The Supreme Court has handed down a significant decision to allow novel climate change claims to proceed. We briefly summarise its conclusions, and identify several challenging issues for insurers and their clients posed by the decision.
The decision
In Smith v Fonterra[1] the Supreme Court has allowed Mike Smith, an elder of Ngāpuhi and Ngāti Kahu and a climate change spokesperson for the Iwi Chairs Forum, to bring his claim against seven of New Zealand’s biggest companies: Fonterra, Genesis Energy, Z Energy, NZ Steel, BT Mining, Channel Infrastructure and Dairy Holdings. Each company is either involved in an industry which releases greenhouse gases, or manufactures and supplies products which release greenhouse gases when burned.
Mr Smith claims that each of the companies have materially contributed to the climate crisis and have damaged, and will continue to damage, his whenua and moana. He claims the companies owe a duty to him and his whānau, to cease their activities. Mr Smith seeks civil redress under torts of public nuisance, negligence, and a proposed special tort of climate system damage.
The respondents all applied to strike out the proceeding, arguing there was no tenable cause of action available. Mr Smith’s claim would “bend” the law and introduce “open-ended liability for defendants and dramatically disrupt economies.”[2] All companies submitted evidence they were operating within the relevant statutory and regulatory requirements.
In the High Court and Court of Appeal, the claim was struck out. The Court of Appeal reasoned to adhere to such a change would be a “major departure from the fundamental principles” of common law tradition.[3] And, climate change is “a polycentric issue that is not amenable to judicial resolution.”[4]
The Supreme Court has reversed the Court of Appeal’s decision to strike out the claim. The cornerstone of the reversal is adherence to the long-established principle that where a claim is novel but is founded (at least) on arguable non-trivial harm, the court should lean to allowing the claim to proceed to trial, rather than pre-emptively eliminate it.[5] The Supreme Court unanimously determined a claim under public nuisance was not “bound to fail” and should proceed to a substantive hearing.[6]
The Court had to consider whether the existence of a statutory and regulatory regime provided a policy argument against a common law tortious liability. The Court held that it did not. Rather, the statutory regime has “left a pathway open for the common law to operate, develop and evolve” [7] amid a statutory landscape that does not displace the common law.
The Court also acknowledged that Mr Smith has pleaded his claims in part based on tikanga Māori and therefore addressing matters of tikanga cannot be avoided.[8] The engagement with tikanga “will need to consider the potential effect of tikanga on any special damage requirement in public nuisance (if in fact special damage is required) and, with regard to all causes of action, whether tikanga-related harm is a cognisable form of loss”.[9] Importantly, the analytical methodology outlined in the recent Ellis v R (Continuance) [2022] NZSC 114 will assist a court in considering tikanga concepts of loss that are neither physical nor economic. The Court concluded that tikanga will continue to influence the common law on a case-by-case basis.[10]
Having summarised the extensive submissions made by the parties and the intervenors, the arguments were not substantively dealt with. Rather, the appeal was determined on the nature of the power to strike out a claim. As the Court succinctly put it: “the test for strike out is either met or it is not. Here it is not, and Mr Smith now gets his day in court”.[11]
As for the causes of action in negligence and (the novel) climate system damage tort, these survived because there was no “material saving in hearing time or other court resources” to strike them out.
Comment (Philippa Fee)
Disappointingly, the significance of this decision has been undermined by the foundation on which it is based. The complex, novel and highly important questions thrown up by this case – including the scope of public nuisance and the novel climate damage tort, and whether the claimant needs to suffer particular damage caused by the acts or omissions of a defendant – are not resolved. Instead, the Court has simply said that the claim is not so clearly bound to fail that it should be struck out and must proceed to trial.
The parties and intervenors have doubtless spent a huge amount in legal costs, only to find no clear exposition of the law and the prospect of a trial ahead of them.
In terms of the significance for insurers and their clients, the downside to allowing claimants their ‘day in court’ is ongoing uncertainty. The impact of this uncertainty is particularly acute if one assumes that tort liability can exist even where the greenhouse gas producer is complying with (known) statutory requirements. Certainty in the law has been long regarded as of crucial importance, as it allows citizens to adjust their behaviour to follow the law. But at this point, there appears to be little certainty as to precisely what producers of greenhouse gases are meant to do.
This state of uncertainty will impact insurers as well. Are insurers now meant to factor into their risk assessments the possibility of a new tort of climate damage and public nuisance, even where the insured complies with all statutory requirements? If so, in the absence of objective criteria, how do insurers assess the nature of that liability? Unfortunately, there are many questions and, at this point, few answers.
The full judgment is linked here
Footnotes
[1] Smith v Fonterra Co-operative Group [2024] NZSC 5.
[2] At [11].
[3] Smith v Fonterra Co-operative Group [2021] NZCA 552 at [15].
[4] At [26].
[5] At [83].
[6] Smith v Fonterra Co-operative Group [2024] NZSC 5 at [143].
[7] At [101].
[8] At [189].
[9] At [182]..
[10] At [187]-[189].
[11] At [143].