CAT dismisses first challenge under the UK Subsidy Control Act 2022

The Competition Appeal Tribunal (the “CAT”) has dismissed the first challenge brought under the UK Subsidy Control Act 2022 (the “SCA”),¹ a regime which replaced EU State aid rules in January 2023. This new regime does not have a pre-approval process for subsidies to be granted, and applications to the CAT from parties aggrieved by a subsidy decision² are the primary method through which the SCA enforces public authority adherence to the new “subsidy control principles”.³ The decision provides important guidance on key definitions under the SCA, namely the meaning of “subsidy” and the meaning of “decision”. 

The proceedings

The challenge was brought by the Durham Company Limited (trading as “Max Recycle”), a commercial waste collection company competing for customers against Durham County Council (the “Council”). Max Recycle alleged that the Council’s use of resources from its publicly funded household waste collection service when operating its commercial waste collection service amounted to a subsidy,⁴ which was granted when the Council set its annual commercial rates. Consequently, it argued, the Council was obliged to consider the SCA’s subsidy control principles when making the decision to grant this subsidy,⁵ which it failed to do.⁶

The judgment

The CAT’s judgment split the SCA’s review process into three limbs of inquiry:

1. Was the discussion under review capable of amounting to a “decision” for the purposes of section 70 of the Act?
2. Was the decision under review a “subsidy” for the purposes of section 70 the Act?
3. Had the subsidy decision satisfied the subsidy control principles?

Given that the Council conceded that it had not considered the subsidy control principles, the judgment focussed on the meaning of “subsidy” and “decision”.

Meaning of “subsidy”

The CAT’s judgment concluded that the Council’s actions did not constitute a challengeable “subsidy”. Under section 2(1) of the SCA, a subsidy must involve “financial assistance given by a public authority so as to confer an economic advantage on one or more enterprises”.⁷ Crucially, the CAT took the view that the subsidy had to move from a public authority to another, separate enterprise, and this proved fatal to Max Recycle’s claim. It was impossible for Max Recycle to identify any other person that received the assistance aside from the Council itself – in the CAT’s words, “the giver of the subsidy was the same person as the person on whom the subsidy was conferred”.⁸ As explained below, that represents an important departure from EU law. 

The CAT went on to provide alternative reasons as to why a subsidy could not be made out. It held that, even assuming that the Council’s commercial waste service was in and of itself a separate enterprise, The CAT could not see how any “economic advantage” was being conferred by the public authority. On the facts, the only economic advantage was the ability to charge consumers a lower price and, in such a case, it is the consumer who sustains the economic advantage and not the “enterprise”.⁹

Meaning of “decision”

On the other hand, the CAT found that the decision to apportion costs across the two services – though not a subsidy – was prima facie a challengeable “decision” for the purposes of the SCA. The Council argued that there had been no subsidy decision made in 2023, and that the only decision it had made was to enter into a “scheme” on 18 March 2020, necessitating the action taken when commercial rates were set in 2023. Under the SCA, if a challenge relates to a subsidy given under a scheme, any application to review must be an application to review the decision to enter the scheme.¹⁰ If correct, this would have meant that the decision was made far before the SCA came into force. 

The CAT rejected this line of reasoning. It took the view that the Council’s decision in 2020 was in no way binding on its future decisions. Rather, the 2023 decision on commercial rates was a conscious choice to reaffirm the approach taken in prior years. 

Comment 

Although it did not focus on the subsidy control principles themselves, this judgment provides the first insight into the judicial interpretation of key parts of the SCA. Both public authorities and commercial parties would be wise to pay close attention to the key points emerging from it.

First, the judgment illustrates an important consequence of the UK’s uncoupling from the EU on State aid regulation. In arriving at its conclusion that a subsidy needed to move to a separate enterprise, the CAT stressed the SCA’s omission of the term “undertaking” (found at Article 107 TFEU), a term which has been interpreted by the European Court of Justice to allow for more than one undertaking to exist within the same legal entity.¹¹ This interpretation marks a significant movement away from EU rules in this respect. The CAT specifically rejected Max Recycle’s argument that a “functional approach”, in line with the EU regime, was intended under the SCA.¹²

Secondly, the judgment reveals much about the approach the CAT will take when considering whether a public authority has a subsidy scheme in place. Key to its decision was the absence of any fettering, and the ease through which the Council could have decided to change approach.¹³ A scheme, for example, may provide binding criteria which dictates whether a subsidy should or should not be granted;¹⁴ such features were absent in the Council’s case. 

Finally, the dispute suggests that cost-capping orders from the CAT will not be any easier under the SCA than in other proceedings. In a separate judgment handed down in June 2023, the Court of Appeal overturned a cost-capping order made in these proceedings, finding that the CAT could not grant such an order.¹⁵ This was despite the Court of Appeal showing sympathy for the CAT’s stated aim of preventing prohibitive costs from discouraging claims under the SCA’s new regime.¹⁶ It found that, absent a specific provision in the CAT Rules or the SCA, the CAT has no jurisdiction to grant a cost-capping order for that aim alone, and any order would have to satisfy the criteria in CPR Rule 3.19(5), applying Belle Lingerie.¹⁷

For more on the implications of the SCA generally, see our previous blog post on its introduction.

¹ The Durham Company Limited v Durham County Council [2023] CAT 50 (the “Judgment”)

² Section 70(1), Subsidy Control Act 2022: “An interested party who is aggrieved by the making of a subsidy decision may apply to the Competition Appeal Tribunal for a review of the decision.”

³ Schedule 1, Subsidy Control Act 2022

⁴ Section 2, Subsidy Control Act 2022 

⁵ Section 12, Subsidy Control Act 2022

⁶ §18, Judgment 

⁷ §28, Judgment

⁸ §30, Judgment

⁹ §42(1)-(2), Judgment

¹⁰ Section 70(2), Subsidy Control Act 2022 

¹¹ §33 - §37, Judgment

¹² §38, Judgment

¹³ §49, Judgment 

¹⁴ §51, Judgment

¹⁵ The Durham Company Limited v Durham County Council [2023] EWCA Civ 729

¹⁶ The Durham Company Limited v Durham County Council [2023] CAT 14, §5

¹⁷ Belle Lingerie v Wacoal [2022] CAT 24