Michael Bedford analyses the Court of Justice of the European Union's ruling on the UK's 2010 costs regime for legal challenges to environmental decisions and assesses the judgment's likely impact on the current framework.
In 2007 the European Commission notified the UK that it had received a complaint to the effect that the costs regime applicable to legal challenges to environmental decisions was not compliant with the requirements of Article 9 of the Aarhus Convention on Access to Information, Public Participation in Decision Making and Access to Justice in Environmental Matters (which had been adopted by the United Nations Economic Commission for Europe in 1998 and was ratified by the European Community and the UK in 2005). The complaint was that the costs regime did not ensure that the cost of bringing such challenges was not prohibitively expensive.
The Commission asked the UK for its observations. In 2008 the Working Group on Access to Environmental Justice (WGAEJ) warned the UK Government that it considered it was likely that the costs regime was not Aarhus compliant. In 2010 the WGAEJ repeated that warning. In 2011 the European Commission brought infringement proceedings against the UK for failing to correctly transpose and correctly apply Articles 3(7) and 4(4) of Directive 2003/35/EC (which had amended the EIA Directive 85/337/EEC and the IPPC Directive 96/61/EC so as to incorporate the requirements of Article 9 of the Aarhus Convention). Those proceedings were finally determined by the Court of Justice of the European Union (CJEU) on 13 February 2014.
In Commission v UK (Case C-530/11) the CJEU found against the UK and held that the costs regime in force in England and Wales in May 2010 was not compliant with the Aarhus Convention in so far as it applied to environmental challenges that engaged with either the EIA Directive or the IPPC Directive. The date of May 2010 was relevant because that was the date by when the Commission in a pre-litigation reasoned opinion had required the UK to remedy the infringement. The CJEU therefore examined the legal position as at that date. It accordingly took no account of the refinements to the costs regime set out by the Court of Appeal in R (Garner) v Elmbridge Borough Council  EWCA Civ 1006 (decided in July 2010). Nor did it take into account the reforms to the costs regime introduced with effect from 1 April 2013 by CPR 45 Part VII and its associated Practice Direction.
It might therefore be thought that Commission v UK is of only historic interest because domestic law has already moved on from a position that the UK Government conceded in the litigation itself was not wholly Aarhus compliant. However, although the CJEU has not directly addressed the post-April 2013 costs regime that is now operative, it is clear from passages in the judgment that there are still likely to be problems with showing that the regime is Aarhus compliant. Commission v UK is therefore relevant to practitioners today dealing with environmental challenges that engage with either the EIA Directive or the IPPC Directive.
The main problem is that the current regime only partially addresses one of the difficulties identified by the CJEU, namely the problem of reasonable predictability. As the CJEU stated (at paragraph 58) the pre-2013 “regime laid down by case-law does not ensure the claimant reasonable predictability as regards both whether the costs of the judicial review proceedings in which he becomes involved are payable by him and their amount, although such predictability appears particularly necessary because, as the United Kingdom acknowledges, judicial proceedings in the United Kingdom entail high lawyers’ fees.” CPR 45 seeks to address the issue of giving prospective claimants reasonable predictability as to their exposure to costs if they bring proceedings by having a fixed cap to limit their liability if they lose (£5,000 for individuals and £10,000 for organisations, such as NGOs) and a fixed ceiling to limit their costs recovery if they win (£35,000). The fixed cap would appear to be adequate to allow a claimant to know the full extent of his costs liability to the other party or parties in the case, although it does not tell him whether he will be liable for those costs if he loses and nor does it tell him what his overall liability for all legal costs will be.
On the first aspect (liability), the position continues to be governed by CPR 44.2(2), which sets out the general rule that costs are awarded on the basis that the loser pays the winner’s costs but with the Court retaining a discretion to depart from this general rule in any particular case, having regard to the factors set out in CPR 44.2(4) and (5). These factors include the conduct of the parties, including the reasonableness of raising or contesting any particular issue or allegation.
