Class actions and climate change

Climate change litigation generally

Class actions in Australia

Climate change-based class actions

Conclusion

Concern about climate change is intensifying in Australia. At the same time, the United States penchant for class action litigation is beginning to take hold here. The question arises: what are the prospects in the near-to mid-term for class actions relating to climate change to be brought and to succeed in Australia?

In the Australian context, the question resolves itself into three separate issues:

• what are the prospects for ‘ordinary’ (that is, non-class action based) litigation concerning climate change?
• what are the prospects for the further development of class actions in Australia generally?
• what are the prospects for specifically climate change-related class actions in Australia?

Climate change litigation generally

Elements of a climate change action

Litigation concerning climate change typically raises in acute form the following issues:

• is the relevant controversy justiciable at all?
• does the plaintiff have standing to bring the action?
• can the plaintiff prove causation?
• is there utility in the court granting the relief which the plaintiff seeks?

Australian position

In Australia, climate change-related litigation has so far been fairly limited in extent, and has largely been confined to the context of planning approval. In that context, questions of justiciability and standing do not arise because of the enabling provisions of the relevant legislation (generally either the Environment Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act) or the applicable state or territory planning legislation).

The most important cases and relevant results so far have been:

• Wildlife Preservation Society of Queensland Proserpine/Whitsunday Branch Inc v Minister for Environment and Heritage [2006] FCA 736, a decision of the Federal Court under the EPBC Act (Isaac Plains and Sonoma Coal Mines Case)

The Federal Court held that the expression ‘likely impacts’ in the relevant legislation did not extend to speculative and merely theoretical impacts and that the possibility of increased concentrations of greenhouse gases in the atmosphere due to the downstream carbon emissions of the proposed coal mines fell into this category of impacts.

• Gray v The Minister for Planning [2006] NSWLEC 720, a decision of the NSW Land and Environment Court under the Environmental Planning and Assessment Act 1979 (NSW) (Anvil Hill Case)

On the contrary, the Land and Environment Court held that the Director General of Planning was required in this particular circumstance to assess the indirect greenhouse gas emissions that would result from the burning of coal intended to be recovered from the mine.

• Taralga Landscape Guardians Inc v Minister for Planning and RES Southern Cross Pty Limited [2007] NSWLEC 59, a decision of the NSW Land and Environment Court under the Environmental Planning and Assessment Act 1979 (NSW) (Taralga Case)

The Land and Environment Court took account of, amongst other things, a recent report of the Intergovernmental Panel on Climate Change1 (2007 IPCC Report) to conclude that the overriding public interest in renewable energy development outweighed the private impacts (in terms of impacts on flora and fauna, visual amenity and noise) to the local community and individual landholders such that a proposed wind farm should be permitted in its full original scope.

• Xstrata Coal Queensland Pty Limited v Queensland Conservation Council [2006] AML 207/2006 ENO 208/2006, a decision of the Queensland Land and Resources Tribunal (Tribunal) under the Mineral Resources Act 1989 (Qld) and the Environmental Protection Act 1994 (Qld) (Xstrata Case)

The Tribunal, in considering the possible contribution to global warming from burning coal derived from the activities of the relevant mine, cast doubt on the accuracy of the 2007 IPCC Fourth Assessment Report and the British Government’s 2006 Stern Review on the Economics of Climate Change and stated that the argument that there is a causal link between greenhouse gas emissions and global warming is merely an ‘assumption’. This case is on appeal—the appeal having been heard on 9 August 2007. Judgement is reserved.

• Drake-Brockman v The Minister for Planning [2007] NSWLEC 490, a decision of the NSW Land and Environment Court under the Environmental Planning and Assessment Act 1979 (NSW) (Carlton United Brewery Case).

The Land and Environment Court, in considering the plaintiff’s claims (amongst other things) that the environmental assessment for the proposed project failed to take any or sufficient account of the greenhouse gas emissions that would be generated by the development, distinguished the Anvil Hill case. The Carlton United Brewery Case stands for the proposition that, absent some express requirement to take into account the effect of greenhouse emissions, the requirement under the New South Wales planning legislation to have regard to the principles of ecologically-sustainable development does not require any particular form of quantitative assessment of greenhouse gas emissions.

None of these proceedings is a class action.

As is clear from the above, the Australian courts have yet to develop a consistent jurisprudence as to the impacts of particular developments and activities on the global phenomenon of climate change. The lack of such a consistent jurisprudence is, for the time being, a significant impediment to the development of class action litigation in the field in this country.

