Scottish taxpayers are closer to paying a £166 million legal bill after a judge ruled that a claim over the failed deposit return scheme can go ahead.

Ministers dropped plans for a Scotland-specific initiative in June 2023 following a dispute with the UK government.

Biffa Waste Services, which had secured a contract to collect recycled containers, told the Court of Session that the SNP-Green government had given an assurance that the scheme would proceed. Ministers denied the firm’s claims.

Delivering his ruling, Lord Clark said Biffa would have to prove that it relied on a written assurance given by former Green minister Lorna Slater about the scheme’s viability, and that this led to financial losses.

He said “questions remain” about the costs incurred by Biffa, and the amount of future profits it lost because of the scheme’s cancellation. There should now be a full hearing to examine the arguments in more detail, he said.

Biffa’s financial claim includes about £115m in projected profits over a 10-year contract with Circularity Scotland, a non-profit company funded by the drinks industry which was set up to manage the scheme.

It collapsed with debts and liabilities of more than £86m when the initiative was postponed.

Biffa is also seeking about £50m it said it spent in preparation for the scheme – including buying vehicles and specialist equipment, leasing vehicle depots, processing sites and taking on extra staff.

The deposit return scheme became controversial soon after it was proposed in 2021 as a flagship policy of the Greens who were partners in the government.

It required consumers to pay an additional 20p on all single-use drinks containers made of PET plastic, metal or glass. Consumers could reclaim the deposit by returning the containers to retailers or to specially-designed reverse vending machines.

It was due to be introduced in August 2023 but the launch date was pushed back before the scheme was abandoned in a dispute with the Westminster Government which said it wanted a UK-wide scheme.

This is now expected to be launched in October 2027 and will exclude glass, though the Welsh government has pulled out of a UK-wide approach because it wants to include glass.

Following a freedom of information request, the Scottish government revealed earlier this month that it had spent £168,000 on legal fees related to the case brought by Biffa.

A spokesperson for Biffa said: “We are pleased to have received approval from the Court of Session to proceed with legal action to seek appropriate compensation for the losses Biffa has incurred.”

Scottish Conservative MSP Maurice Golden said: “The SNP-Greens’ hopelessly botched and abandoned deposit return scheme leaves taxpayers wide open to a huge compensation payout.

“Biffa and others in the recycling and drinks industry spent a fortune preparing for a scheme that they repeatedly warned was fatally flawed. Yet they were ordered to comply with it by ministers who insisted it would go ahead, right up until the eleventh hour.

“At the last count, the Scottish Government had spent £168,000 of public money defending this compensation claim, but that will be a drop in the ocean compared to the tab taxpayers will have to pick up if Biffa are successful in their claim.

“When their taxes are rising and services are being cut, the last thing hard-working Scots need is to pay for Lorna Slater’s staggering incompetence.”