[2024] UKUT 345 (AAC)

I have gratefully borrowed much of this background from the decisions of the First-tier Tribunal.

Energy efficiency improvements to residential properties, like insulation and solar panels, reduce carbon emissions and save money on energy bills. However, a significant barrier to the installation of such improvements is the initial cost. Homeowners may be unable or unwilling to spend thousands of pounds on those improvements when they may not achieve an overall saving for a number of years. The Energy Act 2011 created the ‘green deal plan’, which was a new way of financing that cost.

Like conventional finance, under a green deal plan the initial cost of purchase and installation of the energy efficiency improvements is met by way of an interest-bearing loan made to the homeowner by the provider or a finance company, repayable in instalments. However, unlike conventional finance, those instalments are paid by an additional charge taken direct from the property’s energy bills. This is effected by a homeowner paying an extra amount each month to their energy provider, or being subject to additional deductions from a pre-payment meter, until the loan under the green deal plan is repaid. Each time the home is sold, then subject to notification and consent the balance of the loan and the liability to make repayments transfers to the new owner

Turning to the facts of this particular case, Ms Heaney owns her home in Kilmarnock in Scotland. In 2014 she entered into what purported to be a ‘green deal plan’ with Home Energy and Lifestyle Management Limited (‘HELMS’). The improvements under the plan to Ms Heaney’s home included the installation of solar panels, a gas boiler, external wall insulation and under-floor insulation. The improvements were paid for by two means. Only the first is of direct relevance.

First, Ms Heaney entered into what purported to be a “green deal finance” arrangement with HELMS. HELMS then assigned the benefit of Ms Heaney’s loan repayments under that arrangement to another company in return for a lump sum. That other company was the Green Deal Finance Company (‘GDFC’). The appellant in these Upper Tribunal proceedings is a subsidiary of GDFC and is the company to which the loan repayments were due.

Secondly, Ms Heaney entered into an arrangement, known as a “FIT transfer option”, with PV Solar Investments Ltd (‘PVSI’). By that arrangement, Ms Heaney agreed to transfer her ‘Feed-in-Tariff’ to PVSI in return for PVSI paying the balance of the cost of installation of her solar panels. The Feed-in-Tariff (or FIT) required electricity suppliers to make payments to homeowner for the electricity generated by the homeowner and the electricity exported to the electricity grid. This FIT scheme has been closed to new entrants since 31 March 2019.

The sanction decision under appeal to the First-tier Tribunal related solely to Ms Heaney’s agreement with HELMS. GDFC Assets Ltd, the appellant in these Upper Tribunal proceedings, was the ‘relevant person’ for the purposes of the sanction decision, pursuant to regulations 51 and 67(3) of the Framework Regs. This is because it, rather than HELMS, was the payee under the purported green deal finance arrangement.

Regulation 67 of the Framework Regs empowers the Secretary of State to impose certain sanctions if, inter alia, there has been a breach of the relevant requirements by a ‘green deal provider’. Under regulation 67(3), where the Secretary of State is satisfied that the bill payer has suffered substantive loss, the Secretary of State may impose an additional sanction of cancellation or reduction of the green deal plan. A ‘reduction’ sanction is a requirement to reduce the liability of the bill payer (here, Ms Heaney) from the date of the complaint and to refund any payments already made since the complaint was made. A ‘cancellation’ sanction requires the cancellation of the bill payer’s liability (and any subsequent bill payer) to make any payment at all after the date of the complaint and to refund any payments made since the complaint was made: see regulation 51 of the Framework Regs.

Ms Heaney’s position before the First-tier Tribunal was, in essence, that she had been mis-sold the green deal plan by HELMS because she was not made aware that by entering into the agreement she was taking out a loan.

Ms Heaney had firstly complained to GDFC Assets Ltd, in November 2018, with the assistance of the Citizens Advice Bureau. Her complaint was based on her having been told that she would face no cost other than the initial £1,000 to a government scheme, that she would see significant reductions in her energy bills and she would make extra money under the FIT scheme. However, by contrast, she had signed up to a loan where instalments were taken from her energy bills for over 24 years, she saw no income from the FIT because it had been assigned and her electricity bills had not come down. She also complained that she had been pressured by the door-to-door agent when ‘sold’ the energy plan agreement in 2014. To meet this complaint, GDFC Assets Ltd offered to reduce the loan, but this was not accepted by Ms Heaney.

Ms Heaney then complained on 19 March 2019 to the Secretary of State. Pursuant to section 32 of the Energy Act 2011 the Secretary of State had delegated the initial review of green deal alleged mis-selling complaints to the Financial Ombudsman Service (“the FOS”). Having investigated the complaint, the FOS upheld it and recommended a penalty of reduction be imposed. That recommendation (and the complaint) was then referred by the FOS to the Secretary of State (pursuant to regulations 59 and 51 of the Framework Regs), it would seem (per regulation 59(1)(b)) because the complaint had not been resolved to Ms Heaney’s satisfaction.

The Secretary of State, having considered the complaint and the FOS’s ‘report’, then set out his provisional views on the complaint, and sought Ms Heaney’s and GDFC Assets Ltd’s representations on those views. GDFC Assets Ltd did not respond. Ms Heaney did and argued for cancellation of the green deal plan.

On 6 October 2020, the Secretary of State issued the sanction decision. This imposed a sanction of reduction on GDFC Assets Ltd. This sanction decision was based on HELMS having breached a number of the provisions in the Code of Practice (regulation 24(1) of the Framework Regs requiring that green deal providers comply with that Code). The effect of these breaches were, so the Secretary of State found, that Ms Heaney was mis-sold the green deal plan and had she properly understood that plan she would not have entered into it. The sanction of reduction was also founded on the green deal plan having been based on inflated savings figures and previous findings about HELMS (e.g., a 2014 audit had found HELMS was either not compliant or only partially compliant with 27 requirements of the Code of Practice).

As for whether Ms Heaney suffered “substantive loss” (per regulation 67(3) of the Framework Regs) because of the breaches of regulation 24 of the Framework Regs, the Secretary of State concluded that she had. This was because Ms Heaney had “suffered financial harm in consequence of the breach of regulation 24 by becoming liable for loan repayments which were greater than the actual saving she received under the Plan as a result of HELMS' mis-selling of the Plan”.

The Secretary of State’s sanctions decision then turned to the proportionality analysis required by regulation 79 of the Framework Regs. This analysis, in which a reduction of £4,698.13 in Ms Heaney’s green deal was imposed, is worth setting out in full:

“Proportionality Analysis

32.

As discussed above, the Secretary of State has found that HELMS breached regulation 24 of the Framework Regulations by failing to inform Ms Heaney that the measures installed under the Plan were funded by a loan and that the measures installed may not generate the savings necessary to cover her green deal repayments.

33.

The Secretary of State has also found that Ms Heaney has suffered or will suffer substantive loss in consequence of that breach. As such, it is open to the Secretary of State to impose either reduction or cancellation.

34.

The Guidance [on Green Deal Sanctions and Appeals dated 7 February 2013] states that where there is a choice of sanctions for a particular breach, the Secretary of State will take a “stepped” approach, imposing a less severe sanction for a less serious breach, and a more severe sanction for a more serious breach, or a case where there have been repeated breaches.

35.

In relation to breaches of the relevant requirements by a Green Deal Provider, the Guidance repeats the criteria set down in regulation 67 of the Framework Regulations under which, where there has been substantive loss, the Secretary of State may impose cancellation or reduction if the breach is severe or if there have been other breaches of the relevant requirements by the Green Deal Provider or Installer in respect of the property or other properties.

36.

In this case, the breach is considered to be severe. This is because, rather than being a technical or administrative breach of the CoP, there has been a deliberate misrepresentation made to Ms Heaney. It is also relevant that making the extra payments via her meter to fund the Green Deal loan has caused Ms Heaney financial difficulty and distress. It is also part of a pattern of behaviour on the part of HELMS which has been noted in other cases. It is thus one of a series of repeated breaches.

37.

As such, the Secretary of State considers that either reduction or cancellation could be justified in this case. Of these two options, the Secretary of State considers reduction to be the more proportionate for the reasons given below.

38.

The solar panels and other measures continue to be installed at Ms Heaney's property and so she is receiving some benefit from having the measures installed despite having transferred the right to receive FIT payments.

39.

The Secretary of State has also considered the impact of the sanction on GDFC Assets and notes the need to ensure that GDFC Assets is not disproportionately penalised for HELMS' mis-selling.

40.

Although the Secretary of State has imposed sanctions in relation to other breaches of the Framework Regulations by HELMS, and although the breaches identified above are undoubtedly severe, the Secretary of State does not consider the nature of the breaches identified in this case, and their impact on Ms Heaney, are at the highest level of severity. This is for the reasons, also set out above, including that Ms Heaney: (a) did intend to enter into the Plan, (b) has benefitted from having the measures installed, and (c) is continuing to benefit from these measures. In this respect, Ms Heaney has not, in the Secretary of State's view, suffered a greater detriment than other cases involving mis-selling by HELMS where the sanction of reduction (and not cancellation) has been imposed. This is not, therefore, a case in which the sanction of cancellation is required as a result of the severity of the breaches identified.

41.

The Secretary of State also considers, taking into account all of the circumstances of the case as outlined above, that the sanction of reduction corresponds more closely with the objectives of imposing a sanction, namely, to discourage breaches of the regulations and to provide redress to Ms Heaney by putting her in the position she would have been in had the breach not occurred.

42.

The Secretary of State therefore considers that a reduction of the Plan is the most proportionate remedy as it will remedy the mis-selling which the Secretary of State has found, on the balance of probabilities, took place and put Ms Heaney in the position closest to that which she would have been in if she had not been mis-led by HELMS, given that she is still receiving a benefit from having the measures installed. The level of the reduction should put Ms Heaney in the position that she ought to have been in when she signed up to the Plan, in that her repayments should not be greater than her savings.

43.

The level of the proposed reduction is set out below. The Secretary of State has considered whether the intended sanction should include an element attributable to the cost of maintaining the measures. As the owner of the measures and the party that receives some benefit from them, the Secretary of State considers it reasonable for Ms Heaney to be responsible for the ongoing maintenance of her solar panels, gas boiler, external wall insulation and underfloor insulation.   

44.

For these reasons, the Secretary of State does not consider that it would be proportionate to impose a greater level of reduction on GDFC Assets to reflect any potential liability for maintenance.

45.

The Secretary of State has also considered whether a lower level of reduction would be appropriate in this case. The Secretary of State notes that the Plan was sold on the basis of an overinflated estimated saving figure and therefore considers that a lower level of reduction would be disproportionate to the harm suffered by Ms Heaney as it would mean that her energy bills would continue to be higher as a result of the Plan.

46.

The Secretary of State has also considered whether no remedy should be imposed. However, given that there has been a breach of regulation 24 leading to Ms Heaney suffering substantive loss, it is considered appropriate to impose a remedy in this case. Neither a lower level of reduction, nor imposing no remedy, would adequately remediate the substantive loss Ms Heaney has suffered.

47.

The objective of the reduction is to remedy the breach identified by the Secretary of State and put Ms Heaney in the position that she would have been in had the Plan operated as she was led to believe it would. Neither a lower level of reduction, nor imposing no remedy, would achieve that objective. Thus the level of reduction identified is the sanction most closely rationally connected with the objective of imposing a sanction.

48.

Therefore, having considered all the evidence available, the Secretary of State shall impose the sanction of reduction on GDFC Assets at a level which will mean that Ms Heaney's repayments under the Plan match her assumed savings. The reduction calculation is set out below.

49.

The Secretary of State considers that this will put Ms Heaney closest to the position she would have been in had the Plan not been mis-sold. The Secretary of State considers that the proposed sanction reflects the seriousness of HELMS' breaches of the CoP and is proportionate to the harm suffered by Ms Heaney as a result.

50.

The Secretary of State estimates that reducing Ms Heaney's Plan by £4,698.13 is proportionate to the harm suffered by Ms Heaney as a result of her having been misled by HELMS, given that she is still receiving a benefit from having the solar panels, condensing boiler, external wall insulation and underfloor insulation installed. This is based on the average saving figures from the Energy Saving Trust (the "EST") and the National Household Model for the other measures installed.”