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Regulatory engagement: identifying and addressing the challenges

Posted: 22/11/2018

The decisions of government and regulators can have a major impact on businesses: new rules and regimes create opportunities and close-off others; subsequent interpretations can create liabilities. Nowhere is this more evident than in the current political climate as the potential for Brexit to result in new regulation, hastily produced, looms large.

It is important for regulated businesses to engage early in these processes, to use the law to optimise their commercial position.

The good news, with limits

When creating new rules, or when interpreting and enforcing them, public bodies must act:

  • within relevant procedural requirements, without bias and giving reasons for decisions;
  • consistently with superior law. For example, the Human Rights Act and (for now) EU law often impose requirements and limitations. Regulations cannot usually overturn the provisions of Acts of Parliament;
  • within the powers they have been given;
  • with an open mind and without material errors of fact or law; and
  • so that decisions are not unreasonable, unfair or disproportionate.

Good practice also means that new policy and regulation will usually emerge from discussion and consultation, giving an opportunity for lobbying, debate and input.

Businesses can use specific challenge processes, appeals and judicial review when public bodies have not acted as required and when the outcome has been prejudicial to them.

What are the key points to keep in mind?

What are you trying to achieve as a business? How can the law help?
This may seem obvious when faced with proposed regulations that limit your business, or an enforcement team looking to impose a penalty. However, your ultimate commercial aim is unlikely to be a particular legal outcome in and of itself. The knack is to find the legal and evidential points, and the time(s) for making them, that help you get to your desired commercial outcome. Sometimes this may require lateral thinking.

Engage early and do not put off thinking about potential challenges
You will need to consider legal issues as soon as proposed rules and regulations appear: do the powers exist to make them, how well might they achieve the desired policy and business outcomes, how might they interact with existing law and would the detailed drafting work? Where the measures are not being properly developed, a legal challenge may be necessary.

Early engagement is particularly important because once new rules and regulations are introduced, the scope for subsequent challenge to them is severely reduced:

  • most statutory challenges, and judicial review options, are subject to strict and short time limits, and limited to narrow legal points.  Judicial review applications must be made promptly and in any event within three months;
  • the courts will not interfere with decisions about political, spending and policy priorities (so you need to argue these before decisions are taken);
  • the courts are deferential to expert regulators’ decisions.

Some recent examples
Sustainable Development v BEIS - do not delay:
The claimant had delayed without giving a good reason, and so lost its opportunity for judicial review. The court was also unwilling to re-open the government decision because it would have prejudiced third party rights and been detrimental to good administration.

However, other cases point out that judicial review is a remedy of last resort – so engage in the processes that do exist.

Ofgem v Npower - making the right challenge at the right time:
Ofgem issued a direction that Npower take part in a switching trial. Npower failed to comply. Ofgem next issued a statutory order that Npower comply with the direction. Npower’s statutory challenge to the order was unsuccessful because its real argument was with the original direction, which it should have separately challenged via judicial review.

Tempus v European Commission - using a legal challenge to achieve (perhaps) a business aim:
The UK capacity market (CM) regime provides support to traditional electricity generators and to demand side response (DSR). It obtained state aid approval from the EC.

Tempus is a DSR business. It successfully challenged the EC’s decision not to examine more thoroughly the greater support given to traditional generation compared to DSR; the EC had not followed its own guidelines. The EC now needs to re-assess CM state aid approval, including DSR. However, this may not ultimately mean DSR gets a better deal.

Deferring to regulators on areas of expertise Heathrow Airport Limited v Office of Rail and Road:
The court declined to interfere with a regulator’s specialist appraisals, but not on legal issues – R (UK Power Networks (Operations) Ltd) v Gas and Electricity Markets Authority: the regulator misinterpreted the statute so its decision was overturned, and Intercontinental Exchange Inc v Competition and Markets Authority – the regulator had to look at a decision again when it failed to give reasons.

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