Current trends in ESG-related judicial reviews

An in-depth look at developments in climate-change and ESG-related judicial review proceedings from the team at Norton Rose Fulbright.

Judicial review is increasingly used by interest groups as a tool to pursue climate change and ESG related claims. An area which has seen increased judicial review claims is climate-change-related actions, where claimants seek to challenge decisions which may impact the environment or levels of carbon emissions. These claims are often directed at companies operating in the energy and natural resources sectors.

Although in formal terms judicial review claims must concern decisions of public bodies, government decisions (such as licence awards) which are subject to judicial review will impact directly on the operations of such companies.

Judicial review has recently been reformed by the changes brought in by the Judicial Review and Courts Act 2022 (the Act) in May 2022. However, these changes were relatively modest and possible further reform of the judicial review process has been considered by the UK government. Any further reform would come at a time when judicial review claims are on the rise.

We will consider some of the changes introduced by the Act, what they may mean for climate-change-related judicial review proceedings and how the courts have dealt with recent judicial review proceedings in this area. We will also consider how further reform could impact the risks of future actions against companies in the energy and natural resources industries.

Requirements for judicial review claims

(i) Who may be subject to a claim for judicial review and by whom?

Claim must relate to decision of a public body

A claim for judicial review must challenge a decision, act or failure to act by a body “exercising a public function”. This means decisions taken by public bodies, such as government departments, but can also extend to private bodies where a public function has been contracted out to them.

In practice, decisions by public bodies very often directly affect private bodies, for example in relation to licences, regulatory decisions or government supported financing. This means that judicial review claims frequently affect the interests of companies.

Decisions by public bodies often directly affect private bodies … This means judicial review claims frequently affect the interests of companies.

A recent example of this is Greenpeace Ltd v The Advocate General & Anor and BP Exploration Operating Company Ltd & Anor [2021] Scot CSIH 53. In this case, Greenpeace challenged the decisions of BEIS and the Oil & Gas Authority in relation to the grant of permits to BP and Ithaca Energy to extract oil from the Vorlich field in the North Sea. The challenge was originally brought in the English courts in November 2019 as a judicial review claim, which was partially successful in relation to failure to publicise a notice.

The Scottish proceedings related to an appeal under the regulations relevant to the grant of the permit, where Greenpeace raised both legal and factual issues. The proceedings were dismissed in October 2021 and leave to appeal to the Supreme Court was refused in August 2022. Accordingly, although the challenge ultimately failed, the proceedings lasted nearly three years and involved complex jurisdictional, legal and factual issues.

Applicant must have ‘standing’

In order to bring a claim for judicial review, the applicant must show that it has ‘standing’. This means that the individual or organisation bringing the claim has a “sufficient interest” in the matter.

In practice, the applicant can show this through a direct or personal interest in the matter being challenged, or simply a public interest in the legality of the decision they are challenging. The latter basis is often used by NGOs and campaign groups when bringing claims for judicial review, for example in relation to climate change.

Even a single individual may have standing. For example in R (on the application of O) v Secretary of State for International Development [2014] EWHC 2371 (QB), an Ethiopian national (represented by a London claimant law firm) brought a judicial review claim against the Secretary of State for International Development in relation to the grant of development assistance to Ethiopia. The claimant alleged the grant had been used for resettlement activities that involved human rights violations. The Secretary of State sought to resist the claim at the permission stage including on the grounds that the applicant lacked standing.

This was rejected by the court, which held that while the impact of the UK’s policy on the claimant was “indirect”, it was “not remote”. The courts have resisted narrowing and strictly defining what constitutes a “sufficient interest” in the matter and so a judicial review claim is potentially available to a wide range of claimants.

Initial merits test

A claim must also pass the initial merits test at the permission stage. One of the main criticisms the government made of the judicial review process in general was that too many claims without legal merit were brought and allowed to pass through the permission stage and proceed to trial. However, ultimately the Act did not change the initial merits test.

