Directors of Shell Face Potential Shareholder Derivative Action in UK Court
A potential Shareholder Derivative Action in the UK seeks to allege breaches of duty by the Board of Directors of Shell for failing to devise and implement a strategy aligned with the Paris Climate Agreement.

 

Background

In 2019, the environmental group Milieudefensie took an action in the Netherlands alleging Royal Dutch Shell (Shell) violated its duty of care and human rights obligations by failing to take adequate action to curb contributions to climate change. In 2021, the Dutch Court found in favour of the claimants and ordered Shell to reduce its overall emissions by a net 45% by 2030. The court held the level of emissions from Shell, its suppliers and buyers should be brought in line with the Paris Climate Agreement.  This potentially far-reaching judgment was the first time that the Paris Climate Agreement was found to impose obligations on private companies.

Potential Shareholder Derivative Action

ClientEarth, the environmental law organisation and a minority shareholder in Shell has taken initial steps in a potential shareholder derivative action against 13 directors of Shell, ClientEarth allege failure by Shell to manage climate risk by not implementing or devising a strategy to achieve the ambitions set out in the Paris Climate Agreement or preparing for the net zero transition. 

ClientEarth is attempting to hold the Shell directors personally liable, by alleging breaches of the duty to promote the success of the company and the duty to exercise reasonable care skill and diligence under Section 172 and Section 174 of the UK Companies Act 2006 . Similar provisions can be found in the Irish Companies Act 2014 . ClientEarth is heralding this as the "first ever case of its kind".

Before a the case and proceed to trial, permission from the the UK Courts is required in order to bring a derivative claim on behalf of the Shell against the directors personally.  

We will monitor this situation and provide regular updates on this potential landmark decision in climate litigation. 

Trends

There is a rising trend towards ESG litigation, with climate-related cases having more than doubled globally since the Paris Climate Agreement was adopted in 2015. Increasingly, cases are being brought directly against corporates and financial institutions.  Litigation to date, has focussed on a failure to act to reduce Green House Gas emissions in line with legal obligations, to take account of climate-related risks and, related fiduciary breaches.
 
There is also an increase in forward-looking cases focusing on climate ambitions. Although most of this type of litigation has been in the US, it is gaining prominence elsewhere. It is important for corporations and directors to be aware of and ensure compliance with their ESG obligations. This is essential for environmental reasons but also commercially: to reduce the risk of financial exposure caused by the increasing likelihood of litigation in this field. 
 
Contributed by Alexandra Drummy

 

Key Contacts

Lisa Carty Partner

Hilary Rogers Consultant

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