Group actions and parent company liability: Regulatory insights and strategic approaches

In this interview, Daniel Leader, partner at Leigh Day specialising in international human rights and environmental law, outlines the key regulatory developments in the UK and EU, such as the Group Litigation Order (GLO) and the Corporate Sustainability Due Diligence Directive (CSDDD), that are driving group actions claims. He shares the legal and operational challenges his team faced notably in his case against Shell representing 15 000 claimants, including managing complex group claims and overcoming disclosure hurdles. Daniel also provides strategic insights on securing litigation funding, stressing the importance of detailed case preparation and collaboration with key actors like local communities and NGOs.

The key questions addressed here :

1. Recent regulatory changes supporting group actions in the UK and EU.
2. Emerging trends in group actions.
3. Main legal and logistical challenges faced by the legal team : The use case of Okpabi v Shell.
4. How can law firms effectively leverage litigation funding, and what are the key challenges they face in doing so?

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1.Introduction to Daniel Leader and the firm Leigh Day

• Dan Leader has been a partner at Leigh Day since 15 years, a leading UK environmental and human rights law firm. He was previously an independent barrister with a focus on international human rights and environmental law. He now works in Leigh Day's international law department, primarily bringing cases against UK-based multinationals for harm caused by their subsidiaries abroad. His interest in corporate accountability, was triggered by personal experiences in the Democratic Republic of Congo, where multinational corporations profited during the war while leaving local people devastated.

2. ?How do group actions intersect with the concept of parent company liability, and why are they so critical? What are the key legal challenges in holding parent companies liable for harm caused by their subsidiaries?

• Intersection of group actions and parent company liability: Group actions play a vital role in holding multinational corporations accountable for the actions of their subsidiaries. Parent company liability allows victims to seek redress in cases where justice is unattainable in local jurisdictions. The key idea is that a parent company can be held liable if it has played a significant role in the operations of its subsidiary, leading to the harm in question. This approach, pioneered by legal experts in the early 2000s, avoids the complexities of piercing the corporate veil by focusing on direct involvement in the wrongdoing.
• Group actions and economic viability: Group actions are often the only way to make expensive and resource-heavy litigation economically viable. By representing entire communities, as in the case with Shell in Nigeria involving 15,000 claimants, law firms can tackle large-scale environmental and human rights abuses more effectively.
• Key legal challenges: One of the biggest hurdles is proving the parent company’s involvement. Multinational corporations often deny responsibility and refuse to disclose internal documents that could show their role in the subsidiary’s actions. This creates an evidential barrier for claimants. However, recent Supreme Court rulings have reinforced the need for disclosure in such cases, allowing claimants to access the necessary documents to build their case.

3. How are current UK and EU regulations facilitating group actions, and what are the practical implications for claimants and legal teams? Are there enforcement gaps when companies persist with harmful practices despite rulings?

UK Regulations facilitating group actions

• Group Litigation Order (GLO):The Group Litigation Order (GLO) is a legal mechanism in the UK that allows multiple claims involving common issues to be grouped together and managed collectively. Daniel explained that under a GLO, a selection of cases is chosen to go to trial, and the outcome of those cases often influences the resolution of the remaining claims. This approach avoids the need for each individual claimant to go to trial, making it a more efficient and cost-effective way to handle large-scale claims.For instance, in the case against Shell, which involves 15,000 claimants in Nigeria seeking redress for oil spills and environmental damage, the GLO process would allow a small set of representative cases to proceed to trial. The findings from these trials would then be applied to settle the other claims, streamlining the legal process and reducing the overall time and cost involved in handling such a large group of claimants.

EU Regulations facilitating group actions

The EU is catching up with the UK with Netherlands leading the way, france and germany.

• Representative Action Directive (RAD):The EU has introduced the RAD, which provides a legal framework for group actions. This allows designated representative bodies, such as consumer organizations or NGOs, to bring cases on behalf of individuals or groups of claimants.This is particularly important in ensuring access to justice for individuals or communities that might not have the resources to take on multinational corporations alone.The directive aims to strengthen consumer protection, as well as environmental and human rights law, by allowing for collective actions, similar to class actions in the United States.
• Human Rights Due Diligence and CSDDD:The Corporate Sustainability Due Diligence Directive (CSDDD) is one of the most significant developments in the EU. It mandates that large EU companies must conduct human rights and environmental due diligence across their entire corporate structure, including their supply chains.If a company fails to meet these due diligence requirements and harm occurs, they could face civil, regulatory, or even criminal liability. This directive is expected to provide a clear legal basis for holding companies accountable for issues like forced labor, child labor, or environmental damage in their supply chains.

