ClientEarth v Shell Plc
| Jurisdiction | England & Wales |
| Judge | Mr Justice Trower |
| Judgment Date | 24 July 2023 |
| Neutral Citation | [2023] EWHC 1897 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: BL-2023-000215 |
[2023] EWHC 1897 (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
Edward Brown KC, Daniel Saoul KC, Sam Goodman and Judy Fu (instructed by Pallas Partners LLP) for the Claimant
Edward Davies KC, Robert Howe KC, Shaheed Fatima KC and Jack Rivett (instructed by Slaughter and May) for the First Defendant
Hearing date: 12 July 2023
Approved Judgment
This judgment was handed down remotely at 10.30am on 24 July 2023 by circulation to the parties or their representatives by e-mail
Introduction
On 12 May 2023, I made an order under s.261(2)(a) of the Companies Act 2006 (“CA 2006”) dismissing ClientEarth's application for permission to continue this claim (the “May Order”). I did so without a hearing in accordance with the procedure contemplated by CPR 19.15. ClientEarth has exercised its right to ask the court to reconsider that decision at an oral hearing.
This judgment explains the decision I have reached as a result of that oral hearing. It consolidates, and therefore repeats to a significant extent, the judgment I handed down at the time the court dismissed the application on the papers: [2023] EWHC 1137 (Ch) (the “May Judgment”). It records in a single judgment my concluded view as a result of both my initial consideration of the matter and its reconsideration at and after the oral hearing.
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 CA 2006.
ClientEarth is only entitled to bring a derivative claim under Part 11 Chapter 1 of 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.
Part 11 Chapter 1 of CA 2006 and the applicable procedural rules were designed to provide a clear and accessible mechanism by which shareholders can if necessary bring an action in the name of the company against a director for breach of one or more of the general duties set out in Part 10 Chapter 2 of CA 2006. This legislative intent was summarised in that manner by the Solicitor-General when introducing the legislation. However, there is nothing in the legislation to indicate that Parliament intended the procedure to be employed in anything other than restricted circumstances. The purpose of the new scheme was not to encourage litigation against directors. It was to ensure that, when the circumstances justified permitting a shareholder to pursue the company's cause of action against its directors, the procedural requirements were both easily accessible and clearly set out.
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 prima facie stage
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. Even though the test has been said to be “not a high one” (per Leech J in McGaughey v Universities Superannuation Scheme Ltd [2022] EWHC 565 (Ch) at [12]), 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 put in a lengthy written submission at the paper stage, which I took into account when preparing the May Judgment.
If the court concludes that a prima facie case for giving permission has not been established, the application must be dismissed, hence in the present case the May Order. ClientEarth was entitled to ask for an oral hearing to reconsider the decision so long as it made a request in writing within 7 days ( CPR 19.15(10)), a right which it exercised. This judgment is delivered in the light of that reconsideration. If the court were to conclude (either at the paper stage or after this oral hearing) that a prima facie case for giving permission has been established, Shell and the Directors would then be made respondents to the permission application and directions would then be given 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 is necessary for the claimant to establish a prima facie case both that the company is entitled to the relief claimed and that the action falls within the proper boundaries of the exception to the rule in Foss v Harbottle (1843) 2 Hare 461. 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] 1 BCLC 106 (“ Bhullar”) 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 facie case, the court...
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