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Emerging Issues in Energy Litigation, 28 May 2015: ECHR & UK FIT Scheme

Michael O’Connor, Partner | Head of Projects, Energy

and Construction

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Contents

The Cases …………..………………………………………………………………………….... Page 3

The UK FIT Scheme…………..…………………………………………………………………. Page 4

The Proposal…………….…………..……………………………………………………………. Page 7

Challenges to the Proposal…………..………………………………………………………….. Page 8

The Claimants ………………………..…………………………………………………………… Page 10

Grounds For Challenge: A1P1 ECHR…………..………….………………………………….. Page 11

“Possessions” Under A1P1 ECHR : High Court…………..…………………………………… Page 12

Interference: Court of Appeal…………..………………………………………………………… Page 17

Was the Interference Justified Court of Appeal……………………………………………….. Page 18

Legitimate Expectation & A1P1 ECHR………..……………………………………………….. Page 19

Loss of Profits……………………………………………………………………………………… Page 20

Closing Remarks……………………………………………………………………………………Page 21

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The Cases

� Four Judgements:� The Queen on the Application of Homesun Holdings Limited, Friends of the Earth Limited &

Solar Century Holdings v Secretary of State for Energy & Climate Change [2011] EWHC

3575 (High Court, Mr. Justice Mitting).

� The Secretary of State for Energy & Climate Change v Friends of the Earth & Others [2012]

EWCA Civ 28 (Court of Appeal, Lloyd LJ., Moses LJ., & Richards LJ).

� Breyer Group plc & Others v Department of Energy & Climate Change; Free Power

for Schools LP v. Department of Energy & Climate Change; Homesun Holdings

Limited & Another v Department of Energy & Climate Change; Touch Solar Limited v

Department of Energy & Climate Change [2014] EWHC 2257 (QB) (High Court, Mr.

Justice Coulson).

� The Department of Energy & Climate Change v Breyer Group PLC & Others [2015]

EWCA Civ 408 (Court of Appeal, Lord Dyson, MR., Richards LJ., and Ryder LJ.).

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The UK FIT Scheme

� Department of Energy and Climate Change (“DECC”)

introduced a Feed-in-Tariffs (“FIT”) Scheme in 2010 to

encourage low carbon generation by specific technology

including solar photovoltaic (“Solar PV”).

� The FIT Scheme introduced under the Feed-in-Tariffs

(specified Maximum Capacity and Functions) Order 2010

and the Energy Act 2008 (“Law”).

� Two elements: Generation Tariff and Export Tariff.

� Litigation principally concerned with the Generation Tariff.

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The UK FIT Scheme

� Solar PV got a higher tariff level because installation and

equipment costs were higher.

� Once built and commissioned the Generation Tariff was fixed

for 25 years (subject to indexation).

� The Generation Tariff was set out in Electricity Supply

Licences and could only be amended (1) following a process

of consultation and then a 40 day period of parliamentary

scrutiny of the proposed modification; and (ii) in relation to

new Solar PV installations commissioned after the date that

Parliament approved the modification.

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The UK FIT Scheme

� DECC’s original stated intention was that the FIT rates would

remain unchanged for new installations from the start of the

FIT Scheme in 2010 until April 2012.

� DECC gave repeated assurances that any changes would

not be retrospective.

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The Proposal

The Scheme was very successful:

� Number of installations exceeded what was foreseen.

� Costs of solar installations had fallen.

� Rate of return for solar developers greatly exceeded what was anticipated.

� Concern that solar would take a disproportionate amount of allocated

funding at the expense of other technology.

� DECC announced a review in February 2011 and proposed (amongst

other things) to bring forward from 1 April 2012 to 12 December 2011

the date by which installations had to be commissioned / registered in

order to qualify for the original generous tariff rates for the life of the

installation (“Proposal”).

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Challenges to the Proposal

� The Proposal was challenged in judicial review proceedings.

� The High Court (Judgment of Mitting J.) held that the

Proposal was ultra vires. This finding was upheld on appeal

but for different reasons.

� DECC did not implement the Proposal and proceeded on a

different basis.

� The Complainants alleged that by the time the Courts ruled

that the Proposal was unlawful many of the installations that

otherwise would have been completed by 1 April 2012 were

abandoned causing substantial losses.

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Challenges to the Proposal

� These Claimants then sought damages against DECC for

interference with their right to peaceful enjoyment of their

possessions under Article 1, Protocol 1, European

Convention on Human Rights (“A1P1 ECHR”).

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The Claimants

� Small scale Solar PV generators.

� Nominated recipients under the FIT Scheme.

� Others engaged in a variety of businesses connected in

some way with Solar PV Generation eg, equipment

suppliers.

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Grounds For Challenge: A1P1 ECHR

� Article 1. Protocol 1., ECHR states:

� Every natural or legal person is entitled to the peaceful enjoyment of

his possessions.

� No one shall be deprived of his possessions except in the public

interest and subject to the conditions provided for by law and by the

general principles of international law.

� The preceding provisions shall not, however, in any way impair the

right of a State to enforce such laws as it deems necessary to

control the use of property in accordance with the general interest or

to secure the payment of taxes or other contributions or penalties.

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“Possessions” Under A1P1 ECHR : High Court

� The following principles can be extracted from the case law: � loss of future income is not a possession protected by A1P1;

� loss of marketable goodwill may be a possession protected by A1P1;

� a number of factors may point towards the loss being goodwill rather than the capacity to

earn future profits: these include marketability and whether the accounts and arrangements

of the claimant are organised in such a way as to allow for future cash flows to be

capitalised;

� goodwill may be a possession if it has been built up in the past and has a present day

value (as distinct from something which is only referable to events which may or may not

happen in the future): and thus

� if there is interference which causes a loss of marketable goodwill at the time of the

interference, and if that can be capitalised, then it is prima facie protected by A1P1.

