The Dutch court ruling and what it may mean for Shell: Q&A
In late May, a Dutch court found in favour of seven environmental groups with a ruling that will, if it survives the appeal, oblige Anglo-Dutch major Shell to cut all the group's Scope 1-3 emissions by 45% relative to 2019 by 2030. It also had to pay the cost of the proceedings.
NGW asked partners at European law-firm Fieldfisher for their opinion on several aspects of the case which has the potential to trigger similar cases against similar companies.
1. Are there precedents for this ruling in Dutch law?
In its so-called Urgenda-decision dated December 20, 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 gases (GHG) by at least 25% by the end of 2020.
The case at hand takes this finding one step further, in determining that, although the claimants cannot directly invoke these human rights with respect to Royal Dutch Shell (RDS), the fundamental interest of human rights and the value for society as a whole they embody justify the court factoring them in in its interpretation of the unwritten standard of care (see question # 3, final paragraph).
Hence, not only the Dutch State, but also private companies such as RDS, may have an obligation to reduce GHG. More specifically, the Hague District Court finds that RDS is obliged to reduce the CO2 emissions of the Shell group’s activities by net 45% at end 2030, relative to 2019, through the Shell 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 RDS to design the reduction obligation, taking account of its current obligations.
2: And if not, might it set a 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, this ruling will definitely set a precedent that may be used in cases against other companies that are responsible for GHG-emissions, but also 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 beyond its brief, from legal to political matters?
This was actually more of an issue in the Urgenda matter. There, 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 the Shell case, RDS made a similar argument, stating that awarding the claims would require decisions that go beyond the law-making function of the court. The court dismisses this argument, stating that, in its assessment of the claims, "the 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 the punishment if any is deemed applicable?
This matter concerns a civil, not a criminal case. Accordingly, in these proceedings, the courts do not have the power to impose criminal sanctions on RDS, even if it does not comply with its obligations under the court's ruling.
Should the court find that RDS did not meet its obligations, the court may order RDS to pay damages. Clearly, this would be a very complex matter, in particular where it concerns ascertaining that the emission by RDS was 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 RDS if, with the lapse of time, it becomes apparent that RDS 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 the cuts?
The decision does not say so, but it does refer to the fact that RDS 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, allowing both parties to comment on them in the light of the reduction obligation imposed by the court, and then decide whether or not RDS has complied with its obligation. Please note that the latter obligation does not depend on the actual cuts made by RDS only, but also – in particular in respect of Scope 3 emissions – on the efforts that RDS made to achieve that reduction.
6: Will it wait for 2030 and then take any action, e.g. a fine?
The court will wait for the claimants to address the court once again, should it come to that. In principle, the claimants will indeed have to wait until the end of 2030 to do so, unless the lack of progress made by RDS in implementing the reduction obligation is such that RDS 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 would Shell be likely to 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 an extensive analysis of the arguments put forward by both parties, it is definitely 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 RDS' reduction obligation, as the court has declared its order to be provisionally enforceable (uitvoerbaar bij voorraad). The court rejects the argument that the provisional enforceability of the order may have far-reaching consequences for RDS, which may be difficult to undo at a later stage. The court finds that the interest of the claimants for the immediate compliance with the order by RDS outweighs RDS’ possible interest in maintaining the status quo until a final and conclusive decision has been made on the claims. Accordingly, the possible adverse consequences for RDS, the court concludes, do not stand in the way of declaring its order provisionally enforceable.