Client Earth v Shell: A wake-up call to Local Government?

Ian Hunt looks at the lessons to be learned by local government from recent strategic climate litigation.

There is very little difference between Local Government and Shell. Councils are run by a board (Councillors) who represent and work to the benefit of shareholders (voters). The only difference is the type of operation we run and the salary packages for those working in the business.

The recent case of Client Earth v Shell PLC and Ors [2023] EWHC 1897 (Ch) has much to tell Local Government both good and bad when it comes to strategic climate litigation.

There are many like Client Earth who have evolved the tactic of strategic climate litigation, to promote the essential need to act on climate change. The growth of this approach has secured significant media and political attention; shaping conversations and pressuring governments to act, particularly in relation to the UK Net Zero Strategy.

Local Government has like Shell a requirement to consider the impacts of its business on the environment – particularly carbon emissions. Many Councils passed resolutions in 2019 declaring Climate Emergencies, and as part of the national net zero plans must take action in a range of areas.

Client Earth took an interesting approach in its challenge to Shell. Having purchased 27 shares; “a committed investor” it tried to bring a derivative claim through the Companies Act 2006. The substance of its demand was that the Directors should give more weight to the risks of climate change to the companies’ business model, and the need to hit Net Zero.

Derivative claims are akin to the Judicial review of the corporate world. They allow shareholders who consider that the company Directors are acting in a negligent or deleterious way to be brought to book and made to put the interests of the company (shareholders) first. As shareholders Client Earth essentially argued that climate change is so significant that its impact on Shell (substantively an oil producer) represents an existential threat that must come before other factors in decision making.

At the permission stage of the case Mr Justice Trower dismissed the claim; based on the lack of evidence of specific failures by Directors, and that Client Earth had a collateral motive over and above just what was best for shareholders.

In assessing the arguments Trower reiterated at [28] that it was generally “for directors themselves to determine (acting in good faith) how best to promote the success of a company for the benefit of its members as a whole.” He referred back to the views of Lewison J in Iesini v Westrip Holdings Limited [2010] BCC 420 at [85] “The weighing of all these considerations [as set out in s.172] is essentially a commercial decision, which the court is ill-equipped to take, except in a clear case.”

Trower said [5]:

“… 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.”

So where does that leave Local Government; judicial review has a similarly reticent approach to looking at the substance of decision making. Provided decisions take climate factors into account and the commitment to Net Zero then there is a strong likelihood that they can be defended. It will be for councils to promote and define their course on Net Zero through their internal frameworks; voters will generally have to rate that approach at the ballot box, after all that is our constitutional setup.

But a final word of warning; most of the successful Judicial Reviews are where an issue has not been addressed. Failure to consider the impact of climate emergency statements and the specific carbon contributions of proposals will increasingly become a ground for challenge. Especially as the 2030 target in many declarations steadily approaches. Lawyers would be wise to ensure that reports consider this issue and be clear what impact it has on the decision-making process.

A local government solicitor and monitoring officer, Ian Hunt runs IJH Training which offers training and development programmes for elected members and officers.