Doing by suing - what is the role of the states?

By Jukka Mähonen — October 9, 2020

Image of Jukka Mähönen
Professor Jukka Mähonen, University of Oslo

As Mark Taylor wrote in Blogging for Sustainability in June, the flow of climate cases against both governments and businesses in national and transnational courts is tremendous. Businesses have been sued by governments, non-governmental organisations and individuals.  Governments have also been sued by non-governmental organisations and individuals, including groups of children and youth, as illustrated notably by the recent case of the Australian youth against the Australian government against the licensing of a new coalmine. Regular updates of the cases pending worldwide against both businesses and governments are given for instance in Dana Drugman’s Climate in the Courts site.

Urgenda as inspiration

Many of the most recent suits, labeled by Taylor as ‘counter corporate litigation’, are inspired by the Dutch Supreme Court’s Urgenda ruling from December 2019. One of those has been filed with the European Court of Human Rights in September 2020 by six young Portuguese activists against 33 member states of the European Council, i.e. the 27 European Union member states, as well as the UK, Switzerland, Norway, Russia, Turkey and Ukraine. The plaintiffs argue that the defendants, by failing to make deep and urgent emissions cuts, violate their human rights and endanger their future. The suit comes after wildfires in Portugal in 2017 killed more than 120 people and caused significant biodiversity loss.

If successful, the Portuguese case could have similar consequences to Urgenda, which caused the Dutch legislature to pass in December 2019 a law mandating that fossil energy undertakings either close their coal plants in the Netherlands or convert them to run on a different fuel by 2030.

The costs of doing by suing

The climate cases may be seen as a new way to influence the governments and the businesses, labeled by Beate Sjåfjell as doing by suing. On the other hand, this trend is increasingly accompanied by suits (and threats thereof) by the businesses themselves against governments that they accuse of limiting their business opportunities.

The Dutch Urgenda case is an example also of that. One of the plants to be closed as a result of the Supreme Court ruling is Maasvlakte Power Plant 3 coal-fired power station (MPP3), owned and run by Uniper SE (Uniper), a German energy company. Uniper is now seeking a reported €1 billion in compensation from the Netherlands government under the Energy Charter Treaty (ECT), a pact signed in the 1990s to boost investment flows between western and post-Soviet countries, and to which both the Netherlands and Germany are parties. The ECT is part of a system of investment treaties, unique for its dispute settlement system – Investor state dispute settlement (ISDS) – that allows foreign investors to sue governments in cases where national policies hurt their profits.

Uniper’s main argument is that the coal phase-out is equivalent to an expropriation as it deprives the undertaking from future profits the plant would have made over its expected 40-year lifespan. Moreover, Uniper wrote to the government on 18 December, seeking an ‘amicable settlement’, and stating that it could go to arbitration if no agreement is reached. The negotiations are ongoing, and there is no dispute yet. A potential claim by Uniper before the ISDS raises several legal questions related to international investment and climate change law, as well as EU law and corporate law, which will not be further discussed here.

What is important here is that the claims from businesses whose business opportunities are diminished or lost is threatening the adoption of climate mitigation measures and thus potentially represent a significant barrier to the transition to sustainability. In other words, the new trend of court activism fueled by growing youth and NGO activism may paradoxically have potentially far-reaching and unintended consequences. Doing by suing, although very effective at raising awareness for the climate cause and potentially leading to better climate regulation, is also raising the prospect of fossil fuel corporations claiming billions in compensation for climate legislation enacted under the Paris Agreement. This may include carbon taxes or initiatives to phase out fossil fuels.

The unlikely ‘winners’ of the climate suits

What is even more paradoxical, states are not only defendants in such suits brought by business. A state may also directly or indirectly be the plaintiff in such compensation cases. According to Climate Home News, when asked about the claim at Uniper’s Annual General Meeting held virtually on 20 May 2020, Uniper chief executive Andreas Schierenbeck said: ‘We reserve legal possibilities to secure shareholders’ interests. We believe that the [Netherlands] coal phaseout in its current form is not appropriate.’ The shareholders referred to include primarily Fortum Oyj (Fortum), a Finnish energy company, owning 75.01 per cent of the shares and voting rights in Uniper. The Finnish government, who in turn owns 50.76 per cent of the shares and voting rights in Fortum, would thus eventually benefit from any check signed by the Dutch government.

Finland is not alone in this delicate situation. Many of the world’s leading fossil fuel conglomerates are directly or indirectly controlled by states, as Saudi Aramco, Gazprom, Rosneft, National Iranian Oil Company, Petrobras, and Equinor, just to name a few. The risk that not only private investors but also governments controlling the claimants are suing other governments gives rise to several questions. Should states that are taking tough decision to undertake the transition to sustainability actually have to pay other states because they chose to continue being invested in unsustainable business? Should states that are heavily invested in, notably, the petroleum industry, not be challenged to take their responsibility as controlling shareholders and stop the lawsuit from happening in the first place?

It seems that the time has come to tear off the veil of apparent neutrality from the state as shareholder and require them to contribute actively to - and not work against - the transition to sustainability. The call for sustainable finance is not one that only concerns private investors. Indeed, the onus should be equally, if not more, on the public sector as investor. The Urgenda case shows, once again, that there is no intrinsic sustainability in having the state as majority or sole shareholder.

Tags: Business and global value chains, State as market actor, Sustainability
Published Oct. 9, 2020 12:05 PM - Last modified Aug. 27, 2022 1:46 PM