ClientEarth v Shell Plc & Ors.

Key principles and decision: The court considered a statutory derivative claim under Chapter 1 of Part 11 of the Companies Act 2006 and the threshold question whether the applicant had established a prima facie case for permission to continue the claim (s.261 CA 2006). The claimant relied on alleged breaches of statutory directors' duties (in particular s.172 and s.174 CA 2006) arising from Shell's published climate strategy and from the directors' response to the Dutch Order in Milieudefensie. The judge held that ClientEarth had not disclosed a prima facie case for permission because, on the totality of its evidence, a person acting in accordance with s.172 would not seek to continue the claim (s.263(2)(a)).

Material grounds:

• The pleaded additional or "incidental" duties and the alleged separate duty to ensure compliance with a foreign court order were incompatible with the statutory, subjective framework of directors' duties (s.172, s.174) and therefore did not establish separate enforceable duties.
• The evidence relied on (notably the non-expert opinion evidence of ClientEarth's witnesses) was insufficient to show that no reasonable board could have adopted Shell's strategy; there was no universally accepted methodology for establishing Paris-alignment on which the court could safely rely at this stage.
• The mandatory injunction sought was too imprecise and unsuitable for mandatory relief; a declaration would have little utility.
• There were material concerns on the evidence about ClientEarth's motive and good faith given its de minimis shareholding and public policy aims, and substantial shareholder support for the Directors' strategy at recent AGMs weighed against permission.

Background and parties: ClientEarth, a UK charity and holder of 27 shares in Shell Plc, sought permission under Chapter 1 of Part 11, Companies Act 2006 to bring a derivative claim on behalf of Shell against its directors for negligence, default or breach of duty in relation to Shell's climate-risk strategy and its response to a Dutch court order (Milieudefensie). The relief sought was a declaration of breach and a mandatory injunction requiring adoption and implementation of a compliant climate-risk strategy and immediate compliance with the Dutch Order.

Procedural posture and issues:

• First-instance permission stage under s.261 CA 2006: the court must dismiss an application if it does not disclose a prima facie case for permission (s.261(2)(a)).
• The court identified the legal tests from authorities such as Iesini and Prudential, and set out the s.263 CA 2006 substantive test which governs permission (including s.263(2) and s.263(3)-(4)).
• Key issues: whether ClientEarth had shown a prima facie case that Shell had a good cause of action arising from directors' default or breach; whether the "incidental" or additional duties alleged were legally cognisable; whether the directors owed a distinct duty to ensure compliance with a foreign court order; weight to be given to evidence, including expert or non-expert opinion; the appropriateness and precision of the remedies sought; and whether the applicant acted in good faith.

Court's reasoning (concise):

• The court accepted that directors owe the statutory general duties in s.170, including s.172 (subjective duty to promote the success of the company having regard to listed factors) and s.174 (care, skill and diligence with both objective and subjective elements), and that those duties applied to the defendants.
• ClientEarth's pleaded "incidental" duties attempted to impose specific, prescriptive obligations inconsistent with the statutory framework and the established principle that directors weigh competing considerations; the alleged additional duty to ensure compliance with a foreign court order did not found a separate English-law duty enforceable by the company.
• ClientEarth's primary evidence comprised non-expert opinion (notably Mr Benson) and voluminous factual material; the judge found that opinion evidence from non-experts and the absence of an agreed methodology for assessing Paris-alignment meant the evidence did not show that no reasonable board could have adopted Shell's approach.
• As to the Dutch Order, the court noted it was provisionally enforceable and that the Dutch court expressly left the means of compliance to Shell's discretion; this mitigated against finding a straightforward breach of an enforceable duty under English law.
• The mandatory injunction sought was too vague and would require ongoing supervision; a court is unlikely to grant such imprecise mandatory relief. A bare declaration would have limited practical utility.
• The court had regard to s.263(3) factors: it found real and unanswered questions about ClientEarth's motive given its negligible shareholding and public campaigning purpose, and significant shareholder support for the directors' strategy at AGMs. Those factors weighed against granting permission.

Result and practical notes: The application for permission was dismissed under s.261(2)(a). ClientEarth was entitled to request an oral hearing to reconsider within seven days under CPR 19.15(10); if not sought, the claim would be dismissed under s.261(4)(b). The judgment also addresses the limited circumstances in which derivative relief and mandatory injunctions are likely to be granted.

The court refused permission to continue the derivative claim. The application is dismissed because ClientEarth did not establish a prima facie case that the company had a good cause of action arising from directors' default or breach, and a person acting in accordance with s.172 CA 2006 would not seek to continue the claim. The judge gave reasons including the incompatibility of the pleaded incidental duties with statutory duties, insufficiency of the applicant's evidence (non-expert opinion and absence of a universally accepted methodology for Paris-alignment), the imprecision and unsuitability of the mandatory relief sought, doubts about good faith given ClientEarth's de minimis shareholding, and the substantial member support for the directors' strategy at recent AGMs.