Subsidy withdrawal from renewable energy entirely lawful – Court of Appeal

26 October 2016 by Rosalind English

Infinis Energy Holdings Ltd v HM Treasury and Anor [2016] EWCA Civ 1030 – read judgment

In July 2015 the government announced that it was removing a subsidy for renewable energy. Its decision in fact was to take away the exemption that renewable source electricity enjoyed from a tax known as the climate change levy. We have covered previous episodes in the renewables saga on the UKHRB in various posts.

The appellant, the largest landfill gas operator in the UK and one of the leading onshore wind generators, challenged the government’s removal of the subsidy on the basis of the EU law principles of foreseeability, legal certainty, the protection of legitimate expectations or proportionality. At first instance the judge upheld the Secretary of State’s decision, and the Court of Appeal dismissed the appeal against this finding.

Legal and Factual Background

The subsidy took the form of an exemption for renewable source electricity (RSE) such as that provided by the appellant’s company, from the climate change levy (CCL). (The judgment is replete with these acronyms so it’s worth getting to grips with them before reading.)

Jay J, the judge at first instance, summarised the government’s reasons for removing the exemption. The government wanted to move away from a system of indirect support to one of direct support, the latter being more efficient and cost-effective. The exemption, it was said, benefited foreign generators and there were incentives and support in place that would continue to support domestic generators of renewable energy.  The government had considered the impact of this decision on companies such as Infinis,  but it was decided that it was outweighed by the public interest. 

Jay J described this as “an untrailed and extremely rapid change in the law”, but dismissed the appellant’s argument that the exemption with only 24 days’ notice was unlawful. Although he accepted that EU law was engaged, after reviewing all the jurisprudence on this topic, Jay J found that it was

not possible to reconcile the various strands of jurisprudence emanating from the European Court of Justice.

Before the Court of Appeal the appellant’s case was that

(1) EU law was engaged;

(2) the EU law principles of foreseeability, legal certainty and protection of legitimate expectations had been violated in that a withdrawal without notice of the renewable energies exemption would not have been foreseeable by a prudent and circumspect economic operator;

(3) the practical immediacy of the removal of the RSE Exemption also violated the EU law principle of proportionality and so there was wrongful interference with the appellant’s property rights protected under Article 17 of the EU Charter; and

(4) there was a wrongful interference with the appellant’s right to peaceful enjoyment of its possessions under A1P1 of the Human Rights Convention.

The appellant company argued that it had a legitimate expectation  for a proper lead time to withdrawal of the subsidy, and that it was therefore entitled to compensation.

The Court of Appeal dismissed the appeal.

Reasoning behind the Court’s ruling

The appellant’s case was, in essence, a challenge to a change in tax law.

EU law contains principles of legal certainty and protection of legitimate expectation, which also impose certain standards of foreseeability in the application of the law. There is considerable authority to this effect. The central issues in dispute between the parties are as to what standards of foreseeability and legal certainty EU law requires

CJEU case law all points to one answer to the legitimate expectation challenge.  For a protected legitimate expectation to arise in a context such as this, there needs to be

promotion by the public authority in question by means of the giving of a precise, unconditional and unambiguous assurance, whether by words or conduct, of an expectation as to how it would behave in future. The same approach applied to the related principles of legal certainty and foreseeability. The respondents, namely HM Treasury and HMRC, had made no promise and given no assurance that the exemption would be maintained indefinitely or that it would be subject to the giving of a period of notice before being changed.

In the law of the Court of Justice of the European Union, legitimate expectation challenges – in so far as they have been addressed at EU institutions – have had a chequered history. As the Master of the Rolls said, “the EU authorities speak with one voice.” Case after case made against the commission and other EU authorities have failed (see Case C-265/85 Van den Bergh en Jurgens BV v Commission [1987] ECR 1155,  Case T-70/99 Alpharma Inc v Council [2002] ECR II-3495, and others, quoted in this judgment).

As the Court of Appeal said, the right to rely on the principle of legitimate expectation requires that three conditions be satisfied cumulatively.

First, precise, unconditional and consistent assurances originating from authorised and reliable sources must have been given to the person concerned by the EU authorities. Second, those assurances must be such as to give rise to a legitimate expectation on the part of the person to whom they are addressed. Third, the assurances given must be consistent with the applicable rules. [Case C-201/08 Plantanol GmbH & Co. KG v Hauptzollamt Darmstadt [2009] ECR I-08343]

Given that it is operating under a the changing rules of a national tax regime, a prudent and circumspect economic operator would appreciate that the tax authorities and the national legislature might change the tax code without giving notice. They were entitled to do so, as it was their function in a democratic society to manage the public finances by weighing up the competing demands on the public purse as they saw fit.  In the absence of any precise assurance, it was always inherently foreseeable that a subsidy – such as the exemption in question – might be immediately withdrawn. The exemption was part of a fiscal regime and subject to change in the discretion of the government of the day and Parliament in the light of current economic conditions.

Nor had there been any breach of the principle of proportionality. As was found at first instance, the evidence showed that the impact on the appellant and other renewable energy generators had been specifically considered, both before and after the announcement to revoke the exemption was made on 8 July 2015.  Their interests had been effected, but it was decided that the impact was outweighed by the public interest and the continuance of other financial incentives available to those concerned.

It could not be said that the government and parliament had overlooked the interests of undertakings operating in the renewables field or failed to appreciate the likely impact which the withdrawal of the exemption would have on them. Further, the alleged interference with the appellant’s property interests under Article 1 of the First Protocol to the Convention was proportionate notwithstanding that it was immediate. Any delay in withdrawal would have caused a loss of revenue by the exchequer, a situation viewed as requiring urgent action. That assessment could not be described as illegitimate or wrong. It was the kind of assessment which, in a democratic society, was primarily for the government and parliament to make.

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