Uncertainty continues to surround Scotland’s Deposit Return Scheme (as established under the Deposit and Return Scheme for Scotland Regulations 2020).
Previously discussed in our first article, the scheme was initially set to be implemented in July 2022, August 2023, then March 2024 and has now been delayed until October 2025 at the earliest.
Most recently, it has been subject to a judicial review in the Petition of Abdul Majid & Sons Limited in relation to the determination of the Reasonable Handling Fee.
What is the Deposit Return Scheme?
Under the scheme most retailers of single-use drinks containers are obliged to operate a return point for packaging (to which consumers can return packaging and collect their deposit).
Packaging producers are responsible for arranging the collection of packaging from retailers, also known as Return Point Operators. They must pay these operators the deposit amount and a Reasonable Handling Fee, which considers the various costs incurred by the retailer.
Regulation 11(4) sets out the elements of the Reasonable Handling Fee as:
- the costs of any reverse vending machine;
- the costs of materials;
- the rental value of floor space used; and
- staff time.
What was this judicial review about?
The petitioner (Abdul Majid & Sons Limited) is a retailer. The respondent (Circularity Scotland Limited) (CSL) is a company which was formed to act as a ‘scheme administrator’ under the Regulations (and which is now in administration), and through which individual producers can fulfil their obligations under the scheme.
In May 2022, Circularity Scotland announced its determination of the Reasonable Handling Fee for the first year of operation of the scheme. In accordance with its membership agreement, this had been set by an independent entity (PwC) – with the handling fee being set against the general costs to be experienced by retailers, rather than costs on a retailer by retailer basis.
Abdul Majid & Sons challenged the legality of the retailer handling fees that CSL were seeking to impose stating that they are not calculated by reference to an individual retailer’s actual costs.
Summary of the Legal Arguments
The main thrust of the petitioner’s argument was that Circularity Scotland had no statutory power under the Regulations to set the Reasonable Handling Fee for any retailer and that the petitioner was not contractually bound to accept the Reasonable Handling Fee announced by it.
At the hearing this was accepted by the respondent, but it went on to argue that the Regulations were silent on how to calculate the Reasonable Handling Fee and that, as scheme administrator, it had stepped into that gap and appointed PwC to determine the appropriate Reasonable Handling Fee.
In relation to the interpretation of the definition of the Reasonable Handling Fee, it was submitted by the respondent that the elements listed in Regulation 11(4), as detailed above, refer to general costs experienced by retailers in Scotland as a whole, as opposed to specific costs of the individual retailer’s return point.
The Court’s judgement
The judge concluded that the respondent had no statutory power under the Regulations to set the Reasonable Handling Fee for any retailer and that the petitioner was not contractually bound to accept the Reasonable Handling Fee announced by the respondent.
Additionally, the judge found that the four elements listed in Regulation 11(4) reference the specific costs of “that return point”, meaning that it was not general costs experienced by retailers, as had been submitted by the respondent.
Furthermore, as it is the retailer that charges the Reasonable Handling Fee, it is logical for the retailer to determine the fee based on their own cost base instead of the costs that other retailers may incur.
The judge did acknowledge and understand some practical concerns expressed by the respondent, notably that a scheme administrator might have to engage with as many as 25,000 individual businesses and allocate specific fees to each one of them. Any disputes in relation to reasonable costs would have to be resolved through court proceedings, which would likely be expensive and time-consuming for individual retailers. Therefore, an industry-wide reasonable handling fee could be beneficial for individual retailers (such as the petitioner in this case).
However, the judge still held that due to the wording of the Regulations, the petitioner was entitled to set its own Reasonable Handling Fee and that if implementation of Regulation 11(4) was impractical, the solution for the respondent was to ask the Scottish Government to reconsider the drafting of the Regulations.
If you or your business have any queries about the DRS, please contact Kevin Clancy or Jamie Yule.
This article was co-authored by Isabella Linton, Trainee solicitor in our commercial disputes team.