"Fast, cheap and simple"? – Judicial review of subsidy decisions in the Competition Appeal Tribunal

Over the summer the Competition Appeal Tribunal (the "CAT") handed down what we expect to be the first of many decisions under the Subsidy Control Act 2022 (the "SCA"): The Durham Company Limited v Durham County Council [2023] CAT 50.

While the claimant was unsuccessful in this case, the judgment – which we summarise below – demonstrates the scope to challenge subsidy decisions on judicial review grounds and shows the expedited form of dispute resolution offered by the CAT.

Key points

• The SCA provides a streamlined mechanism for interested parties to challenge subsidy decisions – in the words of the President of the CAT, the jurisdiction should be "fast, cheap and simple".
• In England, Wales and Northern Ireland, challenges are brought on judicial review grounds and the outcome may often turn on legal arguments about whether a measure constitutes a subsidy or a challengeable "decision".
• This case provides some guidance on the application of the new regime, and hints as to what we can expect from future cases, but many questions remain unanswered.

Background – the UK's subsidy control regime

Following the UK's exit from the European Union, there is now a domestic UK "subsidy control" regime in place. This regime, which was first introduced as a result of obligations contained in the UK/EU Trade and Cooperation Agreement (the "TCA") and is now set out in the SCA, has given claimants new opportunities to challenge public body decision-making.

Our post here sets out the key features of the UK regime. The regime allows challenges to be brought by "interested parties" (which includes those whose interests may be affected) against decisions by public authorities to grant subsidies or make subsidy schemes. Challenges can be brought on the basis that the requirements in the legislation have not been complied with and on wider public law grounds.

Initially, challenges by interested parties in this context were heard by the High Court, by virtue of section 29(1) of the European Union (Future Relationship) Act 2020, which gave force in UK law to the relevant provisions of the TCA. Two substantial challenges were brought in reliance on those provisions. They are R (British Sugar) v Secretary of State for International Trade [2022] EWHC 393 (Admin), in which we acted for the claimant, and R (British Gas Trading and others) v Secretary of State for Energy [2023] EWHC 737 (Admin), which concerned the sale of Bulb Energy and which we consider in our blog here.

Since the coming into force of the SCA, challenges to subsidy decisions are now heard by the CAT. Part 5 of the SCA governs the procedure. In summary:

• Interested parties have a statutory right to bring a challenge against a subsidy decision provided that they act within the statutory time limit (which is short – it will usually be one month from the date that the public body publishes "transparency information" about the subsidy on the subsidy database or responds to a pre-action information request).
• In the case of proceedings in England/Wales/Northern Ireland, challenges will be determined by the CAT applying judicial review principles.
• If a challenge is successful, possible remedies include quashing orders, injunctions, and recovery orders (which require the public authority to recover a subsidy from the beneficiary).
• Decisions of the CAT can be appealed to the Court of Appeal on a point of law. One appeal has already been brought, in which the Court of Appeal found that the CAT had no jurisdiction to have imposed a limiting cap on costs: Durham County Council v The Durham Company Limited [2023] EWCA Civ 729.

The Durham case

The case before the CAT was brought by the Durham Company Limited (trading as "Max Recycle") against Durham County Council (the "Council"). The background is that the Council has a statutory duty to collect household waste, for which it is not generally permitted to charge. The Council also has a statutory duty to collect commercial waste, for which it must generally recover a reasonable charge. This commercial waste service is provided in competition with private sector businesses, such as Max Recycle, which will also collect commercial waste for a charge.

The nub of Max Recycle's complaint was that the Council was unlawfully cross-subsidising its commercial trade waste operation through its household waste operation. Max Recycle argued that this meant that the Council was charging commercial customers rates which were below market and non-commercial (in the sense that they could not be sustained if the Council was only operating a standalone business for the collection of trade waste).

The CAT considered two main issues. First, was there a subsidy within the meaning of the SCA? Secondly, had there been a "decision" within the meaning of the SCA?

No subsidy

On the facts, the CAT found that no subsidy had been given.

