Background
The Competition Appeal Tribunal ("CAT") has determined (and dismissed) the first application for review of a subsidy decision under section 70 of the Subsidy Control Act 2022 ("the 2022 Act"):The Durham Company Limited (t/a Max Recycle) v Durham County Council [2023] CAT 50.
Consistent with the desire for reviews of subsidy decisions to be conducted quickly and with a 'light touch' (and with costs commensurate to these objectives), the application was heard on 3 and 4 July and judgment was handed down on Thursday 27 July.
The decision gives some useful insight into the Tribunal's application of the new domestic subsidy control regime. In particular the special features of public authorities in delivering public services, in this case waste collection and disposal, when it comes to identification and analysis of subsidy decisions. It also demonstrates the attitude taken towards the practicalities of case and costs management of such proceedings.
The hearing was confined to three issues:
(1) Whether the decision under review was capable in law of amounting to a "decision" within the meaning of section 70 of the Subsidy Control Act 2022.
(2) Whether the decision under review constituted a "subsidy" within the meaning of section 70 of the 2022 Act.
(3) Whether the subsidy control principles, to which section 12 of the 2022 Act refers, were satisfied.
In the event the decision turned on issues (1) and (2). The Council accepted that it had not considered the subsidy control principles so issue (3) proved immaterial. The applicant, Max Recycle, a provider of waste collection services including in County Durham, alleged that Durham County Council ("the Council"), which collects and disposes of both household and commercial waste in discharge of its statutory duties under Part 2 of the Environmental Protection Act 1990, had granted an unlawful cross-subsidy within the meaning of section 2 of the 2022 Act from its household commercial waste collection and disposal operations to its commercial waste collection and disposal operations.
Max Recycle contended that a subsidy decision was made on 31 March 2023 ("the March 2023 Subsidy Decision") and that, contrary to their duties under section 12 of the 2022 Act, the Council had failed to consider the subsidy control principles before making that decision.
The Council accepted that if a subsidy decision was made on 31 March 2023, then they did not consider the subsidy control principles (issue (3)). However, the Council contended that there was no subsidy decision on that date. Instead that it made what would have been a decision to put in place a subsidy scheme, had that decision been made when the 2022 Act was in force. As it was, that decision to make (what is now) a subsidy scheme was made before the entry into force of the 2022 Act and so was not caught by the provisions of the legislation. The decision to put the subsidy scheme in place being made much earlier on 18 March 2020 ("the March 2020 Subsidy Decision").
Tribunal's conclusions
In its judgment the Tribunal's main conclusions were as follows:
- On the true construction of section 2(1) of the 2022 Act, a subsidy must move between persons. A "subsidy" moving within a single person is no such thing and falls outside the statutory definition of "subsidy" contained in the 2022 Act.
- Even if that were wrong, then in order to engage the statutory prohibition a "public authority" (such as the Council) must have given a subsidy conferring an economic advantage on an "enterprise" (per section 2(1)(b) of the 2022 Act). On Max Recycle's case the financial advantage given by the Council to the Council's commercial waste collection operation was the provision of services at below market cost. Max Recycle argued that these costs savings were reflected in prices charged to individual businesses whose commercial waste was collected by the Council which in turn distorted the market as prices of small and medium sized commercial enterprises operating in the market would be undercut.
But this was not a case where a "subsidy" within the meaning of section 2 of the 2022 Act arose because:
- The requirement in section 2(1)(a) of the 2022 Act is only satisfied if, by the advantage conferred by the way the Council provided its waste collection services, something akin to financial assistance is given indirectly from the public resources of a public authority (ie. common costs which, when shared, would result in efficiencies within the Council's operations and, consequently costs savings).
- The economic advantage conferred by the ability to charge less to consumers using the Council's commercial waste collection service only arose if the Council charged less than the full economic cost, but any reduction benefitted the consumer not the Council. Only in a situation where the Council charged the full economic cost would it be obtaining an economic advantage itself. But importantly if it did so it would not confer an advantage on another person/enterprise.
- The Council's organisation of waste collection and disposal services resulted in achieving economies of scale across two different but related services (waste collection and disposal). Those benefits were passed on to customers. As such these can be regarded as the outcome of efficiency and a properly functioning (rather than distorted) market.
- If the Council did elect to significantly overcharge or undercharge the consumers of waste collection services, it would open to challenge under public law principles. Overcharging would be to breach the administrative law duty only to raise revenue for a proper purpose; and raising a surplus would not be a proper purpose. Undercharging would involve not recovering a reasonable charge for the service in breach of the duty imposed (in this case) under the Environment Protection Act 1990.
- Section 7(2) of the 2022 Act 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". This provision is necessary to deal with a situation in which a person's activity may involve providing goods and services on a market but where the purpose of the activity is not economic. The Council's commercial waste collection service was not engaged in economic activity. It was based on a statutory duty to collect, or arrange for the collection of, commercial waste within its area, a statutory duty driven by environmental and public health concerns, rather than an economic purpose. Further, unlike a private operator, the Council cannot refuse to collect (or arrange for collection) as long as the customer is willing to meet the reasonable charge levied by the Council. Nor can the Council's commercial waste operation extend beyond the geographical scope of its responsibilities: the Council is responsible for the area of County Durham, and no more.
- Section 2(1)(a) of the 2022 Act defines a subsidy to mean financial assistance which is given, directly or indirectly, from public resources by a public authority. This is not a case where "financial assistance.is given": in reality common costs were being apportioned.
The Tribunal found that the Council had made a series of (admittedly related) decisions, not a scheme followed by a series of decisions made under that scheme. The March 2023 Subsidy Decision was a decision, consciously re-visiting and affirming the approach in prior years and determining to continue that approach for the coming year.
Insight
Being the first application determined under the 2022 Act the judgment provides some insight into the approach the CAT takes as it begins to review contested subsidy decisions via its new subsidy control jurisdiction. The guidance given on the extent to which public authorities are capable of receiving subsidies is also of general application.
How we can help
The UK's new subsidy control regime was introduced by the Subsidy Control Act 2022 in January 2023. The Act aims to regulate the provision of subsidies - to prevent unfair competition and control the impact on their effects on trade and investment. The new regime differs to the previous EU State Aid rules adopting a principles-based approach similar to that contained in the UK-EU Trade and Cooperation Agreement which formed an interim domestic framework after Brexit. Subsidy control rules apply to awards of financial assistance made by public authorities to businesses and other organisations engaged in economic activity. Our experience and expertise in international trade, competition, procurement, regulatory and public law means TLT is well placed to advise on interpretation and compliance with the new statutory scheme and guidance, including assessment and application of subsidy control principles and requirements, and provision of litigation support to those challenging or defending awards of public funding and other forms of financial assistance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.