Practical implications of the GLO for claimants and legal teams

• The opt in mechanisms:Under this system, claimants must actively opt into the group action by registering their claims to be included. This contrasts with an opt-out mechanism, where all potential claimants are automatically included unless they choose to withdraw.In the UK, GLOs generally operate on an opt-in basis, meaning the legal team must collect and organize the claimants who wish to be part of the action. This has practical implications, as it requires significant effort to gather claimants and ensure they are informed about their rights and the legal process. Additionally, once the claimants are gathered, a selection of cases from this group will go forward, and the results from those will often influence how the other claims are settled.
• Cost-Effectiveness:Group actions make litigation against large corporations financially viable. Legal teams can represent thousands of claimants, which spreads the cost of pursuing lengthy, resource-heavy cases. This is especially important because many group actions, particularly those involving environmental or human rights abuses, are incredibly expensive to litigate.

Gaps in enforcement of these regulations

• Corporate evasion and lack of compliance:Even when rulings are made against companies, they may not always comply or may continue harmful practices. This is one of the biggest gaps in enforcement, particularly when companies operate in jurisdictions where the rule of law is weaker, or they are able to delay or evade full accountability despite court orders.
• Some companies might respond to a claim by denying any involvement or by using complex corporate structures to shield themselves from responsibility. They often refuse to disclose internal documents that could prove their involvement in harmful activities, which creates significant evidential barriers for claimants.

4. What emerging trends are you seeing in group actions in the UK and EU, and how do you expect the regulatory landscape to evolve in response to these changes?

Emerging claims trends in group actions in the UK and EU

• Claims against multinationals for overseas subsidiary misconduct: One of the most prominent trends in group actions is the rise of cases against multinational companies for harms caused by their subsidiaries abroad. These claims often relate to large-scale environmental damage or human rights violations. An example is the case against Shell for oil spills and pollution in Nigeria, where 15,000 claimants are seeking redress for environmental destruction. Other major cases include the Mariana Dam disaster in Brazil, which involves significant litigation in the UK courts. These cases will likely become more frequent as victims seek justice in jurisdictions where the parent company is headquartered.
• Supply chain liability: Another key trend is the increasing number of claims related to corporate supply chains, particularly regarding forced labor, child labor, and modern slavery. As companies outsource parts of their operations to countries with weaker labor protections, they may inadvertently be held liable for abuses occurring in their supply chains. Victims of these abuses are now beginning to bring claims against parent companies for turning a blind eye to such practices.
• Greenwashing and certification cases: There’s a growing number of greenwashing cases, where companies or certification bodies falsely claim adherence to environmental or human rights standards. These claims often involve companies misrepresenting their sustainability efforts or certifications, such as being "environmentally friendly" or "socially responsible," when in fact they are not. Similarly, certification bodies that endorse companies as being compliant with human rights or environmental standards but later turn out to be misleading or inaccurate could also face legal repercussions.

Anticipated changes in the regulatory landscape

Expansion of collective redress mechanisms:

• The regulatory landscape in both the UK and the EU is evolving to accommodate the increasing use of group actions. As the number of claims grows, regulations such as the Representative Action Directive (RID) in the EU and Group Litigation Orders (GLOs) in the UK are becoming more widely used. These frameworks will likely be further refined to streamline the process for claimants and legal teams, making it easier to bring large-scale group actions.

Corporate Sustainability Due Diligence Directive (CSDDD):

• The Corporate Sustainability Due Diligence Directive (CSDDD) in the EU is set to play a major role in shaping future claims. It requires large companies to conduct human rights and environmental due diligence within their corporate structures and supply chains. If they fail to do so, they could face legal liabilities, including civil and regulatory sanctions. This will likely result in more supply chain-related litigation as victims of forced labor or environmental harm seek justice.