In reaching that decision, the CAT emphasised that a "subsidy" under the SCA must involve financial assistance being given by a public authority to confer an economic advantage on one or more enterprises. In this case, the giver of the alleged subsidy was the same person (ie the Council) as the recipient of the alleged subsidy. Considering the application of the statutory scheme in these circumstances, the CAT found that "the natural reading of the definitions of "public authority" and "enterprise" mean that when a person has been designated a “public authority” that person cannot also be an enterprise in relation to the advantage under consideration". In reaching this decision, the CAT drew a distinction between the position under the SCA on this point and the "functional approach" used in relation to the question of what is an "undertaking" under EU State aid law.

This point was sufficient to dispose of the appeal. However, the CAT also found that the measure was not a subsidy for other reasons, namely that no economic advantage was conferred and it was doubtful that the Council was engaged in any relevant "economic activity" (and therefore was not acting as an "enterprise") as its commercial waste service was based on statutory duty. Overall, the CAT considered that Max Recycle had "misconstrued" what was going on: rather than there being a cross-subsidy, in reality, the Council had engaged in apportioning common costs across two different but related services.

A "decision"?

The question for the CAT was whether the alleged decision to cross-subsidise was within scope of the SCA. This arose because the Council argued it had decided in 2020 to make a "subsidy scheme", being a multi-year/indefinite decision which it reviewed annually as to charging rates. If this had been the case, then the relevant decision would have pre-dated the coming into force of the SCA. On the other hand, Max Recycle argued that the Council had made several individual subsidy decisions, some of which post-dated the entry into force of the Act.

While determining this issue was not necessary because of the findings which the CAT had made on the other issues, the CAT did set out its clear view that this was not a case of a "subsidy scheme", but rather a series of individual decisions. In reaching that decision, the CAT found that subsidy schemes "involve an element of appropriate "fettering"" or controlling of discretion as to the grant of subsidies thereunder, which had not occurred in this case.

Comment

Ultimately the outcome in this case turned on a narrow question of law: could a subsidy be given and received by the same legal person? It is useful to have guidance from the CAT on this point (to add to the guidance provided by the High Court in the British Sugar and Bulb Energy decisions on other specific issues), but overall key aspects of the regime remain untested.

But, perhaps more importantly, the decision hints at the broader approach the CAT might take in future cases. In particular:

1. It points to the CAT being willing to find that there are differences between the subsidy control regime under the SCA and EU State aid law. This can be seen in the distinction which the CAT drew between the concept of an "enterprise" (in the SCA) and an "undertaking" under EU State aid law. Parties should not therefore feel constrained by the EU position on particular points, although it may still have some resonance.
2. The CAT does not consider itself to be bound by the Statutory Guidance issued by HMG under the SCA and will be prepared to depart from it, as appropriate. That was the case here as the Statutory Guidance had also proposed a "functional" approach to the concept of an "enterprise" similar to that of an "undertaking" under EU State aid law. The CAT specifically referred to the Statutory Guidance on this point but declined to follow it.
3. The CAT clearly considers that it has jurisdiction to determine not only whether a subsidy is consistent with the "subsidy control requirements", but also to determine whether there is a "subsidy" in the first place. This was not entirely clear from the language of the SCA itself (although it was widely assumed).
4. The CAT is mindful that this is a judicial review jurisdiction. This is most obvious from its approach to questions of fact, where it remarked that it would be "inappropriate, on an application to be conducted in accordance with the principles that would apply on judicial review", to enter into "unnecessary factual controversy". Parties to proceedings may find that this context feeds into the approach to substantive issues, such as the willingness of the CAT to get into the merits of particular issues.
5. That said, it seems clear from the judgment that the assessment of whether a measure should be classified as a "subsidy" is to be approached as an objective, legal question.
6. On procedure, the CAT will look to be streamlined. Strikingly, this case went from start to finish in just under 6 months. In a decision of 21 March 2023 in relation to cost-capping, the President of the CAT stated that: "The jurisdiction needs to be fast, cheap and simple". There will be scope to challenge procedural decisions – indeed the Court of Appeal has since held that the cost-capping order imposed in March 2023 was wrong. However we do expect the CAT to seek to run an efficient procedure on future appeals and for it to case manage proceedings accordingly. For instance, parties should not assume that all cases will involve detailed disclosure or lengthy factual and expert evidence (although that might well be required in a particular case).