Further shareholder litigation in Australia seeking disclosure around bank’s financing of coal and gas projects

An application has been filed against National Australia Bank (NAB) in which a shareholder is seeking disclosure of the circumstances in which the bank financed certain companies which have or are proposing new thermal coal projects in Canada and the Tiwi Islands, Australia.  The shareholder’s solicitors have indicated that the application is being filed in the context of NAB’s announcement in 2017 that it would no longer finance new thermal coal projects, with the implication being that the shareholder will consider further litigation if the financing breaches NAB’s public commitment.  The shareholder is also applying for disclosure of documents related to NAB’s due diligence of the human rights impacts of two natural gas projects, which the shareholder’s solicitors have indicated may not be in line with NAB’s human rights policy. The first case management hearing is today. 

What is the basis for the application?

In June this year, Ms. Beere, an individual shareholder in NAB, made her application for disclosure under s.247A of the Australian Corporations Act 2001. This section allows a court to give shareholders the right to inspect and make copies of certain company documents if it is satisfied that they are acting in good faith and for a proper purpose.  Ms. Beere’s solicitors have indicated that her application for disclosure of the circumstances in which NAB financed the new thermal coal projects, and the two natural gas projects (including one project which was financed by the rolling over of an acquisition loan into a corporate loan), is being made in the context of:

• NAB’s commitment not to finance any new thermal coal projects, which was first announced in 2017; and 
• NAB’s human rights policy (specifically its policy of conducting due diligence into any potential human rights impacts of the projects it finances). 

It has been reported that the filing of the application follows two years of discussions between the parties. The bank has already provided Ms. Beere with certain documents. However, a court order or consent from the bank’s clients is required to provide additional documents requested, which are reported to include board and committee packs, loan and project assessments and loan documents. 

It remains to be seen whether, if the disclosure application is successful, and there is a perceived breach of NAB’s 2017 commitment not to finance any new thermal coal projects and/or a breach of its human rights due diligence policy, Ms. Beere would then bring substantive proceedings against NAB (and what the basis for any such proceedings would be).

A continuing trend

This is the second ESG-related application for disclosure by a shareholder against an Australian bank in recent years. Abrahams v Commonwealth Bank of Australia was the first case worldwide in which a claimant requested disclosure of the way in which a financial institution was monitoring and adhering to its climate commitments. In that case, shareholders filed an application under s.247A to obtain documents relating to the bank’s decision to finance certain oil, gas and coal projects in light of its 2019 public climate commitment. Orders for disclosure in that case were ultimately made by consent, and although the shareholders obtained permission from the Court to use the documents obtained in any subsequent proceedings against Commonwealth Bank of Australia and also to bring those documents to the attention of various regulators, no further (public) steps appear to have been taken yet.

Comment

As we have explained previously, shareholders’ rights to inspect documents in the UK under the Companies Act 2006 are much narrower than under the Australian Corporations Act 2001. This case is nevertheless another reminder that potential claimants are carefully analysing firms’ actual activities against their public commitments and policies, and are pursuing claims where they identify perceived inconsistencies or failures. Good governance and clear recordkeeping of decision-making therefore remain very important in firms’ risk management strategies.

It is worth noting that the adequacy of the human rights due diligence carried out by banks in relation to their investments has also been scrutinised in other forums this year, including through complaints filed against financial institutions under the OECD Guidelines, and this focus is one we expect to continue over the next few months. For further information on the OECD complaint mechanism, please see our blog here.