Earlier this summer the Competition Appeal Tribunal (the “CAT”) handed down its first judgment under the new subsidy control regime. Oliver Slater and Shyann Sheehy analyse the outcome.
In Durham Company Limited v Durham County Council[1] the CAT dismissed the section 70 challenge, finding in favour of the Council. Here, Oliver Slater and Shyann Sheehy consider the CAT’s judgment and discuss what it means for public authorities and future challenges.
Background
Section 70 of the Subsidy Control Act 2022 (the “Act”) allows an “interested party” to apply to the CAT for review of a subsidy decision. Durham v Durham concerned an alleged subsidy decision made by Durham County Council (the “Council”). Durham Company Limited (trading as “Max Recycle”) brought a challenge under section 70, claiming that the Council had failed to consider the subsidy control principles. Section 12 of the Act confers a duty on public authorities to consider the principles before awarding a subsidy. The alleged subsidy decision in question concerned the interrelation between the Council’s household and commercial waste collection operations.
Max Recycle provides waste collection services across the North of England, including in County Durham. The Council is the sole waste collection and disposal authority for its administrative area. The Council is under a duty to arrange for the collection of household and commercial waste in County Durham. The Council must levy reasonable charges when collecting waste from commercial premises but cannot charge for the collection of household waste.
The Council collects household and commercial waste itself. It does not outsource such services. The Council uses the same vehicles and employees to collect the household waste and the majority of commercial waste.
Challenge
Max Recycle contended that the Council made a subsidy decision and, in making that decision, failed to consider the subsidy control principles (thereby breaching its statutory duty). The Council accepted that it had not considered the principles but argued that its decision was not a subsidy decision at all. The CAT considered whether: a) a “decision” had been made; and b) the decision constituted a “subsidy”.
Max Recycle suggested that the Council’s household waste collection operation cross-subsidised its commercial arm. Because the Council’s commercial arm was able to rely on employees and vehicles used by the household operation, the Council was able to charge businesses a lower rate than if the commercial operation was a standalone service. Max Recycle argued that this was a “subsidy” as defined in section 2 of the Act. The CAT accepted that the Council’s commercial arm derived economic benefit from the interrelation with the household operation. The first, and ultimately salient question considered by the CAT, was whether such economic benefit constituted a “subsidy”.
Decision
It was unanimously held that no subsidy arose.
Section 2 of the Act provides that a “subsidy” requires financial assistance which is “given… by a public authority” and which “confers an economic advantage on one or more enterprises” (emphasis added).
The Council was plainly the “public authority”, but Max Recycle could not identify any person, except the Council, who was the receiving “enterprise”. The Council conducted both household and commercial waste collection services as ‘Durham County Council’ (i.e. not through an arms-length company). Therefore, the alleged subsidy involved the Council awarding financial assistance to itself. The CAT was “in no doubt” that a public authority cannot subsidise itself. As such, the CAT ruled that there was no “subsidy”. The application was accordingly dismissed.
Discussion
The CAT’s judgment raises a number of interesting points. At a high level, public authorities should be comforted by the salient finding that the Council is not capable of subsidising itself. Apportioning costs as between separate internal operations is a common feature of public services. It makes sense – legally, practically and financially – for the CAT to uphold the lawfulness of the same.
However, the CAT’s ultimate finding that public authorities cannot subsidise themselves does not necessarily provide a similar level of comfort to public authorities operating arm’s length companies – including waste authorities and LAWDCs. Nevertheless, the CAT found that no subsidy arose on the facts of Durham for a number of ancillary reasons. Most notably:
- There was no “financial assistance” from the household operation to the commercial operation. Rather, common costs were apportioned between the two.
- The commercial waste collection operation was not engaged in “economic activity” and was therefore not an “enterprise” for the following reasons: the commercial collections were carried out to fulfil a statutory duty, not for an economic purpose; the Council could not refuse to collect commercial waste; and the Council could not collect commercial waste outside of County Durham.
- No “economic advantage” was conferred on the commercial arm. If the commercial arm charged less than “market rate” for the collection services, it is the local businesses who would have received an economic benefit as they would have paid less for waste collection services. If the commercial arm charged the full “market rate” for the collection services, no advantage would have been conferred whatsoever.
- The Council organised related services in an efficient manner so as to pass on benefits to customers. If the Council ceased with such arrangements and prices went up, it may be vulnerable to a challenge on more general public law principles. The Council could not “cross-subsidise” due to general public law constraints.
More generally, the CAT’s judgement raises interesting points regarding the direction of travel for the UK’s new subsidy control regime. Sir Marcus Smith, President of the Competition Appeal Tribunal, is on record as saying he wants the new jurisdiction to be “fast, cheap and simple”. Well, the first challenge has certainly been fast; judgment was handed down less than six months after the appeal was lodged on 3 February this year. The CAT also arrived at a “simple” conclusion: no subsidy arose.
However, the CAT’s ambition for the jurisdiction to be low-cost was dealt an early blow by the Court of Appeal. In an initial judgment on costs capping, the CAT imposed a £50,000 costs cap for Max Recycle and a £60,000 cap for the Council respectively. On appeal of the costs capping judgment, the Council argued that the CAT had erred in law and/or acted unfairly in capping the parties’ costs. The Court of Appeal agreed, finding that the CAT “had no jurisdiction to impose” such caps[2]. The Council’s appeal was allowed.
One final point of interest to subsidy control practitioners is the CAT’s agreement with the principle that State aid law could be nothing other than “of persuasive effect when construing the provisions of the 2022 Act.” There were readily available parallels to be drawn with State aid case law, but the CAT instead focused on black and white interpretation of the Act (including most notably its interpretation of the word “enterprise” and how that differs from the word “undertaking” in State aid law). Care should be taken not to rely too heavily on previous State aid principles where such principles do not align fully with the new legal regime.
Sharpe Pritchard’s subsidy control team is fully conversant with the requirements and procedures of the new legal regime. We advise authorities and beneficiaries across a wide variety of subsidy control matters, ranging from MFA awards in the low thousands to subsidies of particular interest.
[1] Durham Company Limited v Durham County Council [2023] CAT 50
[2] Durham County Council v The Durham Company Limited [2023] EWCA Civ 729
