High Court maintains dismissal of ClientEarth’s claim against Shell’s directors

On 24 July 2023, judgment was handed down confirming the dismissal of ClientEarth's application for permission to continue its derivative claim on behalf of Shell against its directors. The judgment followed a hearing requested by ClientEarth to reconsider the earlier decision to dismiss the application. We addressed Mr Justice Trower's earlier decision (on the papers) in our article of 17 May 2023. 

In summary, ClientEarth's claim arose out of the directors' alleged acts and omissions relating to Shell's climate change risk management strategy. ClientEarth alleges that the board’s mismanagement of climate risk puts the directors in breach of their duties under the UK Companies Act 2006 (section 172 duty to promote the success of the company, and section 174 duty to exercise reasonable care, skill and diligence). In addition, the NGO claims that the directors breached six further duties, which ClientEarth allege are necessarily incidental to the statutory general duties "when considering climate risk for a company such as Shell". These duties were alleged to include, for example, "a duty to make judgments regarding climate risk that are based upon a reasonable consensus of scientific opinion" and "a duty to adopt strategies which are reasonably likely to meet Shell's targets to mitigate climate risk". 

Mr Justice Trower's latest judgment consolidates and repeats to a significant extent the judgment he handed down in May. It records his concluded and continuing view that ClientEarth's application and the evidence adduced in support of it do not disclose a prime facie case for giving permission to continue the claim. The application was therefore dismissed. Trower J held, amongst other things, that:

• The incidental duties and further obligations alleged to be owed by the directors of Shell cut across the directors' general duty to have regard to the many competing considerations as to how best to promote the success of the company and were inconsistent with the well established principle that it is for the directors themselves, acting in good faith, to determine how best to achieve that. 
• ClientEarth's case failed to consider the fundamental point that the general duties to which directors are subject require them to take into account a whole range of considerations in the management of Shell's business. There was no recognition of this balancing act.
• ClientEarth was unable to provide any explanation of how the directors had gone so wrong in the balancing of competing considerations and that was a clear illustration of why the NGO had failed to establish a prime facie case.
• An independent director, acting in accordance with their duties under s.172 of the CA 2006, would not do anything other than decline to continue the present case against Shell.
• There was a clear inference that the NGO's real interest was not in how best to promote the success of Shell for the benefit of its members as a whole. 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 risk. That pointed strongly towards a conclusion that its motivation in bringing the claim was ulterior to the purpose for which a claim could properly be continued. 

This further decision will be welcome news to directors dealing with climate risk management against the backdrop of ever-increasing ESG and shareholder activism and may temper fears that actions of this kind would become a nascent trend in the UK. That said, the case marches on to the Court of Appeal, following ClientEarth's announcement that it would appeal the High Court's latest decision. It also serves as a continuing reminder that directors and boards need to continue to manage the risks posed to businesses by climate and wider ESG factors with care and skill. 

Contact Michael Barlow or Victoria Barnes if you want to know more about what this might mean for you. We have specialist expertise in helping companies review, mitigate and manage the legal risks associated with ESG.