Appeal against approved investment in a liquefied natural gas project in Mozambique dismissed

30th March 2023

ALAMY 2 H9 M043

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In R. (on the application of Friends of the Earth Ltd) v Secretary of State for International Trade/UK Export Finance (UKEF), a campaigning organisation appealed against a decision that the Secretary of State for International Trade, and the Chancellor of the Exchequer, had acted lawfully in approving an investment by the Export Credits Guarantee Department (UKEF) in a liquefied natural gas project in Mozambique.

UKEF was an export credit agency whose mission was to ensure no viable UK export failed for lack of finance or insurance from the private sector. It decided climate change impacts and consideration of the Paris Climate Change Agreement should be taken into account in making its decision in relation to the project.

UKEF prepared a climate change report which noted gas was a transition fuel likely to displace higher polluting fossil fuels like coal and oil, and result in a net decrease in emissions, but it was not possible to accurately quantify the scope 3 emissions of the project. UKEF took the view that support for the project was in accordance with the Paris Agreement, and the Divisional Court determined this view was at least tenable and refused the application on that basis.

Article 3 to the Paris Agreement made it clear specific obligations on state parties to the Agreement were to be carried out with a view to achieving the stated purposes set out in Article 2. The actions the parties were to take were not aims and aspirations. Article 2 included a temperature goal, a clear objective of the Agreement to which all parties had committed. The judge concluded it was not helpful to derive from the text of the Agreement’s hard-edged obligations.

Treaties that had been incorporated into English law should not be confused with incorporated treaties. The principle of dualism meant only treaties which had a legislative foothold in domestic law gave rise to legally enforceable rights. There was a lack of clear guidance as to how unincorporated treaties like the Paris Agreement should be construed as a matter of domestic law, and no jurisprudence on the precise legal meaning of the Paris Agreement. Questions on the interpretation of an unincorporated treaty were for the executive to determine, and decision-makers could not be challenged if they adopted a tenable view as to a point of unincorporated international law.

If it was tenable for UKEF to reach the view that funding the project was aligned with the UK’s obligations under the Agreement, the court could not and should rule they had made an error of law. UKEF’s view was a tenable one, bearing in mind the huge complexities explained in its climate change report on the project. The standard for judicial review was in this case less intense where the issue was not properly within the province of the domestic court.

The appellant argued the decision was irrational because financing the project did not align with the UK’s obligations under the Paris Agreement. However, the respondents had been advised the project could in some scenarios align with those obligations. It was known and understood by UKEF that scope 3 emissions from the project would significantly exceed scope 1 and 2 emissions, but it was not clear to what extent the project would contribute to fossil fuel transition.

If the liquefied natural gas entirely displaced coal and oil, it would lead to an overall net reduction in emissions but the precise outcome could not be predicted. There was no domestic law requirement for the respondents to be certain the decision complied with the UK’s obligations under the Agreement. It could not have been irrational for the respondents to decide to finance the project.

The appellants also argued the respondents had failed in their duty of enquiry to obtain a quantification of the project’s scope 3 emissions. However, subject to an irrationality challenge, it was for the decision-maker, not the court, to decide upon the manner and intensity of the inquiry to be undertaken. Quantification of scope 3 emissions would not answer the far more difficult question of whether, and to what extent, gas from the project would replace more polluting fossil fuels and over what timescales. The judge concluded UKEF’s decision was within the substantial margin of appreciation allowed to decision-makers.

The appeal was dismissed.

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