An Australian Federal Court class action lawsuit alleging that the Australian Federal Government failed to disclose to investors the climate change risks associated with the government’s sovereign bonds has survived in part an attempt by the government to have the action dismissed. In an October 8, 2021 Judgment (here), a Federal Court of Australia Judge “declined to strike-out” the applicant’s claim based on allegations of misleading or deceptive conduct, while agreeing with the government to “strike-out” others of the applicant’s claims, as discussed below. The court’s rulings in this case arguably represent something of a milestone in the development of climate change-related litigation.
As discussed in detail here, in July 2020, Kathleen O’Donnell, a then-23 year-old student, filed an action in the Victoria Registry of the Federal Court of Australia on her own behalf and as representative for investors who purchased certain designated exchange-traded Australian Government Bonds at any time since July 7, 2020. O’Donnell, the applicant, named as respondents the Australian Government and two government officials.
The lawsuit asserts three claims based on allegations that the bonds face material climate-change related risks that the applicant asserts should have been disclosed in the bond offering documents: first, a “misleading or deceptive conduct claim” against the government, based on alleged violations of Section 12DA(1) of the Australian Securities and Investments Commission Act of 2001; second, a “disclosure duty claim” against the government, based on the allegation that the respondents violated their fiduciary duty of utmost candor and honesty to investors; and third, a claim against the two government officials alleging that they violated their duties under the Public Governance, Performance and Accountability Act of 2013 (PGPA).
The climate change risks the applicant claims the government should have disclosed in the bond offering documents include the existence, nature, and extent of physical risks (such as increased temperature, droughts, and bushfires); of transition risks (such as increased exposure to stranded assets and legal action); and of risks of sovereign response to climate change (such as for example treaty requirements). These various omissions, the applicant asserts, were material to investors’ decisions to purchase or trade in the bonds.
Acting in a representative capacity, the applicant seeks judicial declarations that between July 7, 2020 and August 6, 2021 the government breached its disclosure duties through its failure to disclose material climate change information; and that the two government officials violated their duties under the PGPA. Acting in an individual capacity, the applicant sees to enjoin the government and the two officials from further promoting the bonds or issuing further bonds until the government provides disclosure in such form as the court deems necessary to inform the applicant and investors concerning material climate change information.
The government filed an application to the court seeking orders to strike-out the applicant’s Amended Statement of Claim and to refuse leave to the applicant to file a proposed further Amended Statement of Claim.
The October 8, 2021 Judgment
In a very October 8, 2021 Judgment, Federal Court of Australia Judge Bernard Murphy issued three rulings; first, he refused the respondents’ application for an order that the proceeding not proceed as a representative proceeding; second, he granted the application for an order to strike-out the disclosure duty and PGPA Act claims, on the grounds that the applicant has no standing to bring them; and third, he declined to strike-out the misleading or deceptive conduct claim.
As a result of Judge Murphy’s determination, the proceeding will not go forward as to the two government officials the applicant had named as respondents, but the proceeding will go forward as to the government itself – but only with respect to the applicant’s misleading or deceptive conduct claim, not as to the other claims that the applicant had sought to assert.
With respect to the misleading conduct claim, Judge Murphy did say that the pleading “will require improvement as the proceeding progresses,” commenting further that he “consider it sufficient for the case to go forward at this stage,” as it “meets the primary purpose of a pleading by putting them on notice of the case they must meet.” The applicant, Judge Murphy said, “will be directed to put on a revised pleading after discovery.”
Even though Judge Murphy granted the respondents’ application to strike two of the applicant’s substantive claims, the applicant’s third claim for misleading or deceptive conduct will go forward as to the government. For even just the one claim to survive the initial pleading hurdle is a very significant development, and not just for purposes of the immediate proceeding. This development could have significant implications both in Australia itself and in other jurisdictions as well with respect to climate change related disclosures in connection with government-issued sovereign bonds.
A law firm memo published when the applicant first filed her proceeding noted that her action was “the first-of-its kind worldwide” in that it represents a climate change disclosure action against a sovereign government. The applicant’s success in surviving the initial pleading hurdle, if only in part, may hearten activists and prospective claimants elsewhere, as they seek to use legal claims and liability actions to advance climate change-related agenda.
The applicant’s proceeding is of course based on Australian law, and the bases of the claims may not translate into the applicable laws of other jurisdictions. In addition, the claims against the government officials did not survive, which may cast doubt on the viability of pursuing climate change-related disclosure claims directly against government officials.
Nevertheless, the survival of even just one of the applicant’s claims in this action arguably is a milestone event. Climate change activists around the world have been experimenting with different type of claims and different types of legal theories to try to identify approaches that might permit them to use legal proceedings to leverage action on climate change-related issues. The survival of this lawsuit may suggest ways that activists can put pressure on governments for further climate change-related disclosure in connection with their sovereign bond offerings. Further, the possibility of this type of lawsuit could pressure governments to proactively address climate change issues in their bond offering documents.
Another potential implication of this case that has to be considered is its potential significance for climate change litigation against companies. The transferability of the determinations in this action to corporate climate change related litigation may be limited. However, the court’s ruling here could be a sort of a steppingstone on the path toward further climate change related litigation. If nothing else, the determinations in this case show that there is value for activists in continuing to experiment to try to find ways to use the courts to advance their climate change agenda; testing legal theories and procedural approaches could eventually identify means to press these kinds of issues in court.
One final note about the developments in this Australian proceeding, and that is that this case is one more piece of evidence that climate change issues increasingly are moving to the top of the priorities list. The prospect of further litigation is only one factor; the likelihood of regulatory action (for example through ESG disclosure reforms of the type that are actively being considered by the SEC under Gary Gensler). If climate change activists are to be believed, pressure could also come in more immediate form – such as through floods, hurricanes, droughts, wildfires, rising temperatures, coastal flooding, and other manifestations.