In what is undoubtedly a significant decision for boards seeking to grapple with how to respond to the impact of climate change on their company's business as well as the D&O insurance market, the High Court has refused permission for ClientEarth, a minority shareholder in Shell plc, to continue a derivative action on behalf of the company against its directors (the Directors): ClientEarth v Shell plc & Ors [2023] EWHC 1137 (Ch).
The underlying claim brought by ClientEarth alleged the Directors breached their statutory duties owed to Shell as a result of acts and omissions relating to:
- Shell's Energy Transition Strategy published and updated between April 2021-2022; and
- the Directors' response to an order made by the Hague District Court (Dutch Order) on 26 May 2021 in Milieudefensie v Royal Dutch Shell plc CLI:NL:RBDHA:2021:5339.
As a shareholder seeking to bring a derivative claim in the name of the company, ClientEarth was required to apply for permission to proceed with the action. However, the court ruled ClientEarth failed to meet the initial threshold of establishing a prima facie case for granting permission, and so dismissed the application in accordance with s.261(2)(a) CA 2006.
The judgment provides comfort to boards. In particular, it shows the court will be slow to allow shareholders with small or de minimis shareholdings to use the derivative claim procedure under CA 2006 to challenge strategic or long-term decisions made in good faith in relation to addressing risks posed by climate change. For a full analysis of the decision and the main takeaways, read our Litigation Blog post here.
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