However, it seems reasonable to assume that this will change. This is because of the relatively recent widespread acceptance, even by many former climate change sceptics, of the reality of anthropogenic climate change, no doubt spurred by this year’s IPCC Fourth Assessment Reports, the Stern Review, and considerable lobbying from the business sector.

The result would appear to be that a court could now be persuaded that there is at least a 51 per cent chance (roughly, the standard of proof for civil litigation) that anthropogenic climate change is occurring, that its effects include compensable damage, and that there are therefore justiciable issues.

The questions of standing to sue, causations and the utility of granting relief, however, still remain open.

United States position

Climate change-related litigation in the United States is more developed than it is in Australia. Broadly, the cases brought to date have been of one of two kinds:

• suits brought against regulatory authorities which seek to compel those authorities to adopt action that would require corporate entities to reduce their greenhouse gas emissions ('regulatory cases'), and
• suits brought in tort, generally nuisance, against corporations which seek declaratory, injunctive and other relief against emitters of greenhouse gases ('tort cases').

The general picture from these cases is that procedural and substantive obstacles to climate change litigation are gradually being whittled away. On the other hand, the majority of the cases to date have been interlocutory in nature and not one of them has ultimately resulted in orders that would have any direct effect on climate change.

United States regulatory cases

The most important ’regulatory‘ case to date has been Massachusetts v EPA (Clean Air Act)².

The Clean Air Act case has its origins in a 1999 petition to the United States Environmental Protection Agency (EPA) by several environmental groups seeking to have the EPA regulate carbon dioxide and other greenhouse gas emissions from new automobiles under the United States Clean Air Act. The EPA responded by denying that it has statutory authority under that Act to regulate greenhouse gas emissions from motor vehicles and stating that, even if it had such authority, it would decline to exercise it for what the Supreme Court ultimately described as a ‘laundry list’ of policy reasons.

Ultimately, the case reached the United States Supreme Court which held, among other things, that:

• greenhouse gases fit the ‘capacious’ definition of a pollutant within the terms of the Clean Air Act
• the harms associated with global warming are serious and well-recognised, and the EPA failed to dispute the existence of a connection between anthropogenic greenhouse gas emissions and global warming
• it is not to the point that actions that might be taken by the EPA would fail to reverse climate change or would be offset by increased emissions from developing countries, and
• the EPA’s failure to regulate greenhouse gas emissions presents a risk of harm that is both ‘actual’ and ‘imminent’ at least to the state petitioners such as the State of Massachusetts.

The result was that the case was remanded to the court below for further proceedings consistent with the majority ruling. It has not yet resulted in any regulatory action by the EPA.

Other significant recent ‘regulatory’ cases in the United States include the following:

• New York v US EPA (filed 27 April 2006, DC Circuit)—similar to the Clean Air case but concerning the EPA’s failure to adopt strong emissions standards to reduce air pollution from power plants
• Korsinsky v US EPA 2005 WL 2414744 (SDNY 2005)—action against the United States EPA and New York State environmental agencies for contributing to and failing to abate the ‘public nuisance’ of global warming (dismissed for want of standing for constitutional reasons), and
• Friends of the Earth v Watson 2005 WL 2035596 (ND Cal 2005) (National Environmental Protection Act (NEPA) case)—defendants’ motion for summary dismissal of an action against two quasi-agencies alleging that they had contributed to global warming by providing financial assistance to projects without complying with the requirements of the National Environmental Protection Act to prepare an environmental impact statement for all federal actions which significantly affect the environment. The motion to dismiss was denied—it was held that standing was established because the complainants had shown that the challenged action would ‘threaten their concrete interests’).

United States tort cases

Tort cases brought in the United States to date include Connecticut v American Electrical Power³, a case in which a coalition of states brought a federal common law nuisance action against American Electric Power (AEP), certain other power companies, and the Tennessee Valley Authority seeking injunctive relief that would require the defendants to reduce their emissions in accordance with a specified timetable.

The case was dismissed in the District Court on the grounds that it raised a ‘non-justiciable political question’. An appeal to the Second Circuit has been heard but not yet decided.