The courts assess whether the claimant has presented “arguable grounds” for its judicial review claim. This primarily involves a review of the relevant legislation providing the power, the statutory duty, and how the body has exercised its power. In making their assessment, the courts will be cautious about dictating how a public body should use its discretionary powers and, in particular, how much weight a body should give to a particular consideration before making its decision.

This is illustrated in ClientEarth’s recent unsuccessful application to bring judicial review proceedings against the FCA. ClientEarth challenged the FCA’s considerations of climate-related financial risks when it approved Ithaca Energy’s prospectus. The prospectus provided investors with the necessary information to make an informed assessment of the issuers’ assets, liabilities and financial position, as well as financial risk factors.

In making their assessment, the courts will be cautious about dictating how a public body should use its discretionary powers.

The Court refused permission for judicial review, stating that the grounds raised by ClientEarth were unarguable. The judge believed “it was open to the FCA to conclude that in the context of the whole of the prospectus Ithaca has provided investors with sufficient information to make an informed assessment of the risks” and notably, the climate-related factors had been addressed in the prospectus.

It is important to remember that the permission stage is not a full hearing of the facts and arguments relevant to the case. Although some claims are stopped at this stage, permission to proceed is no guarantee of success. Many claims that proceed to a full hearing will fail as they only had to show arguable grounds to be permitted to bring the claim. Ultimately, successful or not, the delay, publicity and financial cost involved in responding to a claim at the permission stage can be costly for businesses.

Although the Act was intended to limit the number of judicial review claims being brought, it only does this in limited ways which are unlikely to affect ESG/climate-change-related judicial review claims. Specifically the Act provides that Upper Tribunal decisions refusing permission to appeal from the First-tier tribunal can no longer be subject to judicial review.

However, this approach only prevents judicial review proceedings being used to challenge rights to appeal in certain types of cases such as immigration matters and does not affect the merits test at the permission stage or the ability of an applicant to bring a claim based on public interest.

Further reform of judicial review

As soon as the Act was given royal assent, conversation turned to possible further reform of the judicial review process. The government will presumably now monitor the effect of removing the Upper Tribunal appeal path and review the number of claims brought in the coming months. However, given political developments, the impetus for further reform that would narrow the scope of judicial review appears to have slowed.

Any further reforms are unlikely to fundamentally affect the standing of interest groups to bring judicial review claims. A prescriptive definition of “sufficient interest” would be difficult and narrowing the test would be politically sensitive. In relation to claims by campaign groups and NGOs, if any such change were to affect their ability to bring claims, it may simply mean they seek to bring challenges by funding an action in the name of an applicant who has been more directly affected, and so would not ultimately have an impact.

With regard to the assessment of merits at the permission stage, the government has been working for over a decade to “reduce the burden of judicial review by filtering out weak, frivolous and unmeritorious cases at an early stage” through various reforms, starting in 2012.

However, so far, this has not affected the type of judicial review claims relevant to climate/ESG-related issues. It can therefore be assumed the government will continue to review how successful the permission stage is at weeding out meritless claims, but these are unlikely to affect the types of claims relevant to corporates.

(ii) What remedies are available for a successful challenge?

It is important for companies, particularly those in sectors with a high risk of judicial review challenges, to be aware of the wide-ranging awards that can follow a successful challenge. The courts have long enjoyed a broad discretion when it comes to awarding a remedy following a successful judicial review challenge. The potential remedies include a quashing order (which means the decision has no, and never had any, legal effect and renders any prior action based on that decision invalid), prohibiting order, mandatory order and a declaration as to the state of the law.

In climate-change-related actions, applicants often seek quashing orders in order to overturn decisions. For example, R (Friends of the Earth Ltd)  v The Secretary of State for International Trade Export Credits Guarantee Department (UK Export Finance) & Anor [2023] EWCA Civ 14 where the applicants sought to quash the decision to provide $1.15bn in export finance in relation to an LNG project involving an energy major.

