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Milieudefensie vs SHELL: An Environmentalist Delight

 

May 26^th, 2021 would go down in the annals of climate change and environmental justice activism as the day a global energy giant, Royal Dutch Shell “RDS”, (the top holding company of the global Shell group of over 1,100 companies) was undone at the Dutch Hague District Court by the indefatigable litigation efforts of climate change/Environmentalist activists unapologetically committed to the reduction of harmful emissions by fossil fuel companies. RDS was adjudged by the court to have a binding legal obligation to reduce harmful emissions from its oil and gas operations including indirect emissions from third-party sources (that is, sources from which Shell purchased or acquired electricity, steam or heating for its operations and, most importantly, all other indirect emissions resulting from activities of Shell but occurring from greenhouse gas sources owned or controlled by third parties, that is other organizations or customers, including emissions from the use of third-party purchased crude oil and gas of the Shell group). It is in respect of this latter part of the judgement that the profound and wide-ranging impact of the judgement becomes evident. Climate change/environmental activists are truly delighted with the outcome of this long sought for and hard fought victory in court. "This is a monumental victory for our planet, for our children and is a stop towards a liveable future for everyone. The judge has left no room for doubt: Shell is causing dangerous climate change and must stop its destructive behaviour now." :  Donald Pols, director of Milieudefensie.^1.

 

Roger Cox, attorney for Milieudefensie, also delighted, said : "This is a turning point in history. This case is unique because it is the first time a judge has ordered a large polluting company to comply with the Paris Climate Agreement. This ruling may also have major consequences for other big polluters."² Sara Shaw from Friends of the Earth International remarked : "This is a landmark victory for climate justice. Our hope is that this verdict will trigger a wave of climate litigation against big polluters, to force them to stop extracting and burning fossil fuels. This result is a win for communities in the global South who face devastating climate impacts now.”³

 

The glee in their eyes as a copy of the judgement was displayed before the world’s media outside the court premises by Milieudefensie’s Director, Donald Pols says it all, like Harrison Ford’s Indiana Jones after yet another successful adventure saving a most prized relic for the good of humanity, in this case, the conservation of our planet, or what’s left of it, by combating climate change through the reduction in the emission of greenhouse gases (GHGs) – an environmentalist delight indeed! 

^{© https://www.hebergementwebs.com/technology/shell-must-cut-carbon-emissions-as-part-of-one-of-a-kind-climate-decision}

Summary of the case:

Milieudefensie (and six other Climate change/Environmental Activist groups based in the Netherlands)⁴ commenced legal proceedings in 2019 at the Hague District Court (similar to Federal District Court here) against Royal Dutch Shell by summons of April 5, 2019  seeking for the following reliefs from the court:

1. to rule:
2. a) that the aggregate annual volume of CO2 emissions into the atmosphere (Scope 1, 2 and 3) due to the business operations and sold energy products of RDS and the companies and legal entities it commonly includes in its consolidated annual accounts and with which it jointly forms the Shell group constitutes an unlawful act towards Milieudefensie et al. and (i) that RDS must reduce this emissions volume, both directly and via the companies and legal entities it commonly includes in its consolidated annual accounts and with which it jointly forms the Shell group, and (ii) that this reduction obligation must be achieved relative to the emissions level of the Shell group in the year 2019 and in accordance with the global temperature target of Article 2 paragraph 1 under a of the Paris Agreement and in accordance with the related best available (UN) climate science.
3. b) that RDS acts unlawfully towards Milieudefensie et al. if RDS, both directly and via the companies and legal entities it commonly includes in its consolidated annual accounts and with which it jointly forms the Shell group:

- principally: fails to reduce or cause to be reduced by at least 45% or net 45% relative to 2019 levels, no later than at year-end 2030, the aggregate annual volume of all CO2 emissions into the atmosphere (Scope 1, 2 and 3) due to the business operations and sold energy products of the Shell group;

(…)

(…)

2. to order RDS, both directly and via the companies and legal entities it commonly includes in its consolidated annual accounts and with which it jointly forms the Shell group, to limit or cause to be limited the aggregate annual volume of all CO2 emissions into the atmosphere (Scope 1, 2 and 3) due to the business operations and sold energy products of the Shell group to such an extent that this volume at year-end 2030:

- principally: will have reduced by at least 45% or net 45% relative to 2019 levels;

(…)

(…); .

