Is the Sun Shining on Shell? Environmental Activism vs. Corporate Responsibility

In recent years, the global conversation surrounding climate change and environmental protection has reached new heights. This widespread attention has prompted legal battles between activists and corporations in what is termed ESG (Environmental, Social and Governance). This blog post provides an overview of two recent ESG claims against Shell which display the challenges campaigners face in the Courts; ClientEarth’s derivative action (ClientEarth v Shell plc & Ors [2023] EWHC 1137 (Ch)) and the Jalla, Nigerian oil spill, claim, (Jalla and another v Shell International Trading and Shipping Company and another [2023] UKSC 16) in both of which the Court ruled in favour of Shell.

The ClientEarth action

ClientEarth and other activist NGOs, charities and individuals have, for many years, bought shares in companies whose operations damage the environment, of which the oil and gas industries are one. The purpose is to influence other shareholders and to make some noise at Company meetings. Organisations are now also using the courts to challenge operations usually on the basis of constitutional human rights.

ClientEarth brought a derivative action against the directors of Shell suggesting they were in breach of their obligations to Shell as directors for breaching their duties under the Companies Act 2006 to promote the success of the company (s 172) and to exercise reasonable care, skill and diligence (s 174) for not ensuring the Company itself did not breach its legal environmental obligations including failing to prepare the Company for the net zero transition mandated by the Paris Climate Agreement.

Notably recently in a case brought by Friends of the Earth the Court of Appeal concluded that the Paris Agreement did not give rise to domestic legal obligations for the Government (Friends of the Earth Limited v. The Secretary of State for International Trade/UK Export Finance [2023] EWCA Civ 14).

It marked the first time a company’s corporate policy had been challenged in court for its alleged contribution to climate change.

A derivative action is bought under the Companies Act 2006 (CA 2006), which allows shareholders, and some others, to bring claims, effectively in the name of the Company, against those with whom the Company is contracted or who owe it duties of care.

The right to bring a derivative action is hemmed in with many primary conditions, for which the Court is the gatekeeper, and ClientEarth’s action fell at the first fence. On 12 May, the High Court refused to allow ClientEarth to proceed with a substantive application for permission to continue a derivative action against the directors of Shell. The court held that ClientEarth’s application and evidence did not disclose a prima facie case for giving permission.

The judgment supports the well-established principle that the court will not readily interfere in directors’ decision making when assessing conflicting factors and reaching a decision in good faith.

This is a disappointment for campaigners but will not dampen the ardour to use the courts here and in other jurisdictions to seek to drive home their message on climate change.

Jalla v Shell

Shell had similar fortune in a decision of the Supreme Court in this case in which the Court gave judgment on 10 May.

On December 20, 2011, a major oil spill occurred at the Bonga oil field, off Nigeria. Due to a failure in the facility’s export line some 40,000 barrels of crude oil leaked into the Gulf of Guinea. The spill spread across an area the size of Belgium, impacting the marine ecosystem, coastal communities, and the livelihoods of those dependent on fishing and tourism including on the Nigerian Atlantic coast. The subsequent impact on the local ecosystem and communities was vast.

27,800 Nigerian individuals and 457 communities filed a lawsuit in London against Shell seeking compensation and holding the company accountable for the environmental damage caused. The lawsuit alleges that Shell was negligent in maintaining and operating the Bonga facility.

This claim has already been the subject of notable judicial comment on the issue of the representation. Other claims against Shell for oil spills in Nigeria have also been litigated in London raising their own distinct issues, e.g. Okpabi v Royal Dutch Shell Plc UK SC 2018/0068.

This latest judgment deals with an important issue of liability for private nuisance and whether the ongoing presence of oil on the claimants’ land could constitute a “continuing” private nuisance, or whether the nuisance was restricted to the event of the original oil spill in December 2011, and it was at that time that the cause of action accrued. This is an important issue in relation to limitation of actions since the limitation period runs from the accrual of the cause of action.

The Supreme Court found that the ongoing presence of the oil was not a continuing private nuisance and that the Bonga oil spill was a one-off event. The cause of action was “complete” once the land was affected by the spill, rather than continuing until it was cleared. If the Jalla claimants had been right that the continued presence of oil on their land constituted a continuing nuisance, their limitation periods would have continued to re-start as their causes of action continued to re-arise.

If the court ruled in favour of Jalla, then it could have paved the way for the tort to be engaged in environmental damage cases which involve the contamination of claimants’ land. The effect would have been to enforce an unlimited obligation on defendants to remove contaminants from claimants’ land and impose controls for prospective defendants to manage their own environmental litigation risk profiles.

Conclusion

These two cases are just part of the growing number of ESG claims in front of courts across the World. They reflect both the inventiveness of campaigning lawyers but also the difficulties that they face in converting campaigns into success in front of the court.

Edwin Coe is one of the leading class action firms in the UK. If you have suffered along with others as a result of government or corporate wrongdoing ask David Greene how we can assist in the redress process.

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