ClientEarth v Shell Plc & Ors.

A shareholder seeking permission to continue a derivative claim must first establish a prima facie case for permission. This requires a prima facie case that the company has a good cause of action arising from a director’s breach of duty and that permission would otherwise be granted.

The court will not substitute its judgment for directors’ commercial decisions honestly made in good faith. Under Companies Act 2006, s.172, directors decide how competing factors should be weighed. Under s.174, the court asks whether the decision falls outside the range of decisions reasonably available to the directors. A proposed mandatory injunction must also be sufficiently precise to enforce without continuing judicial supervision. Where these requirements are not met, permission must be refused.

ClientEarth, a shareholder and environmental organisation, sought permission to continue a derivative claim on behalf of Shell Plc against its directors. The claim alleged breaches of the statutory duties to promote Shell’s success and to exercise reasonable care, skill and diligence in managing climate-related risks. It also alleged duties concerning compliance with an order of the Hague District Court in Milieudefensie v Royal Dutch Shell plc.

The relief sought included declarations and mandatory injunctions requiring the directors to adopt and implement a climate-risk strategy and to comply with the Dutch order. The immediate issue was whether the application and supporting evidence disclosed a prima facie case for giving permission under Companies Act 2006, s.261(2)(a).

1. Application dismissed. The application and supporting evidence did not disclose a prima facie case for permission. ClientEarth could request an oral reconsideration within seven days under CPR 19.15(10).
2. The prima facie threshold requires a case which, in the absence of an answer by the defendant, would entitle the claimant to judgment. In a statutory derivative claim, the applicant must show a prima facie case both that the company has a good cause of action and that the claim is one for which permission should be granted.
3. The alleged incidental duties concerning scientific consensus, the weight to be given to climate risk, particular mitigation measures, prescribed strategies and compliance with foreign court orders were not separate enforceable duties. They cut across the directors’ statutory and commercial decision-making functions. Section 172 requires directors to weigh competing considerations in good faith; it does not require them to adopt a particular strategy.
4. For s.174, the relevant question was whether the directors’ decisions fell outside the range of decisions reasonably available to them. The evidence did not establish that no reasonable board could have adopted Shell’s approach. There was no universally accepted methodology for achieving the relevant emissions targets, and the court was ill-equipped to interfere with the balancing of competing commercial considerations.
5. The directors’ duties to Shell were governed by English law. There was no separate English-law duty requiring directors to procure compliance with a foreign court order. Any question concerning the Dutch order had to be assessed through the directors’ existing English-law duties.
6. The mandatory injunctions sought were too imprecise and would require continuing supervision. The declaratory relief would serve no legally relevant purpose. The court was not a supervisory board over management decisions, and disputes concerning the directors’ conduct were properly matters for the members in general meeting.
7. In any event, the application failed under Companies Act 2006, s.263(2)(a). The evidence also raised an unanswered question concerning ClientEarth’s ulterior purpose, and the level of shareholder support for Shell’s strategy would weigh strongly against permission under ss.263(3) and 263(4).