Deposit return scheme Scotland: Ministers could face legal action if DRS blocked, leading lawyer warns

Companies who have invested millions of pounds to comply with Scotland’s increasingly beleaguered deposit return scheme would be “very well advised” to seek legal advice over recovering their costs from Scottish ministers in the event the initiative is effectively blocked, one of the country’s leading lawyers has said.

Aidan O’Neill KC told The Scotsman that firms who have invested substantial sums towards meeting their obligations under the proposed large-scale recycling scheme may be in a position to recoup the money from the Scottish Government if the initiative’s regulations are not granted an opt out from the UK Internal Market Act (IMA).

However, the advocate stressed any such action would rely on more information as to when Scottish ministers became aware the deposit return scheme (DRS) might conflict with the provisions of the IMA, as well as detail around what steps, if any, the Scottish Government took to address issues with a unilateral scheme.

Another partner at a leading law firm said in the event the entire DRS is scrapped, producers may be liable for the costs of Circularity Scotland, the private firm incorporated to act as the scheme’s administrator, as opposed to the other way around.

There is growing speculation that ministers at Westminster will refuse any request from Edinburgh to exclude the DRS regulations from the IMA. That scenario would leave the enterprise compromised, perhaps fatally so, given the Scottish regulations could not be enforced for products originating elsewhere in the UK, putting drinks producers north of the border at a disadvantage.

Under what is known as the “mutual recognition principle” of the post-Brexit act, goods that have been produced in, or imported into, one part of the UK and comply with relevant requirements there, can then be sold in any other part of the UK without adhering to different regulatory requirements.

All three candidates to succeed Nicola Sturgeon as leader of the SNP have proposed changing or pausing the DRS, which aims to boost recycling via a 20 pence deposit on single-use drinks containers . Finance secretary Kate Forbes warned yesterday the scheme would cause “economic carnage”. It is unclear how much businesses have spent so far preparing for the scheme, but Lorna Slater, the circular economy minister, said on Sunday that industry had invested tens of millions, and in some cases, hundreds of millions of pounds towards the scheme.

In a letter to MSPs earlier this month, Ms Slater, who has been spearheading the DRS, said the scheme’s regulations, approved by Holyrood in 2020, were “wholly within devolved competence”, and the “formal process” for excluding them from the IMA was “well underway”. However, it is unclear when that process began.

Scotland's deposit return scheme is scheduled to go live in August, but the intiaitive has been beset by controversy. Picture: Jonathan Pow

Back in 2020, Kenneth Armstrong, a professor of European law at the University of Cambridge, told Holyrood’s finance and constitution committee determining whether either the IMA’s mutual recognition or non-discrimination principle should apply in respect of the 20 pence deposit under the DRS was “not without its difficulties”.

Last Wednesday, Scottish secretary Alister Jack told the Commons the UK Government had not yet been asked for an exemption by Scottish ministers, a stance reiterated yesterday by Lord Benyon, minister of state at the UK department for environment, food and rural affairs. He told the Lords that while there had been “discussions” at an official level, the UK Government “has not yet received an official ministerial request from the Scottish Government for a UKIM exemption”.

Mr O’Neill, who previously claimed the DRS could create an unlawful trade barrier with other parts of the UK, told The Scotsman that “no account seems to have been taken of the UK internal market element by the Scottish Government” until the claim made by Ms Slater in her letter to parliamentarians.

He said there were questions over when the formal process to exclude the DRS regulations began, and whether there were any informal discussions between the two governments beforehand. Such details, he said, “may well be relevant to setting up the possibility of a claim for damages against the Scottish Government”.

Mr O’Neill pointed out in the so-called Somerville appeal, Lord Hope had observed that as a general rule, the fact an individual had suffered loss because of an “invalid administrative” does not in itself entitle them to be indemnified. However, he said there may be a basis for a claim under the European Convention on Human Rights.

Asked it he considered it likely that Scottish producers may consider legal action to recover their costs in the event of the DRS being blocked, he replied: “Scottish producers would be very well advised to seek legal advice as to their options to recover their costs from the Scottish Government on any of the possible legal bases outlined above.

“But more information will be required as to the underlying facts, particularly around when the Scottish Government was aware of the issue that its DRS scheme might conflict with the internal market principles set out in the UK Internal Market Act’s provisions, and of the potential difficulties in going ahead unilaterally with the scheme, and what steps if any they took – and when – to deal with the issues arising.”

Mr O’Neill said the direct liability of Circularity Scotland was “perhaps more complicated”, explaining: “This would arise within the content of contracts entered into with Circularity Scotland by those companies and undertakings which ‘chose’ to become members of it once the Scottish Government recognised it as a scheme administrator. There are very complex legal questions arising from the idea that one can sue another party from in effect bouncing or coercing them to enter into an ‘unfair’ contract.”

Charles Livingstone, a partner at Brodies, who leads the firm’s competition law practice, told The Scotsman there were “complicated liability provisions” in some Circularity Scotland producer agreements, and that some producers have been “hesitant” to sign up to them.

He said: “It’s possible that through that producer agreement, producers might actually find themselves liable for certain costs of Circularity Scotland in the event that the scheme gets cancelled, rather than Circularity Scotland being liable to producers for their costs.”

It comes amidst increasing anxiety from industry bodies about the impact of the DRS. Miles Beale, chief executive of the Wine and Spirit Trade Association, said: “The Scottish Government needs to delay the scheme, including the fantasy registration deadline, to cut through the chaos, to provide proper information for businesses expected to register and, ultimately, to deliver the scheme. It needs urgently to explain the late grace period, to which businesses it applies, and, crucially, to explain the scheme’s compatibility with the UK’s Internal Market.”