The Durham case: subsidy control case law kicks off with a win for public authorities

On 27 July 2023 the Competition Appeal Tribunal (the "CAT") handed down judgment in The Durham Company Limited v Durham County Council.

The case involved a private company, The Durham Company Limited, trading as Max Recycle (the "Appellant"), which competes with Durham County Council (the “Respondent”) in relation to waste management services. The Appellant alleged that the Respondent took a decision on 31 March 2023 to grant a subsidy to its own 'commercial waste business' by allowing that business to use the employees and assets of the Respondent’s 'household waste business' for less than a market price. Unlike its 'commercial waste business', the Council is not permitted to charge for its 'household waste business,' which is principally funded through Council taxes.  The Appellant alleged that the Respondent had failed to consider the subsidy control principles as set out under the Subsidy Control Act 2022 (the "SCA2022") before making its decision.

This was the first application for the review of a subsidy decision under section 70 of the SCA 2022. It has therefore been closely watched given the foundations which it sets for the evolution of a new area of jurisdiction. The review's procedural course through the CAT, as well as those sections of the judgment which deal with issues of case management, are therefore as noteworthy as the substance of the review decision in itself. 

The Procedure

In his opening remarks at the Case Management Conference held on 17 February 2023, the President of the CAT, Sir Marcus Smith, made it clear that the objective is to have "a fast, cheap and simple jurisdiction" for dealing with reviews under the SCA2022, which avoids the "financial advantage of subsidies" from being "subsumed in challenges to their making or not making in terms of legal cost." [1] A number of observations can be made from the case which indicate how that objective was pursued and which point toward how future reviews will be managed:

•  The case was dealt with expeditiously. Notice to appeal was served on 3 February 2023, the substantive Hearing was held on 3 – 4 July and judgement was handed down on 27 July 2023. Measures were taken to tightly constrain the case management. For example, the CAT made provision for extremely limited disclosure and witness evidence had to be kept to a minimum.
• Reviews under section 70 are decided on the principles of judicial review and, in that regard, the Judgment reinforces the fact that the CAT is unwilling to "enter into, still less seek to resolve, unnecessary factual controversy".[2] The Parties were commended for carefully compiling an Agreed Statement of Facts (as had been ordered), enabling the CAT to side step much of the factual matrix which was not central to the review.
•  The CAT also initially ordered that a cost-cap should be imposed in the case - £50,000 with respect to the Appellant and £60,000 with respect to the Respondent. The Respondents successfully appealed that cost-cap in the Court of Appeal on the basis that the CAT lacked the jurisdiction to set the cost-cap in the particular way that it did.  However, Sir Marcus Smith's original rationale for having ordered the cap (namely that "the risk of an enormous costs bills on failure should not be an undue deterrent to bringing appeals under the SCA2022"[3]) was nonetheless described by the Court of Appeal as "entirely laudable."[4]

The Substance

Section 70(1) of the SCA2022 provides that "an interested party who is aggrieved by the making of a subsidy decision [our emphasis] may apply to the Competition Appeal Tribunal for a review of the decision."[5] 

The CAT's Judgment focused narrowly on two questions[6]:

• Whether the decision under review constituted a 'subsidy' within the meaning of section 70; and
• Whether the decision under review was capable in law of amounting to a 'decision' within the meaning of section 70.

Whether there was a 'subsidy' within the meaning of section 70

The CAT addressed this issue on the basis that a subsidy, within the meaning of the SCA 2022, "must involve financial assistance given by a public authority so as to confer an economic advantage on one or more enterprises [our emphasis]."[7] It concluded that no 'subsidy' within the meaning of section 2 of the SCA 2022 arose in this case. In doing so, it provided analysis on a range of concepts and definitions within the SCA 2022 which will no doubt prove instructive in future cases.