Milieudefensie et al. claims are based on the following allegations: that RDS has an obligation, ensuing from the unwritten standard of care (similar but not identical to our principle of “Duty of Care” in negligence cases here in New York) pursuant to Dutch law (that is pursuant to Book 6 Section 162 Dutch Civil Code28) to contribute to the prevention of dangerous climate change through the corporate policy it determines for the Shell group. For the interpretation of the unwritten standard of care, use can be made of the so-called Kelderluik⁵ criteria 29 (a 1965 decision of the Netherlands Supreme Court, which laid down the principles for assessing a party’s liability for creating a dangerous situation for others by failing to take due caution and attention and in assessing the negligent party’s liability for the damage/injury caused to the third party) - (similar but not identical to the duty of care -“foreseeability” and “standard of care” test in New York), in seeking to establish and impose a legally recognizable and enforceable duty of care on RDS in relations to RDS’s activities (scope 1, 2 and 3 emissions) by relying on human rights, specifically the right to life and the right to respect for private and family life (under Article 2 and 8 of the European Convention on Human Rights (ECHR)⁶ and similar human rights provisions in Articles 6 and 17 of the International Covenant on Civil and Political Rights (ICCPR))⁷, as well as soft law (a myriad of inter-governmental international treaties, Guidelines and Agreements)⁸ endorsed by RDS, such as the UN Guiding Principles on Business and Human Rights, the UN Global Compact principles and the OECD Guidelines for Multinational Enterprises (reference was also made to the Paris Agreement which RDS was said to have endorsed, although not a signatory to it AND the Dutch “Climate Agreement” which was signed by Shell Netherlands (part of the Shell group) on September 12, 2019).

Milieudefensie therefore argued that based on these ( the principle laid down in Kelderluik’s case by the Netherland Supreme Court and these international agreements, guidelines and Agreements), RDS has the obligation to ensure that the CO2 emissions attributable to the Shell group (Scope 1 through to 3) will have been reduced at end 2030, relative to 2019 levels, principally by 45% in absolute terms, or net 45% (using the IPCC SR15 report and the IEA’s Net Zero emissions by 2050 scenario as a basis),…, through the use of the corporate policy of the Shell group by RDS, who is responsible for setting Shell group’s environmental/climate policies in respect of all its global operations.

 

Milieudefensie further asserted that RDS violates this legal obligation or is at risk of violating this legal obligation because of what it claims is RDS’s hazardous and disastrous corporate policy for the Shell group, which it says in no way is consistent with the global climate target to prevent a dangerous climate change for the protection of mankind, the human environment and nature.

 

In seeking to define the scope of RDS’s emissions for which Milieudefensie sought the court’s intervention, Milieudefensie and the court placed reliance on RDS reports on greenhouse gas emissions, which was based on the standard reporting format of the World Resources Institute Greenhouse Gas Protocol (GHG Protocol). The GHG Protocol categorizes greenhouse gas emissions in Scope 1, 2 and 3: Scope 1: direct emissions from sources that are owned or controlled in full or in part by the organization (RDS); Scope 2: indirect emissions from third-party sources from which the organization (RDS) has purchased or acquired electricity, steam, or heating for its operations; Scope 3: all other indirect emissions resulting from activities of the organization (RDS), but occurring from greenhouse gas sources owned or controlled by third parties, such as other organizations or consumers, including emissions from the use of third-party purchased crude oil and gas (for example RDS customers or joint venture partners).

 

RDS in response asserted, amongst its other assertions, that these international treaties, guidelines and Agreements are not admissible in court (particularly in light of the fact that RDS is not a signatory to these international treaties between nations, including the Paris Agreement, although RDS endorses the need to tackle climate change by achieving the goals of the Paris Agreement by reducing global CO2 emissions which RDS insists requires efforts by Society as a whole) nor is the case one suitable for the court as it relates to energy transition which RDS contends is a political issue to be resolved by the legislature and politics and not the courts, and that emissions are not caused by merely making Corporate policies but by the activities on the fields in the various jurisdictions where these activities are taking place (which would require any legal proceedings to be commenced in those jurisdictions where the emission occurs) and RDS argued for the claims to be dismissed. 

