24/11/2021

(AU AFR) Court Gives Student OK To Sue Government Over Climate Disclosure

AFR - Hannah Wootton

The Commonwealth has lost an attempt to have a landmark case alleging it misled or deceived sovereign bonds investors by failing to disclose climate change risk thrown out, with a judge slamming its claims as “exaggerated” and having “little force”.

The ruling allows 24-year-old student and bondholder Katta O’Donnell to proceed with her case – one of several sweeping Australian courts in a tidal wave of climate litigation – in which she is pushing for the government to declare climate change risk associated with bonds and for it to be banned from promoting or selling them until it does so.

The Commonwealth has lost its attempt to have Katta O’Donnell’s climate change case struck out. Josh Robenstone

It also paves the way for future cases by effectively ruling that investors can make a claim for misleading conduct before corrective disclosure or harm had occurred, which is at the core of climate change actions in which applicants try to improve the conduct of those they are suing before the alleged harm occurs.

The government was attempting to have the case struck out despite the Australian Office of Financial Management conceding that ratings houses will likely force greater climate disclosure from the state and Treasurer Josh Frydenberg admitting financial markets and lenders may sanction Australia if it does not move faster on cutting emissions.

The Commonwealth argued Ms O’Donnell had not sufficiently established what harm climate change would cause to the state’s finances, when that damage would occur or what the link between the loss and the planet warming was.

But Federal Court judge Bernard Murphy slammed the Commonwealth’s complaints as “exaggerated”, saying it was “straightforward to understand the basis of [Ms O’Donnell’s] claim ... that, in the likely event that the consequences of climate change have material adverse impacts on the Commonwealth’s financial position, the bond market is likely to factor that into the value of [bonds] on the ASX”.

He said that misleading and deceptive conduct was a “relatively straightforward” claim, especially as Ms O’Donnell was not claiming that there had been insufficient disclosure but rather that there had been “nothing at all”.

Justice Murphy also threw out the government’s claim that the case should be struck out because Ms O’Donnell had not explained what information about climate change risk it should have disclosed, saying the onus was on the government to provide this information as it was “uniquely placed ... to assess” it.

He ordered that Ms O’Donnell get access to internal government documents regarding these risks before filing a revised claim, citing a “substantial asymmetry of information” between the parties.

He rejected the government’s claim that requiring climate change risk disclosure would be the thin end of the wedge in requiring disclosure of “every possible event, economic change, or government policy that could ever occur over the space of 30 years” and influence bond prices, saying “that was not the applicant’s case”.

“Disclosure of a risk that the price [of bonds] ... may change for reasons which are unstated, is not the same thing as disclosing a risk that the market price might be materially reduced as a result of a particular identified risk, here, climate change,” he said.

Representative proceeding to go ahead

The Commonwealth also lost its challenge to stop the case being a representative proceeding – meaning Ms O’Donnell is suing on behalf of other bondholders – on the basis that climate change disclosure actually risked loss to investors in the future.

It said there was “no legitimate purpose” behind bringing the matter as a representative proceeding, suggesting Ms O’Donnell was trying to run a “pseudo climate change class action” to garner public attention even though she could have just sued the Commonwealth in a personal capacity.

But Justice Murphy also dismissed this as having “little force” and media attention was “neither here nor there”.

“These days, it is common place for the parties to large litigation to consider, and attempt to influence, the way the litigation is seen in the eyes of the public,” he said.

“There is little or no evidence as to how the applicant has sought to garner media attention regarding the proceeding. But to the extent that she may have done so, it carries little weight in deciding whether to order that the proceeding not continue as a representative proceeding.”

But he rejected Ms O’Donnell’s allegations that the Commonwealth, federal Treasury Secretary and the CEO of the Australian Office of Financial Management owed her a fiduciary duty, meaning the individuals are off the hook as only the misleading and deceptive claim against the state remains.

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