'Given by' a public authority and 'to' an enterprise

The CAT primarily focused on the concept of 'given by' a 'public authority' 'to' an 'enterprise'. In doing so it set out the following analysis:

• An economic advantage must be conferred by a public authority on an enterprise. The CAT considered that the Council was a 'single person' and that it was not possible for the Appellant to identify any person (legal or natural) other than the Council which was implicated in the decision. Therefore, it could only be concluded that the giver of the subsidy was the same person as the person on whom the subsidy was conferred.[8]   With that established, the CAT held that a subsidy, as defined in the 2022 Act, could only be considered as such if it involved financial assistance moving from one person (the public authority) to another person (the enterprise). It was therefore illogical to consider the giving and receiving of financial assistance within the same legal person as a subsidy "since it involves taking away with one hand in order to give with the other." In such a case, the assistance does "not involve subsidisation, because the 'economic benefit' simply circulates within one entity".[9]
• While it was not pertinent to this case, the CAT noted that matters might be different "if the public authority is part of a group of persons under common ownership or common control." The Appellant drew the CAT's attention to the Statutory Guidance to the SCA 2022, which states that “[s]ome persons may be considered both public authorities and enterprises with respect of different functions.”[10] However the CAT took the position that it is difficult to see how this would be applicable unless a separate personality can be clearly identified. That was not the case with the Council in this instance. Furthermore, the CAT held that adopting a 'functional' approach, whereby it sought to draw distinctions between the activities of the Council as a 'public authority' and the activities of the Council as an 'enterprise' would be "both fine and subjective, and (potentially, at least) dangerously arbitrary."[11] It would also require the CAT to find a way around the fact that the new UK subsidy control regime, which is distinct from and EU State aid law, eschews the concept of 'undertakings' as its unit of account, in favour of 'the person'.[12]
• Although the language of the SCA 2022 itself is not conclusive, the CAT considered that it supported its construction. This was principally on the basis that, as per section 2 of the SCA 2022, a subsidy necessarily involves 'financial assistance'. While financial assistance can take numerous forms, the CAT held that a clear implication of section 2 is that it requires a subtraction from the public authority’s assets combined with an addition to the enterprise's assets and that "[i]t is difficult to imagine a transfer or a foregoing of revenue or the provision or purchase of goods or services without two persons being involved."[13]
• In conclusion the CAT held that a “'subsidy' moving within a single person is no such thing and falls outside the statutory definition of 'subsidy' contained in the 2022 Act."[14]

'Economic advantage', 'financial assistance', and an 'enterprise'.

Notwithstanding that it rejected the contention outright, the CAT allowed itself to consider the question of whether there was a 'subsidy' within the meaning of the SCA 2022 even if it were wrong on the construction referred to above. In doing so it concluded the following:

• Even if there was financial assistance given by the Council as 'public authority' to the Council’s commercial waste collection as a separate 'enterprise,' whereby the former received services at below market rate, the CAT held that it was "very difficult to see what 'economic advantage' is conferred on the 'enterprise'."[15] This is because an economic advantage could only be said to arise if the 'enterprise' charged less than the full economic cost of the commercial waste collection service and, if it did so, the economic benefit would in fact be enjoyed by the consumer and not the 'enterprise' itself.
• Conversely, it was only if the 'enterprise' charged the full economic cost that it would obtain an economic advantage for itself. However, as the CAT remarked, if it did so, "then the very mischief that [the Appellant] is alleging arguably vanishes, because …no advantage is conferred."[16]
• The Appellant was misconstruing the facts of the situation which were, in reality, an attempt by the Council to apportion common costs across two different but related services, organised for the purposes of efficiency and with a view to achieving economies of scale. The CAT noted that "where, as in the present case, those benefits are passed on to customers, that would normally be viewed as the outcome of a properly functioning market."[17]
• For these same reasons, the CAT also held that "financial assistance is not being given: common costs are being apportioned."[18] That being the case, the very first limb of the definition of a 'subsidy' under section 2 of the SCA 2022 failed to be met.
• In any event, the CAT additionally dismissed the notion that the Council's commercial waste collection service could be considered as an 'enterprise' on the basis that it was not engaged in economic activity. Section 7(2) of the SCA 2022 provides that “an activity is not to be regarded as an economic activity if or to the extent that it is carried out for a purpose that is not economic." [19] In the CAT's view, the Council's commercial waste collection service was not engaged in 'economic activity' due to the fact that it is based on a statutory duty on the Council to collect, or arrange for the collection of, commercial waste within its area. The CAT held that this is "a statutory duty primarily driven by environmental and public health concerns, rather than an economic purpose".[20] It also stressed that, given this duty, the Council cannot operate like a private business by refusing its commercial waste service, provided the customer is willing to meet the charge. Nor can the Council extend its operations beyond the geographical scope of County Durham.

