Court Rejects Legitimate Expectation Claim in E.ON Next Energy v GEMA Case, Upholds Rationality of Ofgem Decisions

Citation: [2023] EWHC 2891 (Admin)
Judgment on


The High Court of Justice King’s Bench Division Administrative Court considered the case of E.ON Next Energy Limited v The Gas and Electricity Markets Authority, providing a detailed examination of the principles of legitimate expectation, judicial review for irrationality, and contractual interpretation in the public law context. The case primarily revolved around the recovery of costs as a Supplier of Last Resort (SoLR) and the lawful expectations arising from the communications between the claimant and the defendant.

Key Facts

E.ON Next Energy Limited (E.ON) was appointed as SoLR for Igloo, Symbio, and Enstroga following their failure. Concern revolved around E.ON’s attempts to recover specific ‘shaping/imbalance costs’ as part of their role as SoLR. A key component was the ‘Comfort Letter’ which E.ON believed established a legitimate expectation that certain costs would be recovered. However, the Gas and Electricity Markets Authority (GEMA), operating through Ofgem, disagreed with E.ON’s interpretation and its method for determining costs. E.ON challenged three Ofgem decisions through judicial review.

The court applied several key legal principles:

  1. Legitimate Expectation: The court examined whether E.ON had a legitimate expectation based on Ofgem’s communications to be reimbursed for shaping/imbalance costs without the application of its discretionary criteria. A legitimate expectation requires a “clear, unambiguous and devoid of relevant qualification” assurance from the public body.

  2. Irrationality in Judicial Review: The court considered whether Ofgem’s decision was irrational, applying the ‘Wednesbury unreasonableness’ standard. This test evaluates whether a decision-maker has acted within the bounds of reasonable judgment.

  3. Contractual Interpretation in the Public Law Context: The interpretation of the Deed of Undertaking and the RFI responses were scrutinized to ascertain whether E.ON’s commitments constituted a waiver of their right to make a LRSP claim to the extent of £15 million.

References to notable cases such as Braganza v BP Shipping Ltd and R v Director General of Telecommunications ex p Cellcom underpinned the court’s analysis of these principles.


The court concluded that:

  1. Legitimate Expectation: E.ON’s legitimate expectation argument was rejected as the Comfort Letter did not promise unconditional cost recovery and was subject to Ofgem’s discretion under SLC 9.5. The Deed of Undertaking between E.ON and GEMA further enforced that any LRSP claim was to be reviewed as per Ofgem’s established criteria.

  2. Irrationality in Judicial Review: The court found Ofgem’s decisions rational. Ofgem’s application of the criteria was aligned with its statutory objectives and past practices, providing a reasonable approach to assess LRSP claims.

  3. Contractual Interpretation: The court agreed with E.ON’s alternative argument that since its offer to contribute £15 million towards the costs for Igloo was subject to E.ON’s opinion and discretion, E.ON had not made an unconditional commitment, and consequently, Ofgem’s deduction of £15 million was flawed.


The case of E.ON Next Energy Limited v The Gas and Electricity Markets Authority reaffirms the rigorous standards required to establish a legitimate expectation in public law. It also highlights the deference afforded to regulatory authorities in their area of expertise, presuming rationality in their decisions unless proven otherwise. The scenario also underscores the complexities involved when quasi-contractual promises intersect with public law obligations. While the majority of Ofgem’s decisions were upheld, the nuanced application of legal principles led to a successful challenge concerning the alleged commitment by E.ON to contribute towards the costs as SoLR.