Milieudefensie v Shell: Implications of the Dutch court ruling explained
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1. Are there precedents for this ruling in Dutch law?
In its so-called Urgenda-decision dated 20 December 2019, the Dutch Supreme Court (Hoge Raad) confirmed that the Dutch State has a positive obligation under the European Convention on Human Rights to reduce emissions of greenhouse gasses (GHG) by at least 25% by the end of 2020.
The Milieudefensie et al. v Royal Dutch Shell plc case takes this finding one step further in determining that, although the claimants cannot directly invoke these human rights with respect to Royal Dutch Shell, the fundamental interest of human rights, and the value to society they embody, justify the court factoring them into its interpretation of the unwritten standard of care (see question 3, final paragraph).
Hence, both the Dutch State and private companies such as Shell may have an obligation to reduce GHGs.
More specifically, the Hague District Court finds that Shell is obliged to reduce CO2 emissions from the Shell group’s activities by net 45% by the end of 2030, relative to 2019, through the group’s corporate policy.
This reduction obligation relates to the Shell group’s entire energy portfolio and to the aggregate volume of all emissions (Scope 1 through to 3).
It is up to Shell to design the reduction obligation, taking account of its current obligations.
2. Might the case set a new precedent?
Under Dutch law, judicial decisions do not set a precedent in the formal sense of the word, but parties in a court case may – and invariably will – invoke existing case law that supports their position.
In that sense, the ruling in Milieudefensie et al. v Royal Dutch Shell plc will set a precedent that may be used in cases against other companies that are responsible for GHG-emissions, as well as in cases where a parent company is asked to exert its influence over its group companies as far their activities are concerned.
This may relate to environmental issues, but also to other areas affecting human rights, such as child labour.
3. Has the court stepped outside its remit in this case, from legal to political matters?
This was actually more of an issue in the Urgenda matter. In that case, the Supreme Court rejected the State's argument that it was not for the judiciary to rule on political questions, stating that it is up to the courts to determine whether political decisions were made within the limits of the law.
Should the State cross those boundaries – as the courts found was the case – it is up to the courts to redress such infringement.
In Milieudefensie et al. v Royal Dutch Shell plc, Shell made a similar argument, stating that awarding the claims would require decisions that go beyond the law-making function of the court.
The court dismissed this argument, stating that, in its assessment of the claims:
"[T]he court interprets the unwritten standard of care from the applicable Book 6 Section 162 Dutch Civil Code on the basis of the relevant facts and circumstances, the best available science on dangerous climate change and how to manage it, and the widespread international consensus that human rights offer protection against the impacts of dangerous climate change and that companies must respect human rights".
4. What might be the extent and nature of any orders/sanctions on Shell?
This case concerns a civil, rather than a criminal matter. Accordingly, in these proceedings, the courts do not have the power to impose criminal sanctions on Shell, even if it does not comply with its obligations under the court's ruling.
Should the court find Shell did not meet its obligations, the court may order the company to pay damages.
Clearly, this would be a very complex matter, in particular where it concerns ascertaining that emissions by Shell were the cause of harm to the claimants (or to those whose interests the claimants represent).
More importantly, however, the court may – at the request of the claimants – impose more specific obligations on Shell if, with the lapse of time, it becomes apparent that the company will not meet its obligations.
In such case, the court may also impose penalties payable if the defendant fails to comply with the court's order.
These penalties are meant to incentivise the defendant to comply with its obligations, which is why they are not considered as punishment.
5. How will the court measure the extent of emissions cuts?
The decision does not say so, but it does refer to the fact that Shell reports on GHG emissions on the basis of the World Resources Institute Greenhouse Gas Protocol, which may imply that – should it come to that – the court will review those reports.
This course of action will allow both parties to comment on the reports, in light of the reduction obligation imposed by the court, and then decide whether Shell has complied with its obligation.
It should be noted that the latter obligation does not depend on the actual cuts made by Shell only, but also – in particular in respect of Scope 3 emissions – on the efforts Shell has made to achieve that reduction.
6. If Shell fails to comply with the court's order, will the court wait until 2030 before taking any action?
The court will wait for the claimants to address the court once again, should it come to that.
In principle, the claimants will have to wait until the end of 2030 to do so, unless the lack of progress made by Shell in implementing the reduction obligation is such that the company will clearly fail to meet its targets.
In such case, the court may impose additional, more specific obligations (see question 4, final paragraph).
7. On what grounds could Shell appeal?
Any appeal in the Netherlands is completely “de novo”, which means all issues and evidence can be reheard.
Although the Hague District Court's decision provides extensive analysis of the arguments put forward by both parties, it is conceivable that a court that reviews the decision on appeal arrives at a different conclusion on the basis of the facts and circumstances that underpin the decision in first instance.
It is worth mentioning that an appeal will not suspend Shell's reduction obligation, as the court has declared its order to be provisionally enforceable (uitvoerbaar bij voorraad).
The court rejected the argument that the provisional enforceability of the order may have far-reaching consequences for Shell that may be difficult to undo at a later stage.
The court found that the interest of the claimants for the immediate compliance with the order by Shell outweighs the company's possible interest in maintaining the status quo until a final and conclusive decision has been made on the claims.
Accordingly, the court concluded that the possible adverse consequences for Shell do not stand in the way of declaring its order provisionally enforceable.
This article was authored by Frans-Jozef Crousen and Louis Bouchez, corporate partners at Fieldfisher Netherlands. For further analysis of the Shell case and its implications for companies in the oil and gas sector, see Milieudefensie et al. v Royal Dutch Shell plc - The Paris Climate Agreement in Full Force by Fieldfisher Ireland.
