Climate Change Litigation Bombshell: Dutch Lower Court Orders Royal Dutch Shell to Reduce CO2 Emissions

Jones Day

In Short

The Ruling: On May 26, 2021, the Hague District Court ("Court") issued a ruling ordering Royal Dutch Shell Plc ("RDS"), the parent company of the Shell group with its registered office in the Netherlands, to ensure that the aggregate annual volume of all CO2 emissions of the Shell group, its suppliers, and customers is reduced by at least net 45% by the end of 2030, relative to 2019 levels.

The Result: According to the Court, in determining its corporate group policy, RDS must observe the open standard of care under Dutch law. The Court grounded the applicable standard of care in the Paris Agreement, the UN Guiding Principles on Business and Human Rights ("UNGP"), and internationally accepted human rights which, according to the Court, also protect against hazardous climate change.

Looking ahead: This is the first ruling in the Netherlands in which a non-State entity is ordered to reduce CO2 emissions. This ruling, which can potentially pave the way for further climate change litigation against non-State emitters of CO2 in and outside of the Netherlands, is a first-instance ruling that can be appealed to the Hague Court of Appeal and, ultimately, to the Supreme Court of the Netherlands. RDS has stated that it "fully expects" to appeal the ruling.

The Claims and the Claimants

This judgment follows proceedings that Milieudefensie (Friends of the Earth Netherlands), along with certain other individuals and organizations ("Claimants"), brought against RDS. The Claimants alleged that RDS' business operations and sale of energy-carrying products violated or likely violated its obligation to reduce the aggregate annual volume of CO2 emissions into the atmosphere. The claims were based on the open standard of care set out in the Dutch Civil Code's provision on tort liability and a provision which 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. This forms the basis for an injunctive order that is intended to prevent a future violation of this standard of care. Dutch law permits foundations or associations to bring actions of general interests of this type.

Applicable Law and Jurisdiction

The Court applied Dutch law to the matter on the basis of the locus delicti principle as laid down in the EU Rome II Regulation. According to this rule, Dutch law applies to claims based in tort if the damage caused by the harmful event occurred or may occur in the Netherlands (locus delicti). In that regard, the Court ruled that every CO2 emission, anywhere in the world and regardless of the cause of the emission, contributes to (possible) climate damage in the Netherlands and hence, Dutch law applies. Under the EU Brussels I bis Regulation, the locus delicti rule similarly applies in determining whether the court in question has jurisdiction.

In this case, the Court’s jurisdiction was not an issue, as RDS has its registered office in the Netherlands and therefore it never challenged the Court’s jurisdiction. Plaintiffs may argue that the ruling in this matter allows Dutch courts to apply the locus delicti principle even in matters against non-Dutch based emitters, given that the Court ruled that every CO2 emission, anywhere in the world and regardless of the cause of the emission, contributes to (possible) climate damage in the Netherlands. Such defendants without sufficient ties to The Netherlands will have arguments against a Dutch court’s exercise of jurisdiction. Further, the decisions by the Dutch courts will have to be enforced outside of the Netherlands, which requires recognition of the decision by the relevant foreign courts. Within the EU, recognition will be given by default, but outside of the EU efforts to have this decision recognized will face significant challenges.

On the Merits

The issues before the Court were (i) whether a standard of care is applicable to RDS on the basis of which it is obliged, through its corporate policy, to reduce the aggregate annual volume of CO2 emissions of the Shell group by a certain amount and (ii) whether RDS is violating or threatening to violate this standard of care.

The applicable standard of care: The Court found that the applicable standard of care must be construed on the basis of all relevant facts and circumstances, including the best available science on hazardous climate change and how to manage it, and the widespread international consensus that human rights offer protection against the impacts of dangerous climate change. In particular, the Court determined that it follows from the UNGP and other soft law instruments that companies must respect human rights. The Court held that these human rights include Articles 2 (right to life) and 8 (the right to respect for private and family life) of the European Convention on Human Rights ("ECHR") which were found by the Dutch Supreme Court to protect Dutch citizens against the consequences of hazardous climate change as a result of global warming due to CO2 emissions. The Court further held that the scale and complexity of the means through which companies must comply with human rights was proportional to, among other things, their size. The Court found it particularly relevant in this regard that RDS has a policy-setting position within the Shell group. According to the Court, the Shell group is a major player on the worldwide market for fossil fuels and is responsible for significant CO2 emissions.

