Originally published 30th August 2011
In recent judicial review proceedings - R (on the application of
Infinis and Infinis Re-Gen Limited) v the Gas and Electricity
Markets Authority1, the High Court has found that
Infinis should be entitled to damages in respect of breaches of its
human rights by the Gas and Electricity Markets Authority (Ofgem).
The case may set a potentially dangerous precedent for the
regulator to ensure that it interprets the complex secondary
legislation underpinning the renewables obligation certificates
("ROCs") regime very carefully. If you would like to
discuss the approach taken in this case or have faced similar
issues in connection with the non award of ROCs on original NFFO
contracts please feel free to contact us.
The human right in question was Article 1 of the First Protocol to
the Human Rights Convention – which provides that no one
shall be deprived of his possessions except in the public interest
and subject to the conditions provided by law. Under section 8(2)
of the Human Rights Act 1998, the Court has the power to award
damages, or the payment of compensation for breaches of rights.
Cases in which damages are awarded, however, are rare.
Background
The case relates to the question of the correct interpretation
of what constitutes an "excluded generating station" for
the purposes of being able to claim ROCs under the Renewables
Obligation Orders 2004 and 2006.
The Claimants, Infinis and Infinis Re-Gen Limited, are the current
owners of two power stations fuelled by landfill gas, which had
entered into Replacement Power Purchase Agreements
("RPPAs") with the Non-Fossil Purchasing Agency
("NFPA") under the Non Fossil Fuels Obligation
("NFFO") scheme set up under the Electricity Act 1989.
The commencement date for the RPPAs was dependent on the fulfilment
of certain conditions precedent, and owners of the facilities were
under a "reasonable endeavours" obligation to ensure that
the conditions precedent were satisfied by the effective long-stop
date in respect of each agreement.
The problem in this case was that the relevant conditions precedent
were not satisfied within the permitted timescale in respect of
either of the RPPAs. The NFPA accepted that in the case of each
power station, the Claimant had used reasonable endeavours to try
to meet the conditions precedent, and eventually agreed that in
respect of each RPPA, the agreement could be terminated on the
basis that the relevant conditions precedent could not be
met.
The NFFO statutory scheme was amended under the Utilities Act 2000,
and replaced with the renewable obligation scheme. The Renewables
Obligations Orders 2006 and 20092 set out the
requirements for the new scheme. Under Article 5(1) of the 2006
Order, electricity was not to be treated as being generated from an
eligible renewable source for the purpose of earning ROCs if it had
been generated by an excluded generating station. Article 6 went on
to clarify that generating stations were to be excluded where they
were, or had been, "qualifying arrangements" under the
NFFO scheme. The key issue for the Claimants was therefore whether
the two generating stations in question still constituted
"extant qualifying arrangements" for the purposes of
Article 6(3), which would prevent the generating stations being
able to benefit under the revised ROC scheme.
A company's "human rights"
Perhaps contrary to expectations, there is clear case law supporting corporate entities having rights under the Human Rights Act 1998 and the European Convention on Human Rights. Although such cases are still relatively rare, the most common way in which a corporate entity is likely to consider its rights have been infringed is in relation to the right to peaceful enjoyment of property enshrined in Article 1 of Protocol 1. For compensation to be payable, the Claimant needs to show that there has been a clear violation of rights. The Court is likely to order that a fair and equitable assessment of what damages should be awarded needs to be carried out, with the aim of putting the claimant back in the position they would have been in had the violation of rights not occurred.
Application to the facts of this case
The issue in this case was whether, despite failure to achieve
the fulfilment of the conditions precedent under the RPPAs within
the requisite time frame in respect of each of the RPPAs, there
remained extant "NFFO arrangements" which would be caught
by the Renewables Obligations Orders, preventing the generating
stations from benefitting from the new ROC scheme.
The Court held that the RPPAs had ceased to continue in existence
by agreement between the parties (the then owners of the generating
stations and the NFPA), once it had become clear that the
conditions precedent would not be able to be met. At that point,
the RPPAs ceased to be in force and effect, and so could not be
said to be "extant" for the purposes of the Renewbles
Obligation Orders.
Accordingly, the Court found that Ofgem had acted in error when it
refused to accept that the RPPAs had ceased to have effect for all
purposes, and therefore found that they were "excluded
generating stations" and therefore concluded that the
generating stations were not eligible to gain credits for the
generator under the ROC scheme. Ofgem's decision was therefore
unlawful and was formally quashed by the Court. Mandatory relief in
respect of retrospective accreditation for both generating stations
was also granted with effect from dates in 2009.
In addition, the Judge found that the Claimants' human rights
(under Article 1 Protocol 1 of the ECHR) had been breached, and
agreed that the Claimants should be eligible for compensation, on
the basis that they had been denied their statutory entitlement
under the scheme. The Judge accepted the concerns raised on behalf
of the Defendant that there might be a flood of similar claims, but
found that the Claimants were entitled to damages as a result of
Ofgem having misapplied the statutory scheme. The precise sum to be
awarded may be the subject of another hearing after 1 September
2011.
Conclusion
It is not yet clear whether Ofgem will seek to challenge the
outcome of this case. If it does not appeal, or in the event that
the appeal is unsuccessful, the case will set a potentially
dangerous precedent and act as a salutary warning to the regulator
to ensure that it interprets the complex secondary legislation
underpinning the ROCs regime very carefully. To avoid further
payouts, Ofgem must ensure that its decision-making is neither
illogical nor unreasonable, and that it is consistent with the
statutory scheme underpinning the regime.
In the meantime, it will be interesting to see whether the concerns
raised by Ofgem's barrister during the hearing that there would
be a large number of similar claims for compensation will come to
fruition.
1 [2011] WHC 1873, judgment of M. Justice Lindblom dated 10 August 2011. The Non-Fossil Purchasing Agency was an Interested Party in these proceedings.
2 SI 2006/1004 and 2009/78
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