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High Court confirms its decision to deny ClientEarth permission to continue derivative claim against directors of Shell

21 August 2023

In ClientEarth v Shell Plc and others [2023] EWHC 1897 (Ch), the High Court confirmed its earlier decision to refuse to grant environmental organisation ClientEarth permission to continue a derivative claim against the directors of Shell Plc.

In July we reported on the High Court's decision to refuse to allow ClientEarth permission to continue a derivative claim against the directors of Shell Plc (here).  That decision was taken without a hearing.  However, ClientEarth exercised its right for an oral hearing.

At the oral hearing, the High Court confirmed its earlier decision that the application be dismissed.

Among other things the High Court held that:

  • at this stage in the application, the court did not have to assume that the facts alleged by ClientEarth were true.  "The evidence must be sufficiently substantial without more to justify the court in granting" permission to continue the claim;
  • ClientEarth's argument that the directors were subject to 'special incidental duties' (including a duty to make judgments regarding climate risk that are based upon a reasonable consensus of scientific opinion) "cut across their general duty to have regard to the many competing considerations as to how best to promote the success of Shell for the benefit of its members as a whole".  Shell's directors were required to manage the business with an open mind and had to take into account a number of competing considerations but ClientEarth's formulation of these incidental duties assumed that climate risk overriding status;
  • it was not unreasonable to require or expect ClientEarth to provide expert evidence as part of their application (which they had failed to do);
  • ClientEarth had failed to establish that the directors could not reasonably have come to the conclusion that the actions they had taken had been in the interests of Shell nor that they had acted in a way that no reasonable board of directors could have acted;
  • a fundamental defect in ClientEarth's case was that it ignored the fact that the directors had to balance climate change against the host of other commercial factors that they are required to consider as part of their duties.  ClientEarth had failed to explain how the directors had got that balancing act so wrong that they were in breach of their duties;
  • a court was unlikely to be able to grant the relief sought by ClientEarth.  The proposed injunctions were too imprecise and the declatory relief sought would "fulfil no legally relevant purpose";
  • in the circumstances, an independent director acting in accordance with their duties would not consider it appropriate to start proceedings against the whole board of directors of Shell;
  • the question of whether ClientEarth was bringing the proceedings in good faith did not just require the court to examine whether ClientEarth honestly believed that the claim was in Shell's long-term best interests.  The court may also have to assess whether the proceedings were brought for an ulterior purpose;
  • the fact that ClientEarth only held 27 shares but was trying to bring a claim of significant size, complexity and importance gave rise to "a very clear inference that its real interest is not in how best to promote the success of Shell for the benefit of its members as a whole".  In the view of the court, ClientEarth had "adopted a single-minded focus on the imposition of its views and those of its supporters as to the right strategy for dealing with climate change risk".

We understand that ClientEarth has indicated that it will seek to appeal the decision.

If you require any further information, or specific advice, please contact our expert team.

Further Reading