On 13 December 2023, the English High Court denied ClientEarth’s renewed application for permission to bring a judicial review application over the decision of the Financial Conduct Authority (the FCA) to approve the prospectus of Ithaca, an oil and gas exploration company. Permission was first denied on the papers in April 2023. This latest decision provides additional insight on the Court’s approach to the issues.
Our colleagues set out a more detailed analysis of the decision and what it means for securities issuers in their blog “ClientEarth’s application to challenge the approval of a prospectus is dismissed”. In this update, we consider what the decision means for climate litigation generally.
What was ClientEarth’s complaint?
ClientEarth alleged that the FCA’s decision to approve the Ithaca prospectus was unlawful. It advanced three grounds on which it said the decision should be judicially reviewed.
The first two grounds both related to the FCA’s interpretation of Article 16 of the Prospectus Regulation (with which a prospectus must comply under UK law). ClientEarth argued that the FCA had wrongly decided that the Article 16 requirement to disclose relevant risk factors could be met by simple identification and presentation of risk factors, without presenting information on how the issuer had assessed those risks. It further submitted that the FCA should have found that the presentation of those risks in the prospectus was insufficiently precise.
The third ground was that the FCA had been irrational (often referred to as ‘unreasonable’) in concluding that the prospectus contained the necessary information for an investor to make an informed assessment of Ithaca’s financial position and prospects in relation to climate-related risks and opportunities, breaching Article 6 of the Prospectus Regulation.
What did the Court conclude?
The Court concluded that there was no realistic prospect of a judicial review application succeeding on the grounds argued. It was not arguable that the FCA had misunderstood the laws that it had to apply in taking a decision whether to approve a prospectus. And there was no prospect of a finding of irrationality in relation to the FCA’s decision that the level of information in Ithacha’s prospectus was sufficient. The Court therefore refused permission to take the case to a full judicial review.
What does the decision mean for continued climate litigation?
The decision to deny permission for an application for judicial review comes as a further defeat in the courts for ClientEarth. The NGO’s attempt to bring a derivative claim against the directors of Shell was also refused at the permission stage last year. In that case, ClientEarth had sought permission as a minority shareholder in Shell plc to bring a claim against Shell’s directors for alleged failures in relation to Shell’s climate risk management strategy. That application was robustly dismissed by the court.
While the two applications were unsuccessful, climate-related legal challenges are here to stay. It is inevitable that environmental issues will be of continuing relevance to the decisions of both public and private actors, and we expect activist claimants will thus continue to scrutinise those decisions and to bring environmental matters before the courts in both public and private law arenas.
It is of note that in this latest decision, although the judicial review claim itself was found to have no prospect of success, the court sided with ClientEarth on the issue of standing. The judge concluded that ClientEarth did have standing to pursue judicial review on a public interest basis, stating that;
“the subject matter of the claim falls within its area of expertise (the environment) and its mission to ensure that public bodies act in accordance with their legal obligations in relation to the climate crisis.”
Corporate and commercial actors should continue to give due consideration to relevant environment and climate related issues in their decision making and both short- and long-term planning.
With an election and potential change of government occurring later on in the year, climate policy and the exploration and extraction of oil in the North Sea is expected to be a point of contention between the current government and the Labour party. The current Conservative government are proposing further annual licenses for fossil fuel extraction in the North Sea in the Offshore Petroleum Licensing Bill, whereas the Labour party have indicated that they will ban new North Sea oil and gas licences (should they be elected), with potential varying consequences to the investment strengths of those companies in the direct value chain. Whichever policy approach is taken forward may affect the climate-related risks and opportunities of prospective issuers in the industry, including transition risks, and therefore alter the necessary information required for an investor to make an informed assessment of the financial position of such businesses. Either way, we envisage climate activist litigators to play close attention to the changing policy landscape and market participants should document decisions on this topic clearly.