Whilst it would appear from Commission v UK that these are legitimate factors to be taken into account (paragraph 49) there is an inevitable tension between a requirement for reasonable predictability of outcome and a discretion to make a decision depending on the circumstances of the particular case. The CJEU emphasised (at paragraph 35) that “a judicial practice under which the courts simply have the power to decline to order an unsuccessful party to pay the costs…is, by definition, uncertain and cannot meet the requirements of clarity and precision necessary in order to be regarded as valid implementation of the obligations arising from Articles 3(7) and 4(4) of Directive 2003/35 (see, to this effect Commission v Ireland [Case C-427/07] paragraph 94.”
The CJEU appeared (at paragraph 36) to recognise that “it cannot be considered that every judicial practice is uncertain and inherently incapable of meeting those requirements” but offered no clues as to how any practice that relies on the use of discretion could achieve the necessary standard of certainty. It remains to be seen therefore whether a discretion which falls to be applied by reference to stated criteria, such as those set out in CPR 44.2 (even if the evaluation of those criteria is left to the tribunal deciding the individual case) would be acceptable to the CJEU. It may well be that the current criteria alone would not suffice because none is directly focused on the prohibitively expensive test. The CJEU stated (at paragraph 55) that “…it is not apparent…that national courts are obliged by a rule of law to ensure that the proceedings are not prohibitively expensive for the claimant, which alone would permit the conclusion that Directive 2003/35 has been transposed correctly.” This might suggest that the explicit inclusion of such a criterion in CPR 44.2 to temper the general rule that the loser pays, together with the other stated criteria, would provide both the required degree of predictability and the safeguard against costs being awarded where they would be prohibitively expensive.
Certainty could, of course, be achieved by having an absolute rule that the loser is always liable for the winner’s costs (up to the specified cap) but this would not address the prohibitively expensive test. It is also unlikely that such a rigid approach would be countenanced by the domestic courts, given the role that costs decisions play in regulating the reasonable conduct of the parties involved in litigation.
The second difficult aspect that arises under CPR 45, with its fixed cap, is that whilst the view might well be taken that the specified caps (£5,000/£10,000) are sufficient to ensure that the claimant’s liability to pay costs will not be prohibitively expensive on an objective basis, the CJEU has already held that the costs must not also exceed the means of the person concerned (see Edwards and Pallikaropoulos Case C-260/11). In Commission v UK the CJEU repeated this point and stated (at paragraph 47) “…the cost of the proceedings must neither exceed the financial resources of the person concerned nor appear, in any event, to be objectively unreasonable (see, to this effect, Edwards and Pallikaropoulos, paragraph 40).”
CPR 45 does not address the specific financial resources of the individual involved in the litigation. It cannot be said that every individual, whatever their circumstances, will have the means to meet a costs liability of £5,000. Nor can it be said that every organisation will have the means to meet a costs liability of £10,000. According to a HSBC survey in November 2013 a quarter of UK households have no savings at all and a tenth of UK households have savings of £250 or less. These are sizeable proportions of the UK population and some, at least, can be anticipated to have environmental concerns. It will be recalled that the case of Edwards v Environment Agency (No.2)  UKSC 78 initially got under way on the basis that Mr Edwards was sufficiently impoverished as to be eligible for legal aid. Thus, in order for the approach in CPR 45 to be Aarhus compliant so far as the financial resources of the individual are concerned some mechanism will need to be found to allow those who cannot afford to meet the capped costs to still bring proceedings should they wish to do so.
The legal aid regime might provide part of the solution (the CJEU recognised at paragraph 46 that the “national legal aid scheme” must be taken into account) but legal aid is not inevitably available to fund environmental challenges. In principle, legal aid is available in judicial review cases where it can be shown that the proceedings have the potential to produce “real benefits” for “the environment” (see paragraph 19(3) of Schedule 1 to the Legal Aid, Sentencing & Punishment of Offenders Act 2012). This provision would appear to have been included to achieve Aarhus compliance (as noted by the High Court when considering the earlier LSC Funding Code in R (Evans) v Lord Chancellor  EWHC 1146 (Admin) at paragraphs 17-18). However, demonstrating that this test is met in a typical challenge to a grant of planning permission for EIA development may be difficult when the likely outcome even if the challenge succeeds is simply that the decision is remade. The EIA Directive does not require that environmental harm is avoided but only that it is assessed, and so demonstrating in an individual case that there will be a “real benefit” to the environment will not be easy. Even if this hurdle is met, legal aid may still be refused because of the assessment of the prospects of success by the Director of Legal Aid Casework. Whilst s.10(3) LAS&POA 2012 allows for legal aid in “exceptional cases” where an individual can show that without legal aid there would be a breach of “any rights of the individual to the provision of legal services that are enforceable EU rights”, the EIA Directive (in combination with the Aarhus Convention) does not give any individual rights to legal services as such but only to a the provision of an overall legal system that is not prohibitively expensive. Thus, it is doubtful that the UK could point to the legal aid system as providing the necessary safety net to catch all those who wish to challenge environmental decisions but who cannot afford the £5,000/£10,000 caps in CPR 45.