 

Decision/findings of the court:

The Court held that the reliefs sought by Milieudefensie does not go beyond the functions of the court into the realms of politics or the legislature because the case revolves around whether or not RDS has an obligation to reduce at the end of 2030 and relative to 2019 levels across all emission scopes (1 through 3) the CO2 emissions of the Shell Group’s entire energy portfolio through its corporate policy setting function for the Shell group as its top/parent holding company. The court found that the assessment of whether or not RDS has such a legal obligation is clearly within the domain and competence of the court and is the court’s pre-eminent task.

 

In reaching a decision as to whether such a legal obligation exists, (similar but not identical to New York courts assessing if a duty of care exist in negligence claims under Torts law), the court took into account the Dutch “unwritten standard of care from Book 6 Section 162 Dutch Civil Code, the principles laid down by the Supreme Court of the Netherlands in the Kelderluik and Urgenda⁹ cases (the latter case held that the Dutch government had a legal obligation to reduce emissions to combat dangerous climate change and to fail to do so endangers the lives of citizens and would amount to a violation of the human Rights of its citizens under Article 2 (Right to Life) and 8 (Right to Private and Family life) of the ECHR), looking at the relevant facts and circumstances of the present case, the best available science on dangerous climate change and how to manage it, RDS policies on climate change and the various international treaties and guidelines and Reporting Standards RDS endorsed and subscribed to, the emissions level of the Shell Group based on its own standard reporting on emissions publicly and to its shareholders and proposed investors, the inconsistency observed in RDS’s policies on climate change as it relates to its operations (AND the court found that RDS’s policies on the reduction targets for carbon emissions by 2030 were inconsistent with its investment strategies going up to 2030, with an increase in planned investments for explorations in the period up to 2030 (a point the court noted had not been sufficiently refuted by RDS)), the various international treaties, guidelines and Agreements which establishes a widespread international consensus that human rights offer/require protection against the impacts of dangerous climate change (resulting from dangerous carbon emissions, with reference and reliance being placed on the decision of the UN Human Rights Committee which ruled in respect of Article 6 of the ICCP that environmental degradation, climate change and unsustainable development is a threat to the right to life of present and future generations)¹⁰ and that companies must respect human rights by reducing their harmful emissions.

 

Based on the assessment of these factors, the Dutch court found that RDS in its policy setting function for the Shell group, owed a legal duty to reduce emissions and that the making of the policies was a sufficient basis to constitute a legal grievance actionable before the Dutch Courts for the protection of Dutch citizens by requiring RDS to set its policies to reduce emissions in line with the reduction range stipulated in the Paris Agreement. Consequently, the court’s assessment of the evidence before it, culminated in its conclusion that RDS is obligated 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).

 

What may be considered as the only bright spot for RDS (apart from the finding that it was NOT currently in breach of its emissions obligation but could potentially be in breach if no steps are taken to reduce its current emissions to meet the 45% emissions level by 2030 and 100% reduction in emissions by 2050 by changing its policies) was the court’s ruling that it is up to RDS to design the reduction obligation, taking account of its current obligations and other relevant circumstances. The reduction obligation is an obligation of result (obligatory undertaking) for the activities of the Shell group, with respect to which RDS may be expected to ensure that the CO2 emissions of the Shell group are reduced to this level BUT this is a significant best-efforts obligation with respect to the business relations of the Shell group, including the end-users, in which context RDS may be expected to take the necessary steps to remove or prevent the serious risks ensuing from the CO2 emissions generated by the business relations, and to use its influence to limit any lasting consequences as much as possible. These obligations are designated and referred to in the court’s judgement as ‘‘RDS’ reduction obligation’^11.

    

Potential impact of the Court’s decision:

This landmark decision by the Hague District Court is profound in its ramifications not just for RDS but for all major actors in the fossil fuel industry. It is the first time that a court has recognized a legal duty of care in relation to the mining activities of a fossil fuel company as it relates to global emissions and holding the company (non-State actor) legally bound to reduce the emissions from its activities in line with the levels stipulated in the Paris Agreement.

 

Unlike in previous cases where the claims against oil and gas companies were founded on Tort liability for physical damage already done to the vegetation and other environmental damage, this is the first time that the Court has recognized that emissions touch and concern human rights with an accompanying obligation to act in a manner that does not violate human rights by fulfilling a legally recognized obligation to reduce harmful emissions.

