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High Court dismisses ClientEarth’s attempt to bring derivative action against Shell for failing to manage climate risks

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Key facts:

ClientEarth, a non-profit environmental law organisation and minority shareholder in Shell plc, commenced a derivative action against Shell’s board of directors in the High Court. In the action, ClientEarth claimed that directors’ duties under the Companies Act 2006 to promote the success of the company and to exercise reasonable care, skill and diligence included several climate-related incidental duties, such as adopting strategies likely to meet the company’s targets to mitigate climate risk. It claimed that Shell’s directors had breached those duties by failing to adopt and implement an energy transition strategy that aligns with the Paris Agreement.

In May 2023, the High Court dismissed ClientEarth’s application for permission to continue its claim, on the papers. ClientEarth asked the court to reconsider that decision at an oral hearing, which took place before Mr Justice Trower in July 2023.

The judge ruled that the claim was not permitted to proceed. The judge agreed with Shell that the incidental duties that ClientEarth claimed existed were “vague and incapable of constituting enforceable personal legal duties” and cut across or were inconsistent with company law principles that require directors to weigh different factors in the balance, promote the success of the company and execise reasonable care, skill and diligence.

The judge also noted that ClientEarth had a very small stake in Shell (27 shares), which gave rise to the inference that “its real interest is not in how best to promote the success of Shell for the benefit of its members as a whole”.

The Court of Appeal subsequently refused ClientEarth’s application for permission to appeal.

Source(s):

High Court judgment and ClientEarth press release

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