ClientEarth’s challenge to FCA prospectus decision dismissed
Section 87A of the Financial Services and Markets Act 2000 provides that the FCA ‘may not approve a prospectus unless it is satisfied that … all of the … requirements imposed by … the Prospectus Regulation … have been complied with’.
On 9 November 2022, the FCA approved Ithaca Energy plc’s prospectus. Trading in its shares began shortly thereafter. Ithaca’s listing was the UK’s largest IPO of 2022.
On 8 February 2023, ClientEarth, an environmental charity, issued a judicial review claim seeking a declaration that the FCA’s decision to approve the prospectus was unlawful. It did so on three grounds. Grounds 1 and 2 alleged that Ithaca’s prospectus failed to disclose or describe adequately Ithaca’s assessment of the materiality and specificity of its climate-related financial risks. This was said to be a breach of article 16(1) of the Prospectus Regulation. Ground 3 alleged that the FCA’s conclusion that the prospectus contained adequate disclosure of climate-related risks was irrational. ClientEarth also contended that its judicial review claim constituted an ‘Aarhus Convention claim’ for the purposes of CPR 46.24(2)(a), in which event its liability for the costs of the other parties cannot exceed £10,000: see CPR 46.26.
The central proposition advanced by ClientEarth in relation to Ground 1 was that there is, under article 16(1) of the Prospectus Regulation, not only an obligation to provide an ‘adequate description’ of material risk factors (which was common ground), but also a separate and freestanding obligation to provide an adequate description of the issuer’s assessment of the materiality of each of those risk factors. Ithaca’s case, by contrast, was that there is no such separate or freestanding obligation; and, in any event, that Ithaca’s prospectus did disclose the issuer’s assessment of materiality, if that is required.
Permission for judicial review was refused on the papers by Sir Ross Cranston. ClientEarth exercised its right to renew its application.
Following a 1-day renewal hearing on 13 December 2023, Lang J refused permission on all three grounds. As to Grounds 1 and 2, she held, paras 22-23, that article 16 ‘does not impose a separate requirement for the issuer to disclose its assessment of risk and materiality’ (or specificity). There was therefore no arguable case that the FCA had erred in law in approving Ithaca’s prospectus. The Judge also concluded that the rationality challenge (Ground 3) was unarguable because the FCA was entitled to conclude that the prospectus provided adequate disclosure of Ithaca’s climate-related risks.
As to the Aarhus Convention issue, the Judge held, accepting the submissions of the FCA and Ithaca, that ClientEarth’s claim was not an ‘Aarhus Convention claim’ as defined in article 9(3) of the Aarhus Convention: see para 45. This meant that ClientEarth was not entitled to costs protection and it was accordingly ordered to pay the costs of the FCA and Ithaca.
Niranjan Venkatesan acted for Ithaca, the Interested Party, instructed by Pinsent Masons LLP.View Judgment