Class actions weaponised to enforce ESG undertakings

Class actions are set to rise as investors look to use them as a tool to ensure that moral and societal obligations are fulfilled by companies and governments.

Increasingly, the aim of class actions may not be to get money, but to get a result, Corrs’ head of class actions Chris Pagent says.

Investors will increasingly bring class actions against companies, governments and public authorities in an effort to force them to lift their game regarding environmental, social and governance obligations, rather than solely to get damages payouts.

“It’s about holding organisations to account and the motivation is social or environmental or political,” Corrs Chambers Westgarth head of class actions Chris Pagent said as he released the firm’s predicted class action trends in 2022. “It is not to get money, it’s to get that result.”

Class actions would be directed at changing corporate behaviour and decision-making. “Investors are paying close attention to the practices of disclosing entities and will use litigation to hold companies accountable for representations they have made and practices they adopt.”

Already individuals are taking action, such as in the 2021 Abrahams case, in which two shareholders gained access to Commonwealth Bank documents regarding gas and fossil fuel projects and in the REST superannuation case brought by a member over the fund’s handling of climate change risk, and settled in 2020.

“REST agreed to align its investments with net-zero emissions by 2050 as well as disclose its holdings,” Mr Pagent said.

“Citizens are likely to scrutinise decisions which have the potential to affect climate change, such as project approvals and steps taken – or not taken — to protect communities will be a key focus,” Mr Pagent said. “If damages are sought, they are unlikely to be the primary motivation for such actions.”

Economic stress was identified as another influencer on class action trends, with an expectation that increased inflation and interest rates might cause financially distressed companies to explore ways to limit their liability, including restructuring via schemes of arrangement and deeds of company arrangement, or removing themselves from the jurisdiction by going offshore.

Governments would be increasingly vulnerable, as shown by two recent climate change class actions against the Commonwealth: the Sharma case brought by teenagers against the Minister for the Environment alleging a failure in duty of care to protect them against the ill-effects of climate change; and the Pabai case, set down for trial next year, in which men from Boigu and Saibai islands in the Torres Strait allege failure to protect Islanders and their livelihoods against the worsening weather and rises in sea level.

Other predictions about class actions were for continued uncertainty about litigation funding reform, especially the federal government’s bill that would cap fees at 30 per cent of any court settlement; and the likely increase in actions related to mandatory vaccination policies.

It was also more likely that class action lawsuits would be defended in the courts, rather than most being settled outside it. “In the past two years, we have seen three shareholder class actions that have gone to judgment with the corporate defendant successful in two out of three actions,” Mr Pagent said.

Those decisions had not only “set out the anatomy of a shareholder class action when it comes to the assessment of liability, market-based causation and loss” but may cause litigation funders and plaintiff law firms to adopt “a more cautious approach to the selection and pleading of such actions”.

The Corrs’ report aligns with Allens’ Class Action Risk 2022 data that showed governments are now the most sued sector.

Mr Pagent said this was a function their wide ranging exposure, including on immigration, food production, management of prisons and detention centres, property developments and lack of disclosure regarding investment decisions with climate change risks. “They make decisions which are capable of impinging on civil liberties and commercial options,” he said.