Climate change activism and its impact on parent company liability

Published: 2/6/2021

On 26 May 2021, the District Court in The Hague in the Netherlands (the "Dutch Court") ordered Royal Dutch Shell plc ("RDS") to cut its CO2 emissions by 45% (by reference to 2019 levels).

The Dutch Court decided that the Shell group globally should cut their emissions by 2030 in the widely-reported judgment (Milieudefensie et al. v Royal Dutch Shell Plc, available in English here).

As we have explained in an earlier note on parent company liability for the actions of foreign subsidiaries, a number of recent decisions of the United Kingdom Supreme Court concerned with parent company liability have focused on the initial question of whether a duty of care might be held to have been owed in specific circumstances, rather than the question of what standard of conduct such a duty (if found) might require of a parent company. It remains to be seen whether an English court would arrive at a conclusion as far-reaching as that arrived at by the Dutch Court.

RDS is an English company headquartered in The Hague and is the parent company of the Shell group globally. The Dutch Court held that Dutch law required RDS to reduce its own CO2 emissions and those of the Shell group as a whole, as a result of "the unwritten standard of care laid down in Book 6 Section 162 [of the] Dutch Civil Code … when determining the Shell group’s corporate policy, RDS must observe the due care exercised in society".

When considering what that standard of care required, the Dutch Court had regard to a wide variety of factors reflecting the role RDS took, and held itself out as taking, in determining the Shell group’s approach to climate risk management. In this regard, the Dutch Court’s approach was not entirely dissimilar to the approach an English court might take when considering whether a parent company owed a duty of care to individuals affected by the actions of that parent company’s subsidiaries: again see Parent company liability for the actions of foreign subsidiaries. The Dutch Court also had close regard to various multinational and international statements and guidelines – what the Dutch Court referred to as "soft law".

The Dutch court held that, as a matter of private international law, Dutch law was the law applicable to determining what standards of conduct were required of RDS. It did so by adopting a broad interpretation of Article 7 of the Rome II Regulation (EC) No 864/2007 ("Rome II"): namely, that the "event giving rise to damage" for the purposes of Rome II was RDS’s formulation and adoption of the Shell group’s corporate policy concerning the group’s approach and response to climate change risks, which took place at its offices in The Hague – rather than the ultimate actions of Shell group companies around the world.

Post-Brexit, Rome II has effectively been incorporated into English law by The Law Applicable to Contractual Obligations and Non-Contractual Obligations (Amendment etc.) (UK Exit) Regulations 2019 (SI 2019/834) (Regulations). However, it remains to be seen whether English courts will adopt a similarly expansive interpretation of "an event giving rise to damage", especially as they are no longer bound by EU jurisprudence. As explained in Court of Appeal provides guidance on interpretation of retained EU law post-Brexit, the Court of Appeal recently considered English law’s divergence from the principles of EU jurisprudence in Lipton v BA City Flyer [2021] EWCA Civ 454, stating that it could not be assumed "that the old ways of looking at EU derived law still hold good".

Similarly, it remains to be seen whether, now that it is once again possible to seek anti-suit relief from the English courts, English companies will seek to take advantage of that option to resist similar claims being brought against them in European or other courts in future.

As noted at the outset, the decision forms part of a growing, international trend towards seeking to impose liability on parent companies for the actions taken by them and their subsidiaries around the world and to do so in the jurisdictions where their corporate leadership and/or shareholders may be based. The decision of the Dutch Court also demonstrates the competing pressures facing parent companies when it comes to responding to issues affecting society more broadly. On the one hand, responsible companies will seek to set out policies concerning climate change risks and the steps the group is taking to address them. Failure to do so may lead to shareholder activism to pressure the company and management to do so – as was widely reported to have taken place at ExxonMobil last week, via the election of two new members to ExxonMobil’s board. On the other, as the approach of the United Kingdom Supreme Court and now the Dutch Court shows, taking such steps to improve policies and public reporting may well increase the chance that a parent company may be held liable for the actions of its subsidiaries or the group as a whole.

As the use of litigation to advance climate change activism increases, companies will need to think very carefully about how to balance these conflicting pressures.

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