Litigation and Dispute Resolution

You can’t have your contract and eat it: electing not to terminate

31 July, 2019

Insights from legal professionals and company regulators suggest that company directors should consider and respond to the risks posed by climate change as part of their duty to act with care, skill and diligence.

The recent proceedings commenced by two shareholders of the Commonwealth Bank of Australia (CBA) against CBA in the Federal Court of Australia for failing to properly disclose the risks that climate change posed to CBA’s financial position and performance in its annual reports raises interesting questions about the extent of directors’ duties and whether or not this extends to considering the risks to the company posed by climate change.

Although the shareholders ultimately dropped the action after CBA’s latest annual report acknowledged the seriousness of the threat of climate change, the proceedings highlight the growing pressure on companies to consider and manage climate risks.

Do directors have a duty to consider climate change risks?

Directors have a duty to act with care, skill and diligence in performance of their duties. The courts have interpreted this as a catch-all duty to prevent directors from being negligent.

A director will only be liable for breach of this duty if it was reasonably foreseeable that his or her action or inaction might cause harm to the interests of the company. It is important to note that:

  • ignorance is no defence to an alleged breach of the duty to exercise care and diligence;
  • to the contrary, directors are under a positive obligation to take reasonable steps to properly manage their companies; and
  • the duty of care and diligence is owed to the company itself and is generally not owed to a broader range of stakeholders.

The question is whether or not the scope of this duty of care and diligence is broad enough to require directors to consider and mitigate the risks posed by climate change.

A legal opinion from barristers, Noel Hutley SC and Sebastian Hartford-Davis provided to the Centre for Policy Development, expressed the view that directors should consider and mitigate the risks posed by climate change as part of their duty of care and diligence. The rationale put forward for this is that it is that the effects of climate change might pose a reasonably foreseeable risk of harm to the interests of a company.

These effects have the potential to manifest as either:

  • Physical effects – the direct effects of climate change, for example, power outages and damage to a company’s stock or infrastructure resulting from severe weather events; or
  • Transition effects – the indirect financial effects of climate change, for example, scarcity of resources, increased regulatory constraints, and reputational damage to the company in light of changing societal values.

Interestingly, in the 2016 case of ASIC v Cassimatis (No 8) [2016] FCA 1023, the Federal Court held that, for the purposes of the duty, the risk of harm to a company is not limited to direct financial loss, but includes damage to the company’s reputation. In the context of a society that is becoming increasingly mindful of the effects of climate change and eco-conscious in its consumer habits, reputational damage resulting from poor environmental practices constitutes a very real risk to a company’s interests.

For these reasons, legal practitioners consider that directors who fail to consider and, in the appropriate circumstances, mitigate the environmental effects of their business could be found to have breached their duty to act with care and diligence. It is only a matter of time before we see a rise in litigation against directors for failure to take reasonable steps in relation to foreseeable climate-related risk.

This does not mean that directors need to prioritise environmental interests in their decision-making to avoid running afoul of the duty to exercise care and diligence – it simply means that they should actively and robustly consider those interests and the risks posed to the company along with other relevant matters as they perform their duties as directors.

Words of wisdom from the watchmen

In its latest report on the regulation of corporate finance, ASIC expressed the view that companies and their directors should “proactively consider reporting on climate risk as part of their annual reports”.[1] ASIC considers that listed companies should discuss environmental and sustainability risks that have the potential to affect the companies’ financial performance or business outcomes, taking into account the nature and business of the company and its business strategy.

Similarly, Australia’s financial regulator, APRA has emphasised climate change risks as an area of focus for its regulation of the financial industry moving forward.[2] In particular, APRA has recognised that climate change poses financially material and foreseeable risks to Australian businesses and that APRA intends to closely monitor how APRA-regulated entities consider and plan for climate-related risks.

Key takeaways

Best practice suggests that directors should actively consider and, if appropriate, act to mitigate environmental risks insofar as they might impact on your company.

Directors who fail to do so could be found liable for breaching their duty to exercise skill and diligence. The views expressed by the regulators reinforce that climate change is a serious issue that directly affects Australian companies, not to mention the broader effects on other stakeholders and the environment at large.

The development of this line of thought is symptomatic of a general trend of increasing oversight of corporate governance and yet another hurdle that directors should be mindful of when managing the affairs of their companies.

McCabes will be running a ‘Deepwater and Safe Harbours: Navigating your way as a director’ seminar series, with the first seminar on 13 March 2018.  The first seminar in the series will focus on practical guidance on how to stay out of deep water and how to find safe harbours.  If you are interested in attending this seminar, please contact [email protected] to register for the details or register at

[1] ASIC, ASIC Regulation of Corporate Finance: January to June 2017 (Report 539).

