In 2009, huge volumes of oil spilled into the Timor Sea from a well off the coast of Western Australia. The two and a half month long leak caused catastrophic damage to marine wildlife and upended the livelihoods of thousands of Indonesian farmers whose seaweed crops were destroyed.
At the end of 2022, the company that operated the well settled a years-long legal fight with over 15,000 Indonesian farmers who had brought a class action suit against it. PTTEP Australasia agreed to pay them A$192.5mn, the equivalent of £102mn, in compensation without admitting liability.
“This was a strong settlement . . . it was quite a thrill when we settled”, says Rebecca Gilsenan, a lawyer at Maurice Blackburn who represented the farmers. PTTEP declined to comment.
But it was not only the Indonesians who were relieved when the settlement was finally reached. Harbour Litigation Funding, a UK-based firm that provides financing for complex lawsuits in return for a share of the proceeds, spent more than £17mn on the case, a budget that included money for a boat and the off-road motorbikes needed to reach farmers in remote locations and recruit them to the action. In return, Harbour took £43mn, or just over two-fifths, of the award.
“It’s always tough for people to have significant amounts deducted from their compensation,” says Gilsenan. “But each and every one of [the farmers] struck that bargain.”
Maurice MacSweeney, director of legal finance and sales planning at Harbour, says PTTEP “put up quite a fight” and notes that companies with “deep pockets” make bringing such challenges difficult for those without the financial firepower.
The volume of international litigation relating to environmental and climate issues has grown rapidly over the past few years, with cases seeking compensation from companies for environmental damage of rising interest.
In London, mining company BHP is facing one of the biggest: a £36bn class action lawsuit brought by over 700,000 claimants for losses relating to the 2015 collapse of the Fundão tailings dam in Brazil. The disaster released huge quantities of mining waste and polluted hundreds of kilometres of waterways.
“If you ask [Brazilians], ‘Where were you when it happened?’ people know,” says Ana Carolina Salomão, chief investment officer and partner at law firm Pogust Goodhead, which is representing the claimants. “It’s kind of like our 9/11.”
The case has already cost £70mn to bring, funded by litigation investors including Brazil’s Prisma Capital and the UK’s North Wall Capital.
BHP said it “denies the claims brought in the UK in their entirety and will continue to defend the case”.
Litigation is also becoming a tool of choice for forcing faster action by governments and companies on climate change, with cases filed in courts from Europe to Australia.
“I think we’re entering . . . a golden moment for climate litigation,” says Jolyon Maugham, founder of the non-profit Good Law Project. “It’s a function both of what resonates in their social milieu and an understanding of the limits of what can be done by politicians.”
Such cases are “absolutely necessary to hold people to account for not taking enough action on climate change”, according to Ian Fry, the UN’s special rapporteur on the promotion and protection of human rights in the context of climate change, who is compiling evidence on climate-related legislation and litigation.
The costs are often met by charities or supported by philanthropic groups such as the Children’s Investment Fund Foundation and the Foundation for International Law for the Environment, along with crowdfunding campaigns.
But the growing interest in cases seeking compensation for climate and environmental damage, and the new focus of market regulators on corporate greenwashing, is turning legal fights into a business opportunity. Professional litigation funders, backed by investors ranging from pension funds to family offices, want to make money from climate-related claims.
While some have welcomed this development, others point out that investors have different priorities to non-profits and claimants and that their fees are not always transparent. EU lawmakers, concerned about the growing market, have proposed new regulations to police the space.
There are also fears that profit-seeking funders will cherry-pick cases based on the likelihood of victory or the potential size of the payout, rather than for maximum environmental or societal impact.
But funders counter that they are needed. Stephen O’Dowd, senior director of legal finance at Harbour, says the amount of funding needed to bring the challenge against PTTEP was well beyond the means of Indonesian farmers, adding that “it was a very hard case . . . Everybody thought we were mad for funding the claim.”