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“Possessions” Under A1P1 ECHR: High Court

� Coulson J., held that: � the claimants had Al P1 possessions insofar as they had entered into contracts and/or they had

marketable goodwill constituted by or referable to those contracts;

� the doctrine of legitimate expectation could not be invoked as a "trump card" if the claimants

could not establish that they had possessions on the basis of contracts and/or marketable

goodwill;

� the Proposal interfered with the claimants' possessions and on the assumed facts this

interference caused the claimants to suffer loss;

� the interference was not justified since it was unlawful and/or it was disproportionate; and

� the claimants were entitled in principle to an award of damages assessed by reference to the

loss of profits caused by the interference with their possessions.

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“Possessions” Under A1P1 ECHR: High Court

� Applying that to one Claimant:� 5,703 leases which had been requested and sent to customers following successful

surveys. It was claimed that, 3,415 would have led to installations by the cut-off date.

Speculative & Not Claimants Marketable Goodwill ≠ Possessions Under A1P1.

� 1,774 leases had been signed by customers but not by Claimants. It was claimed that

1,430 would have led to installations by the cut-off date. Proposed Contracts Not

Concluded & Not Legally Binding. More like loss of Future Profits than Claimant’s

Marketable Goodwill ≠ Possessions Under A1P1.

� 1,974 leases had been signed by customers and Claimant but systems had not yet been

installed and commissioned as defined in the law. It was claimed that 1,923 would have

led to installations by the cut-off date. Claimant’s Marketable Goodwill = Possessions

Under A1P1.

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“Possessions” Under A1P1 ECHR: High Court

� 1,441 solar PV systems had been installed and commissioned as defined by the FIT

Scheme, following the associated leases having been signed by customers and the

Claimant. Applications were subsequently made for all of these solar systems entitling

claimants to the benefit of a FIT income stream at the original tariff. Claimants Marketable

Goodwill = Possessions Under A1P1.

� 2,539 solar PV systems had been installed and commissioned and an application had been

made as required by the FIT Scheme which entitled claimants to the benefit of a FIT

income stream at the original tariff. Claimants Marketable Goodwill = Possessions Under

A1P1.

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“Possessions” Under A1P1 ECHR: Court of Appeal

� Lord Dyson MR held:� The distinction between goodwill and loss of future income is not always easy to apply;

� There is a clear line separating (1) possible future contracts; and (2) existing enforceable

contracts;

� Contracts that are secured are part of the goodwill of a business because they are a

product of past work;

� Contracts that a business hopes to secure in the future are no more than that; and

� Classification of Coulsen J., upheld.

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Interference: Court of Appeal

� Lord Dyson MR held:� The Proposal interfered with the Claimants A1P1 rights;

� The Proposal had “an immediate and serious adverse impact on the claimants’ so that it

was not economically viable for them to continue with their solar installation business;

� It did not matter that the Proposal was a mere “proposal” and not a “final decision”;

� A mere proposal can amount to an interference; and

� Though the Proposal did not impact on the Claimants legally (it was not binding), it

impacted them practically.

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Was the Interference Justified: Court of Appeal

� Lawfulness: � Not contrary to the law to consult on a proposal which, if implemented, would be unlawful.

� Courts are cautious of allowing JR of a Consultation Document – Prematurity.

� Challenges to Consultation Documents could not be stopped if this was permitted.

� Fair Balance:� High Ct. was correct to hold that the Proposal did not strike a fair balance between the

public interest and the interest of the investors in the scheme.

� In reaching this conclusion the Court of Appeal took into consideration the following factors:

� DECC statements that April 2012 was the cut-off date.

� The statements that there would be no retrospective tariff changes.

� The scale of investments made by the Claimants in reliance on these statements.

� The fact that the losses caused by the interference with their possessions were dwarfed by the

savings achieved by DECC as a result of the interference.

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Legitimate Expectation & A1P1 ECHR

� Coulson LJ (High Court ) held:� A claim for legitimate expectation was not a “trump card” that enabled a claimant to

recover damages for interference with possessions even where the claim would

otherwise fail because it was for loss of future income rather than loss of goodwill.

� In the alternative legitimate expectation had to be linked to a property right that was

already enjoyed.

� There was legitimate expectation in respect of contracts which had been

signed/concluded before 31 October 2011 that payment would be made at the

maximum rate for installations completed by 1 April 2012.

� Where the contracts were “matters of hope or aspiration” there was not a sufficient

property right to which the legitimate expectation could be attached.

� Issue not addressed by Court of Appeal in any detail.

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Loss of Profits

� DECC argument that all claims must fail because the losses

were caused by Claimants’ commercial decisions.

� Damages to be awarded based on the facts of each

particular case.

� Principles to be applied:� Damages would generally not be awarded unless the court was satisfied that the loss was

actually caused by the violation it has found; and

� The Claimant should as far as possible be put in the position he would have enjoyed but

for the violation of his rights.

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Closing Remarks

Michael O'Connor

Partner | Head of Projects, Energy and Construction

Matheson

70 Sir John Rogerson's Quay

Dublin 2

T: +353 1 232 2283

F: +353 1 232 3333

E: michael.o'connor@matheson.com

W: www.matheson.com