Shell Faces Oil-Spill Compensation Claims

LONDON—Royal Dutch Shell RDSA +0.68% PLC Thursday appeared in court in the Netherlands for the first time to face compensation claims for environmental damage from oil spills in Nigeria, in a case that could set a legal precedent over how companies are held responsible for the actions of 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 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 is not 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 recent case against privately-held oil trader Trafigura, over the dumping of chemicals in the Ivory Coast, differed as it was a criminal case.

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.

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

The local environmental damage in the Niger Delta from oil spills is well documented. A 2011 report from the United Nations Environment Program, 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.,br />
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.

..........SELINA WILLIAMS, WSJ