The third issue arising under CPR 45 which Commission v UK left unresolved is the question of the recoverable costs ceiling for successful claimants (i.e. the reciprocal cap of £35,000). In Commission v UK the Commission had sought to argue that the principle of imposing a reciprocal cap was not Aarhus compliant because this could leave a successful claimant having to meet some of legal costs incurred by his own legal team. However, the CJEU held (at paragraphs 60-62)) that the Commission had not provided sufficient evidence to demonstrate the financial consequences of a reciprocal cap and so there was insufficient material to allow the argument to be examined. Thus, no ruling was made on this issue.
This side-stepping of the issue leaves the matter open to be argued in a case where there is actual evidence of the financial consequences of a reciprocal cap. However, the CJEU was clear (at paragraph 44) that it is necessary to ensure that “the costs borne by the party concerned taken as a whole are not prohibitive”. A similar point was made (at paragraph 64) in the context of cross-undertakings that the test is concerned with “all the financial costs resulting from participation in the judicial proceedings…taking into account all the costs borne by the party concerned”. This would strongly suggest that the impact of a reciprocal cap is relevant to any assessment of whether the arrangements under CPR 45 are Aarhus compliant. Depending on the nature and scale of the environmental challenge, a ceiling of £35,000 on the costs that a successful claimant can recover from the losing party could leave that claimant facing a substantial costs bill to meet the full costs incurred by his own legal team. The difference between the full costs incurred and the sum of £35,000 could well be both subjectively and objectively “prohibitively expensive”. Given the CJEU’s concerns that there needs to be reasonable predictability to any costs liability, together with a need for a rule of law to preclude costs being prohibitively expensive, it would seem likely that the arrangements for a reciprocal cap in CPR 45 will need some further refinement.
The final issue that remains is the position on cross-undertakings for interim relief. The CJEU held (at paragraph 66) that the potential liability that may arise under such an undertaking is relevant to the assessment of whether the costs of participation are “prohibitively expensive”. However, it did not exclude a national court from imposing a requirement for a cross-undertaking, provided that this could be done without transgressing the prohibitively expensive test (at paragraphs 67 and 68). It would appear from the CJEU’s conclusion (at paragraph 71) that the UK practice of leaving the question of cross-undertakings to judicial discretion alone produced “an additional element of uncertainty and imprecision so far as concerns compliance with the requirement that proceedings must not be prohibitively expensive” that this too is an area where reform of the CPR will be required. At the very least there would seem to be a need for stated criteria setting out when a cross-undertaking will be required, together with an over-arching rule of law that imposes the prohibitively expensive test as a limit on any such requirements.
Thus, in conclusion the CJEU decision in Commission v UK does throw up some real concerns about the current costs regime for environmental challenges which engage with the EIA Directive and the IPPC Directive. It must be seriously questioned whether the fixed caps in CPR 45 in conjunction with the legal aid scheme are sufficient to produce an Aarhus compliant regime. The role of reciprocal caps remains unresolved, and the practice of requiring cross-undertakings is clearly in need of reform. With the tenth anniversary of the UK’s ratification of the Aarhus Convention soon approaching, it must be asked why it is so difficult to achieve compliance. The fear of opening the floodgates to unmeritorious challenges to environmental decisions would appear to be hampering the UK in its response. However, with some major environmental decisions on the horizon (HS2, NSIPs on power stations, roads, and other infrastructure, as well as airport capacity for the South East) the Government needs to act swiftly to avoid those decisions becoming the subject of further references to the CJEU and there being further infringement proceedings by the Commission.