The Pursuit of Corporate Accountability: Climate Change Litigation and the Use of Shareholder Derivative Actions – The Cambridge Law Journal

‘ClientEarth v Shell [2023] EWHC 1897 (Ch) is the first attempt to use the statutory shareholder derivative action (Part 11 Chapter 1 of the Companies Act 2006 (CA 2006)) to hold directors liable for breach of directors’ duties for issues related to climate change. A derivative action can be used by shareholders in limited circumstances to bring an action of recourse on behalf of the company. Derivative actions are typically used to protect minority shareholders. Therefore, its use in ClientEarth v Shell is of interest, especially considering the ongoing discussion on the role and purpose of business in society. Although company law has primarily focused on profits, the more modern view is that companies should exist for profit, public interests and societal goals (See British Academy, Reforming Business for the 21 st Century: A Framework for the Future of the Corporation). The ClientEarth case confirms and clarifies situations in which a claimant may obtain permission to continue a claim; and when an absolute liability may be imposed on directors for a climate change-related breach of director’s duty in shareholder derivative claims. It raises questions around the prospects of success for future claimants due to the difficulty in establishing sufficient legal merit; and the relationship between stage one and stage two of the statutory regime.’

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The Cambridge Law Journal, 3rd April 2024