UK Court of Appeal rejects action against Shell directors

The UK Court of Appeal has refused to hear NGO ClientEarth’s historic lawsuit against Shell’s board of directors – the first derivative action worldwide that sought to hold directors personally liable for climate risk mismanagement. The court reportedly said: “The appeal would have no real prospect of success and there is no other compelling reason for this court to hear.” A Shell spokesman reportedly said the claim was “a misuse of the court’s time and resources”, adding: “We believe our directors have always complied with their duties and acted in the company’s best interest.” ClientEarth’s case argued that the board had breached its legal obligations under company law by failing to properly manage climate risk facing Shell, jeopardising the company’s long-term viability. The High Court of England and Wales dismissed the lawsuit without considering the merits earlier this year, which ClientEarth appealed, explained the NGO. Responding to the latest decision, Paul Benson, ClientEarth senior lawyer, said: “We are deeply disappointed by this decision, which we think is wrong and misguided. The Courts have missed a critical opportunity to grapple with the enormity of the climate crisis and clarify directors’ legal duties in light of the significant risks it presents to companies and shareholder value. “It is astonishing that the Court has refused to engage with detailed evidence as to the board’s failings and dismissed out of hand the support from major institutional investors with more than 12 million shares in the company.” Benson said that Shell will no doubt claim that this decision vindicates its board’s direction. But he said the reality is that by failing to grapple with the issues, or even hear the NGO’s appeal, the Court has given Shell a “free pass”. Benson said that directors should not be breathing a sigh of relief. This is because the High Court had confirmed that corporate directors have a duty to manage climate risk, which is significant in itself. “While this claim did not pass procedural hurdles, the legal risk facing boards is still very real. So too is the rapidly escalating threat that climate change and the energy transition presents to all fossil fuel majors,” said the lawyer. “Given the scale of climate risk facing companies, and the Court’s acknowledgement of the materiality of climate change to oil companies, it is inevitable that directors will be found liable as that risk is mismanaged. If not today, then in the future,” he added. ClientEarth brought the lawsuit in its capacity as a shareholder and was represented by London litigation firm Pallas Partners. The claim alleged Shell’s 11 directors had breached their legal duties under the UK Companies Act by failing to adopt and implement an energy transition strategy that aligns with the Paris Agreement, contrary to their stated objectives. Benson said that this was not the end of the fight. “We are undeterred by this decision and will keep fighting for accountability from people in the driving seat of companies steering further into climate catastrophe. It is companies like Shell that are most exposed to climate risk and which have the most to lose from their directors chasing short-term wins over long-term prosperity.” Procedural objections raised by the Court included the notion that, as an environmental legal organisation, ClientEarth could not be acting in the best interests of the company, said the group. ClientEarth said that it believes this to be a missed opportunity on the part of the judiciary to interpret the law in a way that takes the severity and urgency of climate risk into account. In this case, the interests of the company and its shareholders were aligned with those of the planet, it said. Benson added: “One of the oft-touted advantages of our [UK] legal system is its agility and flexibility in response to the critical issues of our time. Courts cannot avoid the important questions that climate change poses to traditional legal conventions. It is imperative that judges of all expertise get to grips with climate science and what the realities mean for companies, the economy and society at large. “It was always clear that directors have wide discretion, and rightly so. But this discretion has limits, and the law must allow for directors to be held to account when their actions fly in the face of seismic risk. “Neither Court decision addressed the crucial question of the Board’s climate risk management. Shell has therefore evaded legal scrutiny of its strategy.” ClientEarth stressed that the lawsuit received the support of institutional investors with more than 12 million shares in the company, and more than half a trillion US dollars (£450bn) in total assets under management. All of these investors said the lawsuit was in their best interests as shareholders, said the group. On 9 November, Shell launched a lawsuit against Greenpeace UK and Greenpeace International – demanding that Greenpeace stop protests at its infrastructure at sea or in port anywhere in the world, forever, or face an $8.6m damages claim and an injunction, confirmed the environmental group. “The lawsuit is Shell’s response to a peaceful protest by Greenpeace International earlier this year, in which activists occupied a moving oil platform to protest against the climate change loss and damage caused by Shell,” said Greenpeace.

UK Court of Appeal rejects action against Shell directors

ClientEarth vows to fight on and prove ‘risk mismanagement’

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