Cheshire councils mull appeal after losing battle over PFI credits for waste project

The two unitary councils in Cheshire have applied for permission to appeal after a High Court judge refused to quash the government’s decision to withdraw £70m in PFI credits for a waste scheme.

The scheme would have lasted 25 years and disposed of 180,000 tonnes of waste annually.

Cheshire West and Chester and Cheshire East Councils had challenged Defra’s decision on five grounds. They argued that:

• The decision was Wednesbury unreasonable in that it was irrational to disregard the solid recovered fuel (SRF) produced by the mechanical biological treatment facility when assessing the contribution to diversion from landfill made by the project. If SRF had been treated as waste from landfill by the project, it would have remained eligible for PFI credit
• The councils enjoyed a substantive legitimate expectation that on fulfillment of certain conditions, they would receive £70m in PFI credits, or alternatively some £40m worth
• There was a procedural legitimate expectation of consultation in advance of the decision to withdraw funding from the project
• Defra failed to take into account a relevant consideration, or alternatively acted under a material mistake of fact, in employing the assumption that 68% of the waste to be landfilled by the project and of the SRF produced by the project would consist of biodegradable municipal waste (BMW) whereas available data showed a different and lower figure; and
• when assessing national capacity to divert waste from landfill the analysis of the contribution to that from existing and future merchant facilities was flawed, in consequence of which the basis for withdrawing PFI credit from the unsuccessful projects could not be sustained.

In Cheshire East Borough Council Cheshire West & Anor, R v Secretary of State for Environment Food and Rural Affairs & Anor [2011] EWHC 1975, Mr Justice Langstaff dismissed the claim on all five grounds.

The judge said the PFI credit criteria issued in May 2006 specifically required projects to show an additional contribution to national landfill diversion. The capacity to burn SRF provided by an already approved, PFI-backed – and under construction – project in Runcorn was capacity which was already about to be delivered, he said, and Defra took the view that that capacity would not remain unutilised if the Cheshire project did not send SRF to it.

Mr Justice Langstaff concluded that it was not inappropriate for Defra, when looking at the cost/benefit which the Cheshire project would supply, to assess the benefit by asking what additional national capacity for diverting waste from landfill the scheme would provide. The judge accepted that to count the Runcorn capacity would have meant attributing capacity already delivered by that project to Cheshire and Defra would therefore have been counting the capacity twice.

The judge also said there was no legitimate expectation that the law would protect. The indications were that funding was subject to a satisfactory final business case, subject to a second stage review, the “clear understandings” that PFI credits would be subject to the Comprehensive Spending Review once announced, and ‘with the project remaining consistent with departmental policies and priorities at the time approval is sought’, and the deliberate uncertainty expressed by the councils themselves when appointing Viridor as provisional preferred bidder.

These all showed that “there was no unqualified assurance that funding would be forthcoming if particular conditions were fulfilled, or that a particular process would be followed through to the inevitable consequence that funding would follow”.

Mr Justice Langstaff also rejected the councils’ claim that they had a legitimate expectation to be consulted on the decision. “Once a decision had been taken to withdraw funding from 7 projects, it was in my judgment a matter for central government to determine whether there should be consultation about this or not,” he said. “The policy judgment not to engage in it was rational. It was not unlawful.”

The judge added that it was not unfair: “although the councils might have thought that they would have funding for their particular projects, and had (in Cheshire's case) expended considerable sums in that belief, it was a proper exercise of power and not abusive for central government to choose to review it, and having so chosen, to determine internally and without consultation upon a method which was rational and sought reasonably to achieve a fair selection of the projects which would, or would not, be funded.”

He added: “The internal discussion about whether to consult at all was not premised on that consultation having no value, but rather upon it being counter-productive. That was a judgement which I cannot say was wrong. Nor do I consider it unfair.”

Mr Justice Langstaff said he was “entirely satisfied” that there was an overriding public interest, in the light of which the action taken was not disproportionate. “The Government decided on a macro-political and macro-economic basis that spending had to be cut significantly and quickly,” the judge said, pointing to the plan for deficit reduction and the Spending Review.

“Choices were required, as a result of which departmental budgets were to be cut by ‘an average of 19% over four years’,” he added. “In that contact, I accept that a decision maker in an individual department of state must be accorded a very wide margin of appreciation, and a court must be reluctant to interfere with technical expert judgments such as are in issue here.”

On the issue of the BMW content, the judge accepted that even if the councils were right, it would have made no difference to the ultimate ranking of the project. He also said that the adoption of 68% as the adjustment factor – capable of variation where a good reason was established – was not in itself irrational. There was insufficient evidence to show that Defra should have treated a good reason as being established in the Cheshire case.

The judge went on to refuse permission to argue the fifth ground, saying it did not merit full argument before the court.

Both councils have applied for permission to appeal.

Cheshire West and Chester Council Leader Mike Jones said: “We feel that we were completely justified in asking for a judicial review and extremely disappointed that the hearing did not go in our favour.

“In total, around £4.5m of taxpayers’ money was spent on a detailed and lengthy procurement process designed to identify a provisional preferred bidder. This process - designed to find a vital long-term solution to the disposal of Cheshire’s household waste - had just been completed when the funding was withdrawn.”

Cllr Wesley Fitzgerald, Leader of Cheshire East Council, added: “Clearly, we were hoping for a more positive outcome to the Judicial Review and it is disappointing to say the least.

“This excellent scheme, drawn up between the two councils, would have solved Cheshire’s household waste disposal problem in an environmentally-friendly way and would have avoided the need for landfill.”

Philip Hoult