Class actions against "big oil" in Australia on the horizon

LEADING law firm Allens today noted a new case lodged in the Federal Court, proceedings against the Australian Government for allegedly failing to disclose to investors the climate change risks associated with sovereign bonds, warning it could set a precedent and potential legal liabilities for board members of ASX-listed oil and gas companies.
Class actions against "big oil" in Australia on the horizon Class actions against "big oil" in Australia on the horizon Class actions against "big oil" in Australia on the horizon Class actions against "big oil" in Australia on the horizon Class actions against "big oil" in Australia on the horizon

Paul Hunt

Senior Journalist: Energy & Commodities

Paul Hunt

The new, first-of-its-kind class action has lodged proceedings against the Australian government for allegedly failing to disclose to investors the climate change risks associated with sovereign bonds. 

It is the first action relating to climate change risk and the sovereign bond market. A suit brought by a 23-year-old retail investor alleging a breach of public duties going to the heart of corporate governance. 

Already internationally there have been several climate suits filed by citizen campaigners and activists against the oil and gas industry, and governments, over their alleged failures to mitigate and include climate change risks in their outlooks and business plans.

In July 2018 the US Supreme Court ruled unanimously in favour of 21 youth plaintiffs against the American federal government over a constitutional climate inaction. The case was ultimately quashed in January this year on appeal in the Circuit Court.

However, these cases are becoming more common. The state of Rhode Island brought its own lawsuit against Chevron Corporation that same year seeking to hold the company liable for causing climate change impacts which would adversely affect the state and its owned and operated facilities.

More than nine cities and countries in the US, from New York to San Francisco, have attempted to lodge legal proceedings against "big oil" and the resources industry over climate concerns.

Now, Allens say they are noticing a "growing trend" in Australia of both enforcement of allegations of inadequate financial and governance disclosures of climate risk through litigation, and class actions concerning ASX disclosures relating to governance issues and their financial impacts.

"Australia is becoming front and centre as a forum for activist climate change litigation against corporates, financial institutions and government," Allens said in a note today.

For many years, Australia's regulators have pushed Australian listed companies to consider the implications of not telling investors the full risks associated with climate change and extreme weather events.

In September 2018 ASIC published a report aimed at ASX business, largely the energy sector, warning that only 17% of ASX200 companies had identified climate change risk as a "material risk" in their operating and financial reviews. It noted there was even less disclosure outside of the ASX200.

A second alarm was sounded by the Australian Securities Exchange itself, which updated its Corporate Governance Principles and Recommendations last year, encouraging oil and gas companies to consider and report their exposure to climate risks, including their risks to global decarbonisation efforts.

With the new case lodged in Australia's Federal Court last month, the plaintiff activist investor alleges Australia is "materially exposed and susceptible" to the physical impacts of higher temperatures and increases in droughts and bushfires.

The plaintiff also alleges that her investment in government bonds will be impacted by transitional causes, such as increased exposure to stranded assets and legal actions, changing markets and policies.

A third area of the claim relates to sovereign response and how the government is responsible for not mitigating emissions under the Paris Agreement and its lack of an energy policy.

Whether or not the plaintiff will be successful in their bid to sue the government remains before the courts. 

In their suit, the plaintiff - in this case a 23-year-old retail investor, also takes aim at individuals by alleging a breach of public duties by the CEO of the Australian Office of Financial Management.

It is this part of the case that should be of cause for concern for Australian oil and gas companies which potentially do not declare their risks to climate change.

It is a "stepping-stone", according to Allens, towards more commercially focused climate change disclosure class actions against both corporations and directors responsible.

As Allens point out in their note, the action "targets individual public office holders in relation to duties that are closely analogous to directors' duties" and in that regard "serve as a caution for members of publicly listed boards."

While no court in Australia has yet considered directors' responsibilities in relation to climate change risk, it is now clear that this case could call into question whether or not company directors are in breach of their financial obligations to shareholders.

If the CEO of the AOFM is found to have breached their public duties, does this apply to Australian oil and gas executives?

Have the climate class action wars finally come to Australia? One of the most reputable law firms in the country seems to think so.

"This proceeding is likely to signify the emergence of a growing trend," Allens said. 

However Stephen Davies, Senior Counsel, a prominent barrister specialising in commercial claims based in Perth, said there was no need for undue panic by any means. 

"While it is right to bring this claim to public notice, on any view it is a novel and ambitious piece of litigation. The prospect of establishing duties of the type contended for can by no means be assured," Mr Davies SC said. 

 Senior Counsel Stephen Davies.

Australia's oil and gas sector is no stranger to activist investor groups. Origin Energy, Santos, Woodside, Equinor, and BP have all experienced pressure internally through motions at their annual general meetings.

The Australasian Centre for Corporate Responsibility has repeatedly challenged Santos and Woodside in particular on their emissions reduction targets and actions to mitigate climate change.

The group also called on them to review their memberships of lobby groups including the Australian Petroleum Production Exploration Association - the peak body for oil and gas in the region.

The activist group did not get any of its resolutions passed at Woodside's most recent AGM, but did secure a huge portion of the vote.

Last May Chevron's shareholders pushed through an activist resolution requiring the company to disclose its climate lobbying activities.

Though company management opposed the motion it scraped through with 53% of the vote. In Australia votes have to be over 70% to pass. It is, however, non-binding.