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England and Wales Court of Appeal (Civil Division) Decisions |
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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> The Department for Energy and Climate Change v Breyer Group Plc & Ors [2015] EWCA Civ 408 (28 April 2015) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2015/408.html Cite as: [2015] WLR(D) 192, [2015] WLR 4559, [2016] 2 All ER 220, [2015] 1 WLR 4559, [2015] EWCA Civ 408 |
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COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Mr. Justice Coulson
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE RICHARDS
and
LORD JUSTICE RYDER
____________________
The Department for Energy and Climate Change |
Appellant |
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- and - |
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Breyer Group PLC and Others |
Respondents |
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Sam Grodzinski QC and Andrew Scott (instructed by Asserson Law Offices) for Breyer Group PLC & others and for Homesun Holdings Limited & another, Patrick Lawrence QC and Can Yeginsu (instructed by Bhailok Fielding Solicitors) for Free Power for Schools LP and Touch Solar Ltd for the Respondents
Hearing dates : 17-19 March 2015
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Crown Copyright ©
Master of the Rolls:
"[to] apply new generation tariffs from 1 April 2012 to all new solar PV installations with an eligibility date on or after an earlier 'reference date' which we propose should be 12 December 2011. Installations with an eligibility date before the reference date will not be affected and will continue to be eligible for the current generation tariffs. Installations with an eligibility date between the reference date and 1 April 2012 would be eligible for the current generation tariffs for electricity generated before 1 April 2012, but would move to the new generation tariffs for electricity generated on or after 1 April 2012."
"This overcompensation compromises the value for money of the FITs scheme to the energy consumers who meet its costs through their bills. If uptake continues to increase as it has been doing, the affordability of the whole FIT scheme will quickly come under threat."
"Assumed facts as to the purpose of the FIT Scheme and the later proposed modifications
………….
46. ………..The consultation was open-minded and genuine and the outcome was not predetermined.
Assumed facts as to the Defendant's knowledge and intention concerning the Proposal
50. The Defendant knew that it was very likely that, and intended that, those operating businesses in the area of small-scale Solar PV electricity generation, including businesses such as those operated by the Claimants, would from the time the October 2011 Consultation was published, conduct their businesses on the assumption that the Proposal would come into effect as set out in that Consultation.
51. The Defendant knew that it was very likely that, and intended that, the publication of the Proposal would have an immediate effect on the actions of those involved in Solar PV installations such as the Claimants, in that the proposed tariff would be regarded by the vast majority of such businesses as economically unacceptable, with the consequence that they would be deterred from proceeding with Solar PV installations.
Assumed facts as to the impact of the Proposal
52. The matters referred to above had an immediate and serious adverse impact on the Claimants' businesses, which impact was reasonably foreseeable. It was not economically viable for the Claimants to continue their businesses in relation to the installation of solar PV Systems, unless such Systems could be installed and commissioned by the reference date of 12 December 2011, which was 6 weeks from the publication of the Proposal; and that the majority of installations which had been planned and contracted for by the Claimants could not be completed and accredited in this timeframe."
"Every natural or legal person is entitled to the peaceful enjoyment of his possessions.
No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.
The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties."
"(a) FIT-payment recipients: These companies procure, install and register solar PV systems for owner-occupiers with suitable premises. The occupier will receive the benefit of cheaper electricity but the claimant or its nominated subsidiary would be entitled to receive the FIT payments as nominated recipient, either on the basis of a contract between the claimant and the owner-occupier, or on the basis of 'block' contracts for a group of properties, between the claimant and a broker company with its own direct arrangement with the owner-occupier.
(b) Fee recipients: These companies procure, install and register solar PV systems for owner-occupiers with suitable premises, whether on the basis of a contract between the claimant and the owner-occupier (pursuant to which a fee would be paid to the claimant), or a block contract with a third party nominated recipient, again on the basis of a fee. In addition, some claimant companies would find and prepare sites for a third party who would arrange for the installation of the solar PV system for which they would be paid a fee and would be entitled to an ongoing share of the profit from electricity sold to the grid.
(c) Equipment suppliers: These companies supply solar PV equipment to other installation companies."
The preliminary issues
"1. Whether the Claimants and/or any of them had possessions within the meaning of [A1P1] of the [Convention] consisting of:(a) an enforceable legitimate expectation, as described in the respective Particulars of Claim, concerning the timing of any changes to rates payable pursuant to the FIT Scheme and the manner in which the related review process would be conducted;and/or(b) the marketable goodwill in the Claimants' business, as described in the respective Particulars of Claim;and/or(c) the signed contracts or contracts which would, but for the Proposal, have been signed, agreeing:(i) That the FIT payments would be receivable by any of the Claimants, or their subsidiaries and/or their assignees.(ii) The consideration due to any of the Claimants, or their subsidiaries and/or their assignees, in respect of: (1) the installation of Solar PV equipment, (2) the commissioning of sites ready for installation of Solar PV equipment; (3) the maintenance of the equipment; or (4) the supply of the equipment, as the case may be.2. If the Claimants and/or any of them had such possessions within the meaning of A1P1:
(a) whether the Defendant interfered with any of these A1P1 possessions; and(b) the nature of any such interference.3. Whether any such interference was justified, as described in the Defences.
4. If not, whether the Claimants are entitled in principle to an award of damages, assessed by reference to their loss of profits caused by the Defendant's interference with their A1P1 possessions."
Summary of the judge's conclusions
Issues arising on the appeal
THE POSSESSIONS ISSUE
The judgment
"(i) 5,703 leases which had been requested and sent to customers following successful desktop and technical surveys. Of these, it is alleged that (based on existing conversion ratios), 3,415 would have led to installations of solar PV systems by the cut-off date.
(ii) 1,774 leases had been signed by customers. Of these, it is alleged that (based on existing conversion ratios) 1,430 would have led to installations of solar PV systems by the cut-off date.
(iii) 1,974 leases had been signed by customers and relevant HomeSun subsidiary company but the solar PV systems had not yet been installed and commissioned as defined in the 2010 S.I. Of these, it is alleged that (based on existing conversion ratios) 1,923 would have led to installations of solar PV systems by the cut-off date.
(iv) 1,441 solar PV systems had been installed and commissioned as defined by the 2010 Order, following the associated leases having been signed by customers and relevant HomeSun subsidiary company. Applications to the relevant FIT licensees were subsequently made for all of these solar PV systems entitling HomeSun, through their subsidiaries, to the benefit of a FIT income stream at the 43.3p per kWh rate.
(v) 2,539 solar PV systems had been installed and commissioned and an application had been made to the relevant FIT licensee as required by the 2010 Order which also entitled HomeSun, through their subsidiaries, to the benefit of a FIT income stream at the 43.3p per kWh rate."
"On the assumption that this goodwill could be capitalised, and therefore represented marketable goodwill at [the date of the Proposal] then it seems to me that this goodwill is prima facie protected as an asset, and therefore constitutes a possession under A1P1"
"… to the extent these proposed contracts had not been concluded, and were therefore not legally binding, they had more in common with a claim for loss of future income than a claim for loss of marketable goodwill. Accordingly, I conclude that prima facie those potential future contracts do not give rise to a recoverable claim, although any issue of fact would have to be resolved at a later date."
The case law
"41. The Court agrees with the Commission that the right relied upon by the applicants may be likened to the right of property embodied in Article 1 (P1-1): by dint of their own work, the applicants had built up a clientèle; this had in many respects the nature of a private right and constituted an asset and, hence, a possession within the meaning of the first sentence of Article 1 (P1-1). This provision was accordingly applicable in the present case.
42. The refusal to register the applicants as certified accountants radically affected the conditions of their professional activities and the scope of those activities was reduced. Their income fell, as did the value of their clientèle and, more generally, their business. Consequently, there was interference with their right to the peaceful enjoyment of their possessions."
"The Court notes that the Commission has in the past held that goodwill may be an element in the valuation of a professional practice, but that future income itself is only a "possession" once it has been earned, or an enforceable claim to it exists (No. 10438/83, Batelaan and Huiges v. the Netherlands, Dec. 3.10.84, D.R. 41, p. 170). The Court considers that the same must apply in the case of a business engaged in commerce. In the present case, the applicant refers to the value of its business based upon the profits generated by the business as "goodwill". The Court considers that the applicant is complaining in substance of loss of future income in addition to loss of goodwill and a diminution in value of the company's assets. It concludes that the element of the complaint which is based upon the diminution in value of the business assessed by reference to future income, and which amounts in effect to a claim for loss of future income, falls outside the scope of Article 1 of Protocol No. 1."
"71. I have two firm fixed points upon which to tackle the first question. First, the goodwill of a business, or part of a business, may constitute a "possession" under [A1P1]. Second, an expectation of future income is not a "possession." In R (Countryside Alliance) v Attorney General [2006] UKHRR 73, these propositions were established by the Divisional Court (May and Moses LJJ), after an extensive review of Strasbourg case law (paragraphs 167-174). In the Court of Appeal [2007] QB 305, Sir Anthony Clarke MR, giving the judgment of the Court (Lord Justice Brooke and Lord Justice Buxton with him), upheld the conclusion of the Divisional Court on this matter in the following terms, at para 114:
'It is sufficient to say that we reject the breadth of the claims as to the loss of their "livelihood". Strasbourg case law, while stating that a professional man's clientele may form part of his possessions, as may the goodwill of a business, has very clearly ruled that any element of a claim that relates to loss of future income does not qualify in this respect, unless an enforceable claim to future income already exists. The Divisional Court set out the relevant Strasbourg case law in paras 170-172 of its judgment. We agree with their approach, including their unwillingness to follow the judgment of the Inner House of the Court of Session in Adams v Scottish Ministers [2004] SC 665, in so far as it may have suggested that the livelihood of a self-employed person occupies some middle position between marketable goodwill and future income'.
72. It seems to me that "goodwill" in this context is not being used in the technical accounting sense of the difference between the cost of an acquired entity and the aggregate of the fair values of that entity's identifiable assets and liabilities (see, for example, Financial Reporting Standard 10). Goodwill is there used to fill a gap in the balance sheet that would otherwise arise, may well be transient, is exclusively the result of acquisition and cannot be internally generated. It appears that "goodwill" is being used rather in the economic sense of the capitalised value of a business or part of a business as a going concern which, according to modern theory of corporate finance, is best understood as the expected free future cash flows of the business discounted to a present value at an appropriate after tax weighted average cost of funds (see Brealey and Myers, Principles of Corporate Finance, 7th edition, 2003 at sections 4.5 and 19.1). There is, of course, a connection with the accountancy concept of goodwill, which arises simply because the present value of net future cash flows on the economic model exceeds, or is thought to exceed, the aggregate of the fair values of the identifiable net assets that will be employed to generate those cash flows.
73. The business has a capital value or goodwill only if the entity can be, and is, organised in a way that allows future cash flows to be capitalised. So a group of plumbers can form a limited liability partnership or incorporate in a limited liability company, contract to supply their services to the entity so created and capitalise future cash flows (net of all costs, including labour) through the value of the partnership or company. Barristers cannot form partnerships or incorporate and have no way to capitalise future cash flows. However, temporary suspension from practice or disbarment would have the same economic impact on a barrister as would a trading suspension or prohibition on a company or partnership. The distinction between the situations seems to me to rest largely, if not wholly, on organisational factors. Nonetheless, it is clear on Strasbourg jurisprudence, now confirmed by high domestic authority, that A1P1 protects only "goodwill", as a form of asset with a monetary value, and does not protect an expected stream of future income which, for mainly organisational reasons, cannot be or is not capitalised. In other words, the Convention, differing perhaps in this respect from the law of the European Union, protects assets which have a monetary value, not economic interests as such."
"The matter has, in any event, been put beyond doubt in my view by the ruling of this Court in Countryside, which binds us, upholding the reasoning of the Divisional Court that an individual's monetary loss, in the sense of loss of future livelihood, unless based on loss of some professional or business goodwill or other present legal entitlement, cannot constitute a possession attracting the protection of Article 1."
"In this passage, the court seems to be saying that, for the purpose of distinguishing between an existing possession (viz goodwill consisting in clientele) and a mere expectation of future income, a substantive rather than a formal test will be applied. Thus there will be no interference with possessions within [A1P1] if the value of a business (including presumably, its goodwill) declines only in so far as loss of future income is anticipated. The practical difficulties of this distinction did not have to be explored in that case."
"The distinction between marketable goodwill, or at any rate that goodwill which it is acknowledged is a vested possession, and what the European Court describes as being merely a present-day reflection of anticipated future income, has never had to be determined on the facts. That such a distinction may turn out to be difficult, possibly even unworkable, given that the present-day value of any business will inevitably reflect its future profit-earning capacity, has been highlighted by the analysis of Mr Kenneth Parker QC in Nicholds & Ors v. Security Industry Authority & SSHD [2006] EWHC 1792 (Admin). One solution may be that suggested by Countryside Alliance and Nicholds, looking only to marketability. I am not sure of that, however, for two reasons: one is the substantive distinction drawn by Denimark; the other is the emphasis placed by the Strasbourg jurisprudence on goodwill as a possession in the case of professionals with respect to their clientele. I suspect that such goodwill is not readily marketable: on the other hand, I can conceive that a professional practice can perhaps only or best be thought of as involving a vested possession in terms of the goodwill consisting in its clientele."
"83. Goodwill which is marketable is undoubtedly a possession, notwithstanding that its present-day value reflects a capacity to earn profits in the future. But does goodwill have to be marketable in order to be identified as a possession within the meaning of article 1 of the first protocol? Goodwill is composed of a variety of elements, which differs in different businesses and professions (see Lord Macnaghten in IRC v Muller & Co's Margarine Ltd [1901] AC 217 at 233): "It is the benefit and advantage of the good name, reputation, and connection of a business."
….
86. However, I agree, on the basis of the reasoning of Rix LJ (at paragraphs 59 and 66) and of Auld LJ (at paragraph 40), that that element of goodwill, "the dog", which is founded on the doctor's reputation, is not a possession within article 1 of the first protocol. It cannot be sold, it has no economic value other than being that which a professional man may exploit in order to earn or increase his earnings for the future. If the principle that the ability to earn future income is not a possession within article 1 of the first protocol is to be maintained, it must follow that if the element of goodwill which has or may be damaged is reputation, or the loyalty of past clients, that element is not to be identified as a possession. In Denimark terms, the doctor's complaint is as to an unjustified loss of reputation, caused by unlawful acts. But, in economic terms, that is no more than a complaint of a risk of loss of future income. It is not possible to distinguish his claim that his goodwill has been damaged from a claim to loss of future income."
"Strasbourg jurisprudence has drawn a distinction between goodwill which may be a possession for purposes of article 1 of the first protocol and future income, not yet earned and to which no enforceable claim exists, which may not: see, for instance, Ian Edgar (Liverpool) Ltd v United Kingdom Reports of Judgments and Decisions 2000-I p4665; Wendenburg v Germany (2003) 36 EHRR CD 154, 169…….. In R (Malik) v Waltham Forest NHS Primary Care Trust [2007] EWCA Civ 265, [2007] 1 WLR 2092, the Court of Appeal held that the inclusion of Dr Malik's name on a list of those qualified to work locally for the NHS was in effect a licence to render services to the public and, being non-transferable and non-marketable, not a possession for purposes of article 1. While I do not find the jurisprudence on this subject very clear, I consider that the Court of Appeal reached a correct conclusion in that case basing itself as it did on the very convincing analysis of Mr Kenneth Parker QC in R (Nicholds) v Security Industry Authority [2006] EWHC 1792 (Admin), [2007] 1 WLR 2067, paras 70-76."
" Finally, although the Court accepts that a reduction in patient numbers could have an impact on the value of the goodwill in a medical practice, the issue does not arise here given that the applicant was prevented from selling the goodwill in his practice and that any decrease in its marketable value was therefore of no consequence to him."
Discussion of the possessions issue
"It is the benefit and advantage of the good name, reputation, and connection of a business. It is the attractive force which brings in custom. It is the one thing which distinguishes an old-established business from a new business at its first start. The goodwill of a business must emanate from a particular centre or source. However widely extended or diffused its influence may be, goodwill is worth nothing unless it has power of attraction sufficient to bring customers home to the source from which it emanates. Goodwill is composed of a variety of elements. It differs in its composition in different trades and in different businesses in the same trade…The goodwill of a business is one whole, and in a case like this it must be dealt with as such."
THE LEGITIMATE EXPECTATION ISSUE
INTERFERENCE
The judgment
DECC's case on interference
A trilogy of cases
"Although the expropriation permits left intact in law the owners' right to use and dispose of their possessions, they nevertheless in practice significantly reduced the possibility of its exercise. They also affected the very substance of ownership in that they recognised before the event that any expropriation would be lawful and authorised the City of Stockholm to expropriate whenever it found it expedient to do so. The applicants' right of property thus became precarious and defeasible.
The prohibitions on construction, for their part, undoubtedly restricted the applicants' right to use their possessions.
The Court also considers that the permits and prohibitions should in principle be examined together, except to the extent that analysis of the case may require a distinction to be drawn between them. This is because, even though there was not necessarily a legal connection between the measures (see paragraph 35 above) and even though they had different periods of validity, they were complementary and had the single objective of facilitating the development of the city in accordance with the successive plans prepared for this purpose.
There was therefore an interference with the applicants' right of property and, as the Commission rightly pointed out, the consequences of that interference were undoubtedly rendered more serious by the combined use, over a long period of time, of expropriation permits and prohibitions on construction.
"the prolonged and continuing situation created by the activities and acts of the Municipality of Athens by which, without introducing a formal expropriation procedure, this authority conveyed to the public its intention to expropriate the company's land."
"64. The commission has also examined the government's argument that in the absence of enforceable administrative decisions the company's property rights remain intact and that, therefore, no interference with such rights can be established. It finds that, in the present case, the repeated declarations of officials of the administration that the Municipality of Athens will acquire the company's land and above all the placement and maintenance of signposts indicating that the area would be expropriated even though they left intact in law the company's property rights could in practice affect substantially the possibilities to exercise these rights.
65. Although the applicants have not proved that the devaluation of their shares was the direct result of the situation described above, it is, in the commission's view, established that these measures must have affected the company's capacity to negotiate development projects for its properties. Notwithstanding the absence of formal expropriation proceedings until 1989 the impression was created that the Municipality of Athens would proceed to the expropriation whenever it found it expedient to do so. Therefore, the commission finds that the situation created by the placement of the signposts and the repeated declarations of the Municipality's intention to acquire the company's land amounts to an interference with the applicants' right to peaceful enjoyment of their possessions.
…
76. In the Commission's view, the decisive feature in the applicants' case is the fact that the threat of expropriation, as manifested through various concrete preparatory acts and other actions of the administration, was prolonged for almost 10 years. The applicants were left during the whole of this period in complete uncertainty as to the fate of their properties since, on the one hand, no formal expropriation proceedings had started and, on the other hand, the envisaged expropriation discouraged in practice any potential investors."
"A preliminary study of the case leads the court to conclude that it may be possible to regard the successive actions of Athens Municipal Council as a series of steps amounting to a continuing violation and indicating the existence of a plan by the Municipal Council to purchase the two sites at the lowest possible price."
"79. Like the Commission, the court notes that although the disputed measures have, as a matter of law, left intact the applicants' right to deal with and use their possessions, they have nevertheless greatly reduced their ability to do so in practice. They also affect the very substance of ownership in that three of them recognise in advance the lawfulness of an expropriation. The other two measures, the one creating and the other regulating the Ria Formosa Nature Reserve, also incontestably restrict the right to use the possessions. For approximately 13 years the applicants have thus remained uncertain what would become of their properties. The result of all the disputed decisions has been that since 1983 their right over the possessions has become precarious. Although a remedy in respect of the contested measures was available, the position was in practice the same as if none existed."
Conclusion on the interference issue
WAS THE INTERFERENCE JUSTIFIED?
The judgment
Lawfulness
"116. The Strasbourg court has often said that the first and most important requirement of A1P1 is that any interference by a public authority with the peaceful enjoyment of possessions should be lawful: see, for example, Iatridis v Greece [1999] 30 EHRR 97, para 58. In this context, as elsewhere in the Convention, the concept of "law" does not merely require the existence of some domestic law, but requires it to be compatible with the rule of law: see e.g. James v United Kingdom, [1986] 8 EHRR 123 at para 67."
Fair balance
The judgment
"(a) The certainty promised by all of the consultation documents…. aimed deliberately to encourage investors;
(b) The importance of the original April 2012 cut-off date ….which was itself linked to questions of certainty;
(c) The statement made in the House of Commons by the relevant Minister, just ten days before the proposal, to the effect that any modifications would not be retrospective….;
(d) The scale of the investments by the claimants based entirely upon the FIT scheme as originally laid out; and
(e) The fact that the proposals were deliberately intended to reduce the number of solar PV installations (Assumed Facts 50 and 51…..)".
Discussion
"A consultation on the comprehensive review will be launched this summer with the intention that any resulting changes to the scheme will take effect from 1 April 2012, unless the review itself reveals the need for greater urgency. As with the fast-track review, the Coalition Government will not act retrospectively and any changes to generation tariffs resulting from the comprehensive review will only affect new entrants into the FITs scheme from that date. Installations which are already accredited for FITs at the time the changes come into force will not be affected."
"There is no question of anybody's investment being undermined by any of our decisions, because this Government…..[we] are very committed to not having retrospection in legislation and legislative changes. However, we keep all our subsidies under review…."
LOSS OF PROFITS
The judgment
"Whilst individual disputes of that kind may depend on the facts, in my view the general position must be that the defendant cannot rely on such an analysis so as to escape its potential liability for damages. If the claimant company in question can identify the commercial decision that it took as having been due to the proposals (that, but for the proposal, the decision to scrap the contract or abandon the project would not have been taken) then in my view they can demonstrate a direct consequence. The defendant cannot rely on the fact that there were a number of private companies investing in this technology and taking the commercial risk now to argue that it was those companies that were responsible for the losses, rather than the defendant. The whole point of the FIT scheme was that private companies were positively encouraged by the Government to invest and take the commercial risk required. The defendant cannot now hide behind that structure (which it promoted) in seeking to avoid liability for the losses that it has caused."
"Although the entitlement to damages will ultimately depend on the facts, as a matter of general principle, the claimants have demonstrated an entitlement to damages assessed by reference to the loss of those possessions for which recovery is permissible, namely signed/concluded contracts and/or the marketable goodwill referable to such contracts".
Discussion of the damages issue
OVERALL CONCLUSION
Lord Justice Richards:
Lord Justice Ryder: