In
the matter of Kathleen O’Donnell versus
the Commonwealth Of Australia
– 22
July 2020 to 11 October 2023.
Ms.
O’Donnell commenced a
class action against the Australian Government during a period when Josh
Frydenberg was Treasurer, Simon Birmingham was Minister for Finance,
Christian Porter was
Attorney-General and Prime Minister Scott Morrison had acquired the
first two (Health & Finance) of five secret ministries. It was also a period where the nation was still coming to terms with the largescale impacts of climate change-induced megafires in the August 2019- March 2020 fire season.
This
class action which ran for over three years eventually caused
the Australian Government to declare
a potential
for financial
risks with regard to certain classes of investors
in the face of the
systemic risk climate change poses to Australia’s financial and
economic position.
FEDERAL
COURT OF AUSTRALIA
O’DONNELL
V COMMONWEALTH OF AUSTRALIA [2023] FCA 1227
ORDERS
VID 482 of 2020
Excerpts
from the order - all yellow highlighting is my own
REASONS
FOR JUDGMENT
MURPHY
J:
INTRODUCTION
1
This is an application for Court approval of the proposed
settlement of a representative proceeding brought under Div 9.2 of
the Federal Court Rules 2011 (Cth) (the Rules). The
applicant, Kathleen O’Donnell, brings the proceeding against the
respondent, the Commonwealth of Australia, doing so on her own behalf
and on behalf of all persons who at any time on or since 7 July 2020
have acquired one or more Exchange-traded Australian Government Bonds
units (exchange traded government bonds) in the form of an eTIB with
code GSIC50; and/or one or more government bonds in the form of an
eTB with code GSBE47, and who continue to hold one or more government
bond as at the date of the fourth amended pleading, 20 December 2022
(group members).
2
The proceeding relates to the
real, but until more recently, underacknowledged risks that climate
change poses to Australia’s financial position. It alleges
that the Commonwealth published information to investors and
potential investors in exchange traded government bonds via
“Information Statements”, “Term Sheets”, “Information
Memoranda”, and a relevant website, and that the Commonwealth
failed to disclose information about:
(a)
the alleged physical risks of climate change, meaning impacts
caused directly by a changing climate, and associated costs; and/or
(b)
the alleged transition risks of climate change, meaning the impact
of global and domestic efforts to reduce greenhouse emissions, and
associated costs.
3
The proceeding alleges that the existence of those risks mean that
there was and is a real, rather than remote, risk that before the
maturity dates of the exchange traded government bonds held by the
applicant, there will be significantly increased Commonwealth budget
deficits (by reason of reduced revenue and increased expenditure)
relative to Australia’s annual GDP; and a significant increase in
Commonwealth government borrowing, and accordingly a significant
increase in government debt (relative to Australia’s annual GDP).
In turn, and as a result of those risks, prior to the maturity date
of the exchange traded government bonds held by the applicant and
group members, it is alleged that there will be or is likely to be:
(a)
a material and negative impact on the Commonwealth’s status and
reputation as a reliable, safe and relatively risk-free insurer of
sovereign debt securities;
(b)
a higher risk of the Commonwealth not having the capacity to
discharge its interest and principal obligations under the exchange
traded government bonds held by the applicant and by the other
persons holding exchange traded government bonds at the material
times;
(c)
a material and negative impact on the Commonwealth’s capacity to
maintain its AAA status as an issuer of sovereign debt securities;
and
(d)
a likelihood of the Commonwealth heaving to pay higher interest
rates than would otherwise be the case in respect of any new issue of
exchange traded government bonds.
4
It is alleged that by failing to disclose material climate change
information (being information that might reasonably be expected to
have a material influence on the holders of exchange traded
government bonds as to whether to hold or dispose of them and
decisions by potential investors as to whether to purchase such
bonds) the Commonwealth engaged in and continues to engage in conduct
that is misleading or deceptive and/or likely to mislead or deceive
in breach of s 12DA(1) of the Australian Securities and
Investments Commission Act 2001 (Cth) (ASIC Act).
5
The proceeding seeks a declaration that the Commonwealth has
engaged in misleading or deceptive conduct, but not damages.
6
Under the proposed settlement
the Commonwealth has agreed to make a public statement in agreed
terms regarding the systemic risk climate change poses to
Australia’s financial and
economic position, to be published on the website of the Department
of Treasury within seven days. In return the applicants have
agreed to seek Court approval of the proposed settlement and to seek
leave to discontinue the proceeding on the basis that there be no
order as to costs. The Commonwealth has agreed to support that
application.
7
The agreed public statement includes the following:
4.