On the other hand, in Northwest Environmental Defense Center v Owens⁴, a case in which the plaintiffs sought injunctive relief in relation to the defendant’s proposed construction of a manufacturing facility that would create considerable greenhouse gas and ozone emissions without having obtained an Air Contaminant Discharge Permit, the defendant’s motion for summary dismissal was denied. The court held, among other things, that the fact that the alleged harm can be characterised as ‘widely shared injuries’ will not of itself defeat a claim—‘an injury is not beyond the reach of the courts just because it is widespread’. It is enough that the damage is ‘fairly traceable’ to the defendant’s actions and it is not necessary to show with scientific certainty that the defendant’s emissions are the only source of threatened harm.

Additionally, there is the action brought by the State of California against the ‘Big Six’ United States and Japanese automobile manufacturers⁵, which alleges that the defendants have created a ‘public nuisance’ by manufacturing large quantities of vehicles which emit greenhouse gases causing or contributing to global warming which costs and will cost the State of California extremely large sums of money to combat or counteract. A procedural motion to dismiss the case has been heard but judgement is reserved.

Most recently, there is the decision of the US District Court to dismiss a class action suit brought by Mississippi property owners against a range of coal and other energy companies alleging that the defendants’ greenhouse gas emissions contributed to making Hurricane Katrina more powerful than it would otherwise have been and therefore exacerbating the degree of property damage that would otherwise have occurred: Comer v Murphy Oil USA Inc SD Miss No 05-CV-436LG, 30 August 2007. The suit failed due to a finding of lack of standing on the plaintiffs’ parts.

Class actions in Australia

The earliest class actions (‘representative proceedings’) in Australia were generally tort-based (for example, personal injury, product defects, food contamination, tobacco). The more recent trend is for class actions to be brought by shareholders alleging inflation of share price or loss of share value because of misleading information or material omission.

All Australian superior courts of record have had rules which provide for a classical form of aggregation known as a ‘representative action’. However, this form of action generally requires the plaintiffs to have the ‘same interest’ in the litigation⁶, and traditionally this requirement was strictly interpreted, to the disadvantage of the potential ‘class’.⁷

Federal Court procedures

The growth of class actions in Australia is primarily related to specific statutory enabling provisions applying in the Federal Court.⁸

The growth in Australian class actions has been assisted by the incorporation (with effect from 5 March 1992) of Part IVA (‘Representative Proceedings’) of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act), following the recommendations of the ALRC 1988 report Grouped Proceedings in the Federal Court.

Part IVA facilitates class actions because it requires the following three fundamental elements to underpin a class action:

• seven or more persons have claims against the same person
• the claims of all those persons are in respect of, or arise out of, the same, similar or related circumstances, and
• the claims of all those persons give rise to a substantial common issue of law or fact.

The facilitative operation of these elements is to some extent offset by certain provisions in the Federal Court Act relating to the ‘efficiency’ of the class action format which come into effect closer to the hearing date. That is, the court has the power to terminate the representative proceedings where it is satisfied that (amongst other things):

• the costs of the representative proceedings are likely to exceed the costs which would be incurred if each class member initiated a separate action
• the representative proceeding mechanism would fail to deliver an efficient and effective means of resolving the relevant claims, or
• where it is otherwise inappropriate for the proceedings to continue in representative form.

Successful class actions

The terms of the Federal Court Act, as well as experience with class actions initiated since Part IVA of the Federal Court Act came into effect, suggest that the following elements will facilitate a successful class action claim:

• there is a single identifiable event or related series of events giving rise to the claims of the class
• there is no dispute as to the membership of the class, and
• there are limited individual differences between the class members.

One type of case that will generally meet these requirements is where the plaintiffs’ claims derive from a single catastrophic event or series of events related in time and place—for example, a plane crash or an episode of food poisoning derived from a single source of contamination. In such cases, notably, there are not the evidentiary difficulties of proving reliance on a plaintiff-by-plaintiff basis.

Successful examples of such class actions (where ‘successful’ implies only that the class action vehicle itself was not successfully challenged) include an action brought by a group of persons claiming to have suffered loss as a result of contamination of their cattle by pesticide residues found in cotton trash which had been eaten by the cattle,⁹ and an action brought by a group of persons who suffered injury as a result of eating oysters from the Wallis Lakes region of New South Wales which had been contaminated with the Hepatitis A virus.¹⁰

Unsuccessful class actions

Conversely, the prospects for maintaining a successful class action will be diminished particularly where causation, considered on a person-by-person basis, is highly variable. This applies especially where reliance on the representations of the defendant(s) is alleged. This is because factual issues concerning the degree of reliance of each member of the class come to the fore.