A turning point
Much environmental litigation has related to redress for specific incidents such as oil spills. But specialist law firms, scientists and non-profits are now investigating potential claims in which a company is held to account for its contribution to global warming. Many lawyers say it is just a matter of finding the right case.
“I am optimistic that we will bring a [damages] case and we’ll be successful,” says Martyn Day, co-founder of law firm Leigh Day. Such a case would “hopefully bring about significant change as to how the multinationals operate . . . it’s about us finding the right case with the right law, and funders who are happy to help.”
Two climate damages test cases against alleged corporate polluters — one filed against the energy giant RWE and one against cement maker Holcim — are already under way and are being closely watched.
Companies also face growing legal risks now that various regulators, including those for competition, advertising and capital markets in various countries, have corporate greenwashing and climate-related disclosures more squarely in their sights, and as activist groups become shareholders in polluting companies in order to challenge climate strategies that they deem inadequate.
Alex Cooper, a lawyer at research group the Commonwealth Climate and Law Initiative, says a wave of big corporate climate cases was “probably two to three years off . . . But I think it’s on the way.”
Companies, especially those producing or consuming fossil fuels, are feeling the heat. In May, 9 per cent of investors in oil major ExxonMobil, including Norway’s largest pension company, KLP, backed a shareholder resolution asking the company to disclose the risks it faced from environmental litigation.
Exxon, alongside other oil companies including Chevron and Shell, is facing landmark legal challenges in the US from cities, counties and states for campaigns of alleged “deception” about climate change and the role its products played in causing it.
If even some of the US cases were successful, “you almost certainly are talking about the largest tort award in US history — this would be easily over $1tn,” says Lee Wasserman, director of philanthropic group the Rockefeller Family Fund. The fund has donated to EarthRights International, a non-profit that is involved in several of the lawsuits.
“We’re very close to the moment when a number of [law] firms take that leap” and start representing clients in such cases, and then the fossil fuel industry will be facing hundreds, not dozens, of cases, he adds.
Who pays the lawyers?
As climate litigation approaches a potentially transformational period of expansion, attention is turning to who funds it, and how.
Professional litigation funding is particularly suited to the US legal landscape, where damages awards can run into the billions and the losing side does not normally cover the winner’s legal fees. It has also grown rapidly in Australia and the UK, where it has been used to bring class action claims such as those related to the “dieselgate” car emissions scandal.
For investors looking for an asset class uncorrelated with broader financial markets, and investments labelled as “sustainable”, funding climate-related cases has emerged as an intriguing option. Aristata Capital raised £39mn last year from backers including Capricorn Investment Group and the Soros Economic Development Fund to invest in cases with a “measurable social or environmental impact”, says founder Rob Ryan.
“Our investors are predominantly pure impact investors who are looking for good returns and significant measurable impacts,” he says, adding that the group was looking to increase its fund size to £50mn and use it to back around 20 cases.
Litigation funder Woodsford’s ESG “engagement” business, which has grown over the past four years, helps identify, develop and fund cases that involve “significant breaches in environmental, social and governance [issues],” says Steven Friel, its chief executive. Most have been about governance issues such as alleged money laundering but “we’re working towards the ‘E’ in ESG”, Friel adds.
Funders invest in a portfolio of cases and might cover the costs of lawyers and expert evidence, and arrange insurance products. Most work on a “no win, no fee” basis, and are only paid if damages are awarded. Their cut of any winnings varies with how risky a case is, with “typical” somewhere around 25 per cent.
Law firms can also fund cases under a similar no win, no fee model, but those taking on climate claims tend to be specialist firms rather than big commercial practices that might have conflicts of interest as a result of work they do for other clients, such as oil majors or miners.
“A lot of firms [are] making a lot of money out of fossil fuel companies, and that’s part of the reason why it’s a small group of firms who are likely to be willing and able to take on climate cases,” says Joe Snape, an associate at Leigh Day, which is bringing a case against Shell on behalf of the Ogale and Bille communities in Nigeria in relation to oil spill pollution.
