A late note on ClientEarth v Shell Plc & Ors (Re Prima Facie Case) [2023] EWHC 1137 (Ch) in which Trower J refused to give permission to Client Earth (qualitate qua Shell shareholders) to bring a derivative claim in lieu of Shell, against the corporation’s directors.
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 relevant corporate documentation. It also alleges breaches relating to the Directors’ response to the order made by the Hague District Court in Milieudefensie v Royal Dutch Shell plc which I reviewed here.
[3]:
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.
Current stage of the process is said to provide a filter for “unmeritorious” or “clearly undeserving” cases, with importantly [5] the applicant having to show that its application establishes a prima facie case before a substantive hearing is held. The substantive application for permission 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 263(4) of CA 2006 to have particular regard to any evidence before it as to the views of members of the company who have no personal interest, direct or indirect, in the matter.
[14] The duties relied on by ClientEarth include two of the statutory general duties owed by the Directors to the Company pursuant to s.170 of CA 2006: the duty to promote the success of the Company (s.172 of CA 2006) and the duty to exercise reasonable care, skill and diligence (s.174 of CA 2006s).
[16] The duties owed by the Directors are also said to include what are pleaded as six necessary incidents of the statutory duties “when considering climate risk for a company such as Shell”. These are said by ClientEarth to be:
i) a duty to make judgments regarding climate risk that are based upon a reasonable consensus of scientific opinion;
ii) a duty to accord appropriate weight to climate risk;
iii) a duty to implement reasonable measures to mitigate the risks to the long-term financial profitability and resilience of Shell in the transition to a global energy system and economy aligned with the global temperature objective of 1.5°c under the Paris Agreement on Climate Change 2015 (“GTO”);
iv) a duty to adopt strategies which are reasonably likely to meet Shell’s targets to mitigate climate risk;
v) a duty to ensure that the strategies adopted to manage climate risk are reasonably in the control of both existing and future directors; and
vi) a duty to ensure that Shell takes reasonable steps to comply with applicable legal obligations.
[21] ClientEarth is not proposing any specific strategy which it requires the Board to adopt. Instead, it alleges that the Board’s current approach falls outside the range of reasonable responses to climate change risk. [26] ClientEarth needs to show that that the Directors’ current approach falls outside the range of reasonable responses to climate change risk and will cause harm to Shell’s members.
Conflicts lawyers will be interested in the two additional duties which are referred to as the further obligations [22]. They are that, pursuant to the common law of England and Dutch law respectively, a director who is aware of a court order is under a duty to take reasonable steps to ensure that the order is obeyed. This is pleaded as a precursor to ClientEarth’s allegation that Shell has failed to comply with the Dutch Order. Shell argue that there is no recognised duty owed by directors to a company in which they hold office to ensure that they comply with the orders of a foreign court and Trower J agrees there is no such authority: [23] he holds that
while a director of a company is under a legal obligation to take reasonable steps to ensure that an order made by an English court is obeyed, the case on which ClientEarth relied (Attorney-General for Tuvalu v Philatelic Distribution Corpn [1990] 1 WLR 926 at 936E-F) is not authority for the proposition that there is any such duty owed by the directors to the company itself, which is separate or distinct from the duties they owe to the company as codified in Part 10 Chapter 2 of CA 2006.
and [24]
the nature and extent of the Directors’ duties to Shell are governed by English law as the law of Shell’s incorporation, as to which the underlying point is the same. There is no established English law duty separate or distinct from the general duties owed by the Directors to Shell under CA 2006, which requires them to take reasonable steps to ensure that the order of a foreign court is obeyed, let alone to ensure compliance with that order. It follows that, even if as a matter of Dutch law, the Directors were to owe duties to Shell to take reasonable steps to ensure that the Dutch Order is obeyed, that would be irrelevant to the claims sought to be made in these proceedings, governed as they are by English law. So far as Shell’s potential claims against the Directors are concerned, the only question is whether their response to the Dutch Order rendered them in breach of an English law duty.
No reference here to anything like mutual trust such as by the Dutch courts in Heirs to the Sultan of Sulu v Malaysia.
[25] the judge refers to Lord Wilberforce in Howard Smith Ltd v Ampol Ltd [1974] AC 821 at 832E/F: “There is no appeal on merits from management decisions to courts of law: nor will courts of law assume to act as a kind of supervisory board over decisions within the powers of management honestly arrived at.” A classic reminder of merits review v judicial review, in other words.
