Introduction

The case of Friends of the Earth Ltd (“FoE”) versus the Secretary of State for Transport ([2021] EWCA Civ 13) addresses a pivotal issue concerning the interpretation of cost caps under the Civil Procedure Rules (CPR) 45.43 in environmental litigation. The central question revolves around whether the statutory cost caps are inclusive or exclusive of Value Added Tax (VAT). This judgment has significant implications for future environmental claims in the United Kingdom, particularly those falling under the Aarhus Convention framework.

Parties Involved:

• Claimant: Friends of the Earth Ltd (FoE)
• Defendant: Secretary of State for Transport

Background: The dispute originated from a costs order where the court capped the costs FoE could recover from the Secretary of State. The core issue was whether this cap included VAT, thereby affecting the total remuneration FoE could claim.

Summary of the Judgment

In this Court of Appeal decision, the judges deliberated on whether the cost caps imposed by CPR 45.43 are inclusive or exclusive of VAT. The Court concluded that the caps are inclusive of VAT. Consequently, the Secretary of State is required to pay FoE £70,000, which includes VAT, rather than £70,000 plus VAT. This decision aligns the interpretation of CPR 45.43 with the plain and ordinary meaning of its provisions and ensures consistency within the legislative framework governing environmental litigation costs.

Analysis

Precedents Cited

The judgment referenced several key cases to contextualize the current issue:

• R (Warley) v Wealden District Council [2011] EWHC 2083 (Admin): Addressed cost caps in environmental litigation, where it was suggested that caps should be exclusive of VAT.
• Abbotskerswell Parish Council v Secretary of State for Housing, Communities and Local Government and Others [2020] EWHC 2870 (Admin): Followed the Warley case, reinforcing the interpretation that cost caps under the Aarhus Convention are exclusive of VAT.
• R (Garner) v Elmbridge Borough Council [2010] EWCA Civ 1006: Mentioned but found not directly authoritative for the VAT interpretation in CPR 45.43.
• Response Clothing Ltd v Edinburgh Woollen Mill Ltd [2020] EWHC 721 (IPEC): Considered for analogy but ultimately rejected as inapplicable to environmental costs caps.

Legal Reasoning

The Court meticulously examined the language of CPR 45.43, focusing on whether the cost caps are to be interpreted as including VAT. The primary points in their reasoning included:

• Textual Interpretation: The Court emphasized the "natural meaning" of the statutory language, observing that the figures were stated as absolute amounts without any qualification, thus implying inclusivity of VAT.
• Legislative Intent and Consultation History: The Court considered the government's consultation response during the enactment of CPR 45.43, which favored an inclusive interpretation to account for VAT in the overall cap.
• Consistency with Aarhus Convention: Although exploring whether the interpretation aligned with the Convention's aim of not making costs prohibitive, the Court determined that specifying VAT inclusivity did not contravene these aims.
• Distinguishing Previous Cases: The Court noted that prior cases like Warley and Abbotskerswell were not directly applicable as they did not address the specific construction of CPR 45.43 post-enactment.

Impact

This judgment establishes a clear precedent that cost caps under CPR 45.43 are inclusive of VAT. The implications are profound for environmental litigation, as claimants can no longer anticipate additional VAT on top of the capped amounts. It ensures clarity and predictability in cost recoveries, aligning the domestic legal framework with fiscal realities. Moreover, it harmonizes the treatment of costs between England and Wales and Northern Ireland, despite the latter's specific regulations stating VAT exclusivity.

Complex Concepts Simplified

Aarhus Convention

The Aarhus Convention is an international treaty granting the public rights regarding access to information, public participation, and access to justice in environmental matters. In the UK context, claims falling under this Convention have specific cost capping provisions to ensure that environmental litigation remains accessible and not prohibitively expensive.

CPR 45.43

This section of the Civil Procedure Rules outlines the maximum costs that can be recovered in Aarhus Convention claims. Specifically, paragraph 3 establishes caps for defendants at £35,000 and for claimants varying between £5,000 and £10,000, depending on the nature of the party.

VAT (Value Added Tax)

VAT is a consumption tax placed on goods and services. In legal costs, whether a cap is inclusive or exclusive of VAT determines whether the VAT is additional to the capped amount or falls within it.

Conclusion

The Court of Appeal's decision in Friends of the Earth Ltd v. Secretary of State for Transport provides pivotal clarity on the interpretation of cost caps within environmental litigation under CPR 45.43. By determining that the caps are inclusive of VAT, the judgment ensures that cost recoveries remain within the intended financial limits, thereby preserving access to justice in environmental matters. This ruling not only resolves the immediate dispute between FoE and the Secretary of State but also sets a binding precedent for similar future cases, reinforcing the legal framework that governs the costs of environmental litigation in the UK.

The significance of this judgment extends beyond the parties involved, offering clear guidance to litigants and legal practitioners on the financial boundaries of environmental claims. As environmental issues continue to gain prominence, such legal clarity is essential in facilitating effective and equitable access to judicial remedies.