The Law of Unintended Consequences – The Risks Of Challenging Administrative Law Decision-Making

A recent case involving Tate & Lyle Sugars Limited ("Tate & Lyle") illustrates some of the potential unintended consequences of reopening administrative decision-making.
UK Energy and Natural Resources
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Originally published 21 July 2011

A recent case involving Tate & Lyle Sugars Limited ("Tate & Lyle") illustrates some of the potential unintended consequences of reopening administrative decision-making.  In this case, there was a planned review of a scheme that affected Tate & Lyle, but once this review was underway, the changes made were broader in scope than the Claimant had anticipated and  led to further changes being made which worked to the Claimant's detriment.

Background – the Renewable Obligations Certificate scheme

In this case Tate & Lyle were seeking to challenge the Secretary of State for Energy and Climate Change in relation to his decision to conduct a review of the bandings under the Renewable Obligations Certificate scheme ("ROC"). The Renewables Obligation ("RO") was introduced in the UK on 1 April 2002 and this imposes an obligation on licensed UK electricity suppliers to source a certain amount of their energy from renewable sources.  To demonstrate to Ofgem that they have met this obligation, licensed electricity suppliers must present ROCs. ROCs can be obtained either by the supplier generating electricity from renewable sources themselves, or by purchasing ROCs in the market from other renewable energy generators. If the suppliers fail to provide the required number of certificates, they must pay a "buy out price" with respect to the shortfall, which is akin to a fine.

In 2009 the Government adopted a system known as 'banding' which involves placing different technologies in different bands, in order to incentivise the use of particular renewable technologies. The rate of subsidy varies so that some technologies receive only 0.25 ROCs per megawatt hour (0.25 ROC/MWh), whereas others receive up to 2 ROC/MWh. The ultimate holder (normally the supplier) is paid a fixed sum of money for each ROC.

Tate & Lyle were a renewable energy generator involved in developing electricity and heat generated by "co-firing of biomass with combined heat and power" ("CoCHP"). This type of energy generates electricity partly from biomass, products of animal and plants – and partly from fossil fuels, where the fossil fuel and biomass have been burned in separate boilers.

Scope of the Early Review

The Secretary of State for Energy and Climate Change was due to review the banding provisions of the ROC Scheme in October 2010 but following the discovery of an error in the Government's costs assessment in the calculation of ROC/MWh, he ordered an early review of the banding. During the review, it was noted that wholesale electricity prices had increased substantially since the original assessment was made. As a result this improved the revenue position and therefore reduced the level of subsidy that would be necessary.

The previous error in the Government's costs assessment resulted in Tate & Lyle receiving 1.5 ROC/MWh. However, following the review and once the correct costs information was taken into account the Government decided that Tate & Lyle should only be entitled to 1 ROC/MWh. Tate & Lyle were concerned that other generators of renewable technology might receive a greater subsidy because the assessment of the appropriate banding for them were based on the older, incorrect information and not the new information that was applied in Tate & Lyle's case. The bandings for other technologies were not subject to an early review.

Tate & Lyle argued that the early review should have been limited to a substitution of the proper costs figure for that originally employed and no other factors, such as the bandings applicable to various renewable energy generators, should have been altered. Tate & Lyle further argued that fairness required that its technology should have been assessed in the same manner as other technologies that had not been subjected to an early review.

The Secretary of State argued that his error in the previous costs assessment triggered the need for the review but that it did not dictate the terms of the review. The purpose of the review was to assess the appropriate band for a particular technology in order to provide the requisite level of subsidy for that technology, and it was not appropriate to treat Tate & Lyle's case as exceptional. 

Tate & Lyle's challenge failed

Tate & Lyle's judicial review challenge failed in the High Court as the judge was concerned that if the Secretary of State was obliged not to take into account the new correct information, this might lead to Tate & Lyle being over-subsidised which would be a breach of the prohibition against competitive distortion attributable to state aid.

Tate & Lyle sought an appeal before the Court of appeal. The Court of Appeal, in considering what was fair and in the wider public interest, held that as a consequence of the review Tate & Lyle were not being treated unfairly. They were receiving the appropriate subsidy for someone incurring costs involved in developing CoCHP, it was just that they did not obtain the windfall they had expected from the increase in electricity prices which they would have received if no error had been made by the Government.

The Court also found that once the Secretary of State had decided to conduct a review it was open to him to approach the case by considering up-to-date materials. It was only after reviewing this that the Secretary of  State was able to determine that the 1.5 banding would constitute an unjustified subsidy for Tate & Lyle which was not in the wider public's interest. Therefore Tate & Lyle's appeal also failed.

Conclusion

This case highlights that when being asked to intervene in a Government decision to review the basis of a subsidy scheme the Court will consider what is fair in the circumstances and how this will impact both on the Claimant and the wider public interest. It is clear that the Court does not consider it is necessarily unfair for a party to be treated differently, if that party's interest would jeopardise the interest of the wider public. Therefore it was entirely reasonable for Tate & Lyle to receive a lower subsidy for its generation of renewable energies for its CoCHP technology even though the bandings for other technologies was not subject to an early review. For Tate & Lyle to receive the "erroneous" higher banding would be a detriment to the public interest. Claimants should take note that once a decision has been "unwound" by the Court, the entire process of decision-making has to be undertaken afresh but in light of the circumstances prevailing at the date of the fresh decision, and that, as with the review affecting Tate & Lyle, the outcomes of the new process may contain new content in unexpected ways. In Tate & Lyle's case, it was simply unfortunate that the outcome was not helpful to the Claimant's interests, but in many cases the process of going through the decision-making again may in fact lead to a more beneficial outcome for Claimants.

Nicola Williams
Partner
Tel: 0845 498 7231
nicolawilliams@eversheds.com

Trish D'Souza
Solicitor
Tel: 0845 498 7354
trishdsouza@eversheds.com

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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