Disputes Briefcase

The court held that ClientEarth had failed to establish a ‘prima facie’ case required to continue the claim for reasons including:

• The Court could place very little weight on ClientEarth’s evidence, which largely consisted of the opinions of a ClientEarth senior lawyer who could not give expert evidence on which the court could properly rely. In any event, ClientEarth’s evidence failed to explain how Shell’s directors were said to have gone so wrong in their balancing and weighing of the many factors that should go into the board’s consideration of climate risk, amongst the many other risks to which Shell’s business was inevitably exposed.
• There is no universally accepted methodology as to how Shell might achieve the ‘net zero’ target. English law respects the autonomy of Shell’s board to decide on commercial issues and how best to achieve results that are in the best interests of Shell’s members as a whole.
• Shell’s directors were not subject to additional absolute ‘incidental’ duties in respect of climate change (which ClientEarth argued necessarily arose when the board identified its climate strategy as a commercial objective and likely to promote the success of Shell) as they cut across the basic principle that it is for directors themselves to determine how best to fulfil their section 172 duty.
• The fact that ClientEarth held only 27 shares in Shell whilst proposing it should be entitled to seek relief on behalf of Shell in a large, complex and important claim gave a clear inference that its real interest was not in how best to promote the success of Shell for the benefit of its members as a whole.

In addition, the judge considered a court would be unlikely to make the mandatory orders sought by ClientEarth, which included an order that Shell’s board adopt and implement a strategy to manage climate risk in compliance with its duties, as they were too imprecise and would require constant court supervision. Unusually for a claim at this early procedural stage (when ClientEarth needed only to establish a ‘prima facie’ case and Shell was not required to participate), the court awarded Shell its legal costs because of, among other things, the serious nature of the claims. The court also noted that Shell’s voluntary submissions were of “material assistance” to the court, without which the court could not rule out the possibility it would have required a full substantive hearing of ClientEarth’s application, resulting in additional time and cost.

The case, which has been closely followed by companies and their boards, as well as civil society, bears some similarities with McGaughey v Universities Superannuation Scheme. In that case the Court of Appeal recently refused a multiple derivative claim against directors of a pension scheme for alleged breaches of duties for failing to implement a plan to divest from fossil fuel investments. Both cases illustrate the high bar that must be reached before a court is willing to wade into the commercial decision-making of boards, even in a climate change context.

ClientEarth has sought permission to appeal from the Court of Appeal (having had permission refused by the High Court). Slaughter and May, led by Peter Wickham and Smriti Sriram, act for Shell and its directors in the proceedings.

Among the most significant of the proposals is the introduction of a new default rule in the Act that, unless the parties expressly agree otherwise, the law which governs the arbitration agreement is the law of the seat of the arbitration.

Significantly, this simplifies the position under the existing rule laid down by the Supreme Court in Enka v Chubb which was the culmination of a longstanding debate in the English courts on the issue. The Enka v Chubb rule is complex, but the headline principle is that where parties have not chosen a governing law for their arbitration agreement but have chosen a governing law for their main contract, in general, that law will apply to the arbitration agreement. The Commission’s proposal therefore changes the emphasis by placing weight on the choice of the seat as being the decisive factor in determining the law governing the arbitration agreement.

Whilst the Commission’s proposal will not resolve all practical difficulties in this area, the rule, if enacted, will provide some welcome clarity for parties. For certainty, however, it will still be advisable that parties to international contracts specify the law governing their arbitration agreements in their arbitration clauses. 

See our briefing for more details on this proposal and the Law Commission’s other proposed changes to the Act.

In the FX litigation, two proposed class representatives, O’Higgins and Evans, had begun collective proceedings against various banks seeking damages for losses allegedly caused by infringements of EU competition law in the spot foreign exchange market. Both sought to bring proceedings on an opt-out basis. The CAT held last year that both applications should be stayed and the applicants given permission to submit a revised application for certification on an opt-in basis; the CAT also said that, had it been minded to certify on an opt-out basis, it would have granted carriage of the proceedings to Evans.

On 25 July, the Court of Appeal partially allowed the appeals of both applicants and held that the collective proceedings should continue on an opt-out rather than opt-in basis. The Court dismissed O’Higgins’ appeal relating to the CAT’s decision on the dispute over carriage of the proceedings.

The judgment contributes to a growing body of appellate case law concerning the operation of the collective proceedings regime which the Court of Appeal has said it hopes will assist with the CAT’s certification of future claims. Although it remains to be seen how the CAT will interpret this guidance in practice, the Court of Appeal’s judgment forms part of a growing trend of claimant-friendly case law, while continuing to confer a broad discretion on the CAT as a specialist tribunal.

Slaughter and May, led by Ewan Brown, Camilla Sanger and Tim Blanchard, act for JPMorgan in these proceedings. Read more in our briefing.

In the Trucks litigation, the Road Haulage Association and UK Trucks Claims Ltd each sought to pursue collective proceedings for follow-on damages arising from the European Commission’s 2016 decision which found that five European truck manufacturers had infringed EU competition law. The CAT decided last year to grant the RHA application for a collective proceedings order (and decline UKTC’s competing application).

MAN and DAF, two of the prospective defendants to the RHA proceedings, challenged the CAT’s decision to allow the RHA’s class members to include both purchasers of new trucks and purchasers of used trucks, on the basis that this gave rise to an irreconcilable conflict of interest within the class. The second appeal was brought by UK Truck Claims Ltd. It agreed with MAN and DAF’s conflict argument and argued that, for this and other reasons, their rival application for a collective proceedings order should have been granted.

The Court of Appeal agreed with MAN and DAF that there was a conflict of interest within the RHA’s class, but said that the RHA could continue to act as class representative on the condition that the conflict within the class was managed appropriately. This will require separate sub-classes, with the RHA required to have separate lawyers, experts and funders for each; an information barrier within the RHA will separate the two sub-classes. UKTC’s arguments that the CAT should have preferred its application were rejected. The judgment provides guidance as to the degree of diverging interests that is acceptable within a class, and how diverging interests may be managed. It has also provided some welcome clarity as to the Court of Appeal’s jurisdiction to hear appeals from the CAT.

Slaughter and May, led by Damian Taylor and Holly Ware, act for MAN in these proceedings. Read more in our briefing.