A storm brewing on climate change litigation

The clouds of climate change legal action against company directors and boards are gathering in some countries overseas.  In Aotearoa New Zealand, there is increased climate change litigation that is yet to extend to directors and boards directly. A recent development with the Supreme Court agreeing to an appeal of a Court of Appeal judgement suggests some clouds may be gathering that directors should be watching.

Climate change court action mostly focused on governments

There is an increasing amount of climate change litigation internationally. Prominent cases have been taken in Australia (eg Sharma v Minister for the Environment 2021) and in New Zealand (eg Lawyers for Climate Action New Zealand Judicial review action).

These and other cases relate to government decision making, processes and policies.

There are significantly fewer climate change-related cases against companies or directors/boards

Following a May 2021 Dutch Court decision that Royal Dutch Shell must cut its greenhouse gas emissions by 45% of 2019 levels by 2030 (and which is being appealed by Shell), further legal action has been brought against Shell directors in the United Kingdom (UK) by ClientEarth, a UK green non-governmental organisation. 

They claim that Shell directors have breached several requirements of the UK Companies Act 2006:

• Section 172 – Duty to promote the success of the company. ClientEarth claims that Shell directors have not sufficiently had regard to the likely consequences of their decisions. In this case, the medium to long-term implications of their decisions to reflect climate change and associated policies, including preparing for a net-zero transition and climate change-related risks.
• Section 174 – Duty to exercise reasonable care, skill and diligence. ClientEarth claims that that Shell directors have not discharged these duties effectively in decision-making related to the net-zero transition for climate emissions.

A prominent case against seven companies in New Zealand will be considered by the Supreme Court

New Zealand has not seen similar claims against directors or boards. Last year the Court of Appeal effectively struck out three claims filed in earlier High Court proceedings against seven large NZ companies in tort - namely public nuisance, negligence and a proposed new tort described as breach of duty (See Smith v Fonterra Co-Operative Group Ltd [2021] NZCA 552).

In the original claim, Mr Smith an elder of Ngāpuhi and Ngāti Kahu and the climate change spokesperson for the Iwi Chairs Forum, brought the suit against several defendants that operate facilities that emit greenhouse gas emissions, including dairy farms, a power station, and an oil refinery.

He alleged in his claim that the release of greenhouse gases by the respondents was a human activity that has contributed and will continue to contribute to the adverse effects of climate change.  Smith alleged that the defendants' contributions to climate change constitute a public nuisance, negligence, and breach of a duty cognizable at law to cease contributing to climate change.

Mr Smith sought declarations that each of the respondent companies had unlawfully caused or contributed to the effects of climate change, or breached duties said to be owed to Mr Smith. He also sought injunctions requiring each company to produce or cause zero net emissions from their respective activities by 2030.

The High Court originally dismissed the first two claims, but not the third that alleged that the defendants have a duty to cease contributing to climate change. The High Court found that while there were "significant hurdles" for Smith in persuading the court to recognise this new duty, it allowed the issue to go to trial. See Smith v Fonterra Co-operative Group Limited [2020] NZHC 419 6-03-2020

Smith appealed the High Court decision striking out the first two causes of action, while the defendants cross appealed on the decision to allow the third cause of action to go to trial.

On 21 October 2021, the Court of Appeal dismissed the appeal submitted by Mr Smith and upheld the cross appeal. The court held that tort law was not the appropriate vehicle for dealing with climate change, noting that "every person in New Zealand — indeed, in the world — is (to varying degrees) both responsible for causing the relevant harm, and the victim of that harm."

In dismissing all causes of action, the Court of Appeal held that the issue of climate change could not be effectively addressed through tort law. The Appeal Court argued that its intervention in the issue and a determination that the conduct of the respondent companies was unlawful would introduce an "ad hoc" and "arbitrary regime", lacking democratic legitimacy.

Rather the issue required “a sophisticated regulatory response at a national level, supported by international co-ordination.” In New Zealand that key regulatory response is the Climate Change Response Act 2002 (including significant amendments in 2019) and international obligations, notably the commitments under the Paris Climate Change agreement. The Court of Appeal did, however, note that the courts have some role in climate action: "in holding the government to account".

The Supreme Court has now granted Mr Smith leave to appeal – the approved question being “whether the Court of Appeal was correct to dismiss the appeal and allow the cross appeal”. (See Michael John Smith v Fonterra Co-operative Group Limited [2022] NZSC 35 [31 March 2022]. 

Watch this space

The NZ Smith v Fonterra case contrasts with the UK Shell case, which is directly focused on the different duties applying to directors under the UK Companies Act 2006 (as outlined above). Nonetheless, the NZ Supreme Court hearing will be one to follow with interest.