Developers should be aware that legal challenges to local government decisions in their favour may result in the Courts granting a Protective Expenses Order against them if, in the correct circumstances, the matter is pursued through the Courts.
However a recent case has nudged the Protective Expenses Order regime in a more developer-friendly direction. In Friends of Loch Etive, Petitioner a potential area of abuse was closed off when the court decided that it is not open to a wealthy individual to set up as a charity for the sole purposes of benefitting from a protective expenses order.
The new rules
Since March 2013, new rules have been in operation in Scotland which are designed to help NGOs and individual members of the public challenge planning decisions on environmental grounds. Applying specifically to statutory appeals and judicial reviews in environmental matters, these “protective expenses orders” allow a judge in the Court of Session to limit the amount of legal expenses that can be reclaimed from such persons by local government or a developer in the event of an unsuccessful appeal.
A similar tool has been available for some time under the common law, but in practice these have been granted infrequently.
Protective expenses orders – what are they and how do they work?
Protective expenses orders are designed to prevent the costs of litigating becoming prohibitively expensive and they apply only in cases where an NGO or member of the public seeks to challenge a public or private development on the basis of its perceived or potential environmental impact. They are a child of European law and a product of the Court of Session Rules (Rule 58A).
Mirroring the Protective Costs Order system in operation in England, they work by capping the award of expenses made in favour of a local authority or a developer in the event that the challenge is unsuccessful. Where, previously, the unsuccessful challenger could be on the hook for potentially tens of thousands of pounds, the protective expenses order limits this liability to £5,000. This amount is a default limit and can, in theory, be reduced even further if the circumstances warrant it, for example “if the case were plainly important to the applicant and he or she had very limited resources”.
As a corollary and as a means of preventing a gross imbalance between the parties, a protective expenses order also limits the amount that a challenger can recoup from a local authority/developer should they be successful. The default position here is a figure of £30,000. But this can be raised higher if, for example, the case is particularly complex or was likely to take more than the standard length of time. Public policy issues may also have a bearing in this regard.
When will a protective expenses order be granted?
The leading case in this area is Re, Carroll, a judgement issued a few months after Rule 58A came into force. It identified four factors in determining whether a protective expenses order should be granted. These are:
- That the pursuer must establish that the proceedings fall within the public participation provisions of European Directives 2011/92/EU and 2008/1/EC, which are concerned with the environmental impact of development projects. It should be clear in most cases if this requirement is met.
- The applicant must have genuine interest in the outcome of the decision being challenged. For individuals, close neighbourhood will often suffice. For NGOs, it will be necessary to show that the proposals under challenge involve a threat to the environment that falls within their objects.
- The challenge cannot have ‘no real prospect of success’. This will not require a detailed examination of the applicant’s case; rather that there should exist at lease an arguable case, something that has more than a remote prospect. Certainly, this does not require probability of success.
- The court must consider the financial resources of the applicant and the likely costs of proceedings. The likely costs are to be computed on the basis of a fair and reasonable charging regime, while both the applicant’s capital and income should be considered. In terms of capital, only that which is actually or potentially liquid counts. Essential assets (such as home or business assets) are excluded from consideration. The applicants living costs should also be factored in. And, once consideration has been given to these factors, the court must decide objectively whether the likely expenses are beyond the applicant’s available income and capital.
All four tests require to be met, but if they are then the protective expenses order shall be granted.
The recent case of Friends of Loch Etive, Petitionerprovides further clarity on the financial resources test. In this case, the decision of Argyll and Bute Council to allow a trout farm to be built on Loch Etive was challenged by the charity Friends of Loch Etive. However, this charity was entirely controlled and funded by an individual, who—since its establishment a year earlier—had donated £70,000 to it. The application by Friends of Loch Etive for a protective expenses order was refused. Lord Malcolm was not satisfied that the charity, which stated that it had only £4,000 in its bank account at the time, was unable to proceed with the petition in absence of the order. The court has to have regard to the funding mechanics of an NGO in making such a decision, otherwise “it would always be open to an individual, whatever his resources, to obtain a protective expenses order by setting up as a charitable organisation in which he controls its activities and membership.” In other words, it is not open to a wealthy individual to set up as a charity for the sole purposes of benefitting from a protective expenses order.