Governments were the initial target, with complaints largely founded upon allegations of failures to do enough to meet international or domestic commitments. More recently, however, private companies that are perceived to have substantial carbon footprints have also emerged as targets.

In our view, this trend is likely to continue. Private companies’ exposure to climate litigation will continue to increase as activists become more engaged and emboldened by litigious activity in overseas jurisdictions, and governments and regulators begin to consider related regulatory action.

In this article, we summarise the key risks associated with increased climate litigation.

Commercial enterprises

The most significant climate change proceeding before the New Zealand courts is Smith v Fonterra & Ors [1], which presently awaits a decision by the Supreme Court upon the defendant companies’ application to strike out the proceeding as untenable [2]. Smith illustrates the challenges that activists present to large enterprises that may be perceived (not always correctly) as having substantial carbon footprints.

Mike Smith, a climate change activist, and spokesperson for the Iwi Chairs Forum, brought proceedings in the High Court against seven companies that he viewed as contributing to climate change. The companies he selected represented a range of industries, including some that generated greenhouse gas emissions directly in New Zealand, others that supplied fossil fuels or facilitated their supply in New Zealand, and one that did not contribute to meaningful greenhouse gas emissions in New Zealand but supplied coking coal (a necessary ingredient in the manufacture of steel) to overseas customers.

Mr Smith pleaded claims in the common law torts of negligence and nuisance, as well as asserting a new tort which he proposed would impose a duty not to contribute to dangerous interference in the climate system. He sought declaratory remedies and injunctions requiring that each defendant reduce their emissions to net zero by 2030, notably a more stringent requirement than the New Zealand Government’s own climate targets.

The High Court struck out Mr Smith’s claims in negligence and nuisance, but not the proposed new tort. The Court of Appeal subsequently struck out all of Mr Smith’s claims. Mr Smith then appealed to the Supreme Court. The appeal was heard over three days in August 2022 and a judgment is presently awaited.

To date, the New Zealand Courts have been unwilling to allow Mr Smith’s case to proceed to trial because the common law torts traditionally require a proven causal link between the actions of the defendant and the harm suffered by the plaintiff. Climate change is notoriously challenging in this respect; everyone contributes to climate change, and everyone is also a victim of it, in each case to a greater or lesser extent. In the context of a global climate system in which the effects of human conduct are complex and occur over generations, how can there be any realistic prospect of proving that the actions of one enterprise contributing an infinitesimally small proportion of global emissions have any effect upon a single plaintiff? Even if the action was not struck out and allowed to proceed to trial, the defendants say that the plaintiff would face a very significant evidential challenge. It remains to be seen whether the Supreme Court will confirm the approach taken by the Court of Appeal.

If Mr Smith’s case is allowed to proceed to trial, the floodgates will open for activists to bring similar proceedings against other enterprises. These need not be private companies, although many large emitters are. They could also be Government entities such as those engaged in large infrastructure projects. It is noteworthy that in the Supreme Court hearing of Mr Smith’s case, the Court permitted no fewer than three additional organisations that were not directly involved in the proceeding to attend Court and file written submissions, although not all were permitted to speak. In this case, Lawyers for Climate Action NZ Inc., Te Hunga Rōia Māori o Aotearoa – The Māori Law Society, and the Human Rights Commission were all granted permission to intervene, file submissions and attend the hearing. We see this as an indication that action by climate activists may encourage others to take similar action.

In overseas jurisdictions, while most climate change activists have failed, there have been a few rare successes. In the Netherlands, the environmental group Milieudefensie successfully sued Royal Dutch Shell for its contribution to climate change [3]. The Hague District Court held that Shell, by failing to adequately reduce its carbon emissions and to commit to the same moving forward, breached its duty to comply with an unwritten standard of care set out in the Dutch Civil Code. The Court ruled that the unwritten standard of care required Shell, when determining its group corporate policy with respect to carbon emissions, to observe due care, which the Court found it had not. The Court ordered Shell to reduce its worldwide emissions by 45% of its 2019 levels by 2030, including those of the end users of its products. Unsurprisingly, Shell has appealed the decision.

