On appeal of a strike out decision, the Court gives the plaintiff “his day in court” to argue that corporates owe a common law duty of care in tort to reduce greenhouse gas emissions.

On 7 February 2024, the Supreme Court of New Zealand decided to allow a novel climate change claim to proceed to trial. In Smith v. Fonterra, the Supreme Court reversed the earlier decision of its Court of Appeal, allowing an individual plaintiff to proceed to trial with his claim in tort against several New Zealand companies.

This blog post highlights the obstacles this novel climate change claim might face at trial as well as potential implications for other companies, which may be future targets of similar ESG claims.

Background

The plaintiff, Mr Smith, is an elder of the Ngāpuhi and Ngāti Kahu tribes and a climate change spokesperson for the Iwi Chairs Forum, a group of New Zealand tribal leaders. He alleged that seven defendant companies are responsible for emitting greenhouse gases (GHG) or supplying products which release GHG when burned. Mr Smith alleged that, as a consequence of the defendants’ activities, they have damaged, and will continue to damage places of cultural, historical, and spiritual significance to him and his community.

Mr Smith raised three causes of action in tort: public nuisance, negligence, and a novel duty to “make corporates responsible to the public for their emissions”. He requested a declaration that the defendants (individually and/or collectively) unlawfully (i) breached a duty owed to him or (ii) caused or contributed to a public nuisance, which had caused or would cause him loss. He also sought an injunction requiring the defendants to reach net zero by 2050, or alternatively, to immediately cease emitting or contributing to GHG emissions.

The High Court struck out the claims based on negligence and public nuisance but allowed the cause of action based on an inchoate tort to proceed. On appeal, the Court of Appeal struck out all three causes of action, with an overarching conclusion that “the magnitude of the crisis which is climate change simply cannot be appropriately or adequately addressed by common law tort claims pursued through the courts”, which is “quintessentially a matter that calls for a sophisticated regulatory response at a national level supported by international co-ordination”.

Judgment of the Supreme Court

In its judgment, the Supreme Court considered the long-established principles applicable to a strike out application, finding that a pleading should be struck out if it “discloses no reasonably arguable cause of action”.

However, in the Court’s view, where a claim in negligence, nuisance or otherwise is novel, the courts should lean towards full evaluation of evidence and argument at trial. The standard for strike out under New Zealand law had therefore not been met, according to the Court. The Court decided “Mr Smith now gets his day in court”, an outcome the Court considered to be “consistent with fully informed access to civil justice”.

As part of its analysis, the Court considered a number of the obstacles to the claim that the Court of Appeal had identified as “fatal” for the plaintiff. The Court’s overarching view was that “[h]ow the law of torts should respond […] is a matter that should not be answered pre-emptively, without evidence and policy analysis exceeding that available on a strike out application”. Certain evidence presented at trial, including evidence as to the attribution of climate change to each of the respondents’ activities, would be necessary. Similarly, the Court considered that the question of whether the respondents’ activities amounted to a “substantial and unreasonable interference with public rights” was “a fundamental issue of fact for trial”.

The Court did not consider in detail the two other causes of action, but declined to strike them out on the basis that consideration of them at trial would not materially add to the deployment of court resources.

Potential Obstacles for the Plaintiff at Trial

Mr Smith relied on the private law framework of tort in his claim, but ventured far beyond any conventional application of tort law. As noted by the Supreme Court, “the common law has not previously grappled with a crisis as all-embracing as climate change” and, as a result, the plaintiff will undoubtedly face “fundamental obstacles” at trial.

Many of the obstacles that the Court explored in its judgment have been (fatally) decisive for similar claims relying on private law doctrines in other jurisdictions. Parties have struggled to show a sufficient interest in the subject matter of the claim or special damage suffered as a result of a defendant’s activities, or to show the relevant causal link between the activities complained of and the harm or loss they have suffered. There are also various policy concerns, including the risk of indeterminate liability: if tort law imposed a general obligation to reduce GHG emissions, there could and would be a potentially unlimited number of alleged tortfeasors and victims.

Insofar as the plaintiff seeks an injunction to compel a reduction in GHG emissions by certain amounts over a defined period of time, or to cease contributing to net emissions, the court deciding Smith v. Fonterra will confront the difficult predicament of constructing an order that is effective in achieving that result. This would arguably involve policy decisions together with complex and contentious determinations as to the appropriate method for quantifying a defendant’s relevant emissions and the application of available offsets including under the New Zealand emissions trading scheme. More generally, and as the High Court observed, the plaintiff’s requested order “would require the Court to engage in complex polycentric issues, which are more appropriately left to Parliament”.

Potential Implications for Other Companies

This is a decision on a strike out application. As the Supreme Court observed in its judgment, a refusal to strike out an application is “not a commentary on whether or not the claim will ultimately succeed”. That said, this claim is one of many ongoing claims worldwide which seek to impose legal responsibility on companies for environmental or social governance issues that arise out of their business activities or that of their subsidiaries or supply chain. Latham & Watkins will closely monitor developments in this case, given the potential implications for companies and other private actors.