Canada: Solar Century V Secretary Of State - Why A Policy Is Not A Promise

Last Updated: April 25 2016
Article by Matthew Collins and Chris Warburton

Most Read Contributor in Canada, October 2018

In Solar Century Holdings Limited & Ors v Secretary of State for Energy and Climate Change, the Court of Appeal considered whether the Secretary of State could lawfully change his mind and bring forward the replacement of the 'Renewables Obligation' energy incentive scheme from 2017 to 2015. The claimants argued that the change of policy was in breach of their legitimate expectations and also unlawfully retrospective.

In finding that the decision was lawful, the Court of Appeal held that, while it had been the Secretary of State's policy not to close the scheme before 2017, there could be 'no immutable presumption on that ground alone that the policy [would] continue without change... because the Government is entitled to formulate and re-formulate policy when rational grounds exist for doing so'. Further, although the decision meant 'alter[ing] the rules of the game after investors had started playing it', this purported element of retrospectivity was not objectionable or unfair.

Background

The large increase in the amount of solar power being generated in recent years has been supported by the Renewables Obligation scheme (the RO Scheme), a Government incentive scheme under which subsidies are available for renewable electricity.

During 2010, the Department of Energy and Climate Change (DECC) issued a consultation paper which set out its intention to move away from the RO Scheme towards a scheme based on 'contracts for difference', where long term contracts between suppliers and a Government-owned counterparty would offer a specified price.

This transition was to be set against the backdrop of the Treasury's adoption in 2011 of the Levy Control Framework (the LCF), which set an overall cap for DECC's spending on such schemes.

Between 2011 and 2013, DECC issued various documents (including a White Paper) stating that the RO Scheme would close to new projects in March 2017. In an LCF question and answer document, DECC stated that, should spending be on course to exceed the LCF cap, it would consider making an adjustment to the policy (but that a core policy principle was to maintain support levels for, and not make retrospective changes to, certain existing investments).

The Electricity Act 1989 was amended (by the Energy Act 2013) to enable the Secretary of State to make an order closing the RO Scheme. The Explanatory Notes which accompanied the Energy Act 2013 reiterated that the proposal was for the RO Scheme to close to new generating capacity in March 2017.

Despite this position, which had been clear since 2011, DECC announced in May 2014 that its policy had changed. It proposed that the closure date for the RO Scheme for new large solar capacity was now to be 1 April 2015.

DECC explained that the acceleration of the scheme closure was due to a higher than expected rate of new solar capacity and the knock-on effect that this would have on the LCF. Its estimates of solar photovoltaic deployment had changed from 900MW by the end of March 2017 to 3.2GW by the end of March 2015.

The consultation proposed the introduction of a grace period for the benefit of those who had already invested in new projects, during which the benefits of the RO Scheme would be extended exclusively to those who, by the date of the consultation, could show that they met particular conditions relating to their projects (such as having made an application for planning permission).

During September 2014, the Secretary of State made the Renewables Obligation Closure Order 2014 (the 2014 Order), which implemented this new policy.

The case

The claimants were businesses involved in the creation of solar farms who were adversely affected by the change in policy. They advanced the following grounds of challenge:

  • Statements published by DECC that the RO Scheme would not close before 2017 were clear and unequivocal promises giving rise to a binding legitimate expectation in public law and the early closure was in breach of that legitimate expectation.
  • The grace periods provided by the 2014 Order were retrospective and therefore unfair in public law.
  • The amended Electricity Act 1989, properly interpreted, only enabled the Secretary of State to close the RO Scheme in its entirety with effect from 1 April 2017, not to make piecemeal closures on a variety of dates.

The Administrative Court dismissed the claimants' application on all grounds and the claimants appealed to the Court of Appeal.

The decision

On 1 March 2016, the Court of Appeal unanimously found in favour of the Secretary of State, with Lord Justice Floyd giving the leading judgment.

Legitimate expectation

Setting out the relevant legal principle, Floyd LJ stated that:

'Even where an end date [for a policy] is given... there can be no immutable presumption on that ground alone that the policy will continue without change until that date, whatever changes in circumstances may arise. That is because Government is entitled to formulate and re-formulate policy when rational grounds exist for doing so, unless to do so would amount to an abuse of power by reason of the manner in which it has previously conducted itself...

In each case the ultimate question is whether there is a "specific undertaking, directed at a particular individual or group, by which the relevant policy's continuance is assured"'.

The claimants argued that the previous conduct of the statements made in relation to the closure date contained such a specific undertaking. They claimed that the LCF was subject to the policy not to close the RO Scheme before 2017, noting that the LCF referred to maintaining support levels for existing investments and that DECC had made many other statements on providing stability for solar investment.

Floyd LJ rejected these arguments, finding that the LCF was quite clear that the policy in this area would be subject to change if there was higher than expected deployment. In addition, in his view, the better reading of the wording in the LCF was that it was referring to maintaining support levels for accredited projects, rather than projects which were in the pipeline. Instead of the LCF being subject to the policy around closure, the policy around closure was subject to the position in the LCF.

Floyd LJ continued:

'Whilst security and stability of the investment environment were important aspects of the policy, there were other aspects to it as well. These included the need to ensure that funds were available for a diverse range of technologies, not just solar PV; the need to ensure funds were available to support CfDs; and the objective of limiting and reducing consumer's bills. Not all these objectives could be achieved without compromise, and solar PV operators could not possibly entertain a secure expectation that their particular scheme would be protected at the expense of others... It must have been apparent to all concerned that, if uptake of solar PV threatened the LCF cap, the Government might, and probably would, bring forward the closure date'.

For these reasons, the Court of Appeal held that the claimants had no legitimate expectation.

