ClientEarth held shares in Shell Plc and was therefore a member of Shell. In that capacity it applied for permission to bring a derivative claim against Shell’s directors under section 260 of the Companies Act 2006. The claim concerned Shell’s climate change risk management strategy, as well as its response to the Milieudefensie v Royal Dutch Shell plc ruling. 
In respect of these, ClientEarth alleged the directors had breached their general duties to promote the success of Shell (section172) and to exercise reasonable care, skill and diligence (section 174), along with certain specific or ‘incidental’ duties formulated by ClientEarth (such as a duty to make judgements regarding climate risk that are based upon a reasonable consensus of scientific opinion). The various alleged breaches of these duties were grouped by the court under the following headings: failure to set an appropriate emissions target; failure of the strategy to manage climate risk to establish a reasonable basis for achieving the net zero target and align with the 1.5oC; and failure to comply with the Milieudefensie ruling.
The court’s permission is required to continue a derivative claim of this nature. An application for permission cannot proceed if it appears to the court that it does not show a prima facie case for giving permission. On May 12, 2023, having reviewed the case papers, the High Court dismissed ClientEarth’s application on the basis no such prima facie case had been shown. ClientEarth exercised its right for that decision to be reconsidered at a hearing, following which the High Court re-affirmed its original decision, refusing permission and dismissing the claim. The court’s reasons are set out in its judgment of July 24, 2023. In summary:
There were a number of fundamental reasons why the breaches alleged did not establish a prima facie case. Firstly, very little weight could be given to ClientEarth’s witness evidence, which did not amount to expert evidence. Secondly, that evidence did not support a prima facie case that there is a universally accepted methodology as to the means by which Shell might be able to achieve its reductions targets. This meant it was very difficult to treat what was said as providing a proper evidential basis for alleging no reasonable board of directors could properly conclude that the pathway to achievement is the one they adopted. Thirdly, ClientEarth accepted the directors do have policies and targets to achieve net zero. Its case ignored the fact that the management of a business of the size and complexity of that of Shell will require the directors to take into account a range of competing considerations, the proper balancing of which is classic management decision with which the court is ill-equipped to interfere. (Judgment paragraphs 65 to 68.)

As to the Milieudefensie ruling, the Dutch court apparently accepted that Shell is not currently acting in an unlawful manner and recognised that it is a matter for Shell as to how it exercises its discretion to comply with reduction obligations imposed by Dutch law. There was no prima facie case that the directors had breached their duties in respect of the Dutch order. (Paragraphs 69 to 72.)

As to the relief sought, ClientEarth had failed to make out a prima facie case that the court should grant this. A mandatory injunction was sought that Shell (a) adopt and implement a strategy to manage climate risk in compliance with its statutory duties and (b) comply immediately with the Dutch Order. This was too imprecise to be suitable for enforcement. A declaration was also sought - that the directors had breached their duties in the manner described. Whilst this did not suffer from imprecision, it was difficult to see what legitimate purpose it would fulfil. It was not the court’s function to express views as to the directors’ conduct which have no substantive effect and which fulfil no legally relevant purpose. The proper forum for generating those types of view as to the directors’ conduct was by vote of the members in general meeting. (Paragraphs 82 to 83.)

It was appropriate also to have regard to certain discretionary factors in section 263 of the Act. These pointed towards there being no prima facie case for granting permission. (paragraphs 84 to 99.)
In a costs judgment of August 31, 2023 the High Court confirmed its refusal of ClientEarth’s application for permission to appeal to the Court of Appeal. In November 2023 the Court of Appeal refused ClientEarth permission to appeal, bringing the litigation to an end.

ClientEarth v. Shell’s Board of Directors

<p>This entry was provided by the Sabin Center for Climate Change Law. Please see the terms of use for citation and licensing of third party data.</p>

ClientEarth v. Shell’s Board of Directors - Other

Filed

United Kingdom

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An aim to achieve a quantifiable outcome within a given time-frame, set by an institution such as a national government.

Policy instruments are techniques or tools used by governing authorities to promote certain policies in order to achieve predetermined goals. Put simply, instruments are how a government tries to achieve its goals, with this taxonomy being focused on national policy instruments.

Risk is the potential for adverse consequences resulting from the dynamic interplay between (climate-related) hazards, exposure, and vulnerability of affected human or ecological systems.

Groups  of people who are adversely affected by climate change or the response to it

A set of principles, processes, and practices that build economic and political power to shift from an extractive economy to a regenerative economy.

Justice is the ethical and political framework that addresses fairness, including issues of responsibility, rights, and structural inequity.

Renewable energy means all forms of energy produced from renewable sources in a sustainable manner.

Fossil fuel is a generic term for non-renewable energy sources such as coal, fossil gas, and oil (including crude oil, and petroleum products), that can be used for electricity and heat generation. Fossil fuels are hydrocarbons formed from pressurised and heated organic material buried over millions of years.

Molecules in the atmosphere that play a key role in the greenhouse effect by trapping heat radiating from Earth’s surface.

Area of the economy in which actors engage in identical or related activities.

In human systems, the process of adjustment to actual or expected climate change and its effects, in order to moderate harm, increase resilience or exploit beneficial opportunities. In natural systems, the process of adjustment to actual climate change and its effects; human intervention may facilitate adjustment to expected climate change and its effects.

The management and allocation of funds, assets and investments to meet various objectives

A target to reduce the prevalence of a greenhouse gas over a specific time frame

A commitment to balance GHG emissions with removal by a certain point in time, effectively reducing the net emissions to zero

Either money or something of monetary value is transferred between two or more organisations, people or countries.

Oil is a combustible liquid fossil fuel composed mainly of hydrocarbons, occurring as crude oil and refined into petroleum products such as petrol, diesel and kerosene.

Fossil gas, commonly known as natural gas, is a fossil fuel consisting chiefly of methane with smaller amounts of other hydrocarbons and trace gases, found in underground deposits.

Jobs that contribute to preserving or restoring the environment. We include jobs which require a high amount of green skills or which spend much of their time on green activities, as well as jobs transforming polluting industries.

The activities of industries involved in the production, distribution, and sale of energy, including electricity, gas, and renewables.

ClientEarth v. Shell’s Board of Directors - Other

Target

Just transition

Renewable energy

Fossil fuel

Economic sector

Finance