In the latest update to attempts by environmental organisation ClientEarth to bring a derivative action against Shell's directors, the High Court has now determined liability for costs.
Following Mr Justice Trower's decision to refuse permission for ClientEarth to continue its derivative action (read more here), Shell sought an order that ClientEarth pay its costs, including the costs of attending the oral hearing to reconsider the initial refusal.
In English litigation an unsuccessful party will normally be ordered to pay the costs of the successful party. However, in derivative actions the application to determine whether the claimant's evidence discloses a prima facie case normally proceeds without submissions from or attendance by the (defendant) company.
Practice Direction 19A of the Civil Procedure Rules provides that if, without invitation from the court, a company voluntarily attends the hearing, or files submissions, it will not normally be allowed the costs of those actions. Nevertheless, the court retains a discretion to make a different order.
In this case, Mr Justice Trower concluded that while Shell was not explicitly invited to attend court, the company "had no choice but to take steps to respond and oppose the application from the outset". Due to the "very serious" allegations levied against its directors, the judge acknowledged that even a finding of a prima facie case would have had an unusually significant adverse impact on the company itself. He also rejected ClientEarth's submission that Practice Direction 19A was designed to signal to potential litigants that relief for corporate wrongdoing by derivative actions carries only a limited costs risk. Mr Justice Trower concluded that a more accurate explanation for the rule is that it operates as a filter for the protection of the respondent company, reflecting the fact that it is not expected to participate at the permission stage, and should not do so unless there is some reason which takes the case out of the norm.
Mr Justice Trower further concluded that this was such a case and that it was appropriate and proportionate for Shell to attend the oral hearing. It was therefore awarded its costs on the standard basis, which in practical terms means that it will be entitled to recover those costs which were reasonably incurred and proportionate to the issues at stake. No indication was provided as to the amount of those costs, but they are likely to be substantial.
Although the judge refused permission to appeal, it remains to be seen whether ClientEarth will now seek permission from the Court of Appeal in relation to the decision as to whether there is a prima facie case. The decision on costs won't be welcome news to litigants seeking to use derivative actions for novel claims, but is unlikely to slow the tide of ESG-related litigation coming through the English courts.