Climate litigation - what lies ahead?

Directors duties - a new area of private law action?

In England, ClientEarth (as a nominal shareholder) filed a derivative action on behalf of Shell against all 11 directors on the board. The claim alleged that Shell’s 11 directors breached their UK Companies Act duties to promote the success of the company and exercise reasonable care, skill and diligence by failing to adopt and implement an energy transition strategy that aligns with the Paris Agreement. The claim was supported by institutional shareholders which collectively hold more than 12 million shares in Shell.

In May 2023, the High Court ruled that it would not give permission to ClientEarth to bring the claim on behalf of Shell. In July, ClientEarth confirmed it would pursue its right to appeal that decision. New Zealand’s Companies Act has very similar directors’ duties to those which are alleged to have been breached in the ClientEarth case, so the progress of this case may be relevant to the prospects of similar claims being considered here.

Regulation and litigation

In October 2021, the Financial Sector (Climate-related Disclosure and Other Matters) Amendment Act 2021 was passed. For financial years beginning on or after 1 January 2023, affected institutions will be required to publicly report against climate-related standards that cover governance, strategy, risk management, and climate metrics and targets.

Increased publication of climate changerelated risks, objectives and achievements may prove an additional source of scrutiny and legal challenge. Critics may allege that the objectives are inadequate, the risks are not being properly managed or achievements are misleading or unsubstantiated.

In Australia, ASIC has commenced civil penalty proceedings against a superannuation provider for making misleading statements about the sustainable nature and characteristics of some of its superannuation investment options. In New Zealand, the group Lawyers for Climate Action has complained to the Commerce Commission about allegedly misleading statements made by a petrol retailer about its achievement of carbon reduction targets, including a statement that it is “getting out of the petrol business”. The Commerce Commission did not find evidence of misleading or deceptive conduct.

Cost protection for public interest litigants

The usual rule is that the party who fails should pay costs to the party who succeeds. However, courts have been willing to depart from this rule when the proceeding involves a matter of public interest and the unsuccessful party has behaved reasonably.

In Lawyers for Climate Action v Climate Commission & Anor, the High Court refused an application by the Commission for the costs of successfully defending a judicial review application against it. The court relied on the not-for-profit nature of the unsuccessful litigant, the fact it was not seeking a pecuniary benefit, and the general (and high-level) nature of the issues that were raised and resolved by the unsuccessful application. Although the decision does not provide a general exemption from a costs order, it is likely to be relied on by climate change litigants in cases to come.