Retrospectivity

The claimants' case was that the need to satisfy certain criteria, by a historic date, in order to benefit from a 'grace period' was retrospective and unfair. In addition, although the trial judge had considered the issue of fairness and rationality, he had overlooked the issue of whether Parliament had conferred a power to act retrospectively at all.

Floyd LJ dismissed that argument, holding that there was no element of retrospectivity in the 2014 Order such as would require particular provision to be made in the governing primary legislation – the grace periods were not the subject of retrospective legislation.

The trial judge had held that there was 'some (modest) element of retrospectivity' in the Secretary of State's policy which 'exerted a retrospective impact which [was] more than de minimis', albeit at the 'least objectionable end of the scale'.

The Court of Appeal disagreed, stating that there was no retrospectivity here, because the provisions did not alter the legal nature of any past act or omission. The most that could be said was that acts or omissions committed in the past would have different consequences from those that would have been contemplated at the time. There was no question of modification of an accrued entitlement, as there was in the case of Secretary of State for Energy and Climate Change v Friends of the Earth.

In relation to fairness, it was correct to say that the effect of the 2014 Order was to 'alter the rules of the game after investors had started playing it'. However, this was simply one factor in the overall assessment of fairness, and a full assessment did not disclose any unfairness. That assessment was closely related to, if not indistinguishable from the case based on legitimate expectations.

Floyd LJ noted that, if it was lawful for the RO Scheme to be closed from April 2015, it was difficult to see how it could be unlawful for the Secretary of State to 'soften the blow' by extending the scheme to those that had reached a particular stage of investment. The Secretary of State had not acted unfairly in deciding where to draw the line.

Statutory power to close the RO Scheme

Floyd LJ found little difficulty in dismissing the arguments on the ambit of the statutory power. He held that the amended Electricity Act 1989, on its face, was wide enough to allow the Secretary of State to close the RO Scheme in the way that he did (as it expressly referenced closure on different dates in relation to different cases or circumstances) and that there was nothing in the Explanatory Notes or ministerial statements which properly limited the use to which the power could be put.

Relying on Government policies

The judgment highlights the difficulties that are faced in interpreting and relying on comments made by Government. Although the court was willing to review a broad spectrum of governmental statements, including those in consultation documents and explanatory notes, it ultimately declined to find that any of these statements prevented the Secretary of State from changing his mind.

The effect of the judgment is that the mere existence of a policy did not by itself constitute a promise that the policy would continue without adaptation; and the publication of an 'end date' for a policy did not by itself constitute a promise that the policy would continue until that date. Here, the policy and its published 'end date' had to be viewed in the context of other statements made by Government.

In this case, the policy had always been subject to caveat and had never constituted an unambiguous and unqualified promise. Clear statements in relation to the closure of the scheme were subject to provisos in the LCF. Even though the LCF was a Treasury document and not a DECC document, it is well-established that representations made by different Government departments are capable of being attributed to one Secretary of State (see R (Bapio Action Limited and another) (Respondents) v Secretary of State for the Home Department).

The practical effect of this is that in the face of a clear representation about a Government policy proposal, those impacted by the proposal may be required to scan the horizon of statements in the area of the policy, to analyse whether a statement is limited by a proviso elsewhere, before placing any reliance on it. That is not necessarily an easy exercise in sectors such as energy with complex, interlinking and constantly developing policy.

The court made clear that Government policy statements must be viewed in the round and that it will not allow claimants to cherry-pick statements made by Government in an attempt to substantiate a legitimate expectation.

The court's conclusion in this case chimes with the High Court's recent judgment in R (Drax Power & Ors) -v- HM Treasury & Ors where it was found that, in order for a party to rely on a policy being carried to conclusion, the Government must have 'given an express assurance' that the policy would not change, or that such an assurance could 'be irresistibly inferred from what Government has said and done'.

In its report titled 'Investor confidence in the UK energy sector', the House of Commons Energy and Climate Change Committee expressed concern that investor confidence may have been adversely affected by the significant number of policy changes which Government has implemented. However, these concerns arise in the political and not the legal sphere.

This judgment demonstrates that the court will expect investors to understand that risks associated with their investments include the risk of a change in policy. Courts will be slow to immunise investors against the effects of policy changes made by a democratically elected Government for macro-economic reasons.

The use of historic deadlines

In relation to the retrospective elements of the policy, Floyd LJ contrasted the case with the case of Friends of the Earth, in which it was held that proposed changes to the RO Scheme did involve unlawful retrospectivity, because they changed the rules for those who were already accredited in the scheme and had an entitlement in law which was being interfered with. This was not the case here.

In contrast to the trial judge, what the Court of Appeal found was that the grace period provisions did not engage the principle against retrospectivity - just because the provisions involved looking back in time, that did not make them retrospective. This is on the basis that the provisions involved neither changes in the law in relation to events which had taken place in the past (retroactive changes) or changes to existing legal entitlements in relation to the future (retrospective changes).

While the Court of Appeal did not clearly address it in these terms, it appears that such an analysis should be carried out to determine whether the principle against retrospectivity is engaged at all, before considering where a provision falls on any 'scale' of objectionable retrospectivity.

That the intention of the grace period was to soften the blow of the changed closure date to projects as a whole provides little comfort to anyone who did not benefit from it. However, that consideration is part of the determination of whether the provisions were fair (in a public law sense).

What fairness requires is highly dependent on context. In its analysis, the court no doubt gave considerable weight to the fact that due deference should be given to the Secretary of State's economic judgement on what further accreditation would be acceptable given the cap on expenditure which was set in the LCF. Ultimately, the court adopted a pragmatic approach; accepting that the deadline for eligible projects would have to be set somewhere.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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