This blog is an excerpt from “The Climate Change Conundrum – Private Litigation as a Mechanism to Advance Public Interests?” – the Ivan C. Rand Memorial Lecture, given by Dr. Janis Sarra on 27 October 2022 at the University of New Brunswick. Click here to read the full speech (PDF).

Turning first to private actions against private parties, not all private litigation involves seeking narrow remedies such as money compensation to a private party. Two recent examples relate to Royal Dutch Shell, one in the Netherlands and one in the United Kingdom (UK).

Vereniging Milieudefensie et al v Royal Dutch Shell plc

The first is the class action in Vereniging Milieudefensie et al v Royal Dutch Shell plc,in which environmental group Milieudefensie and co-plaintiffs brought a lawsuit alleging Royal Dutch Shell’s (Shell or RDS) contributions to climate change violate its duty of care under Dutch law and its human rights obligations.³ In May 2021, the Hague District Court held that Shell was in violation of the standard of care under Dutch law.⁴ The Court used a science-based analysis.

The Court applied the standard of care to the company’s policies, emissions, consequences of its emissions, and its human rights and international and regional legal obligations. The Court concluded that the standard of care included the need for companies to take responsibility for Scope 3 emissions, that is, those created by third parties in its value chain, especially “where these emissions form the majority of a company’s carbon dioxide (CO2) emissions, as is the case for companies that produce and sell fossil fuels”.⁵ 85% of Shell’s emissions are Scope 3 emissions.⁶

The Court held that the standard of care requires Shell to reduce all global emissions that will harm Dutch citizens. It acknowledged that Shell cannot solve this global problem on its own. To quote the court ─
“However, this does not absolve RDS of its individual partial responsibility to do its part regarding the emissions of the Shell group, which it can control and influence.”⁷ The Court also commented on a balancing of the public interest with commercial interests:

“The compelling common interest that is served by complying with the reduction obligation outweighs the negative consequences RDS might face due to the reduction obligation and also the commercial interests of the Shell group, which are served by an uncurtailed preservation or even increase of CO2-generating activities.⁸

The Court made its decision provisionally enforceable, meaning Shell is required to meet its reduction obligations even if the case were to be appealed.⁹ In weighing the parties’ interests, the Court held that immediate compliance with the order by RDS outweighs RDS’ possible interest in maintaining the status quo, and the Court expressly noted that the “provisional enforceability of the order may have far-reaching consequences for RDS, which may be difficult to undo at a later stage”.¹⁰

In applying this standard of care, the Court concluded that Shell must reduce its Scope 1, 2, and 3 CO2 emissions across its entire energy portfolio by 45% by 2030, relative to 2019 emission levels. The Court gave Shell flexibility in allocating emissions cuts between Scope 1, 2, and 3 emissions, so long as in aggregate, the total emissions were reduced by 45%.

The Court wrote: “With respect to the business relations of the Shell group, including the end-users, this constitutes a significant best-efforts obligation, in which context RDS may be expected to take the necessary steps to remove or prevent the serious risks ensuing from the CO2 emissions generated by them, and to use its influence to limit any lasting consequences as much as possible”.¹¹ “A consequence of this significant obligation may be that RDS will forgo new investments in the extraction of fossil fuels and/or will limit its production of fossil resources.”¹²

Shell began appeal proceedings in August 2021 and filed its statement of appeal with the Dutch Court of Appeal in The Hague in March 2022.¹³ In April 2022, Milieudefensie sent a letter to Shell’s chief executive officer, the executive committee, and the Board of Directors calling for urgent action to comply with the verdict and warning that directors face real risk of personal liability to third parties resulting from a failure to act.¹⁴

Insights:

Standing:

• The Court allowed the class action by six NGO because the interests served in the class action aligned with the objectives stated in their articles of association; it rejected claims by ActionAid, because its operations were not geared toward Dutch citizens, and rejected the 17,000 individual claimants, because their interests were already served by the class action and they did not present independent interests.¹⁵

Rights at issue:

• The Court held the standard of care applied to the parent company and more than 1,000 subsidiaries, given Shell’s vertical control structure.
• The Court found that the common interest or public interest in moving immediately to reduce emissions outweighed the commercial interests of Shell.
• The Court recognized the notion that ‘global emissions’ harms Dutch citizens.¹⁶

Remedy Provided:

• The Court emphasized that Scope 3 emissions (85% of Shell’s emissions) must be reduced, given their significance to its overall emissions.

