Key points

  • Claimants who suffer a loss due to the unlawful actions of a public authority may be awarded damages under the European Convention on Human Rights.
  • When determining whether to award damages in such circumstances, factors that the court is likely to take into account include: (i) whether the claimant was deprived of a benefit to which it was entitled under statute or whether the public authority had any discretionary powers; and (ii) the extent to which the losses suffered by the claimant are easily quantifiable.
  • Public authorities should be aware that a misinterpretation of their powers may lead to a damages award even where there is no suggestion of bad faith, negligence or any other head of claim.

Background

All remedies in judicial review are at the discretion at the court. In particular, damages will only be awarded where there would be another head of claim arising from the same facts entitling the claimant to damages (section 31(4) Senior Courts Act 1981). In order to secure compensation therefore, the claimant must not only show that the public authority has acted unlawfully, but also that there was an additional factor such as bad faith or negligence that entitles it to damages.

Article 1 of the First Protocol of the European Convention on Human Rights (the Convention) states that “Every natural or legal person is entitled to the peaceful enjoyment of his possessions”. The Convention is incorporated into English law by the Human Rights Act 1998 (HRA). Under section 8(3) HRA, the victim of a violation will only be awarded damages where the court, taking in to account (i) any other remedy, relief or order granted in relation to the act in question, and (ii) the consequences of the decision in respect of that act, is satisfied that the award is necessary to afford just satisfaction. Section 8(4) HRA requires domestic courts to consider the principles set out by the European Court of Human Rights in determining whether to award damages and the amount to award.

Facts

The Electricity Act 1989 (as amended by the Utilities Act 2000) and associated statutory instruments promote the generation of electricity from renewable sources. In particular, suppliers who enter into arrangements to secure electricity from non-fossil fuel sources may obtain a Renewables Obligation Certificate (ROC), thereby avoiding a charge known as a "Buyout Payment".

The two claimants (Infinis) were respectively the owner and operator of two generating stations fuelled with landfill gas. In March 2010, the Gas and Electricity Markets Authority (Ofgem) refused to grant Infinis ROCs in relation to either site. Ofgemconcluded that there were arrangements in place on both sites providing for the building of a generating station which had not yet been commissioned. As a result of these arrangements, the sites fell within exclusions from the accreditation scheme.

Infinis sought judicial review of Ofgem'sdecision not to grant the ROCs on the basis that the parts of the agreements relating to the building of the power station were not in force at the relevant time, and that therefore the exclusions did not apply. The losses caused by the exclusion from the accreditation scheme were claimed on the basis that the unlawful actions of Ofgem constituted a violation of the claimants’ rights under article 1 and an award of damages was necessary to afford just satisfaction.

Administrative Court

In R (on the application of Infinis Plc) v Ofgem [2011] EWHC 1873 (Admin), the court found that as a matter of contractual and statutory construction, the exclusions did not apply. In the absence of any discretionary power on the part of Ofgem, the claimants were therefore entitled to accreditation under the statutory scheme.

Ofgem conceded that if the exclusions did not apply, there would be a breach of the claimants' rights under article 1. It was therefore necessary for the court to determine whether just satisfaction required that damages should be awarded, and if so, the appropriate amount. While it was difficult to discern clear guidance from the Strasbourg jurisprudence, the court concluded that the basic principle was "restitutio in integrum"; the claimant should be put in the same position as if his rights under the Convention had not been infringed.

In this case, Infinis had no private law claim and quashing and mandatory orders alone could not afford just satisfaction. The only means by which Infinis could recover what they were entitled to under the statutory scheme was through the award of damages under section 8(3) HRA. That Ofgem had acted in good faith did not change the fact that it had misapplied the statutory scheme. The possibility of this conclusion inviting claims from parties who had been refused ROCs was not in itself a good reason to depart from the principle of restitutio in integrum. In this case, there was also a clear calculable loss which flowed directly from Ofgem’s unlawful decision. The claimants were awarded £93,454.38 with a further £2,656,743.84 subject to mitigation.

Appeal

Ofgem appealed in Ofgem v Infinis [2013] EWCA Civ 70. The Court of Appeal upheld the decision that the exclusions did not apply and that Infinis were therefore statutorily entitled to ROCs in relation to both sites.

Ofgem withdrew its previous concession, arguing before the Court of Appeal that even if its decision was unlawful there would be no breach of article 1. In doing so, Ofgem relied on Strasbourg jurisprudence which indicated that for a claim to amount to a "possession" for the purposes of article 1, there needed to be settled case law or a judicial declaration to that effect. However, the court found that Infinis' legitimate expectation based on statute was itself enough to amount to a right protected by article 1 – there was no requirement for both a legal provision giving an entitlement to some benefit and a legal act such as a judicial decision confirming that entitlement.

Further, the court upheld the finding at first instance that basic principle in determining the award and amount of damages was restitutio in integrum. This was not, as Ofgem had argued, an oversimplification which failed to distinguish between the role that compensation played in human rights cases and in cases of breaches of statutory duty. In challenging the application of this principle, Ofgem had mainly relied on Strasbourg cases relating to breaches of Convention rights which were not capable of being computed in terms of financial loss. The court noted the leading case of Anufrijeva v Southwark LBC [2004] QB 1124 which indicated that where the breach of a Convention right has clearly caused significant pecuniary loss this should usually be assessed and awarded. In circumstances where Infinis had been deprived of the benefits to which they were entitled and the amount of the lost benefit was readily calculable, there was no reason for departing from the usual approach to the assessment of such a loss. The award at first instance was upheld.

Comment

Claimants seeking damages in public law matters have traditionally met with an unreceptive court on the basis that the purpose of judicial review is to ensure good administration rather than provide compensation. Furthermore the lack of clarity in the Strasbourg case law makes it difficult to identify the principles governing the award of damages where there has been a violation of the Convention.

In Infinis, however, the court seemed to have little difficulty in awarding sizeable damages, despite the fact that Ofgem had acted in good faith in its interpretation of contractual provisions within a complex statutory framework. This is an outcome which should be of interest to anyone operating within a regulated industry. Conversely, regulators applying complicated schemes will need to ensure a robust decision making process order to avoid the finding of a Convention violation and a potentially large damages award.

However, concerns that this case has opened the floodgates of litigation may yet be premature. Firstly, depending on how the relevant contracts were interpreted, Infinis were either entitled to the ROCs or they were not. It remains to be seen what the approach of the court would be in circumstances where the regulator has a degree of discretion in making the decisions. Secondly, the loss in this case was readily quantifiable. This was clearly a factor in the reasoning of the Court of Appeal in determining what damages to award. In circumstances where the loss flowing from the unlawful actions of the regulator is more difficult to calculate, it may be that the court is more willing to depart from the principle of restitutio in integrum.