Then follows a discussion of the evidence (I do not think CPR would have allowed expert evidence at this stage nb so the evidence is provided by in-house-experts) put to the court by ClientEarth and the long and the short of it is the judge’s finding [47] that
“the evidence does not support a prima facie case that there is a universally accepted methodology as to the means by which Shell might be able to achieve the targeted reductions referred to in the ETS. This means that it is very difficult to treat what is said as providing a proper evidential basis for alleging that no reasonable board of Directors could properly conclude that the pathway to achievement is the one they have adopted.”
In the light of Shell’s effective abandonment of climate engagement beyond greenwashing (I realise I am not mincing my words here yet the company’s climate reversal under its new CEO is marketed purposely to attract investors), this is imho a wrong approach to the test. It also underscores the tragedy of climate change’s multi-facetted challenges: because of the extent of the challenge, no singular approach is singlehandedly either efficient or sufficient, yet the opponents of climate action use that as a smokescreen to bedazzle judges with a labyrinth of inaction. Industry’s Merchants of Doubt approach has clearly worked here.
As for the Dutch judgment, the judge is not convinced of the nature of what the judgment really orders, and here, too, CPR rules on evidence seem to have put a spanner in the works (prof Toon van Mierlo’s Opinion not being addressed to the court etc: [53]).
[63] the judge adds obiter that in light of the de minimis extent of ClientEarth’s shareholder interest in Shell, some doubt must be cast on its ulterior rather than derivative interest in the claim. [64]
“it seems to me that where the primary purpose of bringing the claim is an ulterior motive in the form of advancing ClientEarth’s own policy agenda with the consequence that, but for that purpose, the claim would not have been brought at all, it will not have been brought in good faith. The reason for this is that it will be clear to ClientEarth that it is using an exceptional procedure in the form of a derivative action, for a purpose other than the purpose for which the legislation has made it available. If, on the evidence adduced by the applicant, that remains an open and unanswered question irrespective of what Shell might say at the substantive hearing, the court cannot be satisfied that ClientEarth is acting in good faith, a situation which will count strongly against a conclusion that it has established a prima facie case for permission.”
I.a. the judge’s approach [65] of the collateral motive of the shareholder I imagine must be appealable as a point of law.
Geert.
Judgment in Client Earth v #Shell is now here
ClientEarth v Shell Plc & Ors (Re Prima Facie Case) [2023] EWHC 1137 (Ch)https://t.co/vYTtbJgc5T #climatelitigation https://t.co/9RS3k2gNtX
— Geert Van Calster (@GAVClaw) May 17, 2023
Update 6 July 2023 my thoughts on the funding issue are here.
The Heirs of the Sultan of Sulu v Malaysia at the end of June saw both the Paris Court of Appeal declare as inadmissible (due to late introduction) their appeal against the earlier decision suspending the exequatur, in France, of the final arbitral award (issued in Paris as locus arbitri, but under Spanish law as lex arbitrii) granting them close to 15 billion USD in a saga dating back to colonial times, and the Hague courts (also upon appeal) confirm the unenforceability of the same award in The Netherlands.
The latter judgment found that
a Madrid court judgment of 19 June 2021 annulling the appointment of the sole arbitrator has to be recognised in The Netherlands on the basis of the Dutch Supreme Court’s criteria in Gazprom; of note is the court’s confirmation of the issue not being included in CJEU Marc Rich (and see also CJEU Gazprom), however it also [6.7] emphasises that even outside the scope of Brussels Ia, there is mutual trust between the courts of Member States of the EU;
the relevant agreement at issue (confirmed in 1903) did not include an agreement to arbitrate; and
the stay (in the meantime confirmed by the Paris Court of Appeal: see above) in enforcement of the award by the French courts would likely also lead to the annulment of the award.
The heirs may still consider a further appeal to the French Supreme Court and the award itself has not yet been annulled however the case is notorious in international arbitration and, it is suggested, can only have been this long running due to what is said to be inappropriate third party funding.
Geert.
Confirmation of unenforceability of the Heirs of the Sultan of Sulu v Malaysia #arbitration award in The Netherlandshttps://t.co/w3OLK9xVep pic.twitter.com/7wyOdQOJH3
— Geert Van Calster (@GAVClaw) July 4, 2023
Thank you Anil Yilmaz, whose reply to a Tweet made me aware of the judgments of end of February in the claim brought by a number of NGOs against Total viz its activities in Uganda. The claim is an ex ante claim brought on the basis of the French statute which introduced the so-called devoir de vigilance or duty of care in the business and human rights sector. It argues that Total’s plan for the Ugandan activities at issue, fail the standard of the Act.