Whether there was a 'decision' within the meaning of section 70

Commencing in 2020, the Council has followed a policy of setting the level of commercial waste collection charges on an annual basis in March of each year. The Appellant contended that the Council's most recent setting of the charge, which took effect on 31 March 2023, amounted to a standalone subsidy decision (the "2023 Subsidy Decision”). The Appellant alleged that the Council had failed to take the subsidy control principles as set out under section 12 of the SCA into account in making this decision.  
 
The Council rejected this. It contended that:

• it had made what was, in fact, a decision in March 2020 to put in place a subsidy scheme (had that decision been made when the SCA 2022 was in force) (the “2020 Scheme Decision"); but
• given that the 2020 Scheme Decision was made before the SCA 2022 came into force, it was a subsidy scheme decision for the purposes of the SCA 2022.

The CAT rejected the Council's position. It was in no doubt that this was not a case of a scheme, but rather of the Council having made a series of standalone subsidy decisions, which culminated in the 2023 Subsidy Decision. I was therefore a 'decision' within the meaning of the SCA 2022.[21]
 
In reaching this conclusion, the CAT set out the basis of its rationale for distinguishing between what might be regarded as a 'subsidy scheme decision' and a series of freestanding 'subsidy decisions'. This demarcation will be instructive for the operation of the new UK subsidy control regime going forward. In particular:

•  The CAT drew a distinction between "detailed and long" and "short, repeat" decisions.[22]  
• In its view, short, repeat decisions are "entirely appropriate in circumstances where the original, detailed, analysis still pertains…[p]rovided that the repeat decision does not adopt unquestioningly the prior decision but considers whether the prior decision continues appropriately to apply…" The CAT considered that the "2020 Scheme Decision, and the later decisions that followed, including in particular the 2023 Subsidy Decision" fell into this category.[23]
• The CAT held that subsidy schemes "involve an element of appropriate fettering”.  In contrast, the 2020 Scheme Decision did not bind or fetter the Council to follow the 2020 Scheme Decision in future years. There were a "series of (admittedly, related) decisions" but "not a scheme followed by a series of decisions made under that scheme."[24]
• The 2023 Subsidy Decision was therefore a standalone “decision” within the meaning of the SCA 2022 – not a mere decision within a broader 'scheme'.

In any event, whilst the Appellant succeeded on the question of whether or not there was 'decision' for the purposes of the SCA 2022, it failed on the issue of whether there was a 'subsidy' at all. Since it needed to succeed on both questions, the CAT rejected the application for review.

In conclusion

While the review itself was rejected, The Durham Company Limited v Durham County Council sets out important signposts for public authorities, as well as those receiving subsidies and potentially aggrieved interesting parties. 
 
In the first instance, the CAT has made it clear that this new area of jurisdiction demands strict and efficient case management with short timetables. While cost capping was curtailed in this instance, the Court of Appeal's judgment was based on a finding that the CAT lacked the jurisdiction to go about setting the cap in the particular way that it had. It is therefore realistic to expect that, with more careful consideration or even with changes to its own Rules, the CAT will find ways to impose caps in future which will withstand an appeal.  
 
