Milieudefensie V. Royal Dutch Shell: What Corporate Canada Needs To Know About Climate Lawsuits

• Published date: 04 August 2021
• Subject Matter: Environment, Energy and Natural Resources, Energy Law, Oil, Gas & Electricity, Climate Change
• Law Firm: Fasken
• Author: Mr André Durocher, Ron Ezekiel, Allison Sears, Kai Alderson and Jennifer McAleer

EXECUTIVE SUMMARY

Climate activists celebrated a landmark victory in May in the Netherlands. In Milieudefensie et al. v. Royal Dutch Shell ¹ ("Milieudefensie" or the "Shell case"), The Hague District Court (the "Court") found that Royal Dutch Shell plc ("Shell") owed a duty of care to Dutch citizens to prevent injury resulting from the carbon emissions associated with its operations and its products.

The Court held that there is an "unwritten standard of care" grounded in the Dutch Civil Code and informed by European and International treaties obligating Shell to take steps to reduce its carbon emissions and contribute to the prevention of dangerous climate change so that Dutch citizens may enjoy their right to life and their right to respect for private and family life. And, while Shell is widely recognized as a leader among its peers in the field of corporate climate policy and decarbonization efforts, the Court found that Shell was not moving fast enough or taking tangible reduction steps. Stated otherwise, Shell's approach to emissions reduction did not (or, rather, imminently would not) meet the "unwritten standard of care."

Even though Shell's most recently published climate strategy is to reduce the carbon intensity of its products by 20% by 2030, 45% by 2035 and 100% by 2050 ², the Court ordered Shell (including members of the Shell Group, such as Shell Canada) to reduce its overall emissions from 2019 levels on a net basis by 45% by 2030. The decision does not mandate how or where these reductions must occur, just the overall result to be achieved. As the decision applies both to Shell's own emissions and the emissions associated with use of its products, the decision has implications for the entire supply chain. Shell's CEO has indicated that it will appeal the decision, but also noted that the decision does not change Shell's ambitious plans, it just expedites the actions to be taken.³

Will this decision move the dial on climate change? Not likely. Buried in the decision, and given short shrift, there is a recognition of the "twin challenge of curbing dangerous climate change and meeting growing global population energy demand." ⁴ Until global demand for oil and gas and related products is reduced, an approach that targets individual companies on a piecemeal basis will have only limited effect on "curbing dangerous climate change." As we've already seen from the exit of producers including Shell, Statoil and Total from Alberta's oil sands, individual companies can reduce their own emissions by selling energy intensive assets to remove them from their portfolios. Those assets, however, remain in production. While the Canadian experience so far has been that such assets have been taken up by Canadian companies with their own ambitious approaches to responsibly managing their environmental liabilities, ⁵ this may not always be the case. Encouraging large companies such as Shell to divest from energy intensive assets does not mean the oil and gas will be left in the ground. Other producers may be less accountable or create different environmental impacts. In short, there is a potential issue of 'be careful what you wish for' when litigants (or shareholder activists) target individual oil and gas companies in a trade-exposed industry.

We leave aside this broad and complicated socio-political issue and, in this bulletin, provide our analysis of the decision and its implications for future climate litigation in Canada. We look briefly at the current state of climate litigation in Canada, including the success of arguments premised on the doctrine of justiciability, and we consider the prospects of a novel tort claim framed along the lines of Milieudefensie both under Canadian common law and under the Civil Code of Quebec.

THE SHELL DECISION

In a first-of-its-kind ruling, a Dutch court has granted in part a class action lawsuit filed by Milieudefensie and six other environmental groups ordering Shell and all the members of the Shell group to cut their carbon dioxide emissions by net 45% in 2030 compared to 2019 levels. The claimants did not seek monetary damages, only a court order that Shell cut its carbon dioxide emissions.

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How did Shell Respond to the Court ruling?

In a LinkedIn post following the ruling, Shell CEO Ben van Beurden said that Shell was surprised at the ruling and expected to appeal. He added that the plaintiffs and Shell shared the same goal, to tackle climate change and to achieve the goal of the Paris Agreement to limit global warming to 1.5 degrees Celsius.

Mr. van Beurden also said that the ruling did not mean a change in Shell's climate change strategy, but rather an acceleration. He added that the energy transition was "far too big a challenge for one company to tackle" or even one country or one continent. The change must address the demand for carbon-based energy, not just its supply, and that means that demand for new low-carbon products must grow. "For companies to invest successfully, they also need bold, clear and consistent government regulations," he pointed out.

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The Court's order directs Shell, both directly and via the companies and legal entities that it commonly includes in its consolidated annual financial statements, to limit the aggregate volume of all carbon dioxide emissions from business operations and products sold by the Shell group (ie. Scope 1, 2, and 3 emissions ⁶) to at least net 45% less than 2019 levels by the end of 2030.

Role of Conventions, International Agreements and Policy

While international agreements bind states and not private parties, it is important to consider international conventions, and especially European treaties, as they played an important role in the Shell decision. Significantly, some of these conventions refer to non-party stakeholders or non-State actors, and the Court made use of the content of these international conventions as an element to be considered in the analysis of the "unwritten standard of care" of the Civil Code of the Netherlands. For example, the Court noted that the Paris Agreement makes reference to "non-Party stakeholders" and mentioned the Treaty on the Functioning of the European Union and European Directives that established a scheme for greenhouse gas emissions allowance trading.

The Court also took notice of a number of other initiatives that helped inform the "unwritten standard of care," including the Climate Ambition Alliance established in 2019, in which states and non-State actors signalled their intention to achieve net-zero CO2 emissions by 2050; the reports of the International Energy Agency and the World Energy Outlooks published annually, and especially the report published in October 2020 that accepted the concept of Net Zero by 2050.

Finally, the Court noted the December 2019 decision of the Supreme Court of the Netherlands in Urgenda Foundation v State of the Netherlands ("Urgenda") ⁷, in which the Court upheld lower court decisions and ordered the State to reduce the country's greenhouse gas emissions. By then, and following the lower court decisions, the Dutch cabinet had already reached a National Climate Agreement and in 2019 the Dutch Climate Act ⁸ came into force. These encompassed a series of measures between companies, social organizations and government bodies for the reduction of greenhouse gas emissions by 49% in 2030 relative to 1990. More than 100 parties have jointly worked on a cohesive set of proposals with the aim of achieving the 2030 carbon...