A waste firm has begun legal action against the Scottish government for a £200m financial loss it claims it suffered by investing in the deposit return scheme (DRS).

The recycling scheme was meant to go live last summer, but the UK government refused to grant an exemption to the Internal Market Act unless a UK-wide approach which excluded glass was adopted.

The firm which was due to manage it – Circularity Scotland – later went into administration, with Biffa Waste Services Ltd one of its largest creditors.

The Scottish government said it could not comment on the ongoing legal action at the Court of Session.

The DRS was supposed to boost recycling by charging a 20p deposit on every drinks container, which would be refunded through an empties return system.

Biffa was appointed to collect all the recycled containers across Scotland on a 10-year deal.

It is understood that Biffa may also sue for lost profits on top of the money it invested.

On Tuesday, during a short virtual hearing, advocate Roddy Dunlop KC told Lord Clark that he was representing Biffa.

Advocate Gerry Moynihan KC told the court that he was acting for the Scottish ministers.

It was agreed that a debate should take place later this year into legal issues affecting the case.

Biffa said: “Biffa was selected by Circularity Scotland Limited as the logistics partner for the delivery of the Scottish deposit return scheme and invested significant sums to support its timely and successful implementation.

“This was done in good faith and on the expectation and understanding that the delivery of the scheme had been mandated by the Scottish government.

“Having carefully reviewed our position with our advisers, we can confirm that we are taking legal action to seek appropriate compensation for the losses Biffa has incurred.”

A Scottish government spokesperson said: “The Scottish government cannot comment on ongoing litigation.’

At first, the Scottish and Welsh governments wanted to include glass in their recycling schemes, in addition to plastic and metal.

But the UK government disagreed, saying including glass would be too complicated and expensive.

Without an exemption from the Internal Market Act, the Scottish government said it would have to delay its scheme until 2025.

In June last year, Circularity Scotland – the firm set up to manage the Scottish scheme – went into administration.

A UK-wide scheme is now planned but in April it was announced that this had been put back until 2027.