I had earlier flagged the procedural issue in the case and Cédric Helaine has review and links to the judgments here. The court (p.18) notes that the implementing decree which is supposed to detail the requirements of the law, has still not been adopted and that the law itself does not offer a blueprint, a decision tree, a list of indicators, merely indicating that the plan needs to include a ‘reasonable’ list of both pressure points and measures to address these, and that the plan moreover is to be drafted in consultation with stakeholders. In the absence of Government clarification of what this might entail, the court then points out that the reasonable or not character of the plan needs to be assessed by the courts themselves yet (p.20-21) and that a judge in an interlocutory proceeding in particular, can only be asked to discipline those plans which are non-existent, or clearly insufficient (which the judge finds is not the case here), yet cannot be expected to judge the plan’s reasonableness:
S’il entre dans les pouvoirs du juge des référés de délivrer une injonction en application des dispositions susvisées lorsque la société, soumise au régime du devoir de vigilance n’a pas établi de plan de vigilance, ou lorsque le caractère sommaire des rubriques confine à une inexistence du plan, ou lorsqu’une illicéité manifeste est caractérisée, avec
l’évidence requise en référé, en revanche, il n‘entre pas dans les pouvoirs du juge des référés de procéder à l’appréciation du caractère raisonnable des mesures adoptées par le plan, lorsque cette appréciation nécessite un examen en profondeur des éléments de la cause relevant du pouvoir du seul juge du fond.
The judge concludes that in the case at issue, there is no such obvious shortcoming and that the request therefore is inadmissible given the role of the interlocutory proceedings.
This judgment of course says little on the role of the Act in claims on the merits of duty of care in which Acts such as these play a role (as opposed to claims merely arguing the planning stage is insufficient) however it clearly puts pressure on the French government urgently to produce its more detailed order, and it confirms the need to introduce detail either in these Acts (including in the recently adopted EU Directive) themselves or, swiftly, in executive follow-up. This avoids that judges use trias politica as a way out of having to judge the issues on their merits.
Geert.
Droit de vigilance, #bizhumanrights #mHRDD
French SC in tribunal de conflits role, assigns jurisdiction to civil court of first instance, not the commercial court.
Case may now finally continue on the merits. https://t.co/ERbD6r6Lsm
— Geert Van Calster (@GAVClaw) December 16, 2021
In Popescu v Essers the Antwerp Court of Appeal has confirmed jurisdiction in a claim by a Romanian driver against a Belgian-incorporated freight company, and applied Belgian labour law to the their contract.
The case echoes social dumping issues, relevant earlier posts on the blog include CJEU Gruber Logistics, and Altun. Outside of Brussels Ia and Rome I, CJEU AFMB and others is of note.
I do not have access to the first instance judgment and the Court of Appeal’s judgment is a touch cryptic on a first issue of note which is the impact of the earlier decision by the Romanian courts and the extent of res judicata: I cannot say much about that for want of the first instance judgment and /or further info in the court of appeal’s judgment, however that issue seems to have engaged factual findings in the Romanian courts.
What is clear is that on the basis of Article 21 BIa, jurisdiction in the domicile of the employer was easily established [p.6].
With respect to applicable law and Rome I, the Court of Appeal refers to the CJEU in Koelzsch [42] holding “in so far as the objective of Article 6 of the Rome Convention is to guarantee adequate protection for the employee, that provision must be understood as guaranteeing the applicability of the law of the State in which he carries out his working activities rather than that of the State in which the employer is established. It is in the former State that the employee performs his economic and social duties and, as was noted by the Advocate General in point 50 of her Opinion, it is there that the business and political environment affects employment activities. Therefore, compliance with the employment protection rules provided for by the law of that country must, so far as is possible, be guaranteed.” (emphasis added by me, GAVC). The Court of Appeal also recalls the criteria of the CJEU in C-64/12 Schlecker, notes that the contract does not have a lex voluntatis (although the contract does refer to Romanian law in a number of instances) and holds p.12 ff that Belgium, not Romania was the place of habitual employment:
on-board diagnostics and trip reports reveal that most of Mr Popescu’s routes started from the corporation’s headquarters in Belgium, most of them to and fro Belgium’s neighbouring countries, and even if they were further afield, return was always to Belgium; no routes led him to and /or fro Romania;
dispatch for the routes was organised from Belgium, with largely the Belgian corporations of the group as the contracting party for the freight concerned;
the work tools, i.e. the trucks, even if they carried a Romanian number plate, were put at the the disposal of the drivers, and serviced, in Belgium, and (off)loading largely took place in Belgium.
