By DAVID JOLLY and STANLEY REED
30 Jan 2013, The New York Times
In a legal dispute that had been closely watched by multinational companies and environmental organizations, a Dutch court Wednesday dismissed most of the claims brought by Nigerian farmers seeking to hold Royal Dutch Shell accountable for damage by oil spilled from its pipelines.
The decision, by the District Court of the Hague, was unusual in that it was brought in a Dutch jurisdiction against a Dutch company for activities overseas by a foreign subsidiary.
Shell, which has its headquarters in the Hague and its registered offices in London, acclaimed the decision as a vindication.
The company had argued that the oil spills were not its fault, but the result of criminal tampering.
“This ruling will enable more people to understand what is happening on the ground in Nigeria,” Jonathan French, a Shell spokesman, said. “We have this rampant problem of criminal activities: oil theft, sabotage, and illegal refining. That is the real tragedy of the Niger Delta.”
The company, which obtains 12 percent of its oil and gas from Nigeria, has long been dogged by accusations that its activities there cause serious environmental problems and human rights abuses.
In 2009 it agreed to pay $15.5 million to end a lawsuit brought under the U.S. Alien Tort Claims Act arising from the 1995 execution of the author Ken Saro-Wiwa, a critic of the company and the Nigerian government’s actions in the Niger Delta.
That U.S. law has been interpreted as having broad jurisdiction, even over foreign multinationals.
Shell denied that it bore any responsibility for Mr. Saro-Wiwa’s death, but said it wanted to end the litigation and move on.
In the case decided Wednesday, which was filed in 2008, four Nigerian farmers and fishermen, working with the environmentalist group Friends of the Earth, claimed that their livelihoods had been ruined by oil that spilled from Shell pipelines in their villages.
While the pollution damage itself was not in dispute, Shell argued that the spills had been caused by so-called bunkering — oil theft from the pipelines — as well as outright sabotage.
The court agreed with Shell in most of those spills, around the villages of Goi and Oruma.
But it held that in one spill, near the village of Ikot Ada Udo, the local subsidiary, Shell Petroleum Development Co. of Nigeria, was liable for damages — as yet unspecified — to one farmer.
In that case, the court said, “sabotage was committed in a very simple way in 2006 and 2007 by opening the overground valves with a monkey wrench,” something that “Shell Nigeria could and should have prevented.”
“I am not surprised at the decision because there was divine intervention in the court,” Reuters quoted the farmer, Friday Akpan, as saying. “The spill damaged 47 fishing ponds, killed all the fish and rendered the ponds useless.”
Joel Trachtman, a professor of international law at the Fletcher School of Law and Diplomacy in Medford, Massachusetts, said that, in theory, the court’s finding in favor of Mr. Akpan meant that “multinational companies could find their foreign subsidiaries held to a higher standard, higher even than locally owned companies.”
That, he said, “conceivably could deter foreign investment in Nigeria.”
But Mr. Trachtman noted that the court also rejected any liability for the parent company. That limited the implications of the ruling. Mr. Trachtman said that facet of the decision was in keeping with global legal principles. “Usually courts around the world accept the separate existence of a subsidiary corporation,” he said. “They don’t pierce the veil to hold the parent responsible.”
Evert Hassink, a spokesman for the Dutch chapter of Friends of the Earth, described the court ruling as “mixed.” The court’s refusal to assign any responsibility to the parent company was disappointing, he said. But “we’ve succeeded in establishing the principle of going to court in the Netherlands or Europe because of what happened in another country,” he said.
Mr. Hassink said that Friends of the Earth would appeal the findings, arguing that the court’s unwillingness to force Shell to open internal communications for inspection had handicapped the plaintiffs.
“I expect, both in the U.K. and in the Netherlands, that other villagers will be going to court with NGOs,” he said. “But they will have to be very well prepared, because the courts in the Netherlands will not assign responsibility to Shell too easily.”
Even if one accepts that sabotage contributed to the oil spills, he said, Shell bears responsibility. “You can’t leave 7,000 kilometers of pipeline unguarded” in a poor country like Nigeria.
The ruling appeared to have little impact on Shell’s share price, which slipped less than 1 percent on Wednesday.
Peter Hutton of RBC Capital Markets in London said that effect on Shell’s stock price would have been greater “if it had been a dramatic decision against” the company.
Shell is one of the largest companies in the Netherlands, a country jealous of its image as an environmentally friendly beacon to the world. But the company’s problems in Africa serve as a reminder that even the Dutch get some of their energy from fossil fuels that are extracted from poor countries under ambiguous circumstances.
The company’s Nigerian operations were its largest source of oil and gas with about 377,000 barrels per day of production in 2011, the most recent full year for which figures are available.
Much of the output comes from the swampy areas of the Niger Delta, a densely populated and impoverished region.
Shell owns 30 percent of its onshore subsidiary there, the Shell Petroleum Development Co. A 55 percent stake is held by the Nigerian National Petroleum Corp., 10 percent by Total of France, and 5 percent by Agip of Italy.
Shell and other operators in the Delta have long clashed with some of the local population, who blame the companies for polluting their land and waterways and for not doing enough for people living around the oil facilities.
Mr. French, the Shell spokesman, said that of the 26,000 barrels of oil Shell’s Nigerian subsidiary spilled in 2012, more than 90 percent “was spilt as a result of criminal activity.”
Valérie Marcel, an oil industry analyst at the Chatham House, a research institute in London, said Shell had faced mounting difficulties in Nigeria.
“From lost income from large scale bunkering to kidnappings of oil workers and now legal responsibility for spills in the Delta,” Ms. Marcel said. “It’s a very difficult operating environment. Whether Shell stays in Nigeria or goes, it will have to face up to the environmental impact of its operations there.”
Oil companies like Exxon Mobil and Chevron, also major producers in Nigeria, are increasingly moving production offshore into deeper water, away from the hazards of the Delta. Only about 25 percent of Nigerian production now comes from onshore fields, sharply down from around 70 percent in the 1970s, according to a report in November by Bernstein.
While Shell is also building up its Nigerian deepwater production, the company is more exposed to onshore because it still gets about 280,000 barrels a day from Shell Petroleum Development.
Bernstein estimates that onshore Nigerian production is not very profitable for Shell, earning only $2 to $4 a barrel, and that Shell might actually benefit from selling its onshore operations there.
Mr. Hutton of RBC Capital Markets in London said that Shell was in fact trying to manage the situation by limiting investment in onshore Nigeria so that other countries like Qatar become relatively more important.
“They would be willing to forgo the exposure to what is a profitable business because of the impact on Shell’s reputation,” he said.