But what for-profit investors are prepared to fund often differs from what philanthropic groups will back. The landmark RWE case going through the German courts — brought by a Peruvian farmer who alleges that the group contributed to the warming that is melting the glacier above his hometown — might end up being of outsized significance if it ends in a precedent-setting victory. But such actions are by their nature risky and expensive — the RWE case has cost €750,000 so far, funded by donations — and may run for years.
Patrick Moloney, chief executive of Litigation Capital Management, says he is “watching what’s going on” in the ESG space, but that “not a lot of litigation has actually been brought that would meet the criteria we need”.
“We tend to want the legal principles associated with the disputes to be reasonably well settled,” he adds.
Lucas Macedo, a senior case manager at Nivalion, says the funder turns down nine out of every 10 cases brought to it, in line with the industry average. “Funders shy away from making new law,” he says. “We do not want to be seen as a speculative investor.”
At a non-profit like Good Law Project, the priorities are different. “I could very easily only choose winning cases. We could have a 100 per cent win rate,” says Maugham. “But we wouldn’t have any impact because we’d be choosing easy, meaningless cases — and that’s not the right thing for us to do.”
Professional funders need cases with a damages element, even if policy or regulation change might be more impactful than a fine levied against a single company.
An example is tobacco, where cigarette makers have paid out billions in damages related to the health impacts of smoking. But they continue to make substantial profits from selling cigarettes. The greater impact has come from the policy response: in many countries, smoking is now banned in workplaces, bars, restaurants and on public transport.
Adam Heppinstall, a barrister at Henderson Chambers in London, told a legal conference earlier this year that cases driven by factors other than profit might pose a greater threat to polluting companies. “I can see NGOs being ever more creative and spending ever [greater] amounts of money,” he said.
Duncan Hedar, a partner at law firm Lanier, Longstaff, Hedar & Roberts, says the profession “needs to be braver about the type of claims that we are willing to pursue”. To really be impactful, he adds, lawyers and funders “have to accept that new types of claims are going to have to be brought” and that there will be “more uncertainty about the outcomes of those claims”.
Funding such claims will involve attracting “a new breed of investors, who are willing to take these extra risks”, according to Robert Hanna, managing director at funder Augusta Ventures. “It’s difficult for the corporate world to invest in riskier or test cases.”
Chasing green ambulances
Some environmentalists wince at the very idea of professional litigation funding, particularly in cases that involve impoverished communities seeking redress for maltreatment at the hands of wealthy corporations.
Litigation funders are sometimes branded “ambulance chasers” who exploit a bad situation to turn a quick profit without much regard for the ethics of a case. In the EU, lawmakers concerned with the potential for funders to exploit the model have proposed capping what they can take at 40 per cent of any winnings.
Professional litigation funding “could offer some benefits” and is “expected to play a growing role in the provision of litigation services in the coming years”, concluded a 2021 research paper prepared for European lawmakers. But if not properly regulated “it could lead to excessive economic costs and to the multiplication of opportunity claims, problematic claims and so called ‘frivolous claims’”.
Tensions could also arise given the potentially divergent interests of funders and claimants. Client Earth, one of the most prominent groups filing climate-related claims, receives funding from trusts, foundations, philanthropists and members of the public but does not work with investors in litigation. “This allows us the freedom to focus purely on delivering impact,” the group says.
But Justice Michael Lee, who presided over the settlement hearings in the case against PTTEP, says that without the funding from Harbour “some 15,456 Indonesian seaweed farmers would not have had the ability to recover their losses”.
Elena D’Alessandro, a law professor at the University of Turin, says if the “only way” to bring big environmental and climate cases is by turning to professional litigation funders, and if the remuneration fee of funders is fair, “then why not?”
Mishcon Purpose, the for-profit sustainability arm of law firm Mishcon de Reya, wants to back “commercially sustainable large scale litigation” to increase access to justice and drive change, says its head Alexander Rhodes.
In the context of the worsening climate crisis, lawyers working for free “is not a long term sustainable model”, he says, or one “that will allow us to bring sufficient litigation . . . to hold people to account or change behaviours.”
Source: Financial Times