The CAT's finding that there was no subsidisation in this case because the economic benefit was deemed to circulate within one entity (as opposed to between a 'public authority' and an 'enterprise') is a critical distinction. Public authorities will want to pay close attention to their internal financing structures, particularly in those cases where an aggrieved interested party could argue that financial assistance is flowing between a group of 'persons' under common control of the public authority. Public authorities will, however, taken comfort from the fact that the CAT's analysis of 'economic advantage' in this case (or, more crucially, the lack thereof) given its emphasis that 'financial assistance' is not to be confused with the efficient apportionment of common costs across public service provision which benefit end-consumers.
 
Practical insights can also be drawn from the CAT's assessment of how the distinction can be drawn between a decision to adopt a 'subsidy scheme' and as opposed to a standalone 'subsidy' for the purposes of the SCA 2022. A scheme decision involves setting out in advance the binding criteria by which a subsidy will or may be granted, followed by a series of decisions made under that scheme for the award of the subsidies. In contrast, where there is a lack of such 'fettering,' the series of decisions (albeit potentially related) must be regarded as standalone subsidies.

...

[1] The Durham Company Limited v Durham County Council, Transcript of case management conference, 17 February 2023, page 3

[2] The Durham Company Limited v Durham County Council [2023 CAT 50], paragraph 25

[3] The Durham Company Limited v Durham County Council, Judgment (Cost capping), 21 March 2023, paragraph 8(3)

[4] Durham County Council v The Durham Company Limited [2023] EWCA Civ 729, paragraph 30

[5] SCA 2022, Section 70(1)

[6] A third issue – whether the subsidy control principles under the SCA were satisfied – was also briefly addressed. However, this was contingent on whether there was indeed a "subsidy decision" in the first place. In any event, the Council accepted that if it had in fact taken a "subsidy decision", it did not consider the subsidy control principles. Therefore, this issue ultimately did not arise, even contingently, and it was not assessed in any detail by the CAT.

[7] The Durham Company Limited v Durham County Council [2023 CAT 50], paragraph 28. See SCA 2022, section 2(1)(a) and (b)

[8] The Durham Company Limited v Durham County Council [2023 CAT 50], paragraphs 29-30

[9] The Durham Company Limited v Durham County Council [2023 CAT 50], paragraphs 31(1)

[10] Subsidy Control Statutory Guidance, paragraph 15.14

[11] The Durham Company Limited v Durham County Council [2023 CAT 50], paragraph 37

[12] See paragraphs 33-37 of The Durham Company Limited v Durham County Council [2023 CAT 50] for the CAT's assessment of the importance of the distinction between the UK regime and EU State aid law, notably the formers lack of use of the term "undertaking". In this regard, paragraph 33 of the Judgment is noteworthy in itself because it provides a clear statement by the CAT that EU State aid law cannot be said to have anything more than persuasive effect when construing the provisions of the SCA 2022.

[13] The Durham Company Limited v Durham County Council [2023 CAT 50], paragraph 31(3)(i)

[14] The Durham Company Limited v Durham County Council [2023 CAT 50], paragraph 39

[15] The Durham Company Limited v Durham County Council [2023 CAT 50], paragraph 42(2)

[16] The Durham Company Limited v Durham County Council [2023 CAT 50], paragraph 42(2)

[17] The Durham Company Limited v Durham County Council [2023 CAT 50], paragraph 42(3)

[18] The Durham Company Limited v Durham County Council [2023 CAT 50], paragraph 43

[19] The Durham Company Limited v Durham County Council [2023 CAT 50], paragraph 42(7)

[20] The Durham Company Limited v Durham County Council [2023 CAT 50], paragraph 42(7)

[21] The Durham Company Limited v Durham County Council [2023 CAT 50], paragraph 49

[22] The Durham Company Limited v Durham County Council [2023 CAT 50], paragraph 49(1)

[23] The Durham Company Limited v Durham County Council [2023 CAT 50], paragraph 49(2)

[24] The Durham Company Limited v Durham County Council [2023 CAT 50], paragraph 49(2) - 51