Examples include:

• the Philip Morris case¹¹, where the plaintiffs claimed to have contracted a tobacco-related disease as a result of being influenced by cigarette manufacturers’ long-term conduct to start or continue smoking, but the class action failed because issues of individual reliance ultimately negated the requirement for the claims of the class to arise out of the same, similar or related circumstances, and
• Wong v Silkfield,¹² where the class members had bought lots in a residential building in reliance on documents provided by the defendant, but the defendant placed in issue the degree of each plaintiff’s individual reliance (the case settled but on terms which placed it in the ‘largely unsuccessful’ category).

Shareholder class actions

Despite the general position related above, it appears that class actions brought by shareholders against directors and advisors of the company of which they are members may be a partial exception.

The trend begins with King v GIO Australia Holdings Limited (King),¹³ where the relevant class consisted of persons who owned shares in GIO (as it then was) continuously between certain dates and who took the company’s advice not to accept a takeover offer for those shares made by AMP Insurance Investment Holdings Pty Limited, thereby suffering loss.

Although it may have seemed that the issue of individual reliance on the company’s advice would prove a very difficult obstacle for the plaintiffs, in fact the action survived its interlocutory stages (and was therefore successful qua class action).

Since King, a reasonably large number of shareholder class actions have been brought in Australia, where the damage alleged is generally share value diminution or artificial price inflation due to the conduct of the relevant company’s controllers. Actions have been brought under:

• the misleading or deceptive conduct provisions of the Trade Practices Act 1974
• the provisions relating to misleading or deceptive conduct in relation to financial services in section 12DA of the Australian Securities and Investment Commission Act 2001
• the provisions relating to misleading statements in, or relevant omissions from, disclosure documents under section 728 of the Corporations Act 2001
• the provisions relating to misleading or deceptive conduct in relation to the financial products and services in section 1041H of the Corporations Act 2001, and
• the continuous disclosure provisions of the Corporations Act 2001.

Climate change-based class actions

To date, there have been no class actions alleging damage related to climate change, either in Australia or (apparently) elsewhere.

However, the preceding suggests that there may be reasonable prospects for actions of that type to succeed, particularly if brought by shareholders of a company alleging either or both of a diminution of present share value because of the company’s conduct in relation to climate change and a continuing diminution of that value on similar grounds. Scenarios that might found a class action with some prospects of success include the following:

• a failure by the company adequately to respond to existing regulatory requirements (for example, in relation to greenhouse gas accounting and reporting), leading to penalties and/or reputational damage
• a failure by the company adequately to anticipate reasonably foreseeable regulatory changes which impact on the company’s operations in a way that affects share value
• misleading or deceptive conduct by the company, especially in the form of claims that the company is ‘carbon neutral’ when subsequent auditing proves that it is not
• inadequately anticipated direct exposure to climate change-related liabilities, for example by insurance companies, and
• inadequately anticipated indirect exposure to climate change-related liabilities, for example in the form of increased cost of inputs which it proves impossible to pass on due to inelasticity of the relevant market, with consequent reductions in profits and share value.

Scenarios like these potentially satisfy the three basic requirements of the Federal Court Act mentioned above and, crucially, do not involve the difficult evidentiary issues of plaintiff-by-plaintiff reliance on representations made by the company. Rather, the loss of share value that would constitute the alleged damages would result directly from the company’s action or inaction, as the case may be.

A slightly more speculative class of case that may emerge is an action brought by shareholders alleging that the company’s position on climate change-related issues has led to a situation where directors are at risk of personal liability and it is therefore difficult to attract and retain directors of suitable calibre, thereby lowering the company’s share value.

Conclusion

Climate change has emerged as a mainstream political issue in Australia. There has been a recent change of attitude to the issue on the part of the Federal Government and in many business circles. There are continuing disparities in the responses of the Federal, State and Territory Governments. Despite this, five things are clear:

• Change in legislative policy, possibly major change, is imminent
• There is now more impetus than at any other previous time for the Federal Government to take a central role in a national climate change approach and other environmental matters
• The State and Territory Governments are clearly united in calling for a national ETS, and are well advanced in consideration of the format and content for such an ETS.
• Businesses can expect an immediate increase in reporting obligations in relation to greenhouse gases. The Council of Australian Governments (COAG) announced at its 19th meeting in Canberra on 13 April 2007 that a mandatory national greenhouse gas emissions and energy reporting system will be established after the report of the ET Task Force (which was delivered on 31 May 2007). On 15 August 2007, the National Greenhouse and Energy Reporting Bill 2007 (Cth) (Bill) was introduced into the Federal House of Representatives and received its second reading speech. The Bill aims to 'provide a framework for the reporting and dissemination of information related to greenhouse gas emissions, greenhouse gas projects, energy consumption and energy production of corporations'. Among other things, the Bill would require corporations which emit prescribed levels of greenhouse gases, or which produce or consume prescribed amounts of energy, to apply for registration with the National Greenhouse and Energy register (NGE Register) and to record specified (and publicly available) information in the NGE Register.
• The impact of these developments on commercial transactions and litigation will be profound.

The significance of these developments for Australia cannot be underestimated. Unlike in the US (where shareholder initiative is the principal driver), in Australia section 299A of the Corporations Act 2001 (Corporations Act), which came into force on 1 July 2004,¹⁴ requires listed public companies to include in the annual report of directors to shareholders information that shareholders would reasonably require to make an informed assessment of, amongst other things, the financial position of the company, and the company’s business strategies and prospects for future financial years. Clearly this must include matters of environmental (and social) significance that could impact on a company’s future financial prospects. These matters would include the direct effects of climate change on the company’s activities and markets, and also the indirect effects of climate change through governments’ actual and reasonably likely responses to it.

As the evidence of the physical effects of climate change mounts and government action on climate change becomes an enhanced possibility, there is a stronger argument that shareholders would reasonably require such information to consider their company’s prospects. Accordingly, the view that section 299A of the Corporations Act requires companies’ annual reports to include the likely impact of climate change on their business is gaining momentum. This extra reporting requirement will affect a wide range of sectors directly because their operations are or are likely to be subject to climate change-related regulation or the opening up of climate change-related opportunities such as emissions trading markets. These sectors include energy generation and retail, transport, construction, waste management and agriculture.

More generally, these considerations are clearly relevant to a public company’s ability to discharge its obligations pursuant the federal continuous disclosure regime given legislative force by the Corporations Act. Specifically, the operation of Australian Stock Exchange (ASX) Listing Rule 3.1 and section 674(2) of the Corporations Act broadly require a listed public company to make market disclosure of information which would have a material effect on the price of the company’s shares. It is likely that in many circumstances, matters concerning the direct effects of climate change on the company’s financial position, and the indirect effects of any proposed regulation of climate change conduct, will fall to be disclosed pursuant to the continuous disclosure regime. A failure to disclose such information could properly form the basis for claims based on misleading and deceptive conduct pursuant to section 52 of the Trade Practices Act 1974 (with equivalent proscriptive provisions in other legislative regimes regulating corporate conduct, for example, the Australian Securities and Investments Commission Act 2001 (Cth)).

In recent years, there has been a growth in Australian class action proceedings commenced (pursuant to Part IVA of the Federal Court of Australia Act 1976) against companies and their directors for failures to comply with regulatory requirements imposed on corporate conduct. More frequently, litigation growth has been in the context of shareholder class action claims against companies for failure to disclose material information impacting the companies’ financial position and profitability. Analogous claims are conceivable in relation to companies who fail to disclose in corporate transactions material matters concerning the direct effects of climate change on the company’s financial position.

Endnotes

1. IPCC, Climate Change 2007: The Physical Science Basis
2. Massachusetts v Environmental Protection Agency 549 US ___ (2007)
3. 406 F Supp 2d 265 (2005)
4. 2006 WSL 1491571 (D Or 2006)
5. California v General Motors Corporation No. 3:06-CV-05755 (ND Cal. filed 20 September 2006)
6. See, for example, Federal Court Rules O 6.13(1)
7. However, a liberalising trend can be seen in High Court decisions such as Carnie v Esanda Finance Corp Limited (1995) 127 ALR 76
8. Victoria has also enacted provisions to enable class actions, specifically Part 4A of the Supreme Court Act 1986, inserted in 2000
9. McMullin v ICI Australia Operations Pty Limited (1997) 72 FCR 1
10. Ryan v Great Lakes Council (1997) 78 FCR 309 (first instance); (2000) 102 FCR 307 (on appeal)
11. Nixon v Philip Morris (Australia) Limited (1999) 165 ALR 515; (on appeal) (2000) 170 ALR 487
12. (1999) 199 CLR 255
13. (2000) 174 ALR 715
14. Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (Cth) (CLERP 9 Act)

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