ClientEarth v Shell plc (2022)

The second example of private action is the use of derivative action provisions in corporate law statutes. Derivative actions are where a plaintiff seeks the court’s permission to “step into the shoes of the company” and bring an action on behalf of the company against some or all of its directors and officers for a breach of their duties to the company.¹⁷

My example is a case in which ClientEarth, as a shareholder of Shell, is taking derivative action to compel Shell’s board of directors to act in the best long-term interests of the company by strengthening its climate plans.¹⁸ ClientEarth is an NGO that seeks to “use the power of law to bring about systemic change that protects the earth for – and with – its inhabitants”.¹⁹ ClientEarth has sent a pre-action letter to Shell, notifying the company of its claim against the company’s directors and officers, and giving the company the opportunity to respond, as is required before bringing a derivative action under the corporate law in many jurisdictions, including Canada.

The complaint states that Shell faces a number of material climate-related risks arising from the physical impacts of the climate crisis: its facilities and infrastructure are heavily exposed to extreme weather events and rising sea levels caused by climate breakdown, including offshore drilling platforms, and power stations and refineries located in coastal areas.²⁰ The company is also exposed to the transition risks resulting from regulatory, market, and societal shifts spurred by the energy transition, as many of its assets are at serious risk of becoming stranded in future.²¹

The complaint specifies that Shell’s 2021 announcement of “a target to become a net-zero emissions energy business by 2050” was accompanied by serious shortcomings in the company’s plans, including that its net-zero emissions target is, by the Board’s own admission, not reflected in its operating plans or budgets; its Energy Transition Strategy contains strikingly low short and medium-term targets that are not targets to reduce its absolute GHG emissions, but rather, are targets to reduce ‘carbon intensity’ of Shell’s products; and its 50% Scope 1 and Scope 2 emissions reduction target only accounts for around 5% of the company’s emissions.²²

ClientEarth’s claim is that the Shell board’s mismanagement of climate risk puts directors in breach of their duties under the UK Companies Act,²³ which requires company directors to act in a way that they consider will best promote the success of the company for the benefit of its members as a whole, having regard to a range of factors including the likely consequences of any decision in the long term, the interests of the company’s employees, and the impact on the environment.²⁴

Absent action by the directors and officers, ClientEarth will seek to commence a ‘derivative action’ against Shell in the UK in relation to the alleged breaches of duty by the Board, attempting to hold the directors personally liable for failure to properly prepare for the net-zero transition, and to pursue the board for wrongs allegedly committed against the company.²⁵

ClientEarth hopes to persuade or compel Shell’s board to strengthen its management of the material and foreseeable climate risk facing the company.²⁶ If the court action is ultimately successful, the court could require Shell’s board to take certain steps in its management of the company, such as truly aligning the company’s strategy with the goals of the Paris Agreement. The court could also declare the directors personally liable for breach of their legal duties.

Insights:

Standing:

• ClientEarth is a private litigant as shareholder – but as an organization, its mandate is public interest and it has positioned itself as a private litigant to advance its mandate.

Rights:

• A derivative action seeks to vindicate the rights of the company alone and requires arguing the case narrowly concerning the company’s best interest, not the public interest.

Remedy:

• A derivative action can only advance the public interest where it coincides with the company’s interests, but the remedy sought advances both private shareholder interests and a public interest.

Alternative avenue:

• In Canada, there is also the oppression remedy under corporate statutes where directors’ actions are found to be oppressive, unfairly prejudicial to, or unfairly disregard the interests of securityholders and where a court deems it appropriate, other parties – it protects reasonable expectations. Now arguably, there is a reasonable expectation that directors and officers are managing climate-related risks. Although there are hurdles to getting standing for parties whose standing is subject to the court’s discretion, oppression remedy claims may be another avenue for private litigants to advance claims that support both their interests and the public interest.

These cases illustrate that the intersection of the public interest in climate change mitigation with private rights can be advanced though legal action by those private right holders to vindicate their rights in a manner that benefits the public interest. However, limitations on the ability to advance the public interest may arise from the nature of the rights being asserted, as it can affect the types of remedy available or even the availability of standing to assert the public interest. The next type of legal action to advance the public interest does not rely solely on private rights.

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This blog is an excerpt from “The Climate Change Conundrum – Private Litigation as a Mechanism to Advance Public Interests?” – the Ivan C. Rand Memorial Lecture, given by Dr. Janis Sarra on 27 October 2022 at the University of New Brunswick. Click here to read the full speech (PDF).