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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> ClientEarth v Shell Plc & Ors (Re Prima Facie Case) [2023] EWHC 1137 (Ch) (12 May 2023) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2023/1137.html Cite as: [2023] EWHC 1137 (Ch), [2023] BCC 788 |
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BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
DERIVATIVE CLAIM
Fetter Lane, London, EC4A 1NL |
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B e f o r e :
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ClientEarth |
Claimant |
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- and - |
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(1) Shell Plc (2) Sir Andrew Stewart Mackenzie (3) Wael Sawan (4) Euleen Yiu Kiang Goh (5) Sinead Gorman (6) Arie Dirk (Dick) Boer (7) Neil Andrew Patrick Carson OBE (8) Ann Frances Godbehere (9) Catherine Jeanne Hughes (10) Jane Holl Lute (11) Martina Therese Sophie Hund-Mejean (12) Abraham (Bram) Schot |
Defendants |
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Crown Copyright ©
Mr Justice Trower :
"At the first stage, the applicant is required to make a prima facie case for permission to continue a derivative claim, and the court considers the question on the basis of the evidence filed by the applicant only, without requiring evidence from the defendant or the company. The court must dismiss the application if the applicant cannot establish a prima facie case. The prima facie case to which s.261(1) refers is a prima facie case "for giving permission". This necessarily entails a decision that there is a prima facie case both that the company has a good cause of action and that the cause of action arises out of a directors' default, breach of duty (etc.). This is precisely the decision that the Court of Appeal required in Prudential."
"A prima facie case is a higher test than a seriously arguable case and I take it to mean a case that, in the absence of an answer by the defendant, would entitle the claimant to judgment. In considering whether the claimant has shown a prima facie case, the court will have regard to the totality of the evidence placed before it on the application."
i) s.263(2) provides that an application for permission must be refused if the court is satisfied (a) that a person acting in accordance with his duty to promote the success of the company would not seek to continue the claim or (b) / (c) that any act or omission from which the cause of action arises has been authorised or ratified by the company before or since it occurred;
ii) s.263(3) makes provisions for a number of discretionary factors which the court must take into account in reaching its decision - they are (a) whether the member concerned is acting in good faith in seeking to continue the claim, (b) the importance which a person acting in accordance with his duty to promote the success of the company would attach to continuing it, (c) / (d) whether any act or omission from which the cause of action arises would be likely to be authorised or ratified by the company, (e) whether the company has decided not to pursue the claim and (f) whether the act or omission in respect of which the claim is brought gives rise to a cause of action that the member could pursue in his own right rather than on behalf of the company; and
iii) the court is also required by section 263(4) of CA 2006 to have particular regard to any evidence before it as to the views of members of the company who have no personal interest, direct or indirect, in the matter.
i) s.172 imposes a duty to act in the way the director concerned considers in good faith would be most likely to promote the success of the company for the benefit of its members as a whole, having regard, amongst other matters, to an identified list of considerations, such as the likely consequences of any decision in the long term and the impact of the company's operations on the community and the environment. It is well established that this is a subjective test (e.g., Regentcrest Plc v Cohen [2001] 2 BCLC 80 at [120] per Jonathan Parker J); and
ii) s.174 requires a director to exercise the care skill and diligence that would be exercised by a reasonably diligent person with the general knowledge skill and experience that may reasonably be expected of a person carrying out the functions they carry out, and the general skill and experience that director actually has. This therefore includes both subjective and objective elements.
i) a duty to make judgments regarding climate risk that are based upon a reasonable consensus of scientific opinion;
ii) a duty to accord appropriate weight to climate risk;
iii) a duty to implement reasonable measures to mitigate the risks to the long-term financial profitability and resilience of Shell in the transition to a global energy system and economy aligned with the global temperature objective of 1.5°c under the Paris Agreement on Climate Change 2015 ("GTO");
iv) a duty to adopt strategies which are reasonably likely to meet Shell's targets to mitigate climate risk;
v) a duty to ensure that the strategies adopted to manage climate risk are reasonably in the control of both existing and future directors; and
vi) a duty to ensure that Shell takes reasonable steps to comply with applicable legal obligations
"The weighing of all these considerations [as set out in s.172] is essentially a commercial decision, which the court is ill-equipped to take, except in a clear case."