 

It is also the first time that a court has deployed the use of “soft law” (international treaties, guidelines, Agreements and Reporting standards) in coming to a finding that there a legal obligation to reduce harmful emissions from a company’s business operations as part of its duty of care and that this was a valid cause of action that rightly invokes the court’s jurisdiction.

This is the first time that a fossil fuel company would he held to have some measure of responsibility for the activities of its business partners/customers who engage in activities, using the fossil fuel company’s products, that result in harmful emissions – scope 3 emissions.

 

The profound nature of the decision can also be seen from the fact that it provides a template of some sort that can be adapted and used by courts in other jurisdictions, including Australia, the European Union, Canada, Nigeria, Angola, South Africa, U.K., Mexico, Brazil, Peru, Guyana and other fossil fuel mining nations, in holding companies liable for taking concrete steps to reduce harmful emissions from their business operations. There is some language in an Australian case, where Justice Bromberg of the Australian Federal Court in Sharma v Minister for the Environment ¹² (decided one day after the Milieudefensie case) readily found that a novel duty of care was owed by the Minister for the Environment, to Australian children who might suffer potential “catastrophic harm” from the climate change implications of approving the extension a coal mine which would result in the emission of 100Mt of carbon dioxide -co2, into the atmosphere), which echo the findings of the Milieudefensie’s case, that there is a legal obligation to take climate change and human rights into account insofar as they touch and concern possible emissions from proposed mining operations.

 

There is also some scope for concern by third parties, such as financiers, insurance underwriters and support services companies that they may, under this type of extended duty of care and possible human rights violation, be found to have a legal obligation to contribute towards the reduction of climate change in their support for fossil fuel operations by providing finance or underwriting the insurance liability for fossil fuel Projects or supplying equipment for mining activities. One may even reflect over the torturous prospects as to whether an energy law attorney involved in drafting and advising on fossil fuel transaction could also be held to have such an obligation!

 

At least some energy law attorneys, all of whom craved for anonymity, have expressed the views that the scope of the extended duty of care crafted and imposed on RDS is unreasonable because it is quite impossible to prove, at least in cases based on negligence, that there is a direct causal link between the emissions in, say Africa, and the health condition of residents in the Netherlands or indeed in the U.S. and/or that harmful emissions (much less RDS’s emissions) are the direct and independent cause of their illnesses; that the obligations imposed in respect of scope 3 emissions fails to take account of the realities and specific circumstances of the various nations where these operation take place, particularly in Africa and Latin America and the fact that in those situations, RDS is completely helpless in affecting the conduct of the other parties as it relates to reducing the emissions; that this judgement puts a substantially unfair burden on RDS, which gives RDS’s competitors in other nations, like Russia, a considerable edge because for those competitors, the word is “business as usual”, thereby bringing an adverse economic outcome for the Netherlands in the medium to long term; it is further argued that, on a strictly common law contract basis, parties who are not signatories to Agreements (the Paris Agreement) or international treaties and whose direct benefits were not taken into account at the time these Agreements, treaties or guidelines were entered into or published should NOT be held bound by the terms of the Agreements, treaties, and guidelines; finally, that the basis for assuming jurisdiction and applying Dutch law as the applicable law to the dispute is fraught with difficulties and most likely to result in inconsistency in the international legal landscape because in a number of jurisdictions where these operations take place, it is the law of the place where the mining operations are based and where the GHGs have been emitted that would be applicable and not the place where the policies are formulated but not implemented, in the case of RDS, the Netherlands and that the Milieudefensie decision would only serve to encourage judicial activism, which ought not to be and may lead to “brownwashing” if the fossil fuel companies simply divest themselves of the assets to other less established entities who would continue from where the divesting company left off or “greenwashing” their products, as was seen in the U.K.’s Advertising Standard Authority ruling of June 9, 2021, where it ordered Hyundai Motor UK Ltd to cease from advertising its Hyundai NEXO cars as, “A car so beautifully clean, it purifies the air as it goes” because the claim had not been adequately substantiated and was therefore misleading; the car would still release particulates as a result of brake and tyre wear, AND particulates from brake and tyre wear were a significant source of air pollution from vehicle use.¹³ Would the impact of the ruling cause RDS to relocate its operations to the country of its incorporation, the United Kingdom, in order to be free from the influence of the Dutch and EU courts? That would be an extremely radical and very costly step!

 

Irrespective of these concerns by energy law attorneys, the Dutch District Court at the Hague has spoken, and spoken loud and clear. Whether the decision by the District Court at the Hague would be a momentary aberration for fossil fuel companies or a true historic breakthrough in the annals of public interest litigation and climate change/environmentalist activism, time would tell but at the present time, it is truly an environmentalist delight, a momentous decision for climate change and the environment, that has to be acknowledged. RDS has stated that it would be appealing the decision of the Dutch District Court. It would be interesting to see the grounds of its appeal. Next stop, the Dutch Court of Appeal.

­Teraine Okpoko, Esq. is an Energy law attorney with a broad breadth of experience in cross- border energy casework, including commercial arbitration/litigation, public interest litigation, environmental/energy justice advocacy and transactional casework. He can be reached at [email protected]. 

Endnotes

1. https://en.milieudefensie.nl/news/historic-victory-judge-forces-shell-to-drastically-reduce-co2-emissions (accessed 06-10-2021)
2. id.
3. id.
4. https://uitspraken.rechtspraak.nl/inziendocument?id=ECLI:NL:RBDHA:2021:5339 (accessed 05-31-2021). Case number / cause list number: C/09/571932 / HA ZA 19-379 (engelse versie) Judgment of 26 May 2021 - 1. the association VERENIGING MILIEUDEFENSIE, in Amsterdam, and THE OTHER PARTIES IT REPRESENTS, 2. the foundation STICHTING GREENPEACE NEDERLAND in Amsterdam, 3. the foundation STICHTING TER BEVORDERING FOSSIELVRIJ-BEWEGING in Amsterdam, 4. the association LANDELIJKE VERENIGING TOT BEHOUD VAN DE WADDENZEE in Harlingen, 5. the foundation STICHTING BOTH ENDS in Amsterdam, 6. the youth organization JONGEREN MILIEU ACTIEF in Amsterdam, 7. the foundation STICHTING ACTIONAID in Amsterdam, claimants versus ROYAL DUTCH SHELL PLC in The Hague, defendant.
5. https://uitspraken.rechtspraak.nl/inziendocument?id=ECLI:NL:HR:1965:AB7079 Supreme Court 5 November 1965, ECLI:NL:HR:1965:AB7079 (Kelderluik), (accessed 06-07-2021)
6. https://www.echr.coe.int/documents/convention_eng.pdf (accessed 06-07-2021): Convention for the Protection of Human Rights and Fundamental Freedoms Rome, 4.XI.1950.
7. https://www.ohchr.org/EN/ProfessionalInterest/Pages/CCPR.aspx (accessed 06-10-2021): International Covenant on Civil and Political Rights
8. guidingprinciplesbusinesshr_en.pdf (ohchr.org) (accessed 06-10-2021): Principles on Business and Human Rights: Implementing the United Nations ‘Protect, Respect and Remedy’ Framework ; https://www.unglobalcompact.org/what-is-gc/mission/principles (accessed 06-10-2021) UN Global Compact (UNGC) Principles; https://www.oecd.org/daf/inv/mne/48004323.pdf (accessed 06-10-2021): OECD Guidelines for Multinational Enterprises 2011 Edition; https://unfccc.int/sites/default/files/english_paris_agreement.pdf (accessed 06-14-2021):The Paris Agreement, UNFCCC 2015 COP 21 Paris Agreement, EP145, which entered into force on 4 November 2016; Dutch “Climate Agreement”: see paragraphs 2.4.14, 2.4.15 and 2.5.16: Milieudefensie et al vs Shell, supra. at footnote 4 above.
9. https://uitspraken.rechtspraak.nl/inziendocument?id=ECLI:NL:HR:2019:2007 (accessed 06-09-2021): The State Of The Netherlands (Ministry Of Economic Affairs And Climate Policy), Claimant Vs Stichting Urgenda.
10. see paragraphs 4.4.9 through 4.4.21: Milieudefensie et al vs Shell, supra at footnote 4 above.
11. id. at paragraphs 4.4 .
12. [2021] FCA 560.

    13. https://www.asa.org.uk/rulings/hyundai-motor-uk-ltd-a21-1096716-hyundai-motor-uk-ltd.html (accessed 06-24-2021).