IT is a situation which will leave taxpayers scratching their heads – why would a council agree to fund an expensive legal battle against itself?

Yet that is the perverse situation Derby City Council has signed itself up to.

It was in December last year that Derbyshire County Council and Derby City Council agreed the £50m deal with Resource Recovery Solutions.

The aim was to find a way of treating the county's waste so the authorities could avoid hefty Government fines for sending rubbish to landfill.

A key element was that RRS wanted to build a treatment site in Sinfin, which would deal with 180,000 tonnes of the county's waste each year which was not recycled. It would smoulder the rubbish to create a gas which could be burned to create electricity.

The proposals caused controversy and outrage among environmental campaigners and Sinfin residents worried about the impact on health.

In the same month, the city council's planning committee refused permission for the proposed plant in Sinfin Lane.

It left RRS with a contract to deal with the county's waste but not the permission to do it in the way it wanted.

For the past two months, the company has been considering its options – whether to resubmit the application, look at other sites or appeal. It has not made a decision but looks likely to appeal.

And the reasons why are clear – it faces little financial risk in doing so.

The Derby Telegraph can reveal the city council, along with Derbyshire County Council, signed a contract which said they would cover 90% of the costs RRS would incur if it decided to appeal against the planning decision.

There is still time for the councils to get out of the agreement, as it will not come into play until all financial details of the contract are agreed.

But the two councils are due to meet to decide whether they will still go ahead.

A city council report has recommended it pays the costs because it would be in the "spirit of the contract". If they agree, it will commit council taxpayers to a bill of hundreds of thousands of pounds.

The expected appeal cost would be £640,000. The councils would have to pay £576,000.

That cost would be split between the two authorities, with the county council paying £396,000 and the city £180,000.

The councils say the contract quirk is nothing unusual and is based on Government guidelines from the Department for Environment, Food and Rural Affairs. Defra could not yesterday confirm this.

Campaigners, however, are angry that taxpayers will have to foot the bill for the city council to fight against the appeal.

Simon Bacon, of campaign group Sinfin, Spondon And All Against Incineration, said it was a ludicrous situation.

"It is just craziness that they would fund an appeal," he said. "This proves what we have been saying and the concerns we had about the fact the council will not put a strong case up to defend itself at an appeal."

Both councils say delaying an appeal would prove more costly than allowing it to go ahead and the city sees no contradiction that, on one hand, it is extolling the virtues of the site but, on the other, its planning committee has refused to allow it to be built.

A city spokeswoman said: "RRS's proposal to build a facility in Sinfin offered the best environmentally-friendly, most cost-effective way of dealing with our rubbish which cannot be recycled in the future.

"In the light of planning permission being refused, the alternatives to providing the facility will cost the taxpayer much, much more – the total cost of supporting RRS's appeal is less than one month's delay costs on the project."

A report which will be considered on Tuesday states that if the project is delayed past 15 months, it will push the costs up by around £1.75m per month. It does not say why.

If an appeal did not go ahead and the Sinfin Lane site was ditched, RRS would take waste to recycling centres and landfill up to July 2012, after which the contractor or councils could opt out of the contract.

The councils said they would then have to find another company to deal with their waste because they would need to reduce the amount going to landfill to minimise the risk of hefty fines from Government.

A city council spokeswoman said: "The alternatives are continuing to use landfill, which will be fined by Government at an increasing rate year on year, or go back to the market and start the process again to find a solution to handle our rubbish which is likely to take at least four years."

County councillor John Allsop, cabinet member for recycling and technology, said he thought it was a "good" contract.

"It was the previous regime which negotiated this contract," he said. "I wasn't party to the negotiations but we have got a contract which I believe is a good contract and I'm convinced going forward with an appeal is the right decision."

Sinfin ward councillor and anti-waste site campaigner Baggy Shanker disagrees.

"I was told by officers before the contract was signed that it was the preferred bidder's responsibility to come back to the table with planning permission and an environmental permit and the risk was all theirs. That clearly has not been the case – the councils are footing nearly all the risk of this planning application."

On Tuesday, Derbyshire County Council's cabinet will consider whether or not to honour funding the 90% costs should RRS decide to appeal.

Councillor Mike Carr, the city council's cabinet member for direct and internal services, will also take a single-member decision on the issue on the same day. He was not available for comment.

RRS said the terms of the contract were a matter for the councils.