1. Causes of Action

1. OVERVIEW

This Section identifies legal pathways, as well as the hurdles and challenges faced in leveraging contractual obligations to advance corporate climate litigation across 17 case-study countries. The analysis also emphasises the potential of contractual obligations as a basis for future litigation.

Established Legal Avenues from Past Litigation

Corporate climate litigation based on contractual obligations is evolving across several key areas: (a) the validity and performance of carbon trading and emissions reduction contracts, (b) the recognition of carbon credits and quotas as property rights, and (c) the application of "Change in Law" clauses in light of environmental policy changes.

Contracts for carbon crediting and emissions reductions, essential for transitioning to a low-carbon economy, present complex legal challenges, as seen in disputes such as Shift2Neutral Pty Ltd v Fairfax Media Publications Pty Ltd in Australia and Microcarbon (Guangzhou) Low Carbon Technology LLC v. Guangzhou Carbon Emissions Trading Center LLC in China. These cases underscore the importance of contract law in ensuring the integrity and effectiveness of carbon trading mechanisms. Furthermore, the recognition of carbon emission allowances as a new type of property right, akin to intangible assets, is demonstrated in the Shunchang Branch of the Agricultural Bank of China v. Fujian Rongchang Chemical LLC. Additionally, "Change in Law" clause has been crucial in addressing the economic impacts of environmental policy changes on contracts, as demonstrated in Maharashtra State Electricity Distribution Co. Limited v. Adani Power Maharashtra Limited in India.

Hurdles and Challenges

Litigation based on contractual obligations in the context of corporate climate actions faces notable hurdles, primarily due to the uncertainty around the enforceability of climate-related clauses and the technical complexity of climate-related contracts such as carbon crediting and emissions reductions. The uncertainty stems from a lack of legal precedent, ambiguity in the language of climate commitments that are framed as non-mandatory or "soft" obligations, and the lack of standardised definitions for key terms such as "sustainability" and "net zero." An ongoing case in France against BNP Paribas highlights these challenges, as it examines the bank's adherence to its voluntary commitments to carbon neutrality, questioning the obligatory nature of unilateral commitments under French law. Additionally, the technical and complex nature of carbon crediting and emissions reduction contracts complicates litigation, raising concerns about the capacity of local courts to handle such matters without specialised knowledge and the adequacy of general civil or contract law in interpreting these contracts. These challenges underscore the evolving landscape of corporate climate litigation and the critical role of judicial interpretation in enforcing contractual climate-related obligations.

Potential Legal Avenues in Future Litigation

Future litigation could emerge from breaches of contractual obligations to accurately represent environmental impacts and adhere to other climate-related clauses. The practice of greenwashing, where companies make misleading claims about the sustainability of their products or services can lead to legal actions under contract law, including liability for breach, annulment due to misrepresentation, or contract termination. Furthermore, the enforceability of climate-related clauses, such as those aiming to meet climate mitigation goals or promote climate-friendly practices in supply chains, remains uncertain and subject to legal scrutiny. These developments underscore the evolving nature of corporate climate litigation, where the legal system grapples with the complexities of enforcing contractual commitments to sustainability and climate change mitigation.