UK: Breach of Electricity Generator’s Human Rights
(Eversheds' Clean Energy and Sustainability Briefing)

Originally published 30th August 2011

In recent judicial review proceedings - R (on the application of Infinis and Infinis Re-Gen Limited) v the Gas and Electricity Markets Authority¹, the High Court has found that Infinis should be entitled to damages in respect of breaches of its human rights by the Gas and Electricity Markets Authority (Ofgem). The case may set a potentially dangerous precedent for the regulator to ensure that it interprets the complex secondary legislation underpinning the renewables obligation certificates ("ROCs") regime very carefully. If you would like to discuss the approach taken in this case or have faced similar issues in connection with the non award of ROCs on original NFFO contracts please feel free to contact us.
The human right in question was Article 1 of the First Protocol to the Human Rights Convention – which provides that no one shall be deprived of his possessions except in the public interest and subject to the conditions provided by law. Under section 8(2) of the Human Rights Act 1998, the Court has the power to award damages, or the payment of compensation for breaches of rights. Cases in which damages are awarded, however, are rare.

Background

The case relates to the question of the correct interpretation of what constitutes an "excluded generating station" for the purposes of being able to claim ROCs under the Renewables Obligation Orders 2004 and 2006.

The Claimants, Infinis and Infinis Re-Gen Limited, are the current owners of two power stations fuelled by landfill gas, which had entered into Replacement Power Purchase Agreements ("RPPAs") with the Non-Fossil Purchasing Agency ("NFPA") under the Non Fossil Fuels Obligation ("NFFO") scheme set up under the Electricity Act 1989. The commencement date for the RPPAs was dependent on the fulfilment of certain conditions precedent, and owners of the facilities were under a "reasonable endeavours" obligation to ensure that the conditions precedent were satisfied by the effective long-stop date in respect of each agreement.
The problem in this case was that the relevant conditions precedent were not satisfied within the permitted timescale in respect of either of the RPPAs. The NFPA accepted that in the case of each power station, the Claimant had used reasonable endeavours to try to meet the conditions precedent, and eventually agreed that in respect of each RPPA, the agreement could be terminated on the basis that the relevant conditions precedent could not be met.

The NFFO statutory scheme was amended under the Utilities Act 2000, and replaced with the renewable obligation scheme. The Renewables Obligations Orders 2006 and 2009² set out the requirements for the new scheme. Under Article 5(1) of the 2006 Order, electricity was not to be treated as being generated from an eligible renewable source for the purpose of earning ROCs if it had been generated by an excluded generating station. Article 6 went on to clarify that generating stations were to be excluded where they were, or had been, "qualifying arrangements" under the NFFO scheme. The key issue for the Claimants was therefore whether the two generating stations in question still constituted "extant qualifying arrangements" for the purposes of Article 6(3), which would prevent the generating stations being able to benefit under the revised ROC scheme.

A company's "human rights"

Perhaps contrary to expectations, there is clear case law supporting corporate entities having rights under the Human Rights Act 1998 and the European Convention on Human Rights. Although such cases are still relatively rare, the most common way in which a corporate entity is likely to consider its rights have been infringed is in relation to the right to peaceful enjoyment of property enshrined in Article 1 of Protocol 1. For compensation to be payable, the Claimant needs to show that there has been a clear violation of rights. The Court is likely to order that a fair and equitable assessment of what damages should be awarded needs to be carried out, with the aim of putting the claimant back in the position they would have been in had the violation of rights not occurred.

Application to the facts of this case

The issue in this case was whether, despite failure to achieve the fulfilment of the conditions precedent under the RPPAs within the requisite time frame in respect of each of the RPPAs, there remained extant "NFFO arrangements" which would be caught by the Renewables Obligations Orders, preventing the generating stations from benefitting from the new ROC scheme.

The Court held that the RPPAs had ceased to continue in existence by agreement between the parties (the then owners of the generating stations and the NFPA), once it had become clear that the conditions precedent would not be able to be met. At that point, the RPPAs ceased to be in force and effect, and so could not be said to be "extant" for the purposes of the Renewbles Obligation Orders.
Accordingly, the Court found that Ofgem had acted in error when it refused to accept that the RPPAs had ceased to have effect for all purposes, and therefore found that they were "excluded generating stations" and therefore concluded that the generating stations were not eligible to gain credits for the generator under the ROC scheme. Ofgem's decision was therefore unlawful and was formally quashed by the Court. Mandatory relief in respect of retrospective accreditation for both generating stations was also granted with effect from dates in 2009.
In addition, the Judge found that the Claimants' human rights (under Article 1 Protocol 1 of the ECHR) had been breached, and agreed that the Claimants should be eligible for compensation, on the basis that they had been denied their statutory entitlement under the scheme. The Judge accepted the concerns raised on behalf of the Defendant that there might be a flood of similar claims, but found that the Claimants were entitled to damages as a result of Ofgem having misapplied the statutory scheme. The precise sum to be awarded may be the subject of another hearing after 1 September 2011.

Conclusion

It is not yet clear whether Ofgem will seek to challenge the outcome of this case. If it does not appeal, or in the event that the appeal is unsuccessful, the case will set a potentially dangerous precedent and act as a salutary warning to the regulator to ensure that it interprets the complex secondary legislation underpinning the ROCs regime very carefully. To avoid further payouts, Ofgem must ensure that its decision-making is neither illogical nor unreasonable, and that it is consistent with the statutory scheme underpinning the regime.
In the meantime, it will be interesting to see whether the concerns raised by Ofgem's barrister during the hearing that there would be a large number of similar claims for compensation will come to fruition.

^{1 [2011] WHC 1873, judgment of M. Justice Lindblom dated 10 August 2011. The Non-Fossil Purchasing Agency was an Interested Party in these proceedings.}

^{2 SI 2006/1004 and 2009/78}

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.