[2024] UKUT 345 (AAC)

For the reasons given above, I am satisfied the FTT was wrong in its substantive decision to conclude that Ms Heaney’s energy plan was not a green deal plan. However, both it and the FTT in the preliminary decision decided important other issues concerning the correct approach to sanction and proportionality (on the basis that a green deal plan was in place) and I turn to address those issues.

The issue of wider importance concerns the correct approach to the proportionality test found in regulation 79 of the Framework Regs. I deal with that issue first.

The FTT in its preliminary decision decided that, save for exceptional circumstances, the effect of any proposed sanction on the green deal provider was generally to be ignored, notwithstanding that provider’s subsisting rights under Article 1 of the First Protocol (“A1P1”) to the European Convention on Human Rights (“ECHR”). Furthermore, whether it is proportionate to deprive a green deal provider (here GDFC) of their A1P1 rights had “to be considered from the perspective of the legislation as a whole, rather than through the lens of the exercise of the Secretary of State’s discretion in each individual case”. On this last point the FTT relied in particular on JP Whitter v HMRC [2016] EWCA Civ 1160.

In my judgement, the FTT erred in law in so concluding. I have arrived at this conclusion for the following five reasons, which necessarily overlap.

First, the FTT’s analysis fails to provide any adequate account for the terms of regulation 79 of the Framework Regs. Moreover, nothing in regulation 79 warrants either conclusion. Regulation 79 on its face imposes a duty on the decision maker, where the decision maker is exercising the power(s) in regulation 67 of the Framework Regs, to ensure that any sanction imposed is proportionate to the breach in relation to which the sanction is imposed. The effect of the FTT’s preliminary decision is to render it difficult, if not impossible, to identify the useful content of the duty in regulation 79. The fact that the green deal plan scheme as a whole has provided a proportionate balance of competing rights under the ECHR was and is not in dispute, but this leaves unanswered the function and scope of the individual proportionality assessment which regulation 79 itself requires. It cannot as matter of law be the answer to regulation 79 that any decision on sanction would necessarily be a proportionate one because the scheme as a whole is proportionate. That would be to rob regulation 79 of any useful effect in individual cases, which cannot have been the intent.

Second, the imposition of a sanction (be it cancellation or reduction) will necessarily interfere with the green deal provider’s (here GDFC’s) A1P1 rights. Moreover, the decision to impose a sanction, be it by the Secretary of State or the FTT (both are public authorities under sections 3 and 6 of the Human Rights Act 1998), would ordinarily (that is, without consideration of the terms of the statutory scheme) involve the decision maker undertaking a broad proportionality assessment which takes account of all relevant matters. This is because the interference with GDFC’s A1P1 rights must be justified as proportionate in order for it to be lawful. Such a proportionality assessment is provided for on its face by regulation 79. Given the sanction decision will interfere with the green deal provider’s A1P1 rights, it is very difficult to see how the real effect of that A1P1 interference can be ignored, and nothing in regulation 79 in my judgement warrants such a view of the reach of regulation.

Third, the words of regulation 79 are clear. The sanction must be proportionate to the breach in relation to which it is imposed. Although this focuses on the breach, I can see nothing in that language which excludes the effect of the sanction on the green deal provider or limits the effect of the sanction to the green energy deal recipient/consumer. All the word ‘breach’ is doing is identifying the act or omission from which the sanction, and the proportionality assessment in respect of that sanction, arises. The objective question to be answered under regulation 79 is whether the sanction for the breach is proportionate in its consequences. This is not, therefore, strictly speaking an exercise in determining fairness inter partes. It is an objective test, imposed in the first instance by the Secretary of State, that the sanction (on the green deal provider) must be proportionate to the breach. I can identify nothing in that wording that necessarily excludes consideration of the effect on the green deal provider of the sanction. That the type or level of sanction must be proportionate to the breach in relation to which it is imposed requires a relationship of proportionality between the breach and the sanction. In my judgement, that statutorily drawn relationship does not exclude consideration of the effects on the green deal provider of the proposed sanction as the same may plainly be relevant to the correct level or type of sanction.

Fourth, I do not accept Ms Heaney’s argument that the rest of the Framework Regs necessarily imply any restriction in regulation 79’s scope. Her argument was that regulation 79 excludes the effects of the sanction on GDFC as the rest of the statutory scheme gives consideration to GDFC’s A1P1 rights. It was submitted that the wording of regulation 79 is limited to consideration of the breach when imposing a sanction. I have rejected the bare terms of that argument above. It was further argued that ‘proportionality was hard-wired elsewhere into the scheme’, that this (per Whitter) supported the FTT’s decision that consideration of a green deal provider’s A1P1 rights under regulation 79 was generally not needed, and that when the Framework Regs required consideration to be given to the effect on the sanctioned party this was stated. Reference was made in support of these submission to regulations 67, 72 and, in particular, regulation 75 of the Framework Regs. The argument, as I understood it, was that those regulations showed that when there was a need to focus on particular issue, such as whether the breach had been severe (per regulation 67(1)(a)), or on a particular party’s interests, such as imposing a financial penalty on a party (per regulation 75), the Framework Regs set that issue out clearly. Accordingly, so Ms Heaney argued, had the Framework Regs intended that the proportionality assessment in regulation 79 should encompass interests of the green deal provider, they could and would have said so.

I am not persuaded by this argument. Firstly, in circumstances where it is accepted that GDFC’s A1P1 rights were engaged by the sanction decision, in my judgement clear words would be needed, and words clearer than those used in regulation 79, to exclude those rights from consideration: see R v SSHD ex parte Simms [2000] 2 AC 115 and AXA General Insurance Ltd v HM Advocate [2011] UKSC 46; [2012] 1 AC 868 at paragraph [152] in particular. Secondly, none of the regulations relied on by Ms Heaney in this argument focus on green deal providers per se. The regulations relied upon are doing no more than identifying particular steps in the statutory regime with the language necessarily being crafted to those steps. Thirdly, the regulations as a whole do not evidence an obvious statutory intent to take into account a green deal providers A1P1 rights so as to exclude necessarily consideration of those rights under regulation 79. Particular reliance was placed by Ms Heaney on financial penalties under regulation 75, which amount to sanctions under regulations 67(2)(b) of the Framework Regs. However, regulation 75 does not cover, nor does it take into account, all A1P1 rights which a green deal provider may have, and it is but one form of sanction available under regulation 67. By way of relevant example, GDFC’s loss of the windfall benefit plainly engaged its A1P1 rights (as too may its loss of reputation), but that right would not fall to be taken into account under regulation 75. On the other hand, regulation 75 shows that the impact of a financial penalty sanction on a green deal provider is relevant, and that particular sanction of a financial penalty must, per regulation 79, be proportionate to the breach in relation to which it is imposed. On this reading, but contrary to Ms Heaney’s argument, the effect on the green deal provider is a relevant consideration in the proportionality assessment required by regulation 79. Nothing, however, in the Framework Regs, in my judgement, compels the conclusion that a green deal providers A1P1 rights are limited to those found in regulation 75. The different sanctions available against a green deal provider in regulation 67 point against such a conclusion as does the range of A1P1 rights which sit wider than a financial penalty. Regulation 75 is therefore not to the exclusion of any other potential impacts on a sanctioned body. Seen from this perspective, regulation 79 provides for a broader proportionality analysis than one limited regulation 75, and which may take into account wider impacts or effects, such as the loss of a windfall benefit.

Fifth, I do not consider that the analogy the FTT drew with Whitter was apt. The statutory scheme in issue in Whitter did not involve any express proportionality requirement, whereas regulation 79 of the Framework Regs does. It is true that Whitter did involve the exercise of a discretion, under section 66(1) of the Finance Act 2004, as does regulation 67(2) of the Framework Regs. However, the absence of an equivalent to regulation 79 of the Framework Regs in Whitter is, in my judgement, critical and decisive. Had such an express proportionality power or duty been contained in the Finance Act 2004 then: (i) I doubt very much whether the Court of Appeal would have reasoned as it did in paragraphs [60], [65] and [79] of Whitter; and (ii) it is difficult to see how the analysis in Whitter could have differed from the approach taken to proportionality in paragraphs [20] and [74] of Bank Mellat v HM Treasury (No.2) [2013] UKSC 39; [2014] 1 AC 700, given what was in issue in Bank Mellat was a proportionality test which was included expressly in the relevant statutory scheme (in paragraph 9(6) of Schedule 7 to the Counter-Terrorism Act 2008). This, moreover, was a distinction which the Court of Appeal found noteworthy in paragraph [77] of Whitter. Moreover, nothing in the Supreme Court’s decision dismissing a further appeal in Whitter ([2018] UKSC 31; [2018] WLR 3117) affects this analysis. Indeed the comments of Lord Carnwath at paragraph [23] of Whitter in the Supreme Court – “Once it is accepted that the statute does not in itself require the consideration of the impact on the individual taxpayer, there is nothing in A1/P1 which would justify the court in reading in such a requirement” – supports the view that it was wrong for the FTT to proceed by way of analogy with Whitter.

It is for all these reasons that I have concluded that the FTT erred in law in failing to take into account GDFC’s interests when deciding the correct type and level of sanction to impose on it under regulations 67 and 79 of the Framework Regs.

The final ground which I need to address in substance does not raise an issue of importance beyond the facts of this case.

GDFC’s argument is that in coming to its substantive decision the FTT misunderstood that which it was bound by in the preliminary decision when deciding the appropriate sanction if the energy plan was a green deal plan, and so misapplied the preliminary decision. Two parts of the FTT’s substantive decision are crucial to the argument, and both must be considered together. They are found in paragraphs 1(f)(iv) and 136-138 of the substantive decision.

“1f(iv). The Tribunal previously decided as a preliminary issue that the effect of a sanction on the relevant person is only relevant to proportionality in exceptional circumstances, and that any ‘windfall’ benefit to the bill payer is only relevant to the level of harm suffered and redress. By reason alone of that ruling, the Secretary of State placed undue weight on irrelevant factors when deciding on the appropriate sanction. We would have allowed the appeal and remitted the decision to the Secretary of State. Had the Secretary of State not erred in placing the weight he did on those factors, we would have dismissed the appeal and confirmed his decision.

136.

On the continuing hypothetical basis, of course, that Ms Heaney’s energy plan remains a Green Deal plan, the Tribunal takes all the circumstances into account to decide on sanction.

137.

The Tribunal has given very careful thought as to whether cancellation would have been the only appropriate sanction. The Preliminary Decision held that intention to enter into a Green New deal was not a qualifying condition. But that legal point does not address the obvious harm suffered by a person who, like Ms Heaney, was subjected to high pressure sales tactics that tricked her into taking out a loan for improvements many times greater than the £1,000 she thought was the total price. The Secretary of State was certainly right to describe the breach as very severe. The harm suffered by Ms Heaney, financial and otherwise, has already been described.

138.

There are only two countervailing factors. First is that the improvements are not going anywhere and Ms Heaney will continue to save energy from them – the ‘windfall’. Following the Preliminary Decision, the Tribunal places little weight on this. Second is the weight to be attached to the Secretary of State’s view on sanction. But the Secretary of State’s decision in this case is vitiated by the reliance placed on both the effect of the sanction on GDFC in the absence of exceptional circumstances, and on the ‘windfall’ benefit that would accrue to Ms Heaney. The decision’s assessment of proportionality cannot withstand Judge Macmillan’s ruling on those preliminary issues. But for that, the Tribunal would have confirmed the Secretary of State’s decision.”

Given I have decided that the preliminary decision was wrong in any event about the correct approach to applying the proportionality test under regulation 79 of Framework Regs, it may be thought this further argument need not be explored. However, the aspect of the argument concerning the windfall benefit accruing to Ms Heaney is at least relevant to the decision the FTT would otherwise have made (under its ‘but for’ test in paragraph 138 of the substantive decision).

Reading paragraphs 1f(iv) and 136-138 of the substantive decision together, it is clear to me that the that in the “But for that’ at the beginning of the final sentence in paragraph 138 is referring to the preliminary decision and what it had decided on windfall and proportionality. That is made plain, in my judgement, when account is taken of the wording “By reason alone of that ruling, the Secretary of State placed undue weight on irrelevant factors when deciding on the appropriate sanction” and “Had the Secretary of State not erred in placing the weight he did on those factors, we would have dismissed the appeal and confirmed his decision” in paragraph 1f(iv) (my underlining added for emphasis). The ruling being referred to is plainly the preliminary decision of the FTT and the reference to ‘irrelevant factors’ (plural) and ‘two countervailing factors’ and ‘issues’ (plural) in, respectively, paragraphs 1f(iv) and 138 is clearly about the preliminary decision’s conclusions on windfall and proportionality.

That being so, I accept GDFC’s and the Secretary of State’s argument that the FTT in its substantive decision wrongly concluded that the preliminary decision compelled it to (i) find that the Secretary of State’s decision had been vitiated by that decision having given weight to the windfall benefit accruing to Ms Heaney, and (ii) give limited weight to any windfall accruing to Ms Heaney.

What the FTT said in its preliminary decision on a windfall benefit is found in paragraph 80 of that decision and I can find nothing there which mandates that the FTT in its substantive decision either had to hold that the Secretary of State’s sanction decision was vitiated because it had taken the windfall benefit accruing to Ms Heaney into account, or that it had to give minimal weight to the windfall accruing to Ms Heaney. I set out in full that paragraph 80:

“80.

I conclude that the identification of a windfall benefit must also be relevant sanction, since this will inevitably go to the level and impact of any harm suffered. However, a windfall benefit ought not to operate as an effective bar to a sanction of cancellation, since it can only be one of several potentially relevant factors. In some cases, for example, that the bill payer may have suffered harm of a different nature which may be assessed as outweighing the windfall benefit, or it may be that the seriousness of the breach(es) justify the imposition of a severe sanction, windfall benefit notwithstanding.”

The opening sentence of paragraph 80 makes plain that a windfall benefit is always relevant to sanction, because it is part of the consideration of the level of the harm suffered. All the second sentence is ruling is that the mere fact of a windfall benefit cannot in all circumstances preclude a cancellation decision because all relevant factors (including any windfall benefit) must be considered.

Nor do I accept Ms Heaney’s argument, if I understood it correctly, that as it was a requirement under regulation 67(3) of the Framework Regs for imposing a sanction in the first place (and thus considering the type and level of sanction) that Ms Heaney had suffered “substantive loss”, the FTT was entitled to place little weight on the windfall benefit gained by Ms Heaney at the next stage of deciding whether and which sanction (reduction or cancellation) to impose. The weight to be attached to the windfall benefit was obviously a matter for the FTT to evaluate. However, even ignoring the FTT’s erroneous approach in its substantive decision to the preliminary decision having vitiated the Secretary of State’s sanction decision, at a minimum the FTT failed to reason out adequately why it followed from the preliminary decision that only minimum weight should be placed on Ms Heaney’s windfall benefit when deciding that cancellation remained the correct sanction even assuming that what was in place was a green deal plan.

What has caused me more pause for thought is Ms Heaney’s argument that paragraph 1(f)(iv) and 138 of the FTT’s substantive decision cannot be read in isolation and needs to be read with paragraphs 110-135 of that decision and the discussion on windfall preceding it in paragraphs 104-109. It may be a product of the FTT having dealt with a number of issues in the alternative, however the difficulty I have in the end with this argument is that the earlier paragraphs which address windfall only do so in the context of Ms Heaney’s energy plan not being a green deal plan. This is made most apparent from paragraph 107 of the FTT’s substantive decision where the FTT set out:

“107.

While the [windfall] benefit to the bill payer arising from a sanction falls to be considered in every case, the Tribunal considers that it will carry less significance in most cases concerning a breach of a qualifying condition. As held by Judge Macmillan, it directly forms part of the calculation of loss. That may be an essential ingredient when calculating a reduction, but the loss in this case has already been established by the consequences of the energy plan no longer being a Green Deal plan. They both stand as “harm of a different nature” and establish the seriousness of breach.

The underlining in paragraph 107 of the substantive decision is mine and has been added to emphasise the different situations with which the FTT was concerned, namely breach of a qualifying condition that therefore rendered the energy plan not a green deal plan. All paragraph 107 on its face therefore establishes is the FTT’s view that a windfall benefit accruing to the homeowner will carry less significance in most cases where the energy plan is not a green deal plan. That view and reasoning does not in my judgement have any obvious read across to where the plan is a green deal plan. Indeed, the reasoning in paragraph 107 and its reference to the preliminary decision (of Judge Macmillan) very arguably implies that a different approach to windfall ought to apply where the plan is a green deal plan. However, the ‘less weight’ attached by the FTT to the windfall benefit in paragraph 138 of the substantive decision in the context of the plan being a green deal plan would seem to draw an equivalence, which paragraph 107 suggests should not automatically be drawn, between green deal plans and plans which are not green deal plans.

For completeness, I should add that paragraphs 104-109 fall under the FTT’s Issue 3, which is about whether cancellation is the only appropriate sanction if Ms Heaney’s energy agreement was not a green deal plan. Paragraphs 110-115 then fall under the FTT’s Issue 4, which is about whether HELMS was in breach of its obligations under the Framework Regs or the Code of Practice if “there is a Green Deal plan” and paragraph 116 appears under the FTT’s Issue 5, which is about the effective date of any sanction in Ms Heaney’s case. Paragraphs 117-138 of the FTT’s substantive decision then cover the FTT’s Issues 6, 7 and 8, which are concerned, inter alia, with the application of the principles established by the FTT’s preliminary decision to whether the Secretary of State’s sanction decision of reduction was correct and, if it was not, what the correct level of sanction should be. The FTT does make it clear, in paragraph 117, that issues 6, 7 and 8 are being considered in the (alternative) context of Ms Heaney’s plan being a green deal plan. Moreover, in fairness to the FTT, it says in paragraph 117 that it had already touched on many of the parties arguments under Issue 3. However, for the reasons I have already given in the immediately preceding paragraph, I remain unclear what the FTT’s reasoning was for giving little weight to the windfall benefit in a context where the plan was a green deal plan.