Climate change is a systemic
risk that presents significant risks and opportunities for
Australia’s economy, regions, industries and communities. Achieving
Australia’s emissions reduction commitments and realising the
opportunities that accompany the transition will require significant
investment by governments and the private sector. Uncertainty around
the magnitude and timing of the physical impacts of climate change
and the global transition to net zero emissions translates to
uncertainty about the fiscal impacts of climate change. And, as a
consequence, there is uncertainty about whether the fiscal impacts of
climate change may affect (if at all) the value of Commonwealth
Government Securities (also known as Australian Government Bonds or
AGBs) and, in turn, eAGBs.
5.
The economic and climatic changes brought about by climate change
will have fiscal impacts. For example, the new industries and jobs
emerging from the net zero transformation will impact the structure
of the economy and, in turn, the tax base. Extreme weather events are
also expected to occur with increased severity and frequency, which
will increase demand for disaster relief payments and infrastructure
repairs.
…
7.
The Government is developing a package of sustainable finance
reforms, including the establishment of a sovereign green bonds
program and regulatory reforms, to increase the transparency and
credibility of Australia’s growing sustainable finance market. The
Government’s intention is that these reforms will assist investors
to align their investment decisions with net zero emissions targets
and increase the flow of capital towards new opportunities that
support Australia’s net zero pathway.
8.
In accordance with the requirements of the Climate Change Act 2022
(Cth), the Commonwealth will continue to publish an Annual Climate
Change Statement. Among other things, the Annual Climate Change
Statement addresses the risks to Australia from climate change
impacts, such as those relating to Australia’s economy. The first
Annual Climate Change Statement was tabled in Parliament on 1
December 2022 and may be found at
https://www.dcceew.gov.au/climate-change/strategies/annual-climate-change-statement.
…
39
Turning then to the Commonwealth’s second point, it submits that
another core difficulty with the applicant’s case is that it takes,
in isolation, one possible cause of risks for the Australian economy
and seeks to extrapolate from those risks an unpleaded and unprovable
effect on exchange traded government bonds. It argues that after at
least four attempts to plead her case over three years the applicant
has still not been able to articulate:
(a)
what risks she alleges the Commonwealth should have disclosed;
(b)
what obligations she alleges the Commonwealth would not be able to
honour (for example, the annual interest or the redemption of the
exchange traded government bonds at maturity) and why, and when;
(c)
how it is alleged that the Commonwealth would not be able to
perform its obligations with respect to the applicant’s exchange
traded government bonds considering that the Commonwealth has never
defaulted on sovereign debt even in circumstances of global economic
downturn;
(d)
why the alleged climate change related risks would give rise to a
reasonable expectation that those matters would be disclosed
considering that the Commonwealth may have increases in expenditure
and decreases in revenue caused by number of domestic and global
circumstances and events including natural disasters, wars and
pandemics unrelated to climate change; and
(e)
how the information the applicant alleges the Commonwealth has not
disclosed would have a material effect on the price of the exchange
traded government bonds being traded on the market when the
information she alleges has not been disclosed by the Commonwealth
must be publicly known (if it is true) because it is referred to in
the statement of claim in the proceedings.
40
These contentions are not without force, but they overstate the
position. I doubt that it will be
as difficult as the Commonwealth submits to establish that global
warming and climate change gives rise to real, systemic risks to the
Commonwealth’s coffers and therefore to the value of the change
traded government bonds. For the purposes of the application I take
judicial notice of the fact that the consensus position of leading
climate scientists around the world is that global warming and
climate change brings risks of more frequent and more intense
bushfires, storm surges, coastal flooding, inland flooding, cyclones,
droughts and other extreme weather events. To my mind, it seems
likely that such events will give rise to a huge drain on
Commonwealth resources and on the tax base over a very lengthy
period, perhaps forever, and therefore also weigh on forecasts in
relation to the Commonwealth’s financial and economic position.
41
I note that in Sharma v Minister for the Environment [2021]
FCA 560; 391 ALR 1, Professor William Steffen, Emeritus Professor at
the Fenner School of Environment and Society at the Australian
National University gave unchallenged evidence that “[a]s an
overview, the planet’s atmosphere and ocean are heating at an
increasing rate, polar ice is melting, extreme weather events are
becoming more extreme, sea levels are rising, and ecosystems and
species are being lost or degraded” (at [54]). He gave evidence
that, if over multiple decades the global average surface temperature
could be stabilised at or very close to 2°C above the
pre-industrial level (which was the best available outcome, and there
are real risks it may not be achieved) the effects for Australia
would include a significant increase in the likelihood in any given
year of extreme weather events: a 77% likelihood of severe heatwaves,
power blackouts and bushfires; and a 74% likelihood of severe
droughts, water restrictions and reduced crop yields (at [67]).
42
Based on climate modelling by the CSIRO and the Commonwealth
Bureau of Meteorology he projected the following changes to
Australia’s climate over the next few decades (at [67]):
• Continued
warming, with more extremely hot days and fewer extremely cool days.
• A
decrease in cool season rainfall across many regions of the south and
east, likely leading to more time spent in drought.
