Supreme Court allows Smith climate change challenge to proceed to trial

Yesterday, the Supreme Court issued its much-awaited decision in Smith v Fonterra, the first case to be brought in New Zealand (NZ) seeking to hold private parties liable in tort for damage caused by climate change.¹ By unanimous decision, the Supreme Court has determined that Mr Smith's claim may proceed to trial.
 
The question before the Supreme Court was only whether the claim ought to be struck out (on the basis that it raised no reasonably arguable cause of action), so the decision doesn't determine whether the defendants are in fact liable to Mr Smith. However, the case is significant because it leaves open the possibility of corporates facing tort-based liability in NZ in respect of damage caused by greenhouse gas emissions produced by their activities. If such liability is ultimately established, this could have far-reaching consequences.
 
The question on many corporates' (and their directors') minds will now be "what does it mean for us"?

Our key takeaways are:

1. As noted, the decision does not determine whether private parties can be liable in tort in respect of their greenhouse gas emissions. Whether any of Mr Smith's causes of action can give rise to liability and, if so, the scope of that liability, will be questions for the High Court to determine, should the matter proceed to trial. In the meantime, organisations (particularly those with substantial direct or indirect emissions profiles) should be mindful that the Supreme Court has expressly left the door ajar to the possibility of future liability.

2. Should the matter proceed to trial, it is likely that any hearing would be some time away, given the complexity of the evidence required and likely court availability. Any High Court decision may also be appealed. Accordingly, organisations should assume that the present state of uncertainty will persist for a significant time to come.

3. While uncertainty as to the future direction of travel remains, the Supreme Court's decision is an additional factor that will sit alongside other strategic factors influencing organisational decision-making on climate change. Organisations face a range of pressures and risks in relation to climate change, and these include potential or actual litigation. Even where a claim does not ultimately succeed, litigation (or the threat of it) can have adverse consequences, and organisations therefore need to consider their exposure to litigation risk alongside other climate-related risks.²

4. It is safe to assume that we have not seen the end of climate change litigation in NZ. The decision may encourage new claims to be brought, whether similarly grounded in tort or seeking to test the boundaries of other potential avenues of climate-related liability. Examples could include claims grounded in securities law, human rights, under the new climate-related disclosure regime or based on alleged breaches of directors' duties.

For more detailed analysis, see the discussion of the Supreme Court's decision (and the earlier decisions of the Court of Appeal and High Court) below. The judgment is available here.

Overview of the claim

The claim is brought by Michael Smith, an elder of Ngāpuhi and Ngāti Kahu descent, against seven corporate defendants across a range of industries. Mr Smith's claim raises three tortious causes of action: public nuisance, negligence, and a new climate system damage tort. 
 
Mr Smith claims that the defendants' activities release greenhouse gases that have, or will continue to, contribute to "dangerous anthropogenic interference with the climate system and to the adverse effects of climate change". He claims that this would, in turn, cause damage to land and other resources in Northland, in relation to which Mr Smith claimed an interest according to Māori custom and tikanga. Mr Smith seeks:

• declarations that each defendant had unlawfully caused or contributed to public nuisance, or had breached duties of care to Mr Smith; and

• injunctions requiring each defendant to achieve net zero emissions by 2050.

The defendants applied to strike out all three causes of action, arguing that the claim raised issues that could not properly be determined by the law of tort in the courts. This strike out application had to be determined before any substantive claim could be heard.

High Court and Court of Appeal decisions

In the High Court, the public nuisance and negligence causes of actions were struck out. The High Court was, however, unwilling to strike out the third cause of action (the novel climate system damage tort). Despite noting that matters of public policy meant that such a claim faced "significant hurdles", Wylie J was ultimately "reluctant to conclude" that it was untenable. For more information on this decision, read our previous update here.
 
The Court of Appeal unanimously decided that all three causes of action should be struck out (dismissing the plaintiff's appeal and allowing the defendants' cross appeal). The Court concluded that as a matter of principle and policy tort law was not "an appropriate vehicle for addressing the problem of climate change". Rather, the Court described climate change issues as being "quintessentially a matter that calls for a sophisticated regulatory response at a national level supported by international co-ordination". For more information on this decision, read our previous update here.

The Supreme Court – leaving the door open through the tort of public nuisance

The Supreme Court unanimously decided that Mr Smith's claim in public nuisance is tenable and accordingly may proceed to trial.
 
Two preliminary points are worth noting:

1. First, the Supreme Court was only considering whether the claims should be struck out, and in doing so stressed that "a refusal to strike out a cause of action is not a commentary on whether or not the claim ultimately will succeed". Ultimately, it considered that "in this area, the common law must develop, if at all, in the fertile fields of trial, not on the barren rocks of a strike out application." Accordingly, the substantive reasoning in the Supreme Court decision is relatively concise.

2. Second, the Supreme Court only addressed Mr Smith's claim in nuisance. Having found that the nuisance claim was tenable (as described further below), the Court allowed the remaining two causes of action to proceed on the basis that they would not materially add to costs, hearing time or other court resources that would be used in any event. This means that the possibility of tort-based liability in negligence and/or a new duty of care remains, despite the Supreme Court not having opined on whether those claims are tenable.

Against the background of those two caveats, the Supreme Court focused on a few overarching points of principle, which may be relevant both to any future hearing of Mr Smith's claim and to the development of the common law more generally. This included:

• Whether common law actions in relation to greenhouse gas emissions are excluded by statute: As noted, one of the key issues that featured in the lower courts was the extent to which the courts could, and ought to, intervene in matters relating to climate change given NZ has a detailed legislative scheme, namely the Climate Change Response Act 2002, which is intended to implement NZ's international climate change obligations (including through the emissions trading scheme). The Court concluded that there is:

… no basis to conclude that Parliament has displaced the law of torts in the realm of climate change in New Zealand. Rather, it has left a pathway open for the common law to operate, develop and evolve (if that is thought to be required in this case) amid a statutory landscape that does not displace the common law by the interposition of permits, immunities, policies, rules and resource consents.

• Whether liability can sound in nuisance for greenhouse gas emissions: While the Supreme Court did not determine whether Mr Smith's public nuisance claim could ultimately succeed, it considered key elements of the cause of action and ultimately considered that the obstacles to the claim were not so overwhelming as to meet the standard for strike out.³ The courts are typically slow to strike out claims in novel areas, and the Court observed that "real caution is necessary before pre-emptively disposing of a claim where seriously arguable non-trivial harm is in issue."⁴ Further, the Court noted that public nuisance has rarely been grappled with in the NZ courts over the last century, and that the "principles governing public nuisance ought not to stand still in the face of massive environmental challenges attributable to human economic activity".⁵ While acknowledging them as challenging, the court found that key issues, such as how tort law should respond where there are a very large number of contributors to climate change (not all of whom are defendants to the Smith litigation), were properly to be determined at trial.

• Whether tikanga can inform the formulation of tort claims: Finally, the Court commented briefly on the role of tikanga in the proceeding. The Court did not express a view as to whether tikanga principles might support liability being imposed against private defendants, but highlighted that matters relating to tikanga would need to be considered by the trial court, including because Mr Smith purports to bring his claim as an individual as well as kaitiaki for the whenua, wai and moana.

If you would like to discuss the implications of the case further, please get in touch with one of our experts below.