The pioneering case seeks an injunction to restrain the government from further promoting exchange-traded bonds until it complies with its duty of disclosure.

By Paul A. Davies and Michael D. Green

miningOn 22 July 2020, investors filed a class-action claim against the Australian government, alleging that it failed to disclose material climate change risks relating to its bonds (O’Donnell v. Commonwealth and Ors). The claim is thought to be the first of its kind against a national government.

O’Donnell v. Commonwealth and Ors

The claim is led by Kathleen (Katta) O’Donnell, a 23-year-old student and owner of Australian government bonds traded on Australia’s main stock exchange.

The bonds owned by O’Donnell will mature in 2050. Equity Generation Lawyers, the firm representing O’Donnell, noted that under the world’s current climate pledges, the earth is expected to warm 3.2 degrees Celsius above pre-industrial times by 2050. They add that the temperature increase is expected to cause stark physical damage, including the destruction of 99% of the Great Barrier Reef, as well as increase the frequency of drought, bushfires, and other extreme weather events.

Australia’s reliance on fossil fuels and its support of coal mining and gas development (Australia is the world’s largest exporter of coal) means that its emissions are among the largest in the Organisation for Economic Co-operation and Development (OECD).

Legal Arguments

A publicly available Concise Statement sets out the legal basis of O’Donnell’s claim. In summary, the claim argues:

  • The government acts as a “promoter” of the government bonds in question, and therefore owes “a duty of utmost candour and honesty to investors who acquire or intend to acquire [the bonds]”. Allegedly, this duty requires the government to disclose information about Australia’s climate change risks, which may influence the investor’s decision to acquire the bonds. The government is said to have breached its duty as a promoter by disclosing some material risks to the bonds, but failing to disclose any information about Australia’s climate change risks.
  • The government bonds in question are a “financial product”. By promoting and arranging for the trading of the bonds on the Australian stock exchange, the government is engaging in conduct that is “misleading or deceptive or likely to mislead or deceive” by disclosing some risks, but failing to disclose any information about Australia’s climate change risks. This breaches a prohibition set out in s. 12DA(1) of the Australian Investments and Securities Commission Act 2001 (the ASIC Act).
  • Government officials are required to exercise their powers, perform their functions, and discharge their duties with reasonable care and diligence, according to the Public Governance, Performance and Accountability Act 2013 (the PGPA Act). By breaching their duty of disclosure and contravening s. 12DA(1) of the ASIC Act (as referred to above), the government has also breached its duty under s. 25(1) of the PGPA Act.

The claim seeks an injunction to restrain the government from further promoting exchange-traded bonds until it complies with its duty of disclosure, as well as a government declaration that it breached its duty.

Climate Change Litigation in Australia

Australia is one of the most active jurisdictions for climate change litigation. For example:

  • In August 2017, 23-year-old Mark McVeigh filed a claim alleging that the trustee of his pension fund, the Retail Employees Superannuation Trust, breached fiduciary duties owed to him by failing to adequately consider climate change risks.
  • In February 2019, the New South Wales Land and Environment Court denied approval for a new open-cut coal mine on the basis that the mine was contrary to the public interest, principles of ecologically sustainable development, and Australia’s obligations under the Paris Agreement.
  • In January 2020, Australian bushfire victims, together with Friends of the Earth Australia, filed a complaint against an Australian multinational banking and financial services company under the OECD Guidelines for Multinational Enterprises, alleging that the bank was not transparent about its indirect emissions resulting from its business lending and failed to conduct adequate climate risk assessments in its operations.

Climate Change Litigation Worldwide

Since 2019, activists and advocacy groups worldwide have increasingly turned to litigation to address climate change issues.

Notable recent litigation includes the Urgenda case, in which the Dutch Supreme Court ordered the Dutch government to reduce greenhouse gas emissions to 25% below 1990 levels by 2020. Significantly, the claimants successfully drew from human rights arguments to support their claim. See this post for further details.

Claimants are also challenging misleading “greenwashing” marketing campaigns by carbon-intensive companies, either to courts or non-judicial bodies.

According to a recent LSE study, in climate change litigation cases from May 2019 to May 2020 (non-US), 58% of cases had outcomes that encouraged climate change action. The study adds that while the COVID-19 pandemic may result in a delay or decrease of new filings, it may also alternatively motivate claimants to find new grounds for bringing cases (for instance, by linking the current health emergency to the climate emergency).

Latham & Watkins will continue to monitor developments in this area.

This post was written with the assistance of Emilie Cornelis in the London office of Latham & Watkins.