Peruvian farmer's defeat against RWE: setback or stepping stone for climate litigation in Germany

A recent judgment from the Higher Regional Court of Hamm has made headlines in Germany and internationally. As briefly reported earlier, the case Lliuya v RWE concerned the question whether greenhouse gas (GHG) emitters can be held civilly liable for threats to property caused by climate change even where those threats are felt on the other side of the world. The case (which lasted almost a decade) sparked fierce debate in both legal and business communities. While the court's now published reasoning is bold, the decision's practical impact is more measured. The bar for successful claims remains high.

At a glance: summary of the court decision

The Higher Regional Court of Hamm dismissed the first German civil lawsuit seeking damages for the effects of climate change. The court rejected a claim by a Peruvian farmer against RWE, a large German energy producer, finding that the threat to the claimant's property was too remote and insufficiently concrete.

The core message, however, is that the Higher Regional Court of Hamm is the first higher German court to recognise the potential for civil liability of large emitters for overseas climate risks, provided strict requirements are met. The court indicated that emitting companies can, in principle, be held liable on a global scale once a certain (albeit not specifically defined) materiality threshold for their emissions is reached – regardless of the location of the alleged climate losses and the distance between the company's activities and the affected region.

While proving a claim will still be extremely difficult in practice, the outcome underscores the importance for businesses to pay close attention to recordkeeping, compliance and assessing liability risks. Yet, there is no cause for alarm.

A climate claim from Peru to Germany

The case began with Saul Luciano Lliuya, a farmer from Peru, who lives beneath a glacial lake in the Andes. Due to global warming, the lake's water level has risen, posing a risk, in the claimant's view, of flooding his home. Lliuya argued that energy companies like RWE, by emitting CO2 into the atmosphere, played a part in causing the climate change that led to glacial melt. He claimed that since RWE's emissions amount to almost 0.5% of global CO2 historically, RWE should pay its share of the cost of flood barriers and other protection measures for his property.

Lliuya sued RWE in Germany under German civil law, which allows property owners to demand action against individuals or entities that pose risks to their property. He argued that RWE's emissions threatened his property in Peru even if they were permitted by German law. His case was backed by the NGO Germanwatch. It became emblematic of the growing movement worldwide to hold companies liable for transboundary climate impact.

How the case played out

The German courts took this claim seriously. Proceedings ran for nearly a decade and included fact-finding on the ground in Peru. The case built public interest and was seen as a potential door-opener for global climate liability.

The Regional Court in Essen, which heard the case in the first instance, dismissed the claim. The court said that too many factors lay between RWE's actions in Germany and any risk in Peru and thus denied the required causal link. It found that linking a company's emissions to a flood in another continent was simply too far-fetched.

The farmer appealed. The Higher Regional Court in Hamm did not dismiss the lawsuit immediately but surprised many observers in 2017 by ordering an extensive fact-finding process in the second instance. The court's evidence gathering included site visits in Peru and detailed scientific analysis of flood risk. This was seen as a signal that German courts might be willing, in principle, to examine climate liability claims. In the end, however, the Higher Regional Court also dismissed the claim, albeit on different legal grounds than the Regional Court: unlike the court of first instance, the Higher Regional Court confirmed the causal link without taking further evidence on that question. The relevant factor for liability, according to the decision, is the outcome of the act as a pure matter of causation, not the unlawfulness of the act itself. The court considered neither authorisations under public law nor compliance of the relevant emissions with a national climate regime sufficient to exclude liability. Nevertheless, the court ruled against the claimant due to insufficient evidence for an actual and significant threat to his property. Experts concluded that there is only a 1% chance of a glacial lake flood reaching the claimant's home within the next 30 years. They also noted that even in the unlikely event of flooding, the resulting water height and flow velocity would not materially damage the structural integrity of the claimant's home. These findings prompted the court to determine that the threat was not substantial or imminent enough to hold RWE liable.

The Higher Regional Court did not grant leave to appeal to the Federal Court of Justice (BGH), which is the German supreme court in civil law matters. A non-admission appeal is impossible due to the low dispute value at stake, which means that the judgment is final and binding for the parties.

What makes the judgment stand out?

A new and controversial legal theory

For the first time in Germany, an appellate court held that large companies that release GHGs may, in principle, be sued even for effects felt thousands of kilometres away. However, the court's findings are questionable from a legal perspective and not in line with previous case law.

