ClientEarth has been granted an oral hearing to seek permission to proceed with its derivative action claim against Shell, the firm announced in a statement released today.
‘On Friday last week, the High Court of England and Wales refused permission for the lawsuit to proceed’, ClientEarth said in a 19 May statement. ‘An oral hearing has now been granted, at which ClientEarth will ask the Judge to reconsider his decision.’
Shell is represented by Slaughter and May’s Peter Wickham, while Pallas Partners’ Will Hooker leads for ClientEarth. Neither firm would comment at this time.
The court stated in its initial ruling that ‘ClientEarth’s application and the evidence adduced in support of it do not disclose a prima facie case for giving permission to continue the claim.’
ClientEarth argues that Shell has failed to adopt a climate change risk management strategy that aligns with the Paris Agreement goal of a 1.5 reduction in global temperature by 2050.
This, ClientEarth alleges, leaves Shell in breach of its duties to shareholders under ss172 and 174 of the Companies Act 2006, which require directors to act in a way that ‘would be most likely to promote the success of the company’, and to ‘exercise reasonable care, skill, and diligence’.
The case marks the first time that these sections of the Companies Act have been litigated, and a win for ClientEarth would open the door to similar derivative action claims in future.
Those considering similar claims in future found little to encourage them in the initial judgment. The court held that ‘it is for the directors themselves to determine (acting in good faith) how best to promote the success of a company for the benefit of its members as a whole.’
Derivative action claims are, on the court’s view, ‘an exception to one of the most basic principles of company law’: that major corporate management decisions should be made by a company’s ‘proper constitutional organs, not any one or more of its shareholders’. This is especially important in a company of Shell’s ‘size and complexity’.
Shell was bullish in its response to the ruling. In a statement provided to Legal Business, the energy giant defended its energy transition strategy and stressed that its directors ‘have always complied with their duties’.
‘The court has clearly found that ClientEarth’s claim is fundamentally false and has dismissed it’, Shell said. ‘The claim is utterly misconceived and a clear misuse of the English courts.’
ClientEarth may argue that the judgment leaves far too narrow a scope for derivative action claims.
But the activist group will face additional hurdles in its fight to proceed with the case. The judgment also points to ClientEarth’s small holding of only 27 shares in Shell, as well as to the support that Shell’s shareholders have given to the company’s ETS: 88.4% of those who voted approved the plan in a May 2021 AGM, and 80% supported it in May 2022.
Alexander.Ryan@legalbusiness.co.uk
For more background on the dispute, read ‘It will be important whatever happens’: Pallas Partners represents ClientEarth in climate action against Shell’s board’