The challenge was ultimately unsuccessful on the merits, although at first instance, one of the two judges agreed that UK Export Finance had failed to discharge its duty in relation to the calculation of emissions. Further details of the claim can be found in the story Court of Appeal dismisses challenge to UK Export Finance support for Mozambique LNG project.

A court can prohibit an unlawful decision from being relied upon in the future but this would not invalidate any prior actions based on that decision.

In the Act, the Government introduced power for judges to modify the effects of quashing orders in two ways, as it considered that they are too often a ‘blunt instrument’. First, to suspend quashing orders so that the order only comes into effect after a specified period of time. The government’s aim was to allow affected parties to make transitional arrangements to manage the impact of the order.

Second, to remove or limit the retrospective effect of quashing orders, so a court can prohibit an unlawful decision from being relied upon in the future but this would not invalidate any prior actions based on that decision. The aim of this change was to mitigate the detrimental effects on groups who had relied on the decision until that point. It also prevents a flood of claims following on from the quashing order. These changes will likely be of interest to corporates affected by judicial review challenges as they can mitigate the impact of a successful challenge.

The government initially sought to introduce a statutory presumption for judges to award the newly created suspended or retrospective quashing orders over the pre-existing remedies. However following the consultation period, the government conceded and removed the statutory presumption. Judges therefore have full discretion over whether to grant one of the new types of quashing order or one of the pre-existing remedies.

The effect of the Act is that judges now have more remedies available to them than previously.

Future of climate-change/ESG-related challenges

The ability of NGOs and campaign groups to bring a judicial review claim has been unaffected by the recent reforms. To date, climate-change/ESG-related claims have largely ultimately been unsuccessful. One of the main reasons why claims in this area often do not succeed is that government decision making is not necessarily subject to prescriptive rules and/or is seen by the courts as political in nature.

However, over the coming years, the legal framework relevant to climate change and ESG issues will continue to develop and mature. Given the central political importance of these issues and the need to make progress against targets, legislation and rules may well become more prescriptive and extensive. This would significantly expand the scope of judicial review claims.

In the recent case of R (Friends of the Earth Ltd) & Ors v Secretary of State for Business, Energy and Industrial Strategy [2022] EWHC 1841 (Admin), the Court found in favour of the claimants that the government’s Net Zero Strategy (ie the economy-wide decarbonisation strategy) had been unlawfully adopted. This was on the basis that when adopting the strategy, the Secretary of State had insufficient information and the strategy lacked vital information which meant that Parliament and the public were unable to scrutinise it properly.

The judge was critical about being asked to comment on the merits of the government’s decisions but accepted analysis of ministerial briefings and policy documents to show how the government had not fulfilled its legal obligations.

This decision is significant as it is holds the government to account in relation to its climate-change-related policies. The judge was critical about being asked to comment on the merits of the government’s decisions but accepted the in-depth analysis of the ministerial briefings and policy documents to show how the government had not fulfilled its legal obligations. The success of this action may result in additional climate-change-related actions being brought which follow a similar approach and seek to hold public bodies, or those carrying out public functions, to their legal obligations.

The Supreme Court’s decision in the appeal of R (Finch On Behalf of the Weald Action Group) v Surrey County Council & Ors [2022] EWCA Civ 187, which was heard at the end of June 2023, could significantly affect climate-change-related challenges in the future. It will set a precedent for the Courts’ approach to challenges brought against public bodies in connection with their consideration of climate-related risks.

In this case, the issue was whether the environmental impact assessment for a proposed expansion of an existing onshore oil well site should have considered the effect of greenhouse gas emissions, not only from the site itself but also the end users of the oil and gas produced. So the question is whether downstreaming of greenhouse gas emissions should have been included within an environmental impact assessment when proposing expansion of an existing onshore oil well site.

Charlie Weston-Simons, Stuart Neely, Andrew Judkins and Beth Greenwood are litigation and dispute resolution lawyers based in London.

With thanks to Aimee Hardham for her assistance in preparing this briefing.