In its so-called Urgenda-decision dated 20 December 2019, the Dutch Supreme Court (Hoge Raad) confirmed that the Dutch State has a positive obligation under the European Convention on Human Rights to reduce emissions of greenhouse gasses (GHG) by at least 25% by the end of 2020.
The Milieudefensie et al. v Royal Dutch Shell plc case takes this finding one step further in determining that, although the claimants cannot directly invoke these human rights with respect to Royal Dutch Shell, the fundamental interest of human rights, and the value to society they embody, justify the court factoring them into its interpretation of the unwritten standard of care (see question 3, final paragraph).
Hence, both the Dutch State and private companies such as Shell may have an obligation to reduce GHGs.
More specifically, the Hague District Court finds that Shell is obliged to reduce CO2 emissions from the Shell group’s activities by net 45% by the end of 2030, relative to 2019, through the group’s corporate policy.
This reduction obligation relates to the Shell group’s entire energy portfolio and to the aggregate volume of all emissions (Scope 1 through to 3).
It is up to Shell to design the reduction obligation, taking account of its current obligations.
2. Might the case set a new precedent?
Under Dutch law, judicial decisions do not set a precedent in the formal sense of the word, but parties in a court case may – and invariably will – invoke existing case law that supports their position.
In that sense, the ruling in Milieudefensie et al. v Royal Dutch Shell plc will set a precedent that may be used in cases against other companies that are responsible for GHG-emissions, as well as in cases where a parent company is asked to exert its influence over its group companies as far their activities are concerned.
This may relate to environmental issues, but also to other areas affecting human rights, such as child labour.
3. Has the court stepped outside its remit in this case, from legal to political matters?
This was actually more of an issue in the Urgenda matter. In that case, the Supreme Court rejected the State's argument that it was not for the judiciary to rule on political questions, stating that it is up to the courts to determine whether political decisions were made within the limits of the law.
Should the State cross those boundaries – as the courts found was the case – it is up to the courts to redress such infringement.
In Milieudefensie et al. v Royal Dutch Shell plc, Shell made a similar argument, stating that awarding the claims would require decisions that go beyond the law-making function of the court.
The court dismissed this argument, stating that, in its assessment of the claims:
"[T]he court interprets the unwritten standard of care from the applicable Book 6 Section 162 Dutch Civil Code on the basis of the relevant facts and circumstances, the best available science on dangerous climate change and how to manage it, and the widespread international consensus that human rights offer protection against the impacts of dangerous climate change and that companies must respect human rights".
4. What might be the extent and nature of any orders/sanctions on Shell?
This case concerns a civil, rather than a criminal matter. Accordingly, in these proceedings, the courts do not have the power to impose criminal sanctions on Shell, even if it does not comply with its obligations under the court's ruling.
Should the court find Shell did not meet its obligations, the court may order the company to pay damages.
Clearly, this would be a very complex matter, in particular where it concerns ascertaining that emissions by Shell were the cause of harm to the claimants (or to those whose interests the claimants represent).
More importantly, however, the court may – at the request of the claimants – impose more specific obligations on Shell if, with the lapse of time, it becomes apparent that the company will not meet its obligations.
In such case, the court may also impose penalties payable if the defendant fails to comply with the court's order.
These penalties are meant to incentivise the defendant to comply with its obligations, which is why they are not considered as punishment.
5. How will the court measure the extent of emissions cuts?
The decision does not say so, but it does refer to the fact that Shell reports on GHG emissions on the basis of the World Resources Institute Greenhouse Gas Protocol, which may imply that – should it come to that – the court will review those reports.
This course of action will allow both parties to comment on the reports, in light of the reduction obligation imposed by the court, and then decide whether Shell has complied with its obligation.
It should be noted that the latter obligation does not depend on the actual cuts made by Shell only, but also – in particular in respect of Scope 3 emissions – on the efforts Shell has made to achieve that reduction.
6. If Shell fails to comply with the court's order, will the court wait until 2030 before taking any action?
The court will wait for the claimants to address the court once again, should it come to that.
In principle, the claimants will have to wait until the end of 2030 to do so, unless the lack of progress made by Shell in implementing the reduction obligation is such that the company will clearly fail to meet its targets.
In such case, the court may impose additional, more specific obligations (see question 4, final paragraph).
7. On what grounds could Shell appeal?
Any appeal in the Netherlands is completely “de novo”, which means all issues and evidence can be reheard.
Although the Hague District Court's decision provides extensive analysis of the arguments put forward by both parties, it is conceivable that a court that reviews the decision on appeal arrives at a different conclusion on the basis of the facts and circumstances that underpin the decision in first instance.
It is worth mentioning that an appeal will not suspend Shell's reduction obligation, as the court has declared its order to be provisionally enforceable (uitvoerbaar bij voorraad).
The court rejected the argument that the provisional enforceability of the order may have far-reaching consequences for Shell that may be difficult to undo at a later stage.
The court found that the interest of the claimants for the immediate compliance with the order by Shell outweighs the company's possible interest in maintaining the status quo until a final and conclusive decision has been made on the claims.
Accordingly, the court concluded that the possible adverse consequences for Shell do not stand in the way of declaring its order provisionally enforceable.
This article was authored by Frans-Jozef Crousen and Louis Bouchez, corporate partners at Fieldfisher Netherlands. For further analysis of the Shell case and its implications for companies in the oil and gas sector, see Milieudefensie et al. v Royal Dutch Shell plc - The Paris Climate Agreement in Full Force by Fieldfisher Ireland.