Other factors pointing to Romania, were held not to displace the finding of Belgium as the place of employment: this includes Mr Popescu’s Romanian nationality and domicile; and his contract being subject to Romanian national insurance and income tax: these two latter elements, the Court held, simply reflect Mr Popescu’s domicile, not his place of employment.
The Court of Appeal also held [p.17-18] that it need not apply the posted workers Directive, with reference to CJEU FNV v Vanden Bosch, and that instead of a temporary posting there is a clear place of habitual employment with all the consequences of Rome I.
The remainder of the judgment then deals with the consequences of the application of Belgian law.
A case of note!
Geert.
Judgment (Court of Appeal in fact) is here https://t.co/JpvhwEBlzI h/t @jurinfo_eric) and analysis forthcoming on my blog. https://t.co/LWyYwbZ73B
— Geert Van Calster (@GAVClaw) June 27, 2023
Diamedica Therapeutics Inc v Pharmaceutical Research Associates Group BV NCC22/018 ECLI:NL:RBAMS:2023:2540 highlights the IMHO troubled Rome I implications for property rights as opposed to contractual rights. The judgment was issued by the NCC, the Netherlands Commercial Court. (The NCC origin also explains the judgment already being available in English).
The claim is one for revindication by PRA of documents and digital data pertaining to the clinical trials regarding a medicine developed by DiaMedica. The court held that whereas the contractual relationship between the parties is governed by the laws of the State of New York as the lex voluntatis (the law parties chose to apply to the contract), Dutch law governs the question whether a property right can be created on documents and data situated in the Netherlands.
In discussing the applicable law issues, the court in my view lacks the clarity of approach required in this area, particularly seeing as a State’s approach towards digital data clearly is an important element in the attractiveness of its contract law for the sector.
[4.5] the Court holds that per Article 3(1) Rome I, the lex voluntatis, the laws of New York, covers the interpretation of the agreement. This includes the existence of a right to suspend contractual obligations, here: whether PRA may retain the Documents or suspend surrendering the Documents in order to secure payment of its final invoice. It equally holds however that the existence of a property right (footnotes omitted)
is not a matter of contract but a matter of property law. The Rome I Regulation is not applicable. As there is no treaty or regulation guiding this issue, the rules of Dutch domestic private international law apply. Under Article 10:127(1) of the Dutch Civil Code (DCC) the property law regime relating to things, as a rule, is the law of the state in whose territory the thing is situated (the lex rei sitae). The ‘thing’ in question are the Documents which are situated in the Netherlands. Therefore, Dutch law governs the manner in which rights in rem arise, whether such rights can be created, and if so, what the requirements are for a transfer or creation of rights (Article 10:127(4) DCC). Also, the question whether a revindication claim can be initiated, and if so by whom, is governed by the lex rei sitae. Hence: Dutch law.
, leading to a finding in favour of DiaMedica on the basis of Dutch law.
The merits of the case are not of interest to this blog: the identification of applicable law to the property rights, is. The NCC’s analysis shows the difficulty with the in my view unsatisfactory, if seemingly solidly rooted (see the Guiliano-Lagarde Report most succinctly p.10; Dicey 33-033 and 33-054; other standard works pay less attention to the issue) conclusion that ‘property’ rights are not caught by the Regulation, only contractual rights. See here nota bene for an Opinion of Vlas AG for the Dutch Supreme Court, flagging that in restitution cases the analysis may be more complicated than the NCC in current case suggests.
In the discussion of digital assets in particular (see eg here re UNIDROIT work on same, and here for the UK Law Commission paper), the property rights element surely is essential. This in my view gives those States with lex voluntatis also covering the property aspects (such as arguably Belgium’s residual private international law rules) an edge when it comes to regulatory competition in the area.
Nota bene just this morning, professor Lehmann posted a paper on the wider issue, calling for people to drop focus on the property analysis. Rebus sic stantibus however, the issue of relevance in the case here, remains: parties in my view would do well to identify a lex contractus which encompasses property rights in party autonomy. Unusually perhaps and most probably not by design, this makes laws such as those of Belgium, a clear winner (whether as lex contractus for the whole contract of merely, by way of dépeçage, for the property aspects only).
Geert.
May personal data be subject to property rights?
Challenging 1st instance decision A'dam
Revindication of documents and data. Ownership over digital data in clinical trials
Held despite NY law as lex contractus per Rome I to be subject to NL property law https://t.co/pC6N9sAuZ3
— Geert Van Calster (@GAVClaw) April 28, 2023
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