The Subsidy Control Act 2022 (2022 Act) came into force on 4 January 2023 and implemented the UK’s newly reformed subsidy control regime. A previous article of ours detailed the new features of the regime under the 2022 Act and discussed how they may be applied.
The Competition Appeal Tribunal (CAT) recently handed down its first decision on a challenge under the 2022 Act in the case of Durham County Council v The Durham Company Limited [2023] CAT 50. This article will discuss the case and examine its possible impacts, as well as the potential of a subsequent appeal.
The facts
The Durham Company Limited, trading as Max Recycle, operate as a commercial waste disposal company in County Durham. Durham County Council collect household waste in the county in their role as local authority. They also offer a service collecting commercial waste and charge businesses for this. Max Recycle claimed that in offering a subsidised lower-priced commercial waste collection service the Council were able to undercut them.
Max Recycle brought a case against the Council in November 2020, alleging that the Council were in breach of EU State aid law. The case was dismissed because the Court considered that even if any breach of the state aid rules was proven, Max Recycle were not able to establish that such breach was sufficiently serious enough to require a remedy under EU law.
In February 2023, following the commencement of the 2022 Act, Max Recycle filed a notice of appeal with the CAT under the 2022 Act to again challenge the Council. Max Recycle’s notice of appeal was to contest what it believed was an unlawful decision by the Council to grant a cross-subsidy to its commercial waste collection business by allowing the use of Council employees and assets for less than the fair market price.
Judgment
In the judgment the CAT principally addressed two questions:
- whether there was a ‘subsidy’; and
- whether there was a ‘decision’.
Is there a subsidy?
The CAT stated that, in order for there to be a subsidy within the meaning of section 2 of the 2022 Act, there must be financial assistance given by a public authority which would result in an economic advantage being given to one or more enterprises.
The CAT was not satisfied by Max Recycle’s arguments in this case. Max Recycle had failed to identify an ‘enterprise’ that was involved in the waste collection services. The Council was both the public authority provider and the recipient of the alleged subsidy.
The CAT held that the essence of a subsidy was that it moves from one person to another, per section 2(1)(a) of the 2022 Act. It was held that the sharing of assets between one area of the Council (household refuse collection) and another (commercial waste collection) did not constitute a ‘subsidy’ because no separate enterprise was identified.
The judgment also considered whether a ‘functional approach’ could be used to determine whether the activities of an individual (acting in both roles) could be separated between those of a public authority and those of an enterprise. The example given by the Tribunal in the judgment was that the Council would act as an enterprise in negotiating the terms of the disposal of the waste that it collects, however, while in collecting that waste it acted as a public authority. The CAT expressed that to try and define certain operations of the Council as that of a public authority and others as that of an enterprise would require “fine and subjective” distinctions that could be “dangerously arbitrary”.
In its judgment, the CAT then went on to state that, even if the ‘enterprise’ requirement in section 2(1)(a) was met, the test set out in section 2(1)(b) of the 2022 Act, that an ‘economic advantage’ must be conferred upon one or more enterprises, was not satisfied. The only ‘economic advantage’ found was that the Council was able to charge consumers less for commercial waste disposal. No enterprise received a benefit.
Additionally, the judgment focuses on the fact that under the Environmental Protection Act 1990 the Council must collect household waste and cannot charge for this except in limited circumstances. Under the same legislation the Council is also required to uplift and dispose of commercial waste where they are requested to do so. It is then under a duty to recover a reasonable charge for any such uplift and disposal.
The CAT explained in their judgment that because of the statutory requirement to undertake the commercial waste uplift duties it was not possible for the Council to ‘cross-subsidise’ their different functions in the way that a private firm could. The Council was required by law to charge a reasonable sum for commercial waste collection services and the activity was driven by environmental and public health concerns, rather than an economic purpose. The nature of the services provided were an important factor highlighted by the CAT.
Is there a decision?
The CAT then turned to address the question of whether there was a ‘decision’ taken to charge for commercial waste pick-up under a subsidy scheme, as both parties had presented arguments based on this point.
Max Recycle argued the position that a subsidy ‘decision’ was made in March 2023 after the 2022 Act had come into effect. They believed that the Council had failed to consider the subsidy control principles in making that decision.
The Council argued that the original decision to charge for the removal of commercial waste was made in 2020 and thereafter reviewed annually and that this constituted a subsidy scheme not subject to the requirements of the 2022 Act. There was therefore no subsidy ‘decision’ taken in March 2023.
The CAT held that as the original decision, made in 2020, did not bind the Council indefinitely that there was no subsidy scheme. The decisions made each year on the charges for commercial waste pick-up were related but separate decisions. Accordingly, although there was no subsidy in this case, the CAT held that a ‘decision’ had been made as per the definition of the 2022 Act.
Based on the CAT’s findings, the appeal was ultimately dismissed. It is interesting to note that although the Council achieved the overall outcome that it desired with the appeal dismissed, given it was not successful in their argument that there was no subsidy ‘decision’, it was the view of the CAT that it would be unjust for Max Recycle to bear the full costs of the appeal.
Appeal costs decision
The CAT imposed a cost cap of £50,000 for Max Recycle and £60,000 for the Council in an effort to mitigate the potential chilling effect that the threat of high costs could have on future subsidy control challenges. This point was appealed to the Court of Appeal by Max Recycle.
The Court of Appeal, in its judgment ([2023] EWCA 729), said that such an order to prevent excessive costs was “laudable” but ultimately decided that such a cap was “artificial and arbitrary” and, in any case, not within the CAT’s power to decide.
In order for the CAT to limit costs it must be assessed whether the costs to be incurred by the parties are reasonable and proportionate. As no assessment was made in this case, the Tribunal judge did not have to power to impose the type of limiting cost cap that they did.
Permission to appeal
Max Recycle sought permission to appeal the CAT’s decision in favour of the Council on the grounds that the Tribunal had erred in law and fact on a number of grounds:
- That a subsidy cannot move within a single person acting as both a public authority and an enterprise;
- That the Council was not engaged in economic activity when it collected commercial waste;
- That the Council had not obtained an economic advantage; and
- That the Council’s statutory duties prevented them from charging the full cost of the commercial waste uplift.
The CAT refused Max Recycle’s permission to appeal on 11 October 2023. In its permission decision the CAT considered that only the first of Max Recycle’s grounds dealt with a point of law, and even if permission was granted, there would be no reasonable prospect of success. The remaining grounds dealt with were, in the CAT’s view, points of fact which were not capable of appeal under the 2022 Act.
Impact
This is an important first decision under the new subsidy control regime. It provides a barometer of how the CAT will deal with appeals under the Subsidy Control Act 2022 moving forward.
The case highlights the difference in approach between the EU’s State aid rules and the position in the UK. The 2022 Act provides that for an activity to be considered a subsidy, a decision must be made by a public authority to confer a subsidy to an enterprise. The definition of an enterprise is narrower than the EU concept of an undertaking – which encompasses effectively any entity engaged in ‘economic activity’.
The CAT’s judgment was clear: that to try and take a ‘functional approach’ to define certain operations of the Council as that of a public authority and others as that of an enterprise would require minor distinctions between the Council’s operations. The Tribunal decided that it could not make such distinctions without the risk that they would ultimately be “dangerously arbitrary”.
However, the judgment also highlights throughout that the Council were required by statute to offer commercial waste services and charge for these. This is a key feature of this case and public authorities should, in our view, bear this in mind when considering the impacts of this judgment.
This article was co-authored by Morgan McSherry, Trainee Solicitor in the regulation and markets team.