ClientEarth v Shell Plc & Ors

The court dismissed ClientEarth's application for permission to continue a derivative claim under s.261(2)(a) Companies Act 2006 because the application and evidence did not disclose a prima facie case for giving permission. The judgment applies the two-stage statutory scheme for derivative claims (ss.260–263 CA 2006), applying the prima facie filter at s.261 and the permission criteria in s.263. Key legal principles applied were the requirement that a claimant establish a prima facie case that the company has a good cause of action arising from directors' negligence, default or breach of duty, and that the court must assess whether a person acting in accordance with s.172 would seek to continue the claim (s.263(2)(a)).

The court rejected ClientEarth's attempt to impose additional ‘‘incidental’’ duties on directors beyond ss.172 and 174 CA 2006 and held that allegation of duty to ensure compliance with a foreign court order was not established as a distinct English-law duty. The court placed little weight on lay opinion evidence absent admissible expert proof, found the proposed mandatory injunction would be imprecise and unenforceable, and concluded that ClientEarth's very small shareholding and apparent policy motive raised a real question on good faith. Member support for Shell's strategy at AGMs also weighed heavily against permission.

Background and parties:

ClientEarth, a UK registered charity and holder of 27 Shell shares, sought permission under Part 11 Chapter 1 of the Companies Act 2006 to bring a derivative claim on behalf of Shell against Shell Plc's directors. The claim alleged breaches of statutory general duties (notably s.172 and s.174 CA 2006) in relation to Shell's climate-change risk management and energy transition strategy published in 2021–2022, and alleged failure to comply with a Dutch court order (Milieudefensie v Royal Dutch Shell plc, ECLI:NL:RBDHA:2021:5339).

Nature of the application and issues:

• Nature of relief sought: declarations of breach and a mandatory injunction compelling (a) adoption and implementation of a strategy to manage climate risk in compliance with statutory duties, and (b) immediate compliance with the Dutch Order.
• Procedural posture: the court first considered the matter on the papers and made a May Order dismissing the permission application under s.261(2)(a); ClientEarth requested oral reconsideration and the present judgment consolidates the paper and oral decisions.
• Issues framed: whether ClientEarth had established a prima facie case for permission under s.261(2)(a); the scope and content of the directors' duties alleged (including ‘‘incidental’’ duties relating to climate risk and an asserted duty to secure compliance with a foreign court order); admissibility and weight of opinion evidence (absence of expert evidence); appropriateness and enforceability of the injunctive relief sought; and whether ClientEarth was acting in good faith.

Court's reasoning:

• Prima facie threshold: the court must consider whether the application and supporting evidence disclose a prima facie case for giving permission (s.261(2)(a)). The court must take the applicant's evidence at its "reasonable highest" but may adopt a critical approach and is not bound to treat all assertions as established.
• Duties alleged: the court rejected the formulation of new absolute "incidental" duties said to apply to directors "of companies such as Shell", finding that the statutory duties in Part 10 Chapter 2 (notably s.172 and s.174) remain the governing framework and that management choices involving commercial judgment are for directors, subject to a subjective good-faith test. The court also held there was no separate English-law duty on directors to ensure compliance with an order of a foreign court distinct from their statutory duties.
• Evidence and expertise: ClientEarth relied principally on detailed opinion material within witness statements (notably Mr Benson) but did not adduce expert evidence on technical subjects (climate science, carbon accounting, macro-economics, project viability). The court concluded those lay opinions were insufficient to establish a prima facie case that the board's decisions fell outside the range of reasonable responses and emphasised that expert evidence would normally be required for such complex, specialised questions.
• Remedial practicality: the mandatory injunction sought was insufficiently precise and would require ongoing supervision and judicial adjudication of policy choices, which the court would be unlikely to order. A declaratory remedy alone would have limited practical utility when weighed against the directors' commercial discretion and the proper forum for some criticisms being the general meeting.
• Good faith and member views: the court regarded ClientEarth's tiny shareholding and evident policy-motivated agenda as raising a realistic concern that the claim was not brought in the company's best interests; the statutory requirement to have particular regard to the views of uninvolved members (s.263(4)) was material because Shell's members had shown substantial support for the board's energy transition strategy at successive AGMs.

Conclusion: on the basis of the totality of the evidence before it, and applying ss.261–263 CA 2006, the court found no prima facie case for permission and dismissed the application and ordered the claim dismissed.

The court dismissed the application for permission to continue the derivative claim and ordered the claim dismissed. Rationale: ClientEarth failed to establish a prima facie case under s.261(2)(a) Companies Act 2006 because (i) its evidence did not, without expert proof, show the directors' conduct fell outside the range of reasonable responses under ss.172 and 174 CA 2006; (ii) the pleaded additional ‘‘incidental’’ duties and asserted duty to secure compliance with a foreign court order were not established as distinct English-law duties; (iii) proposed mandatory relief was too imprecise and unsuitable for enforcement; and (iv) concerns about good faith and the clear weight of shareholder support for the board meant a person acting in accordance with s.172 would not pursue the claim (s.263(2)(a)).

The application was first dismissed on the papers by a May Order under s.261(2)(a) CA 2006 dated 12 May 2023 and recorded in the May Judgment [2023] EWHC 1137 (Ch). ClientEarth requested oral reconsideration within the CPR 19.15 timetable; following an oral hearing the judge reconfirmed dismissal in this judgment [2023] EWHC 1897 (Ch).