Round Two: ClientEarth’s second attempt to force Shell Directors to comply with climate change obligations dismissed by English High Court after oral hearing

Following the dismissal by the High Court of ClientEarth’s application on the papers to force Shell’s directors (the “Directors”) to comply with the Paris Agreement, it exercised its right to ask the court to reconsider that decision at an oral hearing. This application has now also been dismissed (ClientEarth v Shell [2023] EWHC 1897 (Ch)). Although the judgment repeats to a ‘significant extent’ the reasoning given in the first judgment (the ‘May Judgment’), it does provide further explanation as to why the application was dismissed on both occasions and is therefore instructive as to what the parties need to prove in a claim of this nature.

You can read the background to the application and our commentary on the May Judgment here. In this update we do not seek to repeat the content of our previous article but instead discuss additional matters raised in the judgment following the oral hearing and what can be learned as a result.

The judgment also provides a very helpful summary of how the application for permission to continue a statutory derivative action will operate. This requires that the Claimant satisfy the court that there is a prima facie case for giving permission before a substantive permission application can proceed.

ClientEarth asked the court to reconsider a number of its conclusions from the May Judgment at the oral hearing.

The Directors Duties relied on by ClientEarth – statutory and the ‘six necessary incidents’

ClientEarth originally claimed that the Directors had failed to comply with two statutory duties they owed to Shell pursuant to s.170 of Companies Act 2006 (CA 2006): the duty to promote the success of Shell (s.172 of CA 2006) and the duty to exercise reasonable care, skill and diligence (s.174 of CA 2006). In addition, there were six further “duties resulting from the consideration of climate risk which ClientEarth submitted that the Directors will necessarily be subject to”. ClientEarth referred to these as the ‘six necessary incidents’.

The Judge noted that at the oral hearing there was a change of emphasis by ClientEarth in relation to these six necessary incidents. ClientEarth submitted at the hearing that these duties arise as a matter of logic from the fact that the Directors saw its climate strategy as a commercial objective which was most likely to promote the success of Shell therefore, it did not need to establish these special incidental duties in order to succeed on its claim.

The court disagreed with this analysis, agreeing with Shell’s submissions on this aspect of the case:

1. The incidental duties were ‘inherently vague’ and ‘incapable of constituting enforceable personal legal duties’;
2. The incidental duties cut across the principle of company law that it…