Solar energy businesses entitled to compensation arising from ministerial proposal to curtail incentives
In a recent decision, the High Court (Coulson J) found that a number of businesses were entitled to damages caused by a ministerial proposal to curtail government incentives in the solar energy sector. The High Court considered that the proposal, although not enacted and subsequently found to be unlawful, amounted to an unjustified interference with the claimants' possessions, giving rise to an entitlement to damages. Although related to incentives in the solar energy sector, the findings of the High Court will be of interest to all businesses vulnerable to changes in State policies.
Similar to many other countries in Europe, the UK has provided incentives to solar photovoltaic generators via a guaranteed feed-in-tariff ("FIT"). In order to receive the FIT at a higher rate an installation had to be commissioned by 31 March 2012. In a ministerial statement of 31 October 2011, the Minister of State announced a consultation on proposed changes to the FIT scheme. Pursuant to the proposal, the date by which a solar photovoltaic plant needed to be commissioned by in order to benefit from the higher FIT was to be brought forward from 31 March 2012 to 12 December 2011. This proposal was successfully challenged through judicial review and found to be unlawful. However, in the meantime a great number of projects that were no longer economically viable, because they could not have been completed in time for the new cut-off date, had been abandoned.
A number of businesses, including small-scale solar photovoltaic generators and those involved in the solar photovoltaic industry, brought claims against the Department of Energy and Climate Change (the "Department"). The claimants sought damages pursuant to Article 1 of Protocol 1 to the European Convention on Human Rights ("A1P1"), which guarantees natural and legal persons peaceful enjoyment of their possessions (subject to certain exceptions). In a judgment of 9 July 2014, the High Court decided a number of preliminary issues. The Department has appealed against this decision, and an appeal is currently pending before the Court of Appeal.
The claimants had possessions entitled to the protections of A1P1
The High Court first considered whether the claimants had "possessions" which were subject to the protection of A1P1. Although each contract would need to be scrutinised in order to determine whether they were tangible, assignable and had a present economic value, the High Court found that, in principle, contracts signed or concluded by 31 October 2012 constituted "possessions". In addition, these signed or concluded contracts represented an element of the marketable goodwill in the claimants' businesses, which also constituted protected possessions. The High Court also found that:
"where a contract had been concluded prior to the proposal on 31 October 2011, and that contract was then incapable of sensible performance because of the proposal, then in my view that would give rise to a claim based on interference with a legitimate expectation."
The unjustified interference in the possession of the claimants
Having concluded that the claimants had possessions protected by A1P1, the High Court then went on to consider whether there had been unlawful interference with these possessions:
"the Written Ministerial Statement on Monday 31 October 2011, and the consultation document published on the same day, was part of a deliberate plan with carefully thought-through economic consequences, and was, in a real and practical sense, an act of interference. […] whilst the form of the interference in this case may have been an announcement of a proposal in the House of Commons, the practical reality, for the claimants, was […] a decisive and catastrophic effect on their businesses which the defendant intended to bring about. It would be a very odd result in all the circumstances if the claimants could show possessions for A1P1 purposes, but could not show interference with those possessions because the proposal did its damage immediately, and therefore never needed to be enacted."
Furthermore, because the interference was unlawful – judicial review proceedings had found the proposal to be unlawful – this interference could not be justified.
The claimants' entitlement to compensation
Although not specifically awarding damages (the judgment only addressed certain preliminary issues), the High Court explained in general terms the claimants' entitlement to damages under A1P1. The Court considered that it did not matter whether the claimants had abandoned the projects or terminated the contracts; it was the Department's proposal that had caused the loss to the claimants. Although there may be disputes as to causation in relation to particular contracts, in general, the claimants were entitled to recover for wrongful interference with their possessions. In particular, the claimants were entitled to damages to put them into a position as if the Department's proposal had not been made.
Implications for businesses
This decision is not solely of interest to those in the solar energy sector. In particular, the High Court's broad construction of what constitutes interference may allow businesses in any sector to bring claims where they have been affected by government proposals, even if those proposals have not subsequently been enacted.
However, businesses should also be aware of other possible avenues of redress against government actions which have an adverse economic effect on their investments. In particular, if businesses have foreign ownership or control they may be able to bring a claim under an investment treaty. The most significant investment treaty in the energy sector is the Energy Charter Treaty. However, investment treaties typically protect investments in any sector. Such treaties contain a mechanism by which investors can commence arbitration against a State, without any need for further consent by the State. Typically, such treaties require States not to expropriate investments, unless they provide compensation, and require States to afford foreign investors fair and equitable treatment.
We frequently advise on investment protection and human rights issues, including in the energy sector. We also regularly act in proceedings under investment treaties, including the Energy Charter Treaty, and in human rights claims before both UK and European courts.
For further information on this topic or on our practice please contact our team.