Breach of Legitimate Expectation?

Court refuses to find unfairness or breach of legitimate expectation in judicial review arising from early closure of government scheme.

(1) Solar Century Holdings Ltd (2) Lark Energy Ltd (3) TGC Renewables Ltd (4) ORTA Solar Farms Ltd v Secretary of State for Energy and Climate Change [2016] EWCA Civ 117

The Court of Appeal has recently decided on a previously rejected High Court ruling on a challenge to the Secretary of State’s decision to conclude a Government scheme supporting the use of renewable electricity sources. In August 2014 four companies, engaged in the installation of large scale solar photovoltaic systems, launched a judicial review challenging the Government’s proposals to close the Renewables Obligation (“RO”) scheme. The companies challenged the Government’s ability to change its policy in regard to the RO scheme on the grounds that;

(1) The decision to implement an early closure of the RO scheme by statutory instrument was Ultra Vires. The powers granted by Sections 32 LA and LB of the Electricity Act 1989 because the statutory power was for the purpose of preserving the 2017 closure date and not for extending it,
(2) The pre-legislative statements that the RO scheme will run until 2017 amounted to the type of assurance which would bind the executive and early closure violated those assurances,
(3) The statements made by the Government from 2010 onwards that the scheme would not close before 2017 were clear and unequivocal representations giving rise to a legitimate expectation which was not thwarted by any policy consideration,
(4) The periods of grace are retrospective in effect and therefore unfair in a public law sense,

The proposal to close the RO scheme with a scheme based on Contracts for Difference (CfD) was discussed in July 2011. The decision agreed was that the Secretary of State would close the RO scheme to new capacity on the 31st March 2017. After further consultation, the Secretary of State declared, under the Renewables Obligation Closure (Amendment) Order 2015, that the RO scheme would close two years earlier on 1 April 2015. A grace period was included to protect companies that could demonstrate ‘significant financial commitment’ to proposed projects at the date of the publication of the consultation.

Ultra Vires
The Court of Appeal concluded that the Renewable Obligation Closure (Amendment) Order 2015 did not amount to an abuse of power. The Government did have the power to close the scheme under s.32 LA; the language used in the legislation was wide enough for the Renewable Obligation Closure (Amendment) Order 2015 to close the scheme ‘to electricity generated after a specified date‘. There was nothing to suggest that the specified date had to be on or after 1 April 2017. When rational grounds existed, the Government was entitled to formulate and reformulate policy.

Section 32 LA of the Electricity Act 1989 provides as follows:
“32 LA Renewable obligation closure order;
(1) The Secretary of State may make a renewable obligation closure order.
(2) A renewable obligation closure order is an order which provides that no renewable obligation certificates are to be issued under a renewable obligation order in respect of electricity generated after a specified date.
(3)Provision made under subsection (2) may specify different dates in relation to different cases or circumstances.
(4)The cases or circumstances mentioned in subsection (2) may in particular be described by reference to—
(a) accreditation of a generating station, or
(b) the addition of generating capacity to a generating station.”

Assurance
The Court of Appeal held that, in relation to the statements that the companies argued amounted to an assurance, no clear assurances were made in relation an explicit end date to the RO scheme. Mr Justice Green stated in his summing up of the appeal;

First, I do not construe the Explanatory Notes as creating any form of assurance…. Second, equally I do not construe the statement of the Minister in Parliament as creating any form of representation which could be elevated into an assurance…And further as to the statements made in White Papers and consultation documents these would… carry materially less weight than Explanatory Notes or a direct statement by a sponsoring Minister. But in any event these admittedly clear statements of intent were not and could not be construed as “assurances”.

Legitimate Expectation
There was no legitimate expectation that the Government would not change its policy in regard to the March 2017 closure date. The various documents made it clear that, although the Government wanted a stable investment environment, there were specific caveats which made it apparent that if the Government’s spending for energy and climate change goals was threatened by increased uptake, the closure date may be brought forward. Furthermore, it was clear that the Government would maintain support for existing investments’, rather than projects ‘in the pipeline’ towards accreditation. Mr Justice Green further stated in his summing up of the decision;

“The risk was that if uptake for support led to increases in expenditure beyond the agreed HM Treasury limits that the scheme might (or even would) be curtailed in order to bring expenditure back under control. As such no operator could expect that the system would inevitably or necessarily last until 2017. Put another way, the highest that the legitimate expectation can be put is that the scheme would not be closed absent an increase in expenditure under the scheme which would put the Treasury cap at risk.”

Grace Period
The Court of Appeal did not agree with the High Court decision that there were retrospective elements in the changes. The Court of Appeal held that, although past acts now had different consequences to those contemplated at the time, the legal nature and effect of those acts had not been altered by the legislation. The Court of Appeal considered there had been no alteration of an accrued entitlement.
When considering the fairness and rationality of the Government’s decision, it was relevant to consider that the effect of the changes was to “alter the rules of the game after investors had started playing it”, It was held that the government did have the right to make an assessment, and set a cap on the amount of investment required to qualify for the grace period. In addition the consultation process had been procedurally  fair, and had resulted in the grace period being relaxed.

In conclusion, the Court of Appeal held that the Government had the power to close the scheme and could formulate and reformulate its policy as rational grounds existed for doing so. There was no legitimate expectation created by the Government as to the closure of the scheme in 2017. A legitimate expectation claim requires the demonstration of a clear and binding assurance as to future conduct. No such assurance existed either in pre-legislative statements or subsequent representations. The grace period was not unfair by reason of retrospective operation, even though the effect of the changes was to “alter the rules of the game after investors had started playing it”, since the legal nature and effect of past acts had not been altered.

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