Milieudefensie et al. v. Royal Dutch Shell plc

Arthur Ddamulira


Background

Recently, Friends of the Earth Netherlands (Milieudefensie) gained a historic victory against Royal Dutch Shell (RDS). In this case, the District Court of The Hague ordered RDS to reduce the CO2 emissions of the Shell group by a net 45% by 2030, relative to 2019 levels, through the Shell group's corporate policy.


This is the first time that a court has ordered a company to reduce its CO2 emissions in line with the Paris Agreement. Milieudefensie brought the case in 2019 together with six bodies and more than 17,000 Dutch citizens on behalf of current and future generations worldwide and in the Netherlands.


The court found that the NGOs’ claims were admissible as far as they related to the interests of current and future generations of Dutch residents and inhabitants around the Wadden sea. However, the court struck out the interests of current and future generations of the world and bundled the individuals’ claims with the NGO. The claimants petitioned the court to rule that the RDS’s failure to reduce Shell group’s annual CO2 emissions constituted unlawful acts toward the claimants, and to order RDS to reduce those emissions.


The claimants argued that by setting Shell’s corporate strategy, RDS owed them a duty of care under Article 6:162 of the Dutch Civil Code. This duty required RDS to take steps to meet the goals set in the Paris Agreement and the same allows a court to order a party to perform its legal obligation to another party if that other party institutes a claim to that effect. Shell acknowledged that emissions should generally be reduced, but disputed that it was under an individual, enforceable obligation to reduce emissions through its groupwide policies.

Judgment

Based on an unwritten duty of care in Dutch tort law, the Court recognized that Shell has an “obligation of result” to reduce CO2 emissions resulting from the Shell group’s activities (scope 1 emissions), and a “best-efforts obligation” to reduce emissions generated by its business relations (scope 3 emissions). These obligations derive from Dutch tort law. This imposes a duty not to act in conflict with “what according to unwritten law has to be regarded as proper social conduct.” Courts may interpret this duty considering contemporary social norms and conventions. Therefore, it evolves with time.


In its determination, the court considered fourteen elements including the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights. These impose a (non-binding) responsibility on companies to set policies respecting human rights. The court also recognised Articles 2 and 8 of the ECHR as offering protection to Dutch residents against the human rights consequences of dangerous climate change due to CO2 emissions. Consequently, the court inferred that RDS has an individual responsibility to reduce emissions by a net 45% by 2030, in its capacity as the policy-setting holding of Shell.


The court also assessed Shell’s policy, policy intentions and ambitions against that obligation. While Shell is not currently violating its responsibilities, the court held that Shell’s policies amount to “intangible, undefined and non-binding plans for the long-term,”. The court further criticized Shell for not having any emissions reduction target for 2030. In conclusion, Shell’s policies were deemed incompatible with the reduction obligation, implying an “imminent violation.”

RDS has three months to appeal and has expressed its intent to appeal.

Significance

Although this decision was taken under Dutch law, the court greatly considered international law concerning Shell’s reduction obligation. Therefore, this reasoning could be replicated by national courts in assessing similar claims for climate-related liability. The case is interesting because it has strong implications for energy, energy intensive and large industrial companies around the world. Suddenly, it's no longer enough for companies to comply with the law on their emissions. In such extraordinary cases, they have to change their operations to comply with global climate policy too. It is interesting to see how this case could have major consequences both nationally and internationally. For instance, the main target of the ruling was scope 3 emissions. Therefore, it is not only the extraction companies that are exposed but also those that work with them.


In particular, the shipping and shipbuilding industry is likely to be affected by such a ruling. This is because while it is not a direct target of an RDS-type of challenge, shippers will have to consider how they can fit into a limited scope 3 emission model and how they can maintain scope 3 emission gains in their supply and value chain. The verdict can also affect the shipping industry because it transports and is fuelled by Shell's products.


Furthermore, it is reasonable to expect that RDS-type liability will have an impact on the operations of the oil industry. Many companies have already voluntarily explored reducing emissions. However, there is now the added element of legal compulsion.

Regarding climate change, this Case may inspire activist groups to initiate collective action proceedings compelling companies to amend their environmental policies. For instance, the Shell Case was inspired by the Urgenda Case where environmental groups successfully claimed a court order against the Dutch State to reduce its CO2 emission by 25% by the end of 2020 compared to 1990 levels. The trend of collective action proceedings regarding climate change matters is likely to continue.

In the UK, the reference to international law by the Dutch court in reaching its decision could offer the English courts an opportunity to tread a similar path. In Okpabi and others (Appellants) v Royal Dutch Shell Plc and another (Respondents), the UK supreme court held that an English parent company may be liable in the English courts for claims brought by non-UK claimants, where the company can be shown to owe a duty of care towards the claimants for the acts of its subsidiary. This procedural leeway could land companies in high ESG-risk industries into legal troubles where there is a substantive legal issue to be tried. In Okpabi, Hamblen JSC was persuaded that there was a “real issue to be tried”.