2 août 2023
Lending Focus - August 2023 – 2 de 5 Publications
In February we reported that ClientEarth had issued a derivative action, in its capacity as shareholder against the Board of Directors of Shell, alleging that the Board was not doing enough to prepare for net zero energy transition and was failing to manage climate change risks.
The High Court has since refused permission for ClientEarth's claim to proceed, twice: first in a judgment dated 12 May 2023 without a hearing (in accordance with the procedure contemplated by CPR 19.15) (the May Judgment), and secondly in a judgment dated 24 July 2023, after ClientEarth exercised its right to ask the High Court to reconsider the May Judgment at an oral hearing.
The May Judgment and the July Judgment (the second of which is, in the words of the Judge himself, to a "significant extent" a repetition of the May Judgment) (together the Judgments) provide guidance on the nature of directors' duties in the context of climate change, the willingness of the court to intervene in this context, and the relevance of the shareholder's motivation and other shareholder views.
ClientEarth alleged that Shell's directors had breached their statutory duties to promote the success of the company and to act with reasonable care, skill and diligence (sections 172 and 174 of the Companies Act 2006 (the CA06)).
ClientEarth sought 1) a declaration that the directors had breached their duties, and 2) a mandatory injunction requiring the directors to (a) adopt and implement a strategy to manage climate risk in compliance with their statutory duties; and (b) comply immediately with an order the Hague District Court made on 26 May 2021 (following a class action) which had directed Shell to reduce its emissions by at least net 45% by 2030 relative to 2019 (the Dutch Judgment).
At this initial stage, ClientEarth needed to demonstrate that they had a prima facie case for obtaining permission. If they could not, the Court had to dismiss the application (section 261(2)(a) CA06).
The Court found against ClientEarth in both Judgments. The Court's reasons included the following:
ClientEarth has already announced in a press release that they intend to apply for permission to appeal the July Judgment.
In tandem, Shell appealed the Dutch Judgment, and it is expected the appeal will be heard some time this year or next year.
The Judgments reinforce the high hurdle that shareholder claimants have to pass in order to bring a derivative claim against a company and its directors and confirm that the courts will be slow to interfere with company management decisions. This is made clear in several parts of the Judgments. We await the outcome of the application for permission to appeal and will report on it together with any further developments.
The Judge's comments on good faith are particularly noteworthy. These comments could be seen as a warning shot to activist shareholders seeking to use derivative claims as a means of forcing change in company behaviour on issues like climate change. However, these comments were not the primary basis on which the claim was dismissed, so the extent to which they may be followed subsequently remains to be seen.
It will also be interesting to see how an appeal of the July Judgment and the Dutch Judgment interplay.
To discuss the issues raised in this article in more detail, please contact a member of our Banking and Finance team.
2 August 2023
par Alexander Swayne
2 August 2023
par plusieurs auteurs
2 August 2023
par Annie Harvey