Clientearth v Shell Plc
| Jurisdiction | England & Wales |
| Judge | Mr Justice Trower |
| Judgment Date | 12 May 2023 |
| Neutral Citation | [2023] EWHC 1137 (Ch) |
| Docket Number | Case No: BL-2023-000215 |
| Court | Chancery Division |
[2023] EWHC 1137 (Ch)
THE HONOURABLE Mr Justice Trower
Case No: BL-2023-000215
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
DERIVATIVE CLAIM
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Approved Judgment on Prima Facie Case
This judgment was handed down remotely at 10.30am on 12 May 2023 by circulation to the parties or their representatives by e-mail
ClientEarth is a private company limited by guarantee, a non-profit environmental law organisation and a UK registered charity. It also holds a small number of shares (currently 27) in Shell Plc, formerly Royal Dutch Shell Plc, (“Shell”) and is therefore a member of Shell. It seeks to bring a claim against Shell's directors (the “Directors”) in respect of a cause of action it accepts is vested in Shell seeking relief on behalf of Shell. These proceedings therefore qualify as a derivative claim within the meaning of s.260(1) of the Companies Act 2006 (“CA 2006”).
ClientEarth is only entitled to bring a derivative claim under Chapter 1 of Part 11 to CA 2006 in respect of a cause of action arising from an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by one or more of the Directors (s.260(3)) and it requires the court's permission to continue the claim (s.261(1)). The breaches alleged in ClientEarth's claim are said to arise out of the Directors' acts and omissions relating to Shell's climate change risk management strategy as described in corporate documentation published in April 2021, October 2021 and April 2022. It also alleges breaches relating to the Directors' response to an order (the “Dutch Order”) made by the Hague District Court (the “Dutch Court”) on 26 May 2021 in Milieudefensie v Royal Dutch Shell plc ECLI:NL:RBDHA:2021:5339 (“ Milieudefensie”).
The reason the legislation imposes an obligation on a shareholder to obtain permission to bring a derivative claim is that such a claim is an exception to one of the most basic principles of company law: it is a matter for a company, acting through its proper constitutional organs, not any one or more of its shareholders, to determine whether or not to pursue a cause of action that may be available to it. ClientEarth must therefore show that the limited and restricted circumstances in which it is appropriate for the court to authorise it, as a shareholder of Shell, to continue a derivative action against the Directors for breach of duty are present.
This judgment is concerned with the first question which arises in all such cases, which is whether ClientEarth is entitled to proceed with its substantive application for permission to continue the claim. The court is required by s.261(2)(a) of CA 2006 to dismiss the application if it appears to the court that the application itself and the evidence filed in support of it, do not disclose a prima facie case for giving permission.
The purpose of this stage of the process has been said to provide a filter for “unmeritorious” or “clearly undeserving” cases (Hollington on Shareholder Rights (9 th edn) at 6-03 and 6–14). In some respects, this is a useful shorthand, but the court must not lose sight of the fact that the obligation on the applicant to ensure that its application establishes a prima facie case before a substantive hearing is held imposes an evidential burden on the applicant which arises at the outset. If it is not satisfied, the application must be dismissed. Although there have been disputes in which the parties have accepted that the application for permission can proceed without a prima facie case first being established (e.g., Franbar Holdings Ltd v Patel [2008] BCC 885 at [24]), this hurdle is required by the statute and, in the absence of consent, should not be dispensed with ( Re Seven Holdings Ltd [2011] EWHC 1893 (Ch) at [62]).
CPR 19.15 (the renumbered rule 19.9A as amended by rule 12(16) of the Civil Procedure (Amendment) Rules 2023 (SI 2023/105)) makes provision for the procedure to be adopted when the court is considering the question of whether a prima facie case has been established. Shell is not to be made a respondent at this stage ( CPR 19.15(3)) and the court will consider the matter on the papers in the first instance. PD19A para 2 contemplates that a company may wish to make submissions of its own volition in which event it will not normally be entitled to its costs of doing so. In the present case, Shell has put in a lengthy written submission which I have taken into account in reaching my conclusions.
