ClientEarth has continued its approach to using the law in novel ways to mount climate change challenges. However, the High Court has refused their latest attempt against the Financial Conduct Authority ("FCA").

At the end of 2023, the High Court handed down a judgment refusing permission for ClientEarth, an environmental charity, to challenge by way of judicial review a decision of the FCA to approve the prospectus of Ithaca Energy Plc ("Ithaca"), an oil and gas operator. Permission had previously been refused on the papers earlier in the year.

Details of the claim

Pursuant to the Financial Services and Markets Act 2000 ("FSMA"), Ithaca had to make an approved prospectus available to the public prior to listing its shares on the London Stock Exchange for the first time. Under the FCA's Listing Rules, Ithaca had to have its prospectus approved by the FCA and published before it could be admitted to the official list. Under FSMA, the FCA cannot approve a prospectus unless certain information is contained within it, including that set out in Articles 6 and 16 of the Prospectus Regulation (EU) 2017/1129. These Articles provide that there must be sufficient information in a prospectus for an investor to make informed assessments, including of risk factors affecting the issuer of shares.

ClientEarth challenged the FCA's decision to approve Ithaca's prospectus by way of judicial review, alleging that the decision was unlawful on the following grounds:

  1. The FCA erred in law by approving Ithaca's prospectus in circumstances where the prospectus failed to disclose, or describe adequately, Ithaca's assessment of the materiality of its climate-related financial risks, in breach of Article 16 of the Prospectus Regulation.
  2. The FCA erred in law by approving the prospectus in circumstances where the prospectus failed adequately to disclose or describe the specificity of the climate-related risks associated with Ithaca's securities, in breach of Article 16 of the Prospectus Regulation.
  3. The FCA's conclusion that the prospectus contained the necessary information which is material to an investor for making an informed assessment of Ithaca's financial position and prospects, as required by Article 6 of the Prospectus Regulation, was rationally unsustainable.

Decision

In order to successfully seek to challenge a decision by way of judicial review, a party must have “sufficient interest in the matter to which the application relates” (section 31(3) Senior Courts Act 1981). On a positive note for ClientEarth, the court concluded that they had standing to bring the claim on a public interest basis.  The reasoning given was “because the subject-matter of the claim falls within [ClientEarth’s] 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”.

However, the court concluded that ClientEarth's grounds of challenge were unarguable and had no realistic prospects of success.

In respect of grounds 1 and 2, the court concluded that the court may not substitute its own view if the FCA's assessment is rational. The court's view was that the FCA's interpretation of Article 16 was correct on a natural reading and that no further detail was required in the prospectus in respect of the issuer's assessment of risk and materiality of those risks. As such, the court was not inclined to interfere with the FCA's exercise of judgment, as an expert regulator, as to whether the requirements for the content of the prospectus had been met. There was no error of law identified.

In respect of ground 3, ClientEarth did not agree with the FCA that the prospectus contained sufficient information to comply with Article 6. However, the court noted that the Paris Agreement was identified in the prospectus as a material risk, with ClientEarth and Ithaca’s differing views as to the compatibility of Ithaca’s plans with the Paris Agreement being recorded within the prospectus. Ultimately, the court found that ClientEarth had failed to come close to demonstrating that the FCA had acted irrationally in reaching its decision, noting that this is a “high hurdle to overcome”.

Comment

The court has again taken a hands-off approach to challenges of this nature. Although unsuccessful in this claim, ClientEarth are certainly keeping the issue of the environment and climate change on the agenda of big corporates and those who regulate them, as well as on the public's radar, as a result of its various legal challenges.

We have previously written about other novel ways in which parties have brought climate change litigation. As set out in that article, we expect such claims to continue throughout 2024 and beyond.