Lord Ordinary rules Circularity Scotland does not have power to set reasonable handling fee for Deposit Return Scheme

About this case:

• Citation:
  [2023] CSOH 41
• Judgment:
  External link
• Court:
  Court of Session Outer House
• Judge:
  Lord Young

Abdul Majid & Son Ltd, who ran Baba’s Kitchen and Costcutter located between Bellshill and Coatbridge, argued that Circularity Scotland Ltd did not have the power to determine the return handling fee on a proper interpretation of the Deposit and Return Scheme for Scotland Regulations 2020. Its position was that it was set to lose approximately £1,000 a week from operating a return point at its store, which amounted to distortion of competition between small and large retail concerns.

The petition was heard by Lord Young. O’Neill KC appeared for the petitioner and Lindsay KC for the respondent.

Regulations were silent

The petitioner was a limited company that had participated in an early trial of a form of reverse vending machine in 2019. The sole director, Mr Majid, had also visited Norway and Estonia as part of a delegation from the Scottish Grocers’ Federation to study the use of these machines in operation. The petitioner’s store comprised approximately 2,500 square feet of retail space used to operate a convenience store, food outlet, and post office.

Under the DRS, for every single-use drink returned under the scheme, the producer of that drink is obliged to pay the Return Point Operator a sum equal to the deposit returned to the consumer plus a reasonable handling fee for each item of scheme packaging collected. In May 2022, a briefing document set out the RHF as calculated by an independent entity, PwC, which set the fee for returned scheme articles at 2.69pp for manual returns and 3.55p for the first 8,000 containers put into a reverse vending machine per week and 1.35p for additional containers received that week.

It was submitted for the petitioner that the 2020 Regulations that created the DRS did not give the respondent the power to determine the RHF, and even if it did the RHF has to be based on the costs of the individual RPO as opposed to costs incurred across all retailers operating return points. It was further argued that the respondent’s approach was contrary to the principle of proportionality, and the RHF as it stood was unfair to small enterprises.

For the respondent it was submitted that, by appointing an independent entity to determine the RHF, it was hoped that this would avoid some of the difficulties which had arisen in other countries. The 2020 Regulations were silent as to who was to calculate the RHF, thus the respondent had stepped into the gap and appointed PwC to determine it.

Clear inference

In his decision, Lord Young observed: “It is accepted by the respondent that it has no statutory power to set the RHF for any RPO. It is also accepted that the petitioner is not contractually bound to accept the RHF announced by the respondent. The first issue for decision, namely whether the 2020 Regulations permit the respondent to impose the RHF upon the petitioner, falls to be determined in favour of the petitioner.”

Assessing the relevant factors in calculation of the RHF, he said: “The fee is charged by the RPO and it makes sense for the party charging the fee to fix that fee by reference to its own cost base which it will be familiar with. Or, to put it another way, it would be unusual for an RPO to determine the fee charged by reference to costs incurred by other rival RPOs which is information that it will not have access to.”

He went on to say: “The 2020 Regulations envisage a scheme administrator being appointed to fulfil the obligations of producers but it is common ground that the scheme administrator has no statutory power in relation to the determination of the RHF. If the regulations had conferred such a power on the scheme administrator then it might have been easier to envisage that an industry-wide analysis of costs was required since a scheme administrator would have an incentive as well as the resources to approach costs on that basis. By not conferring such a power on the scheme administrator, the clear inference is that individual RPOs should look to their own costs to determine the RHF which they will charge.”

On whether the scheme as it stood was unfair to small producers, Lord Young said: “I am unwilling to accept on the basis of the limited documentary evidence available at the substantive hearing that the respondent’s approach which includes a tiered system is inherently unfair to small retailers as a group when compared with larger retailers as a group. I also agree with senior counsel for the respondent that if there is a competition law issue linked to the level of the RHF then there is a more appropriate forum for such issues to be resolved.”

He concluded: “Although I have concluded that the respondent’s approach was in error, it does not necessarily follow that the RHFs calculated by PwC are of no value. On the reasonable assumption that the data used by PwC is broadly based and has been appropriately analysed, the RHF levels proposed by the respondent may be close enough approximations for many RPOs.”

The case was then put out by order to discuss the disposal of pleas-in-law and the terms of any declarator.