As to the reduction target applicable to RDS, the Court relied, among other things, on International Panel on Climate Change reports to conclude that there is a widely endorsed consensus that in order to limit global warming to an overall increase of 1.5 °C it is necessary to choose reduction pathways that reduce CO2 emissions by net 45% in 2030 relative to 2010 levels, and by net 100% in 2050. Although RDS is not the only party responsible for tackling hazardous climate change in the Netherlands, the Court ruled that is has responsibility to contribute to the fight against hazardous climate change to the extent of its ability. In addition, the Court determined that the twin challenge of ensuring CO2 reduction and meeting global energy demand has no bearing on RDS' reduction obligation. According to the Court, the UN Sustainable Development Goal of access to affordable, reliable, sustainable and modern energy for all must be achieved within the context of climate targets.

Imminent violation of the applicable standard of care: The Court did not rule that RDS is already acting in violation of the applicable standard of care, but that such violation was imminent, as its current policies and policy intentions are not sufficiently tangible, defined and binding for the long-term. The Court further found that RDS' plans do not contain any reduction target for 2030 and that these are too dependent on the pace at which global society will move towards the climate goals of the Paris Agreement.

The Order

The Court ordered RDS to reduce the CO2 emissions of the Shell group's activities by net 45% by the end of 2030 relative to 2019 through the Shell group's corporate policy. According to the Court, the reduction concerns the Shell group's entire energy portfolio and the aggregate volume of all emissions. The Court did, however, make a distinction between the CO2 emissions by or controlled by the Shell group itself (RDS and the other Shell companies) and emissions merely caused by activities of business relations of the Shell group, including the end-users. The obligation to reduce its CO2 emissions by 45 % by the end of 2030 is imposed as an obligation of result for emissions by or controlled by the Shell group itself. The reduction of emissions by its customers or other business relations is, however, set as a best-efforts obligation to take the necessary steps to remove or prevent the serious risks ensuing from the CO2 emissions generated by these third parties and to use its influence to limit any lasting consequences. The Court left the design and manner of compliance with the reduction obligation to the discretion of RDS. The Court did not make non-compliance subject to any penalty payments. As a consequence, in the event of non-compliance the only remedy for the claimants (or any other injured party) will be a damages claim.

RDS has three months to appeal. The Court of Appeal can conduct a full review of the merits of the case. This means that both issues of fact and issues of law can be fully reviewed for the second time. The Court of Appeal, however, can only make a decision on issues which are raised by the appellant in its appeal.

Follow the link to read an English translation of the Hague District Court's judgment.

Three Key Takeaways

  1. If this matter is upheld by higher courts, Plaintiffs may argue that the ruling in this matter allows Dutch courts to apply the locus delicti principle even in matters against non-Dutch based emitters, given that the Court ruled that every CO2 emission, anywhere in the world and regardless of the cause of the emission, contributes to (possible) climate damage in the Netherlands. Such defendants without sufficient ties to the Netherlands will have arguments against a Dutch court’s exercise of jurisdiction. Also, efforts to have this decision recognized outside of the EU will face significant challenges.
  2. While the Court's order is made provisionally enforceable pending an appeal, non-compliance will not subject RDS to any penalty payments. It therefore remains to be seen if and how RDS will comply with the judgment. Since the Court did not establish that RDS is currently in violation of its reduction obligation, any damages claims seem unlikely to be successful at this stage.
  3. The Court's ruling is the first judicial decision in the Netherlands linking climate change directly to the individual responsibility of non-state entities emitting CO2, whereby the Court relied on the UNGP, and internationally accepted human rights to establish that RDS has an individual responsibility to respect human rights which, according to the Court, also protect against hazardous climate change. The ruling will likely spark more climate change litigation in other jurisdictions.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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