ClientEarth v Shell Plc: High Court Rejects Climate Change Activist Group’s Application for Permission to Bring Derivative Suit

5 September 2023
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In ClientEarth v Shell Plc [2023] EWHC 1137 (Ch) and ClientEarth v Shell Plc [2023] EWHC 1897 (Ch), the High Court dismissed ClientEarth’s attempt to launch a derivative action against the directors of Shell plc in respect of their alleged failures to properly address the risks of climate change. These decisions indicate that claims of this nature, at least insofar as they are brought by minority shareholders who are not typical investors (e.g., NGOs and other non-profits such as the claimant in these cases), will face significant challenges.

Notably, in these cases, the court held that:

  1. Courts will place significant weight on the fact that directors (especially those of large multinationals) have to balance a myriad of competing considerations when seeking to promote the success of the company for the benefit of the members as a whole. Courts are reluctant to interfere with the proper balancing of these factors, making it harder for claimants to establish that the directors have breached their statutory duties; and
  2. Claimants bear the burden of showing that the primary purpose of the derivative claim is not for an ulterior motive. It may be challenging for claimants such as NGOs or activist organisations to prove that they are bringing the claim in good faith. This issue is likely to be even more acute where the claimant only holds a de minimis shareholding in the company.

It is also noteworthy that following the second High Court judgment, the court ordered ClientEarth to pay the costs of the proceedings on the standard basis, disapplying the derogation generally applicable to the prima facie stage of derivative actions.