Contrary to the defendant's claim that the vast geographic distance between RWE's power plants and the claimant's home in Peru precluded accountability, the court deemed that distance was not a general disqualifying factor. This extension of liability – disregarding the globally distributed, ultimately user-driven nature of emissions and placing the main responsibility on the producer – is problematic both in legal as well as practical terms. For private enforcement, German courts have so far insisted on clear, individual causation instead of allowing claims for "remote" climate impact. They were right to argue that causal chains in climate cases are too complex and indirect, and worried about fairness and certainty for businesses.

It is also important to highlight that the court's extensive legal reasoning was developed merely in the context of assessing the plausibility of the claim, meaning the claimant's factual assertions were assumed to be true for the sake of argument. Regarding the core issue of causality – in particular, establishing the legally relevant and attributable portion of emissions that must be proven – no actual evidence has yet been taken.

In a move that is disruptive to constitutional principles such as legal certainty and the separation of powers, the court also emphasised that the "wrongfulness" of the emitter's conduct is not decisive. Rather, the factual effect of the emissions was considered key in determining liability. RWE's counterargument that it was acting on the basis of a statutory mandate for public service in Germany was rejected. Ignoring legislative decisions, the judges noted that approval of emissions under public law, such as environmental permits and emissions trading, cannot be used as a defence.

Moreover, the court accepted the possibility of a "group liability", where a parent company could be held responsible for the emissions of its group, even outside its home country. This sits uneasily with German company law, which generally respects the principle of separate corporate identities.

A high bar for proof of (possible) impairment

Conversely, the court emphasized that the "theoretical" risk of liability is subject to stringent limitations.

Only companies with "material" (though not defined) emissions are at risk of being held liable according to the Higher Regional Court, while private individuals and smaller players are not. However, this restriction on excessive liability, which is welcome in principle, is also problematic. This is because it leads to considerable legal uncertainty as the court does not further define what "material" means. For example, it is completely unclear to medium-sized companies whether their share of emissions is significant enough according to the court's assessment.

Moreover, claimants would need to provide compelling evidence that a company's material emissions really caused an imminent, serious threat to their property. In line with German law, the court required the claimant to show a clear risk to their property, which means more than a theoretical possibility. As described above, the scientific evidence in this case did not support that.

A case with limits

Finally, it is important to note what the court did not say. It did not create a system where every company could be sued for every climate-related harm, anywhere in the world. It did not lower the standards for proof. It did not force companies to pay for global climate damage caused by lawful activity, unless strong evidence is presented.

Implications for other climate change claims

The Lliuya ruling has caught the eye of the legal community and set a new marker for climate change litigation. But for now, it is rather a "symbolic" case and does not establish a new norm or make such claims easy to win.

The BGH has not had a chance to rule on these types of claims yet. The Lliuya judgment is final and cannot be further appealed, but some similar lawsuits may soon be decided. For instance, in cases concerning the automotive sector, the relevant Higher Regional Courts have all delivered more restrictive judgments based on very valid arguments (particularly as regards causation). It remains to be seen whether and on what grounds the BGH will uphold the rulings that have been appealed. This would give the business community some much-needed certainty.

That being said, it must be expected that the Lliuya decision is likely to give new impetus to similar lawsuits, no matter how questionable the Higher Regional Court's reasoning is. Claimant law firms and NGOs have already announced that they will try to extend the court's arguments to further matters and claimants.

Implications for business

While companies with major GHG emissions should take note of the new litigation risks, there is no cause for alarm for companies that comply with national and international rules and keep solid records. The legal bars remain high.

Here is what businesses can do to prepare for claims and allegations:

• Do not underestimate climate liability issues. Failure to recognise the damage that can be inflicted on a company's business and reputation is a high-risk strategy.
• Understand the climate-related physical and transition risk exposure, and how to improve the company's resilience and preparedness for climate-related liability risks. Assessing potential climate liabilities also represents a chance to interrogate a firm's existing business (continuity) planning. This can help manage insurance costs but also uncover new competitive opportunities and narrow the openings where competitors could potentially gain an advantage in the event of disruptive, climate-related developments.
• Maintain up-to-date records, reports and compliance systems around emissions and environmental impact. This is best practice not only for legal defence, but also for reputational and strategic reasons.
• Monitor developments in climate litigation, both in Germany and internationally, and consider the possibility of evolving legal standards. Climate change litigation is often based on novel theories that leverage existing legal frameworks, such as human rights law and public trust doctrines, but also explore new approaches. Legal uncertainty is a risk, so monitor court decisions and regulatory trends (for example, in the context of climate transition plans).

Reproduced from Practical Law with the permission of the publishers. For further information, visit www.practicallaw.com.