If the court concludes that a prima facie case for giving permission has not been established, the application must be dismissed, but ClientEarth is entitled to ask for an oral hearing to reconsider the decision so long as it makes a request in writing within 7 days ( CPR 19.15(10)). If the court concludes (either at this stage or after an oral hearing) that a prima facie case for giving permission has been established, the court will then order that Shell and the Directors be made respondents to the permission application and will give directions for a substantive hearing of that application ( CPR 19.15(12)).
In Iesini v Westrip Holdings Limited [2010] BCC 420 (“ Iesini”) at [78], Lewison J explained the procedure as follows:
“At the first stage, the applicant is required to make a prima facie case for permission to continue a derivative claim, and the court considers the question on the basis of the evidence filed by the applicant only, without requiring evidence from the defendant or the company. The court must dismiss the application if the applicant cannot establish a prima facie case. The prima facie case to which s.261(1) refers is a prima facie case “for giving permission”. This necessarily entails a decision that there is a prima facie case both that the company has a good cause of action and that the cause of action arises out of a directors' default, breach of duty (etc.). This is precisely the decision that the Court of Appeal required in Prudential.”
Lewison J's reference to Prudential was to the decision of the Court of Appeal in Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204 at 222A, in which it was laid down that, before being permitted to continue with a derivative action at common law, it was necessary for the claimant to establish a prima facie case both that the company was entitled to the relief claimed and that the action falls within the proper boundaries of the exception to the rule in Foss v Harbottle. In the context of a double derivative action governed by the common law rules rather than the provisions of CA 2006, David Richards J explained in a passage from his judgment in Abouraya v Sigmund [2015] BCC 503 (“ Abouraya”) at [53] (which was also cited with approval by Morgan J in Bhullar v Bhullar [2016] BCC 134 at [21]) that:
“A prima facie case is a higher test than a seriously arguable case and I take it to mean a case that, in the absence of an answer by the defendant, would entitle the claimant to judgment. In considering whether the claimant has shown a prima faciecase, the court will have regard to the totality of the evidence placed before it on the application.”
As Lewison J went on to explain in Iesini at [79], there is a difference between the procedural position at common law and the procedural position where permission is sought to continue a derivative action governed by the statutory rules. In the latter case, but not the former, there is a two stage process which commences with the filter required by s.261(2). However, the approach to what amounts to a prima facie case will be similar, although affected by the fact that the company and its directors will not have put in any evidence, a point which was also made by Peter Knox KC, sitting as a deputy High Court Judge in Haider v Delma Engineering Projects Company LLC [2023] EWHC 218 (Ch) at [48]. The question for the court on the present application is whether, on the face of the case advanced by the ClientEarth, and in the absence of an answer by Shell, ClientEarth will obtain the permission it seeks.
As to the substantive application for permission, the test the court must apply is set out in s.263 of CA 2006, as to which:
i) s.263(2) provides that an application for permission must be refused if the court is satisfied (a) that a person acting in accordance with his duty to promote the success of the company would not seek to continue the claim or (b) / (c) that any act or omission from which the cause of action arises has been authorised or ratified by the company before or since it occurred;
ii) s.263(3) makes provisions for a number of discretionary factors which the court must take into account in reaching its decision — they are (a) whether the member concerned is acting in good faith in seeking to continue the claim, (b) the importance which a person acting in accordance with his duty to promote the success of the company would attach to continuing it, (c) / (d) whether any act or omission from which the cause of action arises would be likely to be authorised or ratified by the company, (e) whether the company has decided not to pursue the claim and (f) whether the act or omission in respect of which the claim is brought gives rise to a cause of action that the member could pursue in his own right rather than on behalf of the company; and
iii) the court is also required by section...
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