[2] Geoff Summerhayes (Executive Board Member, APRA), ‘Australia’s new horizon: Climate change challenges and prudential risk’ (Speech delivered at the Insurance Council of Australia Annual Forum, Sydney, 17 February 2017); Geoff Summerhayes (Executive Board Member, APRA), ‘The weight of money: A business case for climate risk resilience’ (Speech delivered at the Centre for Policy Development, Sydney, 29 November 2017).

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Canadian Court elevates thumbs-up emoji to signature status

In June 2023, a Canadian Court in South-West Terminal Ltd v Achter Land and Cattle Ltd, 2023 SKKB 116, held that the "thumbs-up" emoji carried enough weight to constitute acceptance of contractual terms, analogous to that of a "signature", to establish a legally binding contract.   Facts This case involved a contractual dispute between two parties namely South-West Terminal ("SWT"), a grain and crop inputs company; and Achter Land & Cattle Ltd ("ALC"), a farming corporation. SWT sought to purchase several tonnes of flax at a price of $17 per bushel, and in March 2021, Mr Mickleborough, SWT's Farm Marketing Representative, sent a "blast" text message to several sellers indicating this intention. Following this text message, Mr Mickleborough spoke with Mr Achter, owner of ALC, whereby both parties verbally agreed by phone that ALC would supply 86 metric tonnes of flax to SWT at a price of $17 per bushel, in November 2021. After the phone call, Mr Mickleborough applied his ink signature to the contract, took a photo of it on his mobile phone and texted it to Mr Archter with the text message, "please confirm flax contract". Mr Archter responded by texting back a "thumbs-up" emoji, but ultimately did not deliver the 87 metric tonnes of flax as agreed.   Issues The parties did not dispute the facts, but rather, "disagreed as to whether there was a formal meeting of the minds" and intention to enter into a legally binding agreement. The primary issue that the Court was tasked with deciding was whether Mr Achter's use of the thumbs-up emoji carried the same weight as a signature to signify acceptance of the terms of the alleged contract. Mr Mickleborough put forward the argument that the emoji sent by Mr Achter conveyed acceptance of the terms of the agreement, however Mr Achter disagreed arguing that his use of the emoji was his way of confirming receipt of the text message. By way of affidavit, Mr Achter stated "I deny that he accepted the thumbs-up emoji as a digital signature of the incomplete contract"; and "I did not have time to review the Flax agreement and merely wanted to indicate that I did receive his text message." Consensus Ad Idem In deciding this issue, the Court needed to determine whether there had been a "formal meeting of the minds". At paragraph [18], Justice Keene considered the reasonable bystander test: " The court is to look at “how each party’s conduct would appear to a reasonable person in the position of the other party” (Aga at para 35). The test for agreement to a contract for legal purposes is whether the parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract (Aga at para 36). The question is not what the parties subjectively had in mind, but rather whether their conduct was such that a reasonable person would conclude that they had intended to be bound (Aga at para 37)."   Justice Keene considered several factors including: The nature of the business relationship, notably that Mr Achter had a long-standing business relationship with SWT going back to at least 2015 when Mr Mickleborough started with SWT; and   The consistency in the manner by which the parties conducted their business by way of verbal conversation either in person or over the phone to come to an agreement on price and volume of grain, which would be followed by Mr Mickleborough drafting a contract and sending it to Mr Achter. Mr Mickleborough stated, "I have done approximately fifteen to twenty contracts with Achter"; and   The fact that the parties had both clearly understood responses by Mr Achter such as "looks good", "ok" or "yup" to mean confirmation of the contract and "not a mere acknowledgment of the receipt of the contract" by Mr Achter.   Judgment At paragraph [36], Keene J said: "I am satisfied on the balance of probabilities that Chris okayed or approved the contract just like he had done before except this time he used a thumbs-up emoji. In my opinion, when considering all of the circumstances that meant approval of the flax contract and not simply that he had received the contract and was going to think about it. In my view a reasonable bystander knowing all of the background would come to the objective understanding that the parties had reached consensus ad item – a meeting of the minds – just like they had done on numerous other occasions." The court satisfied that the use of the thumbs-up emoji paralleled the prior abbreviated texts that the parties had used to confirm agreement ("looks good", "yup" and "ok"). This approach had become the established way the parties conducted their business relationship.   Significance of the Thumbs-Up Emoji Justice Keene acknowledged the significance of a thumbs-up emoji as something analogous to a signature at paragraph [63]: "This court readily acknowledges that a thumbs-up emoji is a non-traditional means to "sign" a document but nevertheless under these circumstances this was a valid way to convey the two purposes of a "signature" – to identify the signator… and… to convey Achter's acceptance of the flax contract." In support of this, Justice Keene cited the definition of the thumbs-up emoji: "used to express assent, approval or encouragement in digital communications, especially in western cultures", confirming that the thumbs-up emoji is an "action in an electronic form" that can be used to allow express acceptance as contemplated under the Canadian Electronic Information and Documents Act 2000. Justice Keene dismissed the concerns raised by the defence that accepting the thumbs up emoji as a sign of agreement would "open the flood gates" to new interpretations of other emojis, such as the 'fist bump' and 'handshake'. Significantly, the Court held, "I agree this case is novel (at least in Skatchewan), but nevertheless this Court cannot (nor should it) attempt to stem the tide of technology and common usage." Ultimately the Court found in favour of SWT, holding that there was a valid contract between the parties and that the defendant breached by failing to deliver the flax. Keene J made a judgment against ALC for damages in the amount of $82,200.21 payable to SWT plus interest.   What does this mean for Australia? This is a Canadian decision meaning that it is not precedent in Australia. However, an Australian court is well within its rights to consider this judgment when dealing with matters that come before it with similar circumstances. This judgment is a reminder that the common law of contract has and will continue to evolve to meet the everchanging realities and challenges of our day-to-day lives. As time has progressed, we have seen the courts transition from sole acceptance of the traditional "wet ink" signature, to electronic signatures. Electronic signatures are legally recognised in Australia and are provided for by the Electronic Transactions Act 1999 and the Electronic Transactions Regulations 2020. Companies are also now able to execute certain documents via electronic means under s 127 of the Corporations Act. We have also seen the rise of electronic platforms such as "DocuSign" used in commercial relationships to facilitate the efficient signing of contracts. Furthermore, this case highlights how courts will interpret the element of "intention" when determining whether a valid contract has been formed, confirming the long-standing principle that it is to be assessed objectively from the perspective of a reasonable and objective bystander who is aware of all the relevant facts. Overall, this is an interesting development for parties engaging in commerce via electronic means and an important reminder to all to be conscious of the fact that contracts have the potential to be agreed to by use of an emoji in today's digital age.

