco and others.

However, the recent decision in Jalla (in addition to the other procedural challenges dealt with by the Courts in this case) provides a reminder that there remain significant hurdles for potential claimants to overcome before they can bring these types of mass claims in England & Wales, and that simply bringing an ESG related claim will not mean the Courts will override precedent or prioritise claimant remediation. As the Supreme Court recognised, there are important policy reasons for actions being limited which are not overridden simply because there is an ESG angle to the claim.

This was also highlighted in the recent decision of Alame v Royal Dutch Shell, in which the Court found, despite the substantial burden it imposed, that each of the claimants in the group action had an obligation to particularise the facts of their case in order to establish causation.

Background

On 20 December 2011, an oil spill occurred in the Bonga oilfield off the coast of Nigeria. The spill originated from a facility operated and controlled by Shell Nigeria Exploration and Production Company Limited ("SNEPCO"). It was caused by a rupture of one of the pipelines connecting the facility to a mooring system also operated and controlled by SNEPCO.

On 13 December 2017, the Appellants issued a claim in private nuisance for undue interference with the use and enjoyment of their land. In it, the Appellants alleged that oil from the spill devastated the shoreline, causing serious and extensive damage.

The primary limitation period for nuisance claims under the Limitation Act 1980 is six years. Over six years after issuing the claim, the Appellants sought to amend their pleadings. The Respondents objected to those amendments, submitting that the changes were being sought after the limitation period had expired. However, according to the Appellants, the limitation period had not expired as there was a ‘continuing nuisance’ caused by the oil remaining on their land.

The High Court held that the alleged oil spill was a one-off event; therefore, the limitation period would start to run on the date the spill occurred and would not continually renew each day the damage continued. Accordingly, the amendments sought by the Appellants to the claim form were time-barred. The Appellants appealed to the Court of Appeal, which upheld the decision. The Appellants appealed to the Supreme Court.

Limitation

The key issue to be addressed by the Supreme Court in this appeal was whether the oil spill was a continuing nuisance, and hence a continuing cause of action that was not time-barred, or a one-off nuisance with ongoing damage (or delay in the damage being corrected). The Court emphasised that for continuing nuisance, the important point is that the nuisance is continuing day after day or on another regular basis, and as such there is a fresh cause of action / interference in the claimant’s enjoyment of their land each time. In contrast, for a one-off nuisance, the damage is incurred at a point in time and the real complaint is the failure to correct that existing damage with no fresh interference.

The Appellants asserted that there was a continuing nuisance on the basis that the oil is still present on their land and has not been cleared up or removed. Lord Burrows concluded that “outside the claimants’ land, there was no repeated activity by the defendants or an ongoing state of affairs for which the defendants were responsible that was causing continuing undue interference with the use and enjoyment of the claimants’ land. The leak was a one-off event or an isolated escape.” It therefore followed that the cause of action accrued at the point of the original leak, there was no ongoing ingress of oil onto the Appellants’ land (as opposed to the failure to clean up existing pollution) and as a consequence the amendments sought by the Appellants were outside the limitation period.

Impact for insurers

This decision will reassure insurers (and reinsurers) underwriting energy and pollution liability policies, and broader liability covers, that established legal principles will still be applied to assess the merits of underlying limitation periods, even if the claim relates to a significant ESG issue. Where the claim is framed as a liability claim brought by one or more third party property owners, this may create an additional way in which liability for the spill is covered outside of clean up cover. Nuisance forms a further basis of liability to third parties beyond negligence, albeit there may be some overlap between the two. Insurers and reinsurers need to consider both under English law when assessing potential liability arising from oil leaks onto neighbouring land. Insurers and insureds will also want to make sure limitation arguments are properly catered for in settlements with third parties to prevent insurance coverage issues or outwards reinsurance issues.