High Court Confirms Refusal Of Permission For ClientEarth Derivative Action Against Shell Directors

• Published date: 26 July 2023
• Subject Matter: Corporate/Commercial Law, Environment, Litigation, Mediation & Arbitration, Corporate and Company Law, Directors and Officers, Environmental Law, Trials & Appeals & Compensation, Climate Change
• Law Firm: Herbert Smith Freehills
• Author: Rupert Lewis, Neil Blake, James Palmer, Silke Goldberg, Rebecca Perlman, Maura McIntosh and Ceri Morgan

The High Court yesterday handed down a judgment confirming its earlier decision to refuse climate-change activist ClientEarth's application for permission to continue a derivative action on behalf of Shell plc seeking to challenge its directors' response to the risks posed to Shell's business by climate change: ClientEarth v Shell plc [2023] EWHC 1897 (Ch).

Mr Justice Trower dismissed the application on the basis that, in both its written and oral submissions, ClientEarth has failed to establish a prima facie case for granting permission, as required by s.261(2) of the Companies Act 2006 (CA 2006). Like the court's initial decision (outlined in our previous blog post), the present judgment shows that it will be difficult for environmental and other campaign groups to use the derivative action procedure to challenge directors' strategic and long-term decision making. The court will not generally interfere in company management decisions, particularly where they require directors to balance competing considerations. Nor is the court likely to grant permission where it considers that the action has been brought for an ulterior purpose - which may be a ready inference where the applicant is a campaign group with a small shareholding.

The earlier decision refusing permission was made on the papers. ClientEarth then exercised its right under CPR 19.15 to ask the court to reconsider the decision at an oral hearing. The present judgment was given following the oral hearing. It consolidates the original judgment and therefore repeats it to a significant extent. In this post we do not repeat all of the messages from the original judgment but instead focus on the additional points of substance or emphasis in the most recent decision.

ClientEarth has announced that it will seek permission to appeal the decision.

Evidential burden on claimants

The court noted that the purpose of the prima facie stage has been described as providing a filter for "unmeritorious" or "clearly undeserving" cases. While this is a useful shorthand, however, the court must not lose sight of the fact that this requirement imposes an evidential burden on the claimant at the outset. If the test is not satisfied, the application must be dismissed.

Further, it would be wrong to suggest that the court must, at this stage, take the claimant's evidence at its highest. Instead, the court will take the evidence at its "reasonable highest", which means that the evidence must be sufficiently substantial...