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Heavy duties: a further update on ClientEarth v Shell

Posted on 10 August 2023

In the latest chapter in its landmark claim concerning Shell's climate strategy, the High Court has refused permission for environmental charity ClientEarth to continue its derivative action against Shell's directors. In holding that ClientEarth had failed to make out a prima facie case, Mr Justice Trower has called into question the ability of activist shareholders with an ESG motive to make use of derivative actions, except in exceptional cases. However, ClientEarth has indicated an intention to appeal, so it is unlikely that this is the last word on the matter.


As a refresher, a derivative claim under section 260 of the Companies Act ("the Act") is a claim which is brought by a shareholder or member of a company on behalf of the company against one or more of its directors for breach of duty. Such a claim is an exception to the basic principle that it is a matter for the company whether to pursue a claim, and as a result the shareholder may not proceed without permission from the court to continue the claim. Permission will be refused if the applicant cannot show it has a prima facie case or if the court is satisfied that a person acting in accordance with the duty to promote the success of the company would not seek to continue it. In deciding whether to give permission, the court will consider various discretionary factors, and have regard to evidence of the views of other shareholders with no personal interest in the matter.

As we previously commented, in February 2023 ClientEarth issued a derivative claim against Shell's directors.

The initial application was rejected on the papers, and so ClientEarth asked the court to reconsider the decision at an oral hearing. In ClientEarth v Shell Plc & Ors [2023] EWHC 1897 (Ch), the court has now confirmed that rejection.

The Judgment

The general duties

ClientEarth contended that the general duties under sections 172 and 174 of the Act give rise to six "necessary incidents" which arise when the directors are considering the strategies that are relevant to this case. However, the judge's view was that in formulating the incidental duties, ClientEarth sought to impose specific obligations on the directors as to how they should manage the company's business and affairs which was inconsistent with the well-established principle that it is for directors themselves to determine (acting in good faith) how best to promote the success of a company for the benefit of its members as a whole.  

The judge emphasised that the Act does not specify additional obligations as to what is and what is not reasonable in each circumstance but requires a company's directors to continue to have regard to a range of competing considerations.

No prima facie case

The judge went on to hold that ClientEarth had failed to establish a prima facie case of actionable breach of duty.  In the judge's view he could place very little weight on ClientEarth's evidence, most of which was set out in a witness statement given by one of its senior lawyers.

The judge added that ClientEarth's evidence did not support a prima facie case that there was a universally accepted methodology by which Shell might achieve its transition strategy, and he further noted that ClientEarth accepted Shell's directors did, in fact, have relevant policies in place. In the judge's view, this was inconsistent with any suggestion that the directors had not considered what was in the best interests of the company and its members as a whole. The judge also commented that an independent director, acting in accordance with their duties would decline to continue the claim.

Discretionary factors

The judge also had regard to the discretionary factors set out in the Act, including the requirement that the claimant act in good faith in seeking to continue the claim. Bearing in mind the size of ClientEarth's shareholding, he concluded that there was good reason to suppose that ClientEarth's application was an attempt to publicise and advance its own policy agenda, and but for that ulterior motive, ClientEarth would not have brought the claim. While, for the purposes of the hearing, there was no reason to doubt that ClientEarth had an honest belief that the claim was in the long-term best interests of Shell, the judge concluded that where the primary purpose of bringing a claim was that ulterior motive, it had not been brought in good faith and its real interest was not to best promote the success of the company for the benefit of its members as a whole.

In assessing whether or not the company would ratify the actions of the directors in question, the judge also noted evidence of the views of other Shell shareholders, noting that ClientEarth's claim was supported by members holding 12.2 million shares (approximately 0.17% of the total shares). A letter from members holding a further 12.5 million shares stated their position was aligned with arguments made by ClientEarth. By comparison, at the company's 2022 AGM, support for its energy transition scheme was said to be 80%. That level of support counted strongly against the grant of permission.


Mr Justice Trower's judgment follows hot on the heels of the rejection of an appeal in McGaughey v USSL [2023] EWCA Civ 873, which raised similar issues in relation to a derivative action brought by pension scheme members where allegations were made in relation to the investments made by the scheme. However, whilst Mr Justice Trower's judgment does suggest that there are challenges in bringing derivative actions, there will likely be further case law in this area. For instance, ClientEarth has announced an intention to appeal, and in the meantime, other parties to similar proceedings will likely be considering these cases in their own litigation strategies.

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