In the recent case of Solar Century Holdings Limited & Others ("Solar") v Secretary of State for Energy & Climate Change ("DECC") [2014] EWHC 3677 (Admin), the High Court dismissed Solar's challenge to DECC's recent decision to close the solar power Renewable Obligations ("RO") scheme two years early.

Key points

  • It is often a complex exercise to discern Parliament's intention when enacting legislation (in order to delineate the powers that can be exercised thereunder). Key documents from the time (e.g. Explanatory Notes) can be admitted as evidence for this purpose. However the Court will not necessarily impute the views expressed in these documents to Parliament; they may merely reflect the policy of the time.
  • Enforcing statements of Government policy (even when they are consistent, clear and precise) is far from easy. The Court is often reluctant to give effect to purported substantive legitimate expectations. Before deciding to bring a challenge on this basis, potential claimants need to understand the full context of both the statements and the decision in question.
  • The principle of non-retroactivity in decision making is judged by a "sliding scale of fairness". Competing considerations should be balanced to decide whether the retrospection is sufficiently objectionable to amount to an abuse of process.

Background

The RO scheme provides financial incentives for the creation of generational capacity from renewable sources. These financial incentives are provided at a cost to suppliers of non-renewable energy who (it is assumed) pass on their increased costs to consumers. The RO scheme is therefore "levy-funded" and subject to the Control framework for DECC levy-funded spending (the "LCF"), a facet of the Coalition Government's 2010 Spending Review. The LCF strictly limits the overall cost of DECC's levy-funded policies, meaning that increased spend in one area must be matched by decreased spend in another. This creates tension with the RO scheme, under which accreditation (and entitlement to financial incentives) is automatic once all relevant conditions are satisfied.

Since 2011, the Government's policy has been to phase out the RO scheme in favour of Contracts for Difference ("CfD"). As with its predecessor, the CfD scheme is levy-funded and aims to incentivise the decarbonisation of electricity. In relation to the transition to CfDs, the Government made numerous representations (between 2010 and 2014) that the RO scheme would not be closed before 2017.

Decision under challenge

In a decision of 2 October 2014 (taken following a consultation commencing in May 2014) (the "Decision"), DECC decided to terminate the RO scheme (for new solar farms with capacity of over 5MW) two years earlier than originally intended. DECC's reasoning was that the relevant RO scheme had become too expensive as a result of unforeseen growth in the sector. DECC expressed concern about compliance with the LCF and effect on consumer prices.

In its May 2014 consultation, DECC proposed a "grace period" to protect developers that had, at the date of the consultation, already made a significant financial commitment to solar farm projects. As a result of specific concerns raised during the consultation period, DECC removed certain of the eligibility conditions for the grace period in the Decision.

Solar, comprised of four companies engaged in the installation of large solar farms, sought judicial review of the Decision on a number of grounds.

Grounds of challenge and the Court's judgment

DECC's power

Solar's contended that DECC did not have the power to close the RO scheme before 2017 (i.e., it was ultra vires) as it contravened the purpose of the relevant legislation (sections 32LA and 32LB of the Electricity Act 1989 ("EA 1989"), introduced by the Energy Act 2013). The Court helpfully summarised the relevant legal principles of statutory interpretation:

  • It is relevant to identify the purpose of the relevant enactment (i.e., the mischief to which it is directed).
  • Other than with consolidating enactments, the relevant purpose/mischief may be identified by posing questions (as applicable) relating to: the changes to the legislation; the problem to be resolved by the enactment; the blemishes on prior legislation; and the improvement sought by the enactment.
  • To answer these questions, Explanatory Notes, White and Green Papers, Ministerial statements and Law Commission Reports may all be admissible evidence.
  • The weight of these sources varies according to how close (or remote) they are from the final language selected by Parliament.
  • Inferences may also be drawn from the statutory words used in the scheme of the legislation as a whole and any case law on the underlying subject matter.
  • Whilst admissible material reflects the views of its author, these views do not necessarily reflect the will of Parliament. It cannot be simply assumed that the purpose of the statute reflects that of the pre-legislative material.
  • However, an enactment should be construed in light of the purpose evident from the mischief and historical context if the provision's literal interpretation is "manifestly contrary" to the intention that may be imputed from contextual material.

Applying these factors, the Court held that DECC did have the power to make the Decision. On a comparison of the EA 1989 before and after the relevant enactments, and on a close read of the Explanatory Notes to the amending legislation, it was clear that the purpose was limited to two technical issues (relating to geographical scope and the ability of DECC to close the RO scheme in its entirety). In support of its judgment, the Court referred to the "pertinent historical context" of the LCF, which was relevant when identifying the statutory purpose behind the enactments

Pre-legislative assurance?

In short shrift, the Court dismissed Solar's argument that pre-legislative statements of the Government amounted to a binding "assurance". Despite factual similarities, this is a discrete point of law from that of legitimate expectations. The Court suggested that the circumstances in which a pre-legislative assurance will be treated as reflecting Parliament's will "may be exceptional" when this is not apparent from the enactment itself. The Court held that no such assurance had been made on the facts; the "admittedly clear statements of intent" simply reflected policy at the time and should be understood in the context of the LCF.

Substantive legitimate expectation?

Solar argued that the multiple statements made by the Government (until early 2014) that the relevant RO scheme would not be closed before 2017 were sufficiently clear and unambiguous to amount to a substantive legitimate expectation which had to be protected. Solar contended that the Decision was an abuse of power as none of DECC's justifications were sufficient to warrant its frustration.

The Court dismissed Solar's arguments, holding that, particularly given the context of the LCF and restrictions on departmental spending (which operators such as Solar "must be taken to have known") no legitimate expectation had arisen. The Court noted that, even if there was a legitimate expectation, DECC would have been justified in frustrating it because of the public interest considerations encapsulated in the LCF (namely austerity and controlling consumer costs). The Court praised DECC for adopting a fair procedure and balancing the competing interests (including adopting a grace period).

"Grace period" was retrospective and unlawful?

The Court dismissed Solar's argument that the Decision's "grace period" (which required operators to have met relevant conditions at the date of the May 2014 consultation) was unlawfully retrospective. This judgment reinforces that, to bring a successful claim on this basis, there has to be (i) an element of retrospection, however slight (which, in Solar's case, there was), and (ii) "unfairness" when the level of retrospection is balanced with competing considerations (which, in Solar's case, there was not).

Comment

This case is striking because it demonstrates the difficulties in successfully bringing a claim for judicial review on the basis of policy statements (whether on the ground of substantive legitimate expectation or otherwise). Even regular and "admittedly clear statements of intent" are often insufficient to create an enforceable substantive legitimate expectation. This is even the case when statements appear in such documents as White Papers and Explanatory Notes.

Potential claimants considering bringing such a claim need to carefully consider the full context in which a decision has been taken. This is likely to include the need for public bodies to comply with budgetary constraints, which, in this case, the Court deemed a "public interest consideration of the highest order".

The full context also needs to be understood when interpreting a statutory power (and its limits). However, whilst documents such as Explanatory Notes are often useful in discerning Parliament's intention, potential claimants need to be cautious if they wish to rely on them. Careful analysis is required because (as in this case) it may be that they just reflect policy at the time (and not the purpose of the enactment).