[Judgment] Corporate Responsibility for Climate Change – Lessons Learnt from Smith v Fonterra Co-Operative Group Limited

Climate change cases continue to increase. Globally, the number of cases has doubled since 2015. Over 1,000 cases have been brought in the last six years.[1]

The Asia Pacific is contributing to the overall number of climate change cases, led by Australia and New Zealand. Interestingly, the Australian and New Zealand courts have seen cases filed against corporates.

As world leaders gather this week for crucial climate change talks at the COP26 – UN Climate Change Conference, it is perhaps an opportune time for ABLI to take a look at the recent judgment handed down by the Court of Appeal of New Zealand in Smith v Fonterra Co-Operative Group Limited [2021] NZCA 552, where the Court held that “the issue of climate change cannot be effectively addressed through tort law” (at [28]).

Smith v Fonterra Co-Operative Group Limited

One of the most innovative cases is the case of Smith v Fonterra Co-Operative Group Limited which was brought before the High Court of New Zealand. The plaintiff brought proceedings against several corporate defendants in varying industries that produce greenhouse gases. The plaintiff raised three tortious causes of action against the defendants:

  • public nuisance;
  • negligence; and
  • breach of a novel duty of care which “makes corporates responsible to the public for their emissions”.

In terms of relief, the plaintiff sought:

  • declarations that each defendant had unlawfully caused or contributed to public nuisance, or had breached the relevant duties of care; and
  • injunctions requiring each defendant to achieve net zero emissions by 2030.

On 6 March 2020, the High Court of New Zealand struck out the first two causes of action (public nuisance and negligence) at a interlocutory hearing for disclosing no reasonably arguable cause of action, but the novel third claim was allowed to proceed ([2020] NZHC 419; [2020] NZLR 394).

On 21 October 2021, on appeal, the Court of Appeal of New Zealand, struck out all three claims ([2021] NZCA 552).

Relevantly, before dealing with each of the individual three claims, the New Zealand Court of Appeal helpfully discussed (at [13]-[36]), at a general level, whether common law tort claims are, as a matter of principle and policy, appropriate vehicles for addressing the problem of climate change.

After considering various issues, the Court of Appeal held that “the issue of climate change cannot be effectively addressed through tort law” (at [28]).

Here we take the Court of Appeal’s reasoning for why common law tort law is not an appropriate vehicle for addressing the problem of climate change and fashion it into a series of eight arguments that may be deployed by corporates that may be faced with similar proceedings in common law countries in the future. Under each argument we have quoted aspects of the New Zealand Court of Appeal’s judgment with pinpoint references.

1.             “The common law tradition is one of incrementalism, not radicalism”

The common law is responsive to changing times. There have been famous instances where the courts have extended the existing law to address significant problems. Perhaps the most famous example is the 1932 case of Donoghue v Stevenson (also known as the “Snail in the Bottle” case) where the House of Lords of the United Kingdom created a new type of liability that did not depend on any previously recognised category of tortious claims.

But “the common law tradition is one of incremental development and not one of radical change, especially when that change would involve such a major departure from fundamental principles as to subvert doctrinal coherence” (at [15]).

2.             “I cannot be both responsible for causing the tortious harm and also be a victim of that tortious harm”

No tort involves a scenario where every person within the territorial limits of the jurisdiction, or indeed the world, “is (to varying degrees) both responsible for causing the relevant harm, and the victim of that harm” (at [18]).

3.             “If emitting net positive greenhouse gas is tortious then every individual and every business that produces emissions in the jurisdiction is acting unlawfully and can be restrained from doing so”

If the court were to establish that the emission of greenhouse gases is a tortious wrong, then “every individual and every business that has not achieved net zero emissions” would be liable for committing the tort. In other words, “all of those individuals and entities would be acting unlawfully, and could presumably be restrained from continuing to do so. That would be a surprising conclusion to say the least, with sweeping social and economic consequences” (at [19]).

4.             “A failure to offset emissions (to achieve net-zero emissions) cannot be tortious because tort law is concerned with activities that are unlawful. Tort law is not concerned with activities that may be lawful if the defendant complies with certain conditions. That is the role of regulation; not the common law”

Tort law “is concerned with activities that are unlawful and should not be permitted to continue” (at [24]). It is “not the domain of tort law” to say that activities are lawful (and thus can continue) “provided the defendants comply with certain conditions” established by the courts (at [24]).

If tort law were to respond in this manner, the courts would have to fashion a regulatory framework for “assessing the adequacy of offsets, and determining which offsets a defendant can claim as their own” (at [24]).

In addition, many jurisdictions have emission trading schemes (ETS) and thus in those countries, imposing tortious liability would result in parallel ETS schemes: one implemented by the legislature and regulated by the executive branch, and another implemented by the common law and regulated by the courts (at [24]). Moreover, the relief sought by the plaintiff requires compliance “with requirements that are more stringent than those imposed” by the statutory regime (at [33]). 

5.             “There is no remedy that the courts can order that can meaningfully address the harms caused by climate change”

Awarding damages to a plaintiff (or group of plaintiffs) against businesses for climate change will not meaningfully address the harm caused by climate change (at [25]).

Injunctive relief is also ineffective as it requires “a court-designed and court-supervised regulatory regime” (at [26]). Such a regime (at [26]):

“requires a level of institutional expertise, democratic participation and democratic accountability that cannot be achieved through a court process. Courts do not have the expertise to address the social, economic and distributional implications of different regulatory design choices. The court process does not provide all affected stakeholders with an opportunity to be heard, and have their views taken into account. Climate change provides a striking example of a polycentric issue that is not amenable to judicial resolution.”

6.             “Why me? Why am I liable and not someone else? Where is the line drawn?”

Bringing climate change proceedings against a subset of emitters “is an inherently inefficient and ad hoc way of addressing climate change” (at [27]) at “a national level, let alone globally” (at [33]). To allow tort law to respond in this way will result in the law being “arbitrary in its application and impact” (at [33]). The results are also likely to result in “ongoing litigation that lasts many years” and thus such action is costly and inefficient. Moreover, the courts will be “drawn into an indefinite, and inevitably far-reaching, process of line drawing” (at [27]).

7.             “This is not to say the jurisdiction of the courts is ousted when it comes to climate change. The courts play a very important role: judicial review of administrative action”

None of the above arguments imply that “the courts have no meaningful role in responding to the exigencies of climate change” (at [35]). They have a “very important role in supporting and enforcing the statutory scheme for climate change responses and in holding the Government to account” (at [35]).

But “it is not the role of the courts to develop a parallel common law regulatory regime that is ineffective and inefficient, and likely to be socially unjust” (at [35]).

8.             “The solution to climate change is not private civil proceedings before the courts but regulation at a national, and co-ordination at the international, level”

If it is not the role of tort law to respond to the pressing issue of climate change (“commonly described as the biggest challenge facing humanity in modern times” (at [2]), then one asks “what is?”. The answer is that climate change “calls for a sophisticated regulatory response at a national level, supported by international co-ordination” (at [28]).

Image credit: https://www.vaisala.com/en/climate-change

[1]               The Sabin Center for Climate Change Law and the Grantham Research Institute on Climate Change and the Environment have helpful databases of climate change litigation around the world.

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