Published by Foez Dewan
29 August, 2023

Venues NSW ats Kerri Kane: Venues NSW successful in overturning a District Court decision

The McCabes Government team are pleased to have assisted Venues NSW in successfully overturning a District Court decision holding it liable in negligence for injuries sustained by a patron who slipped and fell down a set of steps at a sports stadium; Venues NSW v Kane [2023] NSWCA 192 Principles The NSW Court of Appeal has reaffirmed the principles regarding the interpretation of the matters to be considered under sections5B of the Civil Liability Act 2002 (NSW). There is no obligation in negligence for an occupier to ensure that handrails are applied to all sets of steps in its premises. An occupier will not automatically be liable in negligence if its premises are not compliant with the Building Code of Australia (BCA). Background The plaintiff commenced proceedings in the District Court of NSW against Venues NSW (VNSW) alleging she suffered injuries when she fell down a set of steps at McDonald Jones Stadium in Newcastle on 6 July 2019. The plaintiff attended the Stadium with her husband and friend to watch an NRL rugby league match. It was raining heavily on the day. The plaintiff alleged she slipped and fell while descending a stepped aisle which comprised of concrete steps between rows of seating. The plaintiff sued VNSW in negligence alleging the stepped aisle constituted a "stairwell" under the BCA and therefore ought to have had a handrail. The plaintiff also alleged that the chamfered edge of the steps exceeded the allowed tolerance of 5mm. The Decision at Trial In finding in favour of the plaintiff, Norton DCJ found that: the steps constituted a "stairwell" and therefore were in breach of the BCA due to the absence of a handrail and the presence of a chamfered edge exceeding 5mm in length. even if handrails were not required, the use of them would have been good and reasonable practice given the stadium was open during periods of darkness, inclement weather, and used by a persons of varying levels of physical agility. VNSW ought to have arranged a risk assessment of the entire stadium, particularly the areas which provided access along stepped surfaces. installation of a handrail (or building stairs with the required chamfered edge) would not impose a serious burden on VNSW, even if required on other similar steps. Issues on Appeal VNSW appealed the decision of Norton DCJ. The primary challenge was to the trial judge's finding that VNSW was in breach of its duty of care in failing to install a handrail. In addition, VNSW challenged the findings that the steps met the definition of a 'stairwell' under the BCA as well as the trial judge's assessment of damages. Decision on Appeal The Court of Appeal found that primary judge's finding of breach of duty on the part of VNSW could not stand for multiple reasons, including that it proceeded on an erroneous construction of s5B of the Civil Liability Act 2002 and the obvious nature of the danger presented by the steps. As to the determination of breach of duty, the Court stressed that the trial judge was wrong to proceed on the basis that the Court simply has regard to each of the seven matters raised in ss 5B and 5C of the CLA and then express a conclusion as to breach. Instead, the Court emphasised that s 5B(1)(c) is a gateway, such that a plaintiff who fails to satisfy that provision cannot succeed, with the matters raised in s 5B(2) being mandatory considerations to be borne in mind when determining s 5B(1)(c). 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Litigation and Dispute Resolution

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