While there are significant differences between the laws of New Zealand and the Netherlands (which mean that the Shell decision is not directly relevant here), the fact that an activist’s claim against an oil major has succeeded in a court in a credible jurisdiction is likely to encourage activists everywhere. It is no longer unthinkable that a court in a credible jurisdiction would order a large oil company to reduce its emissions and those of its customers substantially. The significance of these cases may lie less in their immediate outcomes than in the increasing number of organisations that are becoming involved in climate change litigation against private companies. We see this as a trend that is likely to become more relevant to an increasing number of commercial enterprises. At the least, they will incur the cost and disruption of defending the claims. The claims may also result in increased scrutiny from Government, the media, customers, and investors.

The regulators

In a recent address to the Assembly of Investment Chairs, Otago Business School alumnus Lachie McLean shared the startling results of his research into responsible investment practices. Mr McLean’s research identified that in a sample of investment portfolios, the carbon intensity of ESG-named funds had similar – if not greater – emissions intensities than non-ESG named funds.

We expect to see significant regulatory action by the Financial Markets Authority and other regulators in response to unlawful ‘greenwashing’ in 2023. For a deeper dive into the regulators’ approach to ESG claims, see the following article Greenwashing: A regulatory focus for 2023 and beyond.

Government

Climate change activists have recently filed two significant court proceedings against New Zealand Government entities. Lawyers for Climate Action NZ Inc. filed judicial review proceedings against the Climate Change Commission and the Minister for Climate Change, asserting that the Commission’s advice to the Minister regarding emissions budgets and New Zealand’s Paris Agreement targets was irrational in its reasoning and defective in its lack of ambition – i.e. it did not go far enough. The Court delivered its judgment in late November 2022, dismissing the application and finding that the Commission acted lawfully. The Court held that the Commission interpreted the law correctly and had the power to make the decisions it made. However, the Commission’s presentation of its analysis had the potential to mislead, in relation to whether it aligned with the Paris Agreement target to limit global warming to 1.5°C.

On the question of whether costs should be awarded, the Judge noted that climate change is an important issue and judicial review provides an important check on the Commission’s tasks. In addition, challenge and debate can lead to better outcomes including enhancing the relevant body’s legitimacy. The underlying message was that the Court discouraged the Commission from seeking costs against the unsuccessful applicant. This is likely to encourage activists to bring similar cases.

In a separate case [4], activist Mike Smith (referred to above) also filed High Court proceedings against the Crown, alleging that the New Zealand Government failed (in his view) to take appropriate steps to mitigate climate change, breaching his rights to life and culture as enshrined in the New Zealand Bill of Rights Act 1990, obligations sourced in Te Tiriti o Waitangi, and a previously unrecognised duty of care. As with his claim against the seven private companies referred to above, Mr Smith’s claim was struck out on the basis that it disclosed no tenable cause of action. Nonetheless, the proceeding reveals the myriad ways activists might challenge Government agencies in relation to climate change.

Overseas, the Full Federal Court of Australia recently overturned a first instance ruling that the Minister for the Environment had a duty to take reasonable care to avoid exercising statutory powers in a way that could cause harm arising from greenhouse gas emissions. In Minister for the Environment v Sharma [5], a group of teenagers brought proceedings seeking to stop the intensification of production at a coal mine. At first instance, they had some success; the Court held that the Minister had a duty to take reasonable care to avoid causing personal injury or death to children in Australia when considering an application to extend a coal mine. On appeal, the Federal Court disagreed, holding that it would be inappropriate to impose a duty on the Minister that was inconsistent with the relevant statutory framework and that this was a political decision rather than one for the courts to determine. The judges also remarked, in different ways, upon the difficulty in proving that the relationship between the children and the Minister was sufficiently close or direct for a duty to arise.

Although the proceedings referred to above have yet resulted in final success for the plaintiffs, a survey of decisions from other jurisdictions, including Germany, the USA, the Netherlands, and Pakistan, confirm that this type of litigation is on the rise and that in some rare instances the plaintiffs may have some measure of success. We see it as likely that New Zealand Government and commercial entities will continue to face challenges from climate activism.

Footnotes

[1] Smith v Fonterra Co-operative Group Limited [2022] NZSC 35 (Supreme Court leave application decision) and [2021] NZCA 552 (Court of appeal decision).
[2] Disclosure – MinterEllisonRuddWatts represents two of the defendants.
[3] Milieudefensie v Royal Dutch Shell plc ECLI:NL: RBDHA:2021:5339 (26 May 2021) (DC, Hague).
[4] Smith v AG [2022] NZHC 1963.
[5] Minister for the Environment v Sharma (No 2) [2022] FCAFC 65.