"There is no appeal on merits from management decisions to courts of law: nor will courts of law assume to act as a kind of supervisory board over decisions within the powers of management honestly arrived at."
i) The first, pleaded in paragraphs 51 and 52 of the Particulars of Claim, relate to a failure to set an appropriate emissions target. It is said that an absolute emissions target to be met before 2050 is required and that the Directors' decision to set certain Carbon Intensity Targets is inadequate. In particular it is said that they have failed to ensure that Shell has a measurable and realistic pathway to meeting the net zero ("NZ") target so as to align with what are set to be future expected market conditions consistent with the GTO.
ii) The second, pleaded in paragraph 53 of the Particulars of Claim, is that the Directors' strategy as regards the management of climate risk does not establish a reasonable basis for achieving the NZ target and are not aligned with the GTO. In particular ClientEarth criticises (a) the Directors' proposals to make significant new investments in fossil fuel projects, (b) their reliance on carbon capture and storage and nature based solutions which will not mitigate the economic risks to Shell's underlying business model, (c) the proposed capital expenditure on renewable energy expenditure which is said to be opaque and insufficient and (d) the absence of measures sufficient to respond rapidly to changes to the legal, regulatory and financial conditions so as to ensure that their strategy is sufficiently robust.
iii) The third, pleaded in paragraph 63 of the Particulars of Claim, is that the Directors have failed to comply with the Dutch Order. It is said that, although the Dutch Order determined that Dutch law imposed a 45% emissions reduction obligation on Shell to be achieved by 2030, the Directors have not prepared a plan to ensure timely compliance.
i) As to commercial risk, Mr Benson explains that the Directors have identified lower demand and lower margins for oil and gas products as Shell's principal climate-related financial risk together with access to and the cost of capital.
ii) As to regulatory risk, there is a detailed explanation of how the states which are parties to the Paris agreement have set NZ targets for 2050, together with interim targets over the intervening period, and that the Directors have recognised that there is an ever-increasing threat that governments worldwide will set regulatory frameworks to restrict further exploration, production and use of hydrocarbons and their products. Examples are given of ClientEarth's case as to how this is more than a threat, with a global regulatory focus on carbon pricing, low carbon buildings, clean industry, clean power and zero emission vehicles.
"In light of the above, ClientEarth alleges that the Board's current targets do not materially mitigate the climate risk facing the company, and are not proportionate to the scale of that risk. In the circumstances, its failure to adopt, disclose and implement a proportionate Scope 3 absolute emissions reduction target, or carbon intensity targets which credibly result in demonstrable absolute emission reductions in line with the GTO, is manifestly unreasonable and in breach of duty.
In circumstances where the Board has set a net zero target by 2050 and stated its strategy to be Paris-aligned, ClientEarth further alleges that the failure to set any or any proper interim targets to actually meet those objectives is unreasonable and a breach of duty."
"it simply does not address the key climate risk to Shell: the value destruction of its fossil fuel business. It is in those circumstances that ClientEarth principally alleges that the Board's reliance on it is unreasonable."
"My role at ClientEarth focuses on law and policy relating to climate change. I have previously specialised in emissions-related litigation and generally worked in and around environmental regulation and disputes for over 10 years. I do not have expertise in climate science, macro-economics, oil and gas price forecasting, accounting, carbon pricing, carbon markets or related fields, and no part of this statement purports to articulate any expert opinion. Rather, it seeks to set out the statements of fact which underpin ClientEarth's claim, and the assertions which ClientEarth make as part of its claim.
"both directly and via the companies and legal entities it commonly includes in its consolidated annual accounts and with which it jointly forms the Shell group, to limit or cause to be limited the aggregate annual volume of all CO2 emissions into the atmosphere (Scope 1, 2 and 3) due to the business operations and sold energy-carrying products of the Shell group to such an extent that this volume will have been reduced by at least net 45% at end 2030, relative to 2019 levels."
"[Shell] is immediately obliged to take certain measures … to effect a reduction of its Scopes 1, 2 and 3 CO2 emissions levels. If Milieudefensie considers that [Shell] is failing to comply with that obligation, it may demand compliance with the Judgment by means of the formal Court process set out in Article 430 (3) CCP and require that [Shell] take steps to effect the Judgment within a reasonable period of time.
"When considering whether or not [Shell] is in breach of its obligations under the Judgment, it is essential that it is offered a reasonable period of time to take steps to implement measures to achieve the required emissions reductions (i.e. to develop a robust group policy aimed at emissions reduction). However, given the nature of the obligation imposed on [Shell] by the Judgment and the relatively short timeframe within which the Judgment requires it to be achieved, Milieudefensie would certainly be able to argue that [Shell] is required to initiate the necessary measures to achieve a reduction of CO2 emissions in relatively short order."
"Shell has total freedom to comply with its reduction obligation as it sees fit, and to shape the corporate policy of the shell group at its own discretion."
"The fact that the terms of a contractual obligation are sufficiently definite ... to found a claim for damages ... does not necessarily mean that they will be sufficiently precise to be capable of being specifically enforced."