By: Antony Holden, Michael Cavanaugh and Phoebe Nikolaou

At a glance

• On 7 February 2024, the Supreme Court of New Zealand released its highly anticipated judgment in Smith v Fonterra.
• It addressed whether a private civil claim against companies seeking to address climate change could continue.
• This is an important decision for companies and their insurers, as it identifies the potential development of common law to hold climate change contributors accountable.

Background

In 2020, Michael Smith brought claims against seven of New Zealand’s largest corporations across industries contributing to climate change through the emission of greenhouse gases. Mr Smith alleged their production of, and enablement of the production of, greenhouse gases in New Zealand was a public nuisance, negligent (in breaching a duty of care to operate their business in a way that does not contribute to climate change), and in breach of a novel “climate system damage” tort.

Mr Smith is an Iwi leader and elder of Ngāpuhi and Ngāti Kahu,¹ and a climate change spokesperson for the Iwi Chairs Forum. In making his claims, Mr Smith drew on principles of tikanga Māori (indigenous Māori law and customary practices) to support his claims. Part of tikanga Māori recognises the important connection between Māori and their environment. Mr Smith alleged that the defendants contributed materially to climate change and will damage his whenua (land), wai (freshwater) and moana (sea), including places of customary, cultural, historical, nutritional and spiritual significance. As such, he brought these claims as kaitiaki (carer), “acting on behalf of the whenua, wai and moana – distinct entities in their own right.” Mr Smith sought declaratory relief – that the defendants have collectively and individually acted unlawfully through their emitting activities – and an injunction requiring the companies to cease materially contributing to climate change and/or reduce their emissions to net zero by 2050.

Initially, the High Court struck out the claims in public nuisance and negligence, though declined to strike out the proposed novel tort. On appeal, the Court of Appeal struck out all three claims on the basis that they were bound to fail and that the issues of climate change were best addressed by Parliament, not the common law. Mr Smith appealed to the Supreme Court and the hearing was held in 2022.

Supreme Court decision

The Supreme Court was unanimous in its decision in allowing all three claims to proceed to trial. As the Court considered the primary claim in public nuisance could proceed, it was not prepared to strike out the other two. The Court was clear, however, that its decision says nothing of any claim’s merit.

Mr Smith’s pleaded rights were considered to be apparently consistent with the foundational requirements of the tort of public nuisance. The Court stepped through the evolution and elements of the tort, importantly emphasising four things on the law when doing so:

• Statutory responses to climate change, and greenhouse gases in particular,² have not displaced the application of common law of torts. Parliament did not clearly restrict the common law’s application; in fact, it preserved the possibility of a common law response.
• While the tort needs an underlying act or omission to have caused common injury, it does not require that act or omission to be independently unlawful.
• It remains to be seen whether New Zealand law still requires that a plaintiff must suffer damage different to that of other members of the community (referred to as the “special damage rule”). This could have been significant given (as accepted by all Courts involved) anthropogenic climate change is indisputable, with ubiquitous and grave effects for humanity. The Supreme Court was not prepared to resolve this question in a strike out decision, though (unlike the Court of Appeal) accepted that Mr Smith tenably suffers special damage – the coastal erosion specific to his whenua and moana go beyond a common interference with public rights.
• How the tort should be developed to respond to newer technologies and newer harms, as it did following the industrial revolution, should not be pre-empted without the benefit of full evidence and argument. This includes the question of what causal link is required in climate change proceedings, a hurdle in many other proceedings elsewhere.³ The Court did, however, expressly state that:

… it is certainly arguable that in the case of public nuisance, a defendant must take responsibility for its contribution to a common interference with public rights; its responsibility should not be contingent on the absence of co-contribution or be in effect discharged by the equivalent acts of others.

More generally, when discussing the claims in negligence or a novel duty of care, the Court emphasised that tikanga Māori must inform the development of any new tort and is material to the application of the common law. This engagement will include the framing of the pleaded causes of action, the potential effect tikanga has on any elements (such as the special damage rule in public nuisance), and whether tikanga-related harm is a cognisable form of loss. Here in particular, as Mr Smith’s pleaded loss was tikanga-based, the Supreme Court maintained that the trial Court may need to assess loss in non-economic or non-physical ways – the Court was clear that this is not a novel phenomenon in New Zealand, citing an 1866 case on pounamu (greenstone) and a 1910 case on whales.

Wider implications for companies and their insurers

The Supreme Court’s judgment is a reminder of the increasing risk of climate change action and broader environmental, social and governance (ESG) issues faced by companies in two ways:

• First, innovative and novel claims by litigants to address climate change risks. Mr Smith’s case is one of many worldwide to recently challenge the traditional concept of a cause of action – such as the use of derivative actions relying on director duties in ClientEarth v Shell, and alleged misleading and deceptive claims for greenwashing in Australasian Centre for Corporate Responsibility v Santos.
• Second, a preparedness by a senior court to accept that climate change might be addressed by the common law and tools available to the court (compare this decision in Smith v Fonterra to that less than a year ago in ClientEarth).⁴ While a New Zealand decision is not binding on any other jurisdiction, common law developments in one Commonwealth country often inform the development in another. If nothing else, it might be that other jurisdictions’ courts are now more prepared to accept that a plaintiff who may have suffered sufficiently different damage to the general public can proceed to have their claim heard.

Insurers, in turn, may need to consider how to best underwrite and respond to these trends. While some prospective claims may seek non-financial loss, there will be substantive defence costs involved. Some claims might also seek remedies beyond compensation that would effectively bring the defendant company to a standstill – such as the injunction sought by Mr Smith.

This increased attention also goes hand-in-hand with the wider elevation of ESG issues to a key risk for many companies, given:

• the broader acceptance of climate change and the need for action
• increasing ESG duties and their mainstreaming alongside traditional financial risk (and the re-think of ESG compliance as a financial incentive), including increased reporting requirements
• public interest activism driving a concept of corporate morality and social responsibility
• stakeholder intervention (including litigation) targeting inadequate or misleading disclosures
• institutional investor pressure
• a new approach to assessing shareholder value and a company’s best interests, and
• the development of legislative and regulatory tools and enforcement.

^[1] Two Māori tribes (Iwi) from the north of New Zealand.

^[2] The Climate Change Response Act 2002, providing the legal framework for New Zealand to meet its international emission reduction obligations; and amendments to Resource Management Act 1991 in 2004 and 2022 relating to greenhouse gas emissions.

^[3] See for example the German case of Lliuya v RWE AG Essen Regional Court 2 O 285/15, 15 December 2016.

^[4] Compare this to the UK Supreme Court’s response in ClientEarth v Shell Plc [2023] EWHC 1137 (Ch), dismissing the attempted derivative action.