Directors’ duties in the spotlight after attempt by shareholders to force Shell Directors to comply with climate change obligations dismissed by English High Court

The recent attempt by ClientEarth, as shareholder of energy giant Shell Plc, to force Shell’s directors to comply with the Paris Agreement has been given short shrift by the English High Court (ClientEarth v Shell plc & Ors [2023] EWHC 1137 (Ch)). Although the claim is not dead in the water, the judgment provides an interesting look at director’s duties under the Companies Act 2006 (the “Act”) and what shareholders need to prove to the court in this context. 

What is Client Earth and what does it intend to achieve by bringing the claim?

ClientEarth is a UK registered charity formed to effect change on climate action using the law. This novel approach has resulted in it holding a small number of shares (currently 27) in Shell Plc. This has enabled it to try to seek permission from the court to bring a derivative claim against Shell's directors (the "Directors") (the procedure for which is explained in more detail below). ClientEarth is seeking to obtain both a declaration that the Directors have breached their duties and a mandatory injunction requiring the Directors (a) to adopt and implement a strategy to manage climate risk in compliance with their statutory duties and (b) to comply immediately with an order made by the Hague District Court (the "Dutch Court") on 26 May 2021 in Milieudefensie v Royal Dutch Shell plc ECLI:NL:RBDHA:2021:5339 ("Milieudefensie ") when the Dutch Court held that Shell owed a duty of care to citizens to reduce its emissions and that Shell’s existing climate policy was not concrete enough and full of too many conditions. The Dutch Court ordered Shell to reduce its CO2 emissions by 2030 by 45%. Shell has appealed the decision and the appeal is on-going (“the Dutch Order”) .

What is a derivative claim?

English law provides a mechanism under s.260(1) of the Act to enable shareholders to apply to the High Court for permission to bring a claim against the directors of the company on behalf of the company. Any relief achieved will be on the company’s behalf. This is called a derivative claim. 

ClientEarth is only entitled to bring a derivative claim in respect of a cause of action arising from an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by one or more of the Directors of the company of which it is a member and it requires the court's permission to continue the claim. This is initially done by the…