• A
longer fire season for the south and east and an increase in the
number of dangerous fire weather days.
• More
intense short-duration heavy rainfall events throughout the country.
• Fewer
tropical cyclones, but a greater proportion projected to be of high
intensity, with ongoing large variations from year to year.
• Fewer
east coast lows particularly during the cooler months of the year.
For events that do occur, sea level rise will increase the severity
of some coastal impacts.
• More
frequent, extensive, intense and longer-lasting marine heatwaves
leading to increased risk of more frequent and severe bleaching
events for coral reefs, including the Great Barrier and Ningaloo
reefs.
• Continued
warming and acidification of its surrounding oceans.
• Ongoing
sea level rise. Recent research on potential ice loss from the
Antarctic ice sheet suggests that the upper end of projected global
mean sea level rise could be higher than previously assessed (as high
as 0.61 to 1.10 m global average by the end of the century for a high
emissions pathway, although these changes vary by location).
• More
frequent extreme sea levels. For most of the Australian coast,
extreme sea levels that had a probability of occurring once in a
hundred years are projected to become an annual event by the end of
this century with lower emissions, and by mid-century for higher
emissions.
Professor
Steffen projected much worse effects if the global average surface
temperature could not be stabilised at a 2°C increase, and instead
increased by about 3°C or 4°C: at [68] and [69].
43
The respondent in that proceeding was the Commonwealth Minister
for the Environment. The Minister made no challenge to the scientific
evidence advanced by the applicants, and by and large did not dispute
“the nature of the risks and the dangers from global warning,
including the possible catastrophe that may engulf the world and
humanity”: see Minister for the Environment v Sharma [2022] FCAFC
35; 291 FCR 311 at [2]. There are good reasons to doubt that the
Commonwealth would take any different stance in the present case in
relation to the risks posed by climate change.
44
To my mind, it does not stretch
imagination to think that the applicant may be able to establish that
climate change bringing rising sea levels and coastal erosion, storm
surges causing sea flooding of low-lying areas, more intense and more
regular fires and floods, and droughts caused by increased
temperatures and reduced rainfall, carries a real risk that it will
have a substantial impact on communities, business, government
infrastructure and the environment. In some areas insurance against
bushfires and extreme weather events may become unavailable, or
prohibitively expensive such that it is effectively unavailable.
There may be an exodus of residents and businesses from some areas
because of repeated and intense fires, floods, and other extreme
weather events or the risk thereof. There must be a risk that the
government will be forced to meet the substantial costs that result
where individuals and businesses cannot do so, including through home
buyback schemes, public housing projects, farm relocation assistance
and the like. And it seems likely that there will be substantial
costs for the Commonwealth government in protecting government
infrastructure from such events, repairing or remediating government
infrastructure after such events, and relocating core government
services such as schools and hospitals. And if businesses and
employment opportunities are degraded the tax base available to fund
government expenditure reduces.
45
Of course, in a wealthy country like Australia, which has never
defaulted on its sovereign debt obligations, it is likely to be
complex and difficult for the applicant to establish that
catastrophes of the nature described are likely to be such a drain on
the public purse that there is a material risk that the Commonwealth
may, in the future, be unable to perform its obligations with respect
to exchange traded government bonds. Doing so will require the
applicant to call expert witnesses about the relationship between
such catastrophes, or the likelihood of them, on Australia’s
financial and economic position and the likely effect on the value of
exchange traded government bonds, in circumstances where there is no
internationally agreed framework for assessing such risks. And it
will be necessary for the applicant to prove any underlying
assumptions about Australia’s economic and financial position and
assessments about that position in the future so that the experts
engaged in her case can express their opinions in terms applicable to
Australia’s particular circumstances. This will be far from
straightforward, and it will involve real complexities and
difficulties for the applicant. There must be a real risk that the
applicant will be unable to establish this.
46
Ninth, the applicant’s case has always been that the
Commonwealth provided no information whatsoever to investors
and potential investors about any risks of material adverse impacts
on the Commonwealth’s financial position and to the value of the
relevant exchange traded government bonds as a result of climate
change. The information to be provided by way of the agreed public
statement is some information about such risks. Whether, in the event
the applicant is successful in the proceeding, the Commonwealth would
be required to provide more extensive information than this will
depend upon the evidence advanced about the extent of any risk found
to exist. Put another way, the agreed public statement arguably falls
within the range of reasonable outcomes in the proceeding in terms of
the disclosure of the risks posed by climate change to the value of
exchange traded government bonds.
47
I have accordingly made orders to approve the proposed settlement
and to grant leave to the applicant to discontinue the proceeding
with no order as to costs.
I
certify that the preceding forty-seven (47) numbered paragraphs are a
true copy of the Reasons for Judgment of the Honourable Justice
Murphy.
Associate:
Dated:
13 October 2023