Increased scrutiny of greenwashing:

• As consumer awareness of environmental and social issues increases, regulators are expected to crack down on greenwashing. Companies falsely advertising their products or operations as environmentally friendly or socially responsible will face greater scrutiny, and the legal framework around false claims and certifications will likely become more robust to protect consumers and victims.

5. What were the main legal and logistical challenges your team faced, and what lessons can be drawn from the case to guide future group actions??How can these types of cases be replicated in other jurisdictions?

Main legal and logistical challenges faced

• Proving parent company involvement: A significant legal challenge is proving that the parent company was involved in the actions of its subsidiary that caused harm. In cases like Okpabi v Shell, this was a major issue, as Shell denied involvement in the Nigerian subsidiary’s harmful activities, making it difficult to prove their liability without access to internal documents.
• Obtaining disclosure:Another key challenge was getting the necessary documents from the parent company to prove their involvement. Parent companies often refuse to provide internal documents, which creates a significant evidentiary barrier. The UK Supreme Court’s ruling in the Okpabi case reinforced the need for disclosure in such cases, making it clear that claimants should have access to documents that are crucial for building their case.
• Local community dynamics:Logistically, working with local communities presents its own set of challenges. Communities are often divided; some individuals may support the company (sometimes due to financial ties), while others are against it. Navigating these divisions and uniting people to pursue a common legal goal is difficult and requires careful management.
• Time-consuming and resource-intensive:Group actions, especially those involving multinational corporations, can be incredibly resource-heavy and time-consuming. Legal teams must gather evidence from multiple jurisdictions, coordinate with local civil society organizations, and manage a large number of claimants, all of which add significant complexity to the process. Additionally, legal teams often work on a contingency basis, meaning they only get paid if the case is successful. This puts pressure on them to balance the financial risks while pursuing justice for their clients.

6.How do you see the field evolving with new regulations, and what must legal teams do to effectively leverage litigation funding? What key challenges or gaps still need to be addressed?

How the field is evolving with new regulations

• Increasing reliance on litigation funding: The Jackson reforms have significantly altered the way legal costs are recovered in civil litigation, making it harder for law firms to recoup expenses, especially in large and resource-intensive cases. As a result, litigation funding has become crucial to fill the gap left by these reforms. In parallel, the field is likely to see even more litigation funding as cases grow in scale and complexity. Third-party funding has already quadrupled in recent years, and more funders are entering the space.
• Closer scrutiny of litigation funding:As litigation funding becomes more common, it will likely come under more scrutiny and regulation.

What legal teams need to do to leverage litigation funding

• Building strong case proposals:Legal teams need to have detailed financial calculations worked out before engaging with litigation funders. This includes clear sums on potential returns and solid legal advice from barristers or external experts on the merits of the case. Funders want to see that the economics of the case make sense and that there’s a realistic prospect of success.
• Time and resource investment:Securing litigation funding is time-intensive and can take between 6 to 12 months. Legal teams must dedicate substantial time to preparing the case and presenting it to funders with all necessary evidence and financial projections.

Key challenges and gaps

• Estimating quantum:A major challenge is estimating the potential quantum (financial damages) of the case. This is particularly difficult in large cases where there are many uncertainties and variables to consider. Legal teams need to get the funder comfortable with the potential returns, which can be challenging to quantify.

7. Who are the essential players in bringing these claims to life, and where do you see opportunities for improving cooperation?

Essential players in bringing claims to life

• Law firms: Lawyers need courage. Law firms involved in these cases must be willing to push the boundaries of the law and take certain risks to develop new areas of litigation. This field is not for those who are overly conservative. Law firms play a central role, either funding the cases themselves or seeking external litigation funding. For lengthy, expensive cases, law firms need the financial backing either from within or from third-party funders.
• Litigation funders: For large and resource-intensive cases, litigation funders are crucial. Some cases are simply too expensive for law firms to carry alone, so external funding is necessary to proceed.
• Civil Society Organizations and NGOs: Local civil society organizations and international NGOs, such as Amnesty International, Human Rights Watch, and Friends of the Earth, are essential in helping law firms gather evidence, engage with local communities, and navigate the local context where the harm occurred.