R (on the application of Friends of the Earth Ltd) v The Secretary of State for International Trade / Export Credits Guarantee Department (UK Export Finance) (“UKEF”)
| Jurisdiction | England & Wales |
| Judge | Stuart-Smith LJ |
| Judgment Date | 15 March 2022 |
| Neutral Citation | [2022] EWHC 568 (Admin) |
| Docket Number | Case No: CO/3206/2020 |
| Court | Queen's Bench Division (Administrative Court) |
[2022] EWHC 568 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Stuart-Smith
Mrs Justice Thornton
Case No: CO/3206/2020
and
Jessica Simor QC, Kate Cook and Anita Davies (instructed by Leigh Day) for the Claimant
Sir James Eadie QC, Richard Honey QC, Hollie Higgins and Conor Fegan (instructed by Government Legal Department) for the Defendants
Adam Heppinstall QC and Freya Foster (instructed by Latham and Watkins) for the Interested Parties
Hearing dates: 7–9 December 2021
Remote hand-down: This judgment was handed down remotely at 10.30am on 15 March 2022 by circulation to the parties or their representatives by email and by release to BAILII and the National Archives.
Approved Judgment
Introduction
The Claimant, Friends of the Earth (“FoE”), is a not-for-profit organisation that undertakes campaigning and other work in furtherance of environmental protection objectives for and in the public interest. FoE challenges the decision of the First Defendant Secretary of State to provide up to USD 1.15 billion in export finance and support in relation to a liquefied natural gas (“LNG”) project in Mozambique (“the Project”). The decision was in fact made by Mr Louis Taylor, the Chief Executive Officer of United Kingdom Export Finance (“UKEF”), formally exercising his delegated power under section 1 of the Export and Investment Guarantees Act 1991.
The Project comprises the development of offshore deepwater gas production facilities, 50km from the coast of Northern Mozambique connected to an onshore gas receiving and liquefaction facility. It is to be operated by the First Interested Party and funded via the Second Interested Party. The decision is said to be one of the largest single financing packages ever offered by UKEF to a foreign fossil fuel project. It forms part of a much larger financing and support package in the region of USD 14.4 billion provided by multiple developed countries.
The decision involved at least three stages:
i) The decision of the First Defendant of 10 June 2020 that UKEF would provide the support;
ii) The consent of HM Treasury/the Chancellor of the Exchequer (“the second Defendant”) of 12 June 2020 to UKEF providing the support; and
iii) The decision of 30 June 2020 by the Accounting Officer and Chief Executive of UKEF to approve the underwriting minute and the decision of 1 July 2020 of the Chief Executive of UKEF to approve the clearance of documents memorandum.
FoE seeks to quash UKEF's decision, along with the decisions to provide prior approval to the same by the Secretary of State for International Trade and HM Treasury on 10 and 12 June 2020.
In bringing this challenge, FoE contends that:
i) The decision was based on an error of law or fact, namely that the Project and its funding was compatible with the United Kingdom's commitments under the Paris Climate Change Agreement (“the Paris Agreement”) and/or assisted Mozambique to achieve its commitments under the Paris Agreement (Ground 1(a)) and/or
ii) UKEF's decision was otherwise unlawful in so far as it was reached without regard to essential relevant considerations in reaching the view that funding the Project aligned with the UK and Mozambique's obligations under the Paris Agreement (Ground 1(b)).
The climate change implications of the Project were controversial at the time of the decision, not only amongst NGOs like FoE, but also within Government. The Foreign Secretary, the Secretary of State for International Development and the Secretary of State for Business all opposed funding the Project on climate change grounds. The merits of the decision are not however, a matter for this Court. We are concerned only with the lawfulness of the decision.
The statutory basis for the decision and the decision-making structure
The relevant domestic statutory power engaged by the decision is under section 1 of the Export and Investment Guarantees Act 1991 (“the 1991 Act”) which affords the Secretary of State a broad discretion. By section 1(1) the Secretary of State may make arrangements which she or he considers are conducive to supporting or developing supplies or potential supplies by persons carrying on business in the United Kingdom of goods, services or intangible assets (including intellectual property) to persons carrying on business outside the United Kingdom. By section 1(4) the arrangements that may be made are arrangements for providing financial facilities or assistance for, or for the benefit of, persons carrying on business; and the facilities or assistance may be provided in any form, including guarantees, insurance, grants or loans. By section 4(2) the powers of the Secretary of State under section 1 are exercisable only with the consent of the Treasury. Section 13 provides that the functions of the Secretary of State shall be exercised and performed through what is now UKEF, which is a Department of the Secretary of State; and there is established an Export Guarantees Advisory Council (“EGAC”), the function of which is to give advice to the Secretary of State, at his or her request, in respect of any matter relating to the exercise of her or his functions under the 1991 Act.
UKEF's mission is to ensure that no viable UK export fails for lack of finance or insurance from the private sector, while operating at no net cost to the taxpayer. Broadly speaking, UKEF operates like a financial institution which carries out banking and insurance business in support of UK exports and investments. UKEF does not allocate public funds to or invest in projects, but provides export credits (through guarantees, insurance, grants or loans) in relation to the supply of UK goods and/or services to overseas buyers, including in relation to projects. UKEF's support is therefore conditional on the overseas buyers procuring British goods and/or services, sometimes referred to as “UK Content”. It is known as an export credit agency (“ECA”), as are similar organisations from other sovereign states.
As part of its decision-making process, UKEF routinely assesses the statutory basis for support, the export case, the credit risk and environmental, social and human rights (“ESHR”) impact considerations. In addition, in the present case officials from the Department for International Development undertook an assessment for the Treasury of the proposed transaction against the OECD Principles and Guidelines to Promote Sustainable Lending Practices in the Provision of Official Expert Credits to Low-Income Countries (the “Sustainable Lending Principles”). That assessment reported on (a) Mozambique's debt sustainability, (b) the Government of Mozambique's efforts in relation to governance and transparency and (c) the Project's positive economic returns.
UKEF's Enterprise Risk and Credit Committee (“ERiCC”) was responsible for advising Mr Taylor, as UKEF's Accounting Officer and CEO, on the effective management of UKEF's credit risk exposures. Initial approval was given by ERiCC on 30 April 2020 and final approval on 29 May 2020.
Consent from the Treasury was required because the proposed support for the Project would exceed £200 million and because the funding of the Project was recognised to be contentious. A submission was also made to the Prime Minister. I deal with the submissions to the Secretary of State, the Treasury and the Prime Minister in more detail later.
On the conclusion of these steps, Mr Taylor approved the underwriting minute on 30 June 2020 and the clearance of the necessary legal documents on 1 July 2020.
UKEF's environmental policy
UKEF's statement of policy and practice on Environmental, Social and Human Rights, due diligence and monitoring (2018), the policy in force at the material time, provides that before providing funding, UKEF will conduct due diligence in accordance with “international agreements which apply to the operation of ECAs”. UKEF assesses the environmental, social and human rights (ESHR) risks and impacts by way of an ESHR review “to be satisfied that these are identified, managed and mitigated in line with local and international ESHR standards”. UKEF will not normally provide funding where its “review identifies that the project is unlikely to align with international standards”. This is on the basis that to do so would be contrary to the OECD Common Approaches (Recommendation of the Council on Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence (Organisation for Economic Co-operation and Development)) and the Equator Principles (“EPs” — a risk management framework adopted by financial institutions for assessing environmental risks in project finance), to which it has committed to comply.
The OECD Common Approaches and Equator Principles in turn required UKEF to assess whether a project it was proposing to finance complied with host country laws and a list of certain expressly designated “international standards” (§§13 and 21–26 of the OECD Common Approaches and Principle 3 of EP3). That list of designated international standards includes the International Finance Corporation of the World Bank Group's Performance Standards on Social and Environmental Sustainability and the World Bank Group Environmental, Health and Safety Guidelines. The former set of performance standards includes Performance Standard 1 Assessment and Management of Environmental and Social Risks and Impacts.
The United...
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