Polish energy giant suing former directors and insurers for lack of due diligence over a coal power plant investment

INSIGHT by ClientEarth

The management of Polish energy giant Enea are suing the company’s former directors and its insurers for lack of due diligence over a coal power plant investment that lost the company more than PLN 650 million ($160 million). The company is seeking this as damages from former management and supervisory board members who had voted in favour of the investment, and from its insurers under its directors’ and officers’ (D&O) liability insurance.

87% of shareholders voting in an extraordinary general meeting approved the company’s filing of the lawsuit.

“This case is a notable first and underlines board directors’ potential liability for ongoing fossil fuel investments in a rapidly shifting economic, policy and regulatory landscape. It is also highly relevant to directors’ and officers’ insurers, named as defendants in the company’s damages claim.”     

-Marcin Stoczkiewicz, ClientEarth lawyer

Ostrołęka C was a planned coal power plant – one of Europe’s last – set to be built in northeast Poland. Industry experts and independent economic analysts warned from the outset that the plant would be unprofitable, in light of rising carbon prices, competition from cheaper renewables, the impact of EU energy reforms and difficulties securing financing.

ClientEarth had sent legal letters to Enea’s board members in 2018, arguing the investment would breach board members’ fiduciary duties of due diligence and destroy shareholder value. But the company and its joint venture partner Energa pressed ahead with the project.

ClientEarth took legal action against the project in 2018 and won the case in 2019. The companies abandoned the project mid-construction in 2020 and the PLN 1 billion investment was ultimately written off.

In 2021, Poland’s Supreme Audit Office reported improper risk management by Enea and recommended action against its former board members. The company subsequently obtained legal advice finding former directors who voted in favour of the investment had “failed to exercise due diligence in the context of the Company’s affairs or supervision” and were liable to the company as a result.

 “The lawsuit alleges what ClientEarth alleged in 2018 – that the directors’ decision to proceed with the investment represented a breach of board members’ duties of due diligence. We said that the decision to pursue the investment was “indefensible” – and clearly, current management agrees.

“We will be watching keenly to see how the judge deals with the question of directors’ due diligence obligations in the context of clear climate-related risks: rising carbon prices, competition from renewables, tightening energy policy and financiers’ withdrawal from coal. Companies and financial institutions should be watching too. Fossil fuel litigation risk is not theoretical – and directors are being held accountable.”

-Marcin Stoczkiewicz, ClientEarth lawyer