QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Strand, London, WC2A 2LL |
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B e f o r e :
Sitting as a High Court Judge
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THE QUEEN on the application of (1) GRAVIS SOLAR 1 LIMITED (2) AMP GM011 LIMITED |
Claimants |
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- and – |
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THE GAS AND ELECTRICITY MARKETS AUTHORITY |
Defendant |
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SAM GRODZINSKI QC and EMILY NEILL (instructed by The Office of the General Counsel to the Gas and Electricity Markets Authority) for the Defendant
Hearing dates: 26 and 27 January 2021
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Crown Copyright ©
COVID-19: This judgment was handed down remotely by circulation to the parties' representatives by email. It will also be released for publication on BAILII and other websites. The date and time for hand-down is deemed to be at 10:00am on 05/03/2021.
SIR DUNCAN OUSELEY:
The Renewable Obligations Scheme and withdrawal of accreditation
"(3) Where any of the circumstances mentioned in paragraph (4) apply in relation to...an accreditation which the Authority has granted (whether or not under this Order) and having regard to those circumstances the Authority considers it appropriate do so, the Authority may –
(a) withdraw the…accreditation in question;
(b) amend the conditions attached to the…accreditation in question;
(c) attach conditions to the accreditation.
(4) The circumstances referred to in paragraph (3) are as follows- …
(c) the Authority has reason to believe that the information on which the decision to grant the …accreditation was based was incorrect in a material particular, …"
The Decision Letter dated 2 June 2020 and context
"the information provided with the accreditation application;
the 'Unsatisfactory' audit report issued by Black and Veatch dated 19 May 2019;
your responses to the findings of the audit report;
your arguments presented by your solicitors in response to Ofgem's ROC suspension letter dated 19 August 2019;
your solicitors' letter dated 17 February 2020;
the information presented in your letter dated 17 February 2020."
"For the reasons given in my minded-to letter dated 12 December 2019, and taking into account the information that has come to light since then, I have reason to believe that the decision to grant accreditation to Kelly Green PV was based on information which was incorrect in a material particular, in that the generating station was not commissioned by 15 March 2016 as stated in the documentation provided to Ofgem in support of the accreditation application. Further, I consider that it is appropriate in the circumstances to withdraw the accreditation. In response to our minded-to letter dated 12 December 2019, your solicitors have presented a number of arguments in their letter of 17 February 2020 in respect of Ofgem's position to withdraw the accreditation. In summary, your solicitors argue that Ofgem's minded to withdraw position is "based on an erroneous interpretation of the relevant provisions of the ROO 2015" including (i) the definition of "commissioning…; and (2) whether revoking accreditation would be a rational, proportionate and justifiable decision in the circumstances."
"Your solicitors' criticism of Ofgem's minded-to position appears to be based on the misunderstanding that the rational for Ofgem's decision is based on our requiring actual generation at the full capacity of the station.
This is not the case.
As set out above and in my minded-to letter, Ofgem's position is based on the commissioning definition set out in article 2 of the ROO 2015, which requires the completion of industry standard procedures and tests to demonstrate capability of commercial operation. This takes into account whether the station was fully built at the relevant time so that those procedures and tests were able to be carried out to the station to demonstrate capability of commercial operation.
Your solicitors acknowledge that whether a station has "commissioned" depends on the circumstances of each case. I agree. Further, this is made clear by the commissioning definition in the ROO, the usual industry standard procedures and tests that need to be completed to demonstrate capability of commercial operation, depend on the type of generating station that is commissioned. …
As set out in my minded-to letter, in the case of the Kelly Green station, our auditors found: -
- The DC test sheets for the station were largely identical to those provided by Solarplicity for other generating stations within the portfolio audited suggesting that the test sheets were not genuine;
- There was a lack of generation after the stated commissioning date between 15 March and 23 May 2016;
- That only 70% of the inverters were operational from 23 May 2016;
- The site representative admitted that certain areas of the station were not complete at the time of initial generation.
Moreover: -
- Your explanation in response to the audit findings based on information provided by Solarplicity about the apparent relocation of the station was not disclosed to us by Solarplicity in response to our queries during the accreditation process;
- No documentary evidence has been provided to support this version of events;
- It does not accord with the planning permission that was granted;
- No explanation has been provided to satisfactorily explain the lack of operation of the inverters.
Now, the serious matters contained in your letter dated 17 February 2020 have been disclosed.
As acknowledged in your letter of 17 February, the information disclosed suggests that the information provided by Solarplicity during the accreditation process may have been incomplete and inaccurate.
In particular: -
- A Solarplicity contractor has come forward with information to suggest that the reason for the additional works at the site after 15 March was that not all the station had been constructed by 15 March 2016. The email chain between Mr X, and Solarplicity from 11 -12 July 2019 disclosed with your letter is particularly concerning. The relevant parts are highlighted in your letter. When asked for a statement to confirm the commissioning date of 15 March 2016 by Solarplicity, Mr X, responded saying that statement would be fraudulent and that "on 14th March, we were nowhere [sic] near the completion".
- I further note that internal spreadsheets prepared by Mr X. show that: -
installation of panels was not completed until 13 May 2016;
page 11, rows 31 and 32 show that "AC testing" and "DC testing" were stated as "1.00" (assuming this means complete) on 3 June 2016, and if that is the case, this would mean that Kelly Green was not commission until this date.
- As acknowledged in your letter, the satellite imagery of the site from March 2014 provided with your letter provides further evidence that the station was not completed by 15 March 2014 [these are clearly typographical errors for 2016].
I do not see how the Kelly Green station would have commissioned by the date stated on the accreditation application if: -
- the station was not completed by 15 March 2016;
- the procedures and tests for commissioning MA not completed until June 2016.
I consider that this evidence strongly reaffirms the position Ofgem has adopted since the audit findings were made clear and as reflected in my minded-to letter, that the station was not commissioned by the 15 March 2016.
Your letter acknowledges that this evidence casts doubt on the accuracy of the information previously provided by Solarplicity and by through [sic] Gravis as a medium. Moreover, it suggests that Solarplicity knowingly provided inaccurate information to Ofgem in order to gain accreditation.
Whether revoking accreditation would be a rational, proportionate and justifiable decision in the circumstances
Your solicitors argue Ofgem's approach of imposing an audit into the Kelly Green accreditation and in relation to issues that were accepted by Ofgem at the time is unfair, particularly in light of Gravis' position as subsequent purchaser of the station. They argue that it would be disproportionate to withdraw accreditation as Gravis bought the station in good faith and is entitled to rely on its accreditation. They further argue that Ofgem's proposed action wrongly interferes with Gravis' property rights and as such any challenge to our decision will include a claim for damages.
I do not accept these contentions.
Article 90 of the ROO makes it clear in certain circumstances Ofgem may withdraw the accreditation of a station. It is clear from the way the legislation has been made that there is no guarantee that once the station has been accredited it will remain accredited for the lifetime of the scheme.
As explained above and in my minded-to letter, I have reason to believe that the information provided by Solarplicity in order to gain accreditation for Kelly Green, and relied on by Ofgem when granting accreditation, was incorrect in a material particular. Moreover, the recent evidence that has emerged suggests Solarplicity knowingly provided inaccurate information to Ofgem in order to gain accreditation.
I accept that Gravis was not involved in providing the inaccurate information at the accreditation stage and that Gravis may well have bought the station in good faith and on the basis that it was accredited under the ROO. However, the fact remains that Solarplicity obtained the initial accreditation by providing inaccurate information to Ofgem. This information was material as it concerned the commissioning date of the station and was relied upon by Ofgem when granting accreditation to the station. In these circumstances, notwithstanding the change of ownership of the station, I consider that it is appropriate that the accreditation is now withdrawn.
The fact that this may interfere with what Gravis sees as its property rights does not in my view prevent Ofgem from taking this action. As I have explained above, it is clear from the ROO that Gravis does not have an absolute right to either remain accredited under the ROO or to continue to receive ROCs. The ROO provides a clear legal basis for withdrawing accreditation from the station and I am satisfied that it is an appropriate and proportionate action to take in the circumstances. Further, I am satisfied that it is appropriate in the circumstances for Ofgem to revoke all ROCs issued to the station.
Alternative remedies
I have considered your solicitors' without-prejudice suggestion that Kelly Green should be accredited under the significant investment grace period based on the later 23 May 2016 commissioning date.
My response is as follows.
Firstly, Gravis has not applied for and provided the evidence in respect of the significant investment grace period.
Secondly, even the 23 May 2016 commissioning date has now been cast into doubt in light of the evidence that suggests the LVAC and DC string testing was not completed until 3 June 2016.
However, in any event, I do not consider that it would be appropriate to allow the Kelly Green station to remain accredited under the scheme.
As I have indicated above, the information provided with your letter of 17 February suggests that Solarplicity knowingly provided inaccurate information to Ofgem in order to gain accreditation. This is a very serious matter. The information was provided in order to gain accreditation on to the scheme with the potential for the station to receive ROCs to an estimated value of £7 million over the lifetime of the scheme. These costs are ultimately met by electricity consumers through charges to their electricity bills.
Ofgem has a duty to protect both the integrity of the scheme and the interests of electricity consumers by ensuring that only those stations that qualify for support under the scheme receive it.
Further, Ofgem has a zero tolerance approach to fraud.
I do not consider that in circumstances where it appears that inaccurate information was knowingly provided to Ofgem in order for the Kelly Green station to gain accreditation on to the scheme that it would be appropriate to allow the station to remain accredited on the scheme.
Conclusion
I confirm the decision set out in my minded-to letter to withdraw accreditation for the station. …"
The application for accreditation
Further information known to Ofgem
Article 1 of Protocol 1 ECHR
"Every natural 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."
"Their effect [earlier cases] can be sufficiently summarised for present purposes by saying that the question depends on an exacting analysis of the factual case advanced in defence of the measure, in order to determine (i) whether its objective is sufficiently important to justify the limitation of a fundamental right; (ii) whether it is rationally connected to the objective; (iii) whether a less intrusive measure could have been used; and (iv) whether, having regard to these matters and to the severity of the consequences, a fair balance has been struck between the rights of the individual and the interests of the community. These four requirements are logically separate, but in practice they inevitably overlap because the same facts are likely to be relevant to more than one of them. The question is whether a less intrusive measure could have been used without unacceptably compromising the objective. Lord Reed… takes a different view on the application of the test, but there is nothing in his formulation of the concept of proportionality (see his paras 68-76) which I would disagree with."
"whether, balancing the severity of the measure's effects on the rights of the persons to whom it applies against the importance of the objective, to the extent that the measure will contribute to its achievement, the former outweighs the latter… In essence, the question at step four is whether the impact of the rights infringement is disproportionate to the likely benefit of the impugned measure."
"permitting accreditation to stations which had commissioned after the RO Scheme had closed (and on the basis of false information) in order to protect the interests of good faith purchasers of such a station. That is because a purchaser can be expected to protect itself by commercial measures such as due diligence and warranties or indemnities."
51. Mr Sozansky then turned to his consideration of the alternative of granting accreditation based on a commissioning date after the closure of the scheme to small scale stations, under the grace period criteria. No formal application for a grace period commissioning had been made in accordance with the statutory scheme, supported by the necessary documentation. In any event, it would have been inappropriate to grant it in view of "the great lengths to which AMP…had gone to mislead Ofgem." Transparency was required as to why an operator had been unable to meet the relevant deadline; it was not an appropriate mechanism to cater for the situation where a dishonest attempt had been made to hide the fact that a deadline had been missed, even where there had been a change in ownership of the operating company. Even by June 2020, Ofgem still did not know what the true commissioning date for Kelly Green was: evidence suggested that it had not been completed until June 2016, after what Ofgem initially suggested had been the commissioning date of 23 May 2016.
"67. Once it is accepted that the power is lawfully there, the exercise of it will equally be lawful unless in a given set of circumstances its exercise would be unfair and disproportionate. The defendants submit that the inability of the operator to pay is precisely the situation in which the fleet lien power leading to payment by a lessor is needed. Thus such circumstances as arose in this case cannot be regarded as exceptional or to take this case out of those in which use of the power is permissible. In my view exceptional circumstances are needed. One can well think of possibilities. Examples could include the misleading of the lessor by a possessor of the power or an indication given to a lessor that the power was not to be exercised against his aircraft or there was a deliberate targeting for no good reason of a particular lessor's aircraft. These will depend on the individual facts of a given case. This case, hard though it is on the claimants, has nothing to take it out of the circumstances in which the power can properly be exercised."
"In the present case, there were steps which the claimants could have taken to provide themselves with more information about Zoom's financial position. In addition, they could…have forbidden Zoom to fly their aircraft to the U.K. until its financial situation improved or have required (if that was feasible) further security. It is also noteworthy that in the AGOSI case the Government conceded that as a practical matter where a person was free of any fault which could relate in any way to the purpose of the legislation forfeiture could not on any sensible construction of the legislation further its object. One element of the circumstances was the degree of fault or care of the applicant. The court recognised that relevant considerations "included the alleged innocence and diligence of the owner of the forfeited coins" (Paragraph 56). So here, the conduct of the claimants and their failure to make use of their powers to obtain material information or to take steps to avoid the application of the aspects of the fleet lien of which they complain to them is relevant. AGOSI is a strong case in favour of the defendants' submissions."
"70. Lastly, as regards efforts to curb fraudulent abuse of the VAT system of taxation, the Court accepts that when Contracting States possess information of such abuse by a specific individual or entity, they may take appropriate measures to prevent, stop or punish it. However, it considers that if the national authorities, in the absence of any indication of direct involvement by an individual or entity in fraudulent abuse of a VAT chain of supply, or knowledge thereof, nevertheless penalise the fully compliant recipient of a VAT-taxable supply for the actions or inactions of a supplier over which it has no control and in relation to which it has no means of monitoring or securing compliance, they are going beyond what is reasonable and are upsetting the fair balance that must be maintained between the demands of the general interest of the community and the requirements of the protection of the right of property (see, mutatis mutandis, Intersplav, cited above, § 38).
4. Conclusion
Considering the timely and full discharge by the applicant company of its VAT reporting obligations, its inability to secure compliance by its supplier with its VAT reporting obligations and the fact that there was no fraud in relation to the VAT system of which the applicant company had knowledge or the means to obtain such knowledge, the Court finds that the latter should not have been required to bear the full consequences of its supplier's failure to discharge its VAT reporting obligations in timely fashion, by being refused the right to deduct the input VAT and, as a result, being ordered to pay the VAT a second time, plus interest."
"" . . . It is also necessary to keep in mind that, while the cases which I have referred to so far all involved the residence of companies with active continuing businesses, it is possible (and is common in modern international finance and commerce) for a company to be established which may have limited functions to perform, sometimes being functions which do not require the company to remain in existence for long. Such companies are sometimes referred to as vehicle companies or SPVs (special purpose vehicles). 'Vehicle' has a belittling sound to it, but such companies exist. They can and do fulfil important functions within international groups, and they are principals, not mere nominees or agents, in whatever roles they are established to undertake. They usually have board meetings in the jurisdictions in which they are believed to be resident, but the meetings may not be frequent or lengthy. The reason why not is that in many cases the things which such companies do, though important, tend not to involve much positive outward activity. So the companies do not need frequent and lengthy board meetings."
"123. In the former group, shareholders themselves may be considered victims within the meaning of Article 34 of the Convention. In such cases the difference between the rights of the company and the rights of the shareholders is maintained and the company's legal personality remains intact, as the complaints and the Court's substantive analysis concern the rights and the situation of the company's shareholders and not those of the company…
124. In the latter group the general principle is that shareholders of companies cannot be seen as victims, within the meaning of Article 34 of the Convention, of acts and measures affecting their companies. The Court has recognised that this principle may be justifiably qualified in two kinds of situations, firstly, where the company and its shareholders are so closely identified with each other that it is artificial to distinguish between the two..." [The second is immaterial].
"135. Although companies with a separate legal personality are not normally to be identified with their shareholders, in some of its previous cases the Court has accepted that there are situations where it would "serve no purpose to distinguish between the two" … and has allowed the shareholders to proceed with their complaints about the proceedings or events affecting their companies. For instance, in the Pine Valley Developments Ltd and Others judgment (29 November 1991, … where the third applicant (Mr Healy) was the sole shareholder of the second applicant (Healy Holdings) which wholly owned the first applicant (Pine Valley), the Court noted that "... Pine Valley and Healy Holdings were no more than vehicles through which Mr. Healy proposed to implement the development ...".
136. The Court underlines that the reason for accepting victim status in such cases is that there is "no risk of differences of opinion among shareholders or between shareholders and a board of directors as to the reality of infringement of Convention rights or to the most appropriate way of reacting to such an infringement" (see Ankarcrona v. Sweden …, ECHR 2000-VI).
137. This group has included cases brought by shareholders of small or family-owned or family-run companies or cooperatives, notably where a sole owner of a company has complained about the measures taken in respect of his or her company (see, as early examples, Yarrow and Others v. the United Kingdom, no. 9266/81, Commission decision of 18 January 1983, D.R. 30, p. 155, where the victim status of the first applicant, who was the sole shareholder, was accepted without discussion of the issue, and Dyrwold v. Sweden, … Commission decision of 7 September 1990; …."
"28. In my view the general principle applied by the Strasbourg court is clear. Save in exceptional circumstances, it is the company and not its shareholders who have the status and standing as a victim to bring the claim for the loss sustained by the company …."
Ground 2: failure to consider material considerations or to make due enquiry
Ground 3: Ofgem closed its mind to any grace period accreditation
Overall conclusion