*Please note, this article was published 16 August 2023 and updated 29 February 2024.
Background
The new Subsidy Control regime came into effect on 4 January 2023 and as a result there has been significant interest in the first case, The Durham Company Limited v Durham County Council in which a private waste services company from Houghton Le Spring (the Durham Company, trading as Max Recycle) alleged Durham County Council (“the Council”) was subsidising its own commercial waste collection operations in contravention of the Subsidy Control Act 2022 (the "SCA 2022") - an allegation that has always been firmly denied by the Council.
This case is the latest challenge to be brought by Max Recycle against the Council. Max Recycle was also unsuccessful when it submitted a complaint under EU State aid law to the European Commission and its claims for damages were similarly rejected in the High Court in November 2020 and the Court of Appeal in February 2022.
How did the Competition Appeal Tribunal treat the first Subsidy Control case?
The Competition Appeal Tribunal has expressly stated that it wants the UK's Subsidy Control review process to be "fast" and this has certainly been true in this case. Notice to appeal on the grounds of Section 70 of the SCA 2022 was served on 3 February 2023 and the hearing was held on 3rd – 4th July 2023.
The Tribunal has set out its 'General Principles for Subsidy Control cases', including that it anticipates a slimmed down process for Subsidy Control cases, in particular the Tribunal has said that there is unlikely to be a need for extensive disclosure and supporting evidence, because Subsidy Control cases are expected to be limited to consideration of the lawfulness of a specific 'subsidy decision'.
In considering the specific allegation in this case (a claim that the Council was subsidising its commercial waste collection services by using the same 88 bin lorries and associated employees as used for its residential waste collection services) the Competition Appeal Tribunal applied a structured approach, firstly setting out the relevant law, then assessing the presence of subsidy before seeking to determine whether there had been a 'subsidy decision' under the new regime.
What were the Competition Appeal Tribunal's Findings in the Durham case?
The Tribunal found that there was no subsidy in the arrangement for three main reasons, these being:
1) the Council should not be considered to be engaged in economic activity (1) when it undertakes commercial waste collections in line with its statutory duties. This is because Section 7(2) of the SCA 2022 provides “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”. In this instance, the purpose of the statutory duty is informed by environmental and public health concerns, rather than an economic purpose;
2) as the Council was obliged to apply a reasonable charge for commercial waste collection services, any advantage it obtained through economies of scale ought to accrue to the customers rather than the Council; and
3) no “enforceable right" to the financial assistance should arise within the Council from the allocation of the waste collection resources, because there is no separate legal person to accept the award. In articulating this position, the Competition Appeal Tribunal stated that it considers a person that is classed as a “public authority” cannot also simultaneously be an "enterprise" under the SCA 2022.
The Competition Appeal Tribunal also found that the Council had made a funding decision since the 4 January 2023 (and therefore subject to the new regime). In doing so, it stated that it considered choosing to continue with an existing approach could be considered to be a new funding decision.
One theme which ran through the judgement was that although EU State aid law might be considered persuasive, Subsidy Control is very much its own regime.
How has the Statutory Guidance changed because of the Durham Case?
In December 2023, the government updated its Statutory Guidance to reflect the impact of the Durham Case, adding the following text:
"15.21. Some public authorities may act as both ‘public authorities’ and ‘enterprises’ in respect of different functions. In such a case, and where a public authority gives financial assistance and has the same legal personality as the entity receiving it (that is, there is no separate body carrying out the economic activity, such as a limited company that is owned or controlled by the public authority), a subsidy may not be present on the basis that the economic benefit simply circulates within one entity.
15.22. However, local authorities in England and Wales carrying out economic activity should have regard to section 95 of the Local Government Act 2003, which generally requires that where a local authority is authorised (by the Secretary of State or the Senedd) to carry on a part of their ordinary functions for a commercial purpose, any commercial activities should be exercised through a company within the meaning of Part 5 of the Local Government and Housing Act 1989"
Public authorities are obliged to have regard to such changes, in line with Section 79 of the Subsidy Control Act 2022.
Conclusion
Subject to an appeal, this decision gives public authorities greater certainty when it comes to lawfully allocating resources to deliver services in line with their statutory duties. The way that the Competition Appeal Tribunal approached what is and what is not a funding decision, is likely to be a surprise to some public authorities, but serves to underline the importance of always keeping careful records and having appropriate legal input, even where the decision is simply to continue with an existing arrangement.
References:
(1) Paragraph 42(7)
The DWF team consisted of Jonathan Branton and Alexander Rