Environment Agency v Elizabeth Arden (UK) Ltd

This case concerns ESOS. It was introduced by the Energy Savings Opportunity Scheme Regulations 2014 (SI No 1643) in order to comply with Directive 2012/27/EU on energy efficiency. Its purpose is to encourage large organisations to save energy by requiring them to carry out assessments to identify cost-effective energy saving measures. EA is responsible for monitoring and enforcing compliance.

The basic structure of the Regulations

This is the basic legal structure. The Regulations impose a duty to carry out an ESOS assessment, including an energy audit (regulations 20 and 26). EA has power to issue notices of compliance, enforcement and civil penalties (regulations 35, 38 and 39). A penalty notice sets the penalty for breaches of the Regulations. In this case, the relevant breach was for failure to carry out and report on an ESOS assessment. The penalty for that breach was fixed under regulation 45.

The legislation

These are the relevant provisions of the Regulations in this case.

Compliance notices

A compliance body may serve a notice on a responsible undertaking requesting such information as it considers necessary to enable it to monitor compliance with these Regulations (a ‘compliance notice’).

A compliance notice must—

A compliance notice may be varied or revoked in writing at any time by the compliance body that issued it.

Where a responsible undertaking—

A determination under paragraph (4) must be made in writing and include information about appeals under Part 9 of these Regulations and, within 10 days of making the determination, be served on the responsible undertaking.

Enforcement notices

In any case where the relevant compliance body reasonably believes that a responsible undertaking has failed to comply with a requirement of these Regulations, that compliance body may serve a notice on that responsible undertaking in accordance with this regulation (an ‘enforcement notice’).

An enforcement notice must—

An enforcement notice may be varied or revoked in writing at any time by the compliance body that issued it.

Penalty notices

In any case where the relevant compliance body is satisfied that a responsible undertaking is liable to a civil penalty under this Part, it may serve a notice on that responsible undertaking (a ‘penalty notice’) imposing the penalties and other requirements set out in this Part.

A penalty notice must—

A penalty notice imposing a financial penalty must specify—

Where a notice has been served under paragraph (3)(b) and the total amount of the daily penalty can be determined after the date of service of the notice, the compliance body must serve a further notice on the responsible undertaking which complies with paragraph (3)(a).

The daily penalty rate must be calculated by reference to working days.

The compliance body must remit to the Secretary of State any financial penalty received.

Failure to undertake an energy audit

The penalties in paragraph (2) apply where a responsible undertaking fails to carry out an audit, contrary to Chapter 3 of Part 4, where the alternative routes to compliance in Part 6 do not apply.

The penalties are—

The penalty notice may specify the steps the compliance body requires the responsible undertaking to take, including conducting or completing an ESOS assessment, to remedy the breach, and the date by which such steps must be taken.

Appeals

A responsible undertaking served with a determination under regulation 35(5) or paragraph 13(2) of Schedule 2, or with an enforcement notice, or a penalty notice, may appeal to the relevant appeal body on the grounds that the determination, enforcement notice or penalty notice (as the case may be) was—

based on an error of fact,

wrong in law, or

unreasonable.

Determination of an appeal

cancel the determination, enforcement notice or penalty notice (as the case may be),

affirm the determination, enforcement notice or penalty notice (as the case may be), whether in its original form or with such modification as it sees fit,

instruct the scheme administrator or the relevant compliance body to do, or not to do, any thing which is within the power of the scheme administrator or compliance body.

Service of documents

delivering or sending it to, or leaving it at—

sending it by electronic means to the email address provided by the responsible undertaking pursuant to paragraph 1(b) of Schedule 3.

Section 7 of the Interpretation Act 1978 is also relevant to this case:

Timetable

EA says that it sent the following notices to EAUKL at its registered office:

The First-tier Tribunal’s decision

The judge identified the relevant issues on the appeal. Having set out what was not in dispute, she continued:

Having considered those issues, the judge cancelled the penalty notice and substituted a revised notice setting the penalty on the basis of Low or No culpability.

Having identified service as an issue in the appeal, the judge then misdirected herself in law. She began paragraph 20 of her written reasons with the words: ‘Somewhat surprisingly I could find no reference to specific service requirements …’ That was a mistake, because regulation 51 makes express provision for service. Having misdirected herself on the law, it is not surprising that the judge failed to apply it. That in turn may have had an effect on the Enforcement Policy issues.

What the First-tier Tribunal should have done

The grounds of appeal raised two issues: service on EAUKL and EAUKL’s knowledge of the notice.

This is the first issue that the tribunal should have considered. Had the penalty notice that was the subject of the appeal been served on EAUKL? The notice was a legally significant act, because it was the notice that imposed the penalty. That is what regulation 39(1) expressly provides. Service is the process by which the notice becomes legally effective. That is why regulation 39(2)(b) provides that ‘A penalty notice must … be served on the person to whom it is addressed’. Regulation 51 supports that by providing for the means by which service may be effected.

But did regulation 51 apply? It applies only to notices that are ‘required to be served’. In contrast, the language of regulations 35, 38 and 39 provides that that EA ‘may’ serve the appropriate notice. Nevertheless, regulation 51 applies. It has to be interpreted in the context of EA exercising its powers as the ESOS regulator. In that context, when the circumstances justify a notice being issued, it is proper to say that there is a requirement that it be served. Otherwise, regulation 51 would be rendered largely redundant in the legislation and it would not apply in the circumstances where it would most be appropriate.

As regulation 51 applies, section 7 of the Interpretation Act 1978 becomes relevant because it provides for: (a) the means by which service may be effected; and (b) a rebuttable presumption of when service is effected.

The tribunal should have enquired and found whether service had been effected. There are two ways in which EA may have served EAUKL under regulation 51: (a) by post to the company’s registered office (regulation 51(a)(i)); or (b) by email (regulation 51(b)).

I will begin with post to the registered office. The starting point was for EA to prove that the penalty notice had been sent in accordance with regulation 51 and section 7. The only evidence I can find in the First-tier Tribunal’s hearing file is a copy of the notice bearing the address of EAUKL’s registered office. That was not sufficient to show that the notice was posted or, if it was, when that was done. EA may have a specific record of posting. If so, that could have been put in evidence. If not, EA might have been able to produce sufficient evidence of its standard procedures as a basis for the tribunal to infer that it was posted on a particular date.

If EA could show posting, EAUKL would then have the opportunity to prove that the notice did not arrive. The company had said that the notice could not be found. But it would need to produce evidence to that effect. The tribunal would then have had to consider whether: (a) it had not arrived; or (b) it had arrived but had been lost in the confusion of postal deliveries during lockdown.

I now turn to service by email. I can deal with this briefly. The only permissible email address would be one provided in accordance with Schedule 3 to the Regulations. As far as I can tell, EAUKL did not provide an address under that provision.

If the tribunal had found that the notice had not been served, it would have had no legal effect. That meant that the notice was wrong in law under regulation 48(1)(b) and should be cancelled under regulation 50(a).

If and only if the tribunal had found that the notice had been served, it would then have had to consider the second issue: knowledge.

This is the second issue raised by the grounds of appeal. Even if the notice was properly served, it is possible that EAUKL was not aware of it. That could then be a relevant factor in deciding whether it was unreasonable to impose a penalty or that the amount was unreasonable. There may be other possibilities, depending on the circumstances. This does not mean that lack of knowledge by EAUKL would have been decisive, only that it would have been a factor to consider. But the issue does not arise unless and until the tribunal is satisfied that the notice under appeal was properly served.

The First-tier Tribunal response to the application for permission to appeal to the Upper Tribunal

On 13 October 2022, EA applied to the First-tier Tribunal for permission to appeal to the Upper Tribunal. On 24 November 2022, an administrative officer of the General Regulatory Chamber sent an email to the parties:

That response raises a number of issues.

First, the appeal to the Upper Tribunal lies against the decision made by the First-tier Tribunal on 27 September 2022. There is no appeal against the tribunal’s response to an application for permission to appeal against that decision. The Upper Tribunal does not review that response: CIS/4772/2000 at [2]-[11]. Nor may it be used to show that a point of law arises from the decision: Albion Water Ltd v Dŵr Cymru Cyf [2009] 2 All ER 279 at [67]. Nevertheless, the email raises some issues that merit comment.

Second, decisions of the First-tier Tribunal or of any other tribunal or court are cited for the propositions they establish. They are not a matter of evidence and do not have to be adduced.

Third, it is worth repeating what Upper Tribunal Judge Wright said of letters and emails like the one I have quoted. He was referring to the Social Entitlement Chamber, but the point is relevant generally. In HMRC v AD [2020] UKUT 353 (AAC), the clerk of the Chamber had written to the parties saying:

I have proceeded on the basis that behind the First-tier Tribunal’s letter of 10 September 2019 lay a decision of a judge of the First-tier Tribunal under rule 38(7)(c) of the Tribunal Procedure (First-tier Tribunal) (Social Entitlement Chamber) Rules 2008 refusing to admit (not ‘rejecting’) the application for permission to appeal: see JP v SSWP (ESA) [2016] UKUT 48 (AAC). However, HMRC, just as any other party to an appeal, were entitled to receive, and ought to have received, a copy of the judicial determination on its application for permission to appeal. (And it should not need saying that a judge ought to have made a ruling on the application for permission to appeal.)

Fourth, I am not aware of any system of reporting of decisions made in the General Regulatory Chamber. Some of the decisions may be posted online, but that is not the same as reporting.

Fifth, precedent is hierarchical. Tribunals are bound by decisions made by a body higher in the judicial hierarchy. Practices differ about a tribunal’s own previous decisions. Generally, the higher the level, the more restricted the freedom to depart from previous decisions. At First-tier Tribunal level, there are two considerations that favour previous decisions not being binding. First, the role of that tribunal is essentially fact-finding. Second, the large number of decisions may make it impossible in practice to ensure that everyone knows the decisions that are being made. If the judge in this case intended to refer to using an earlier decision as a binding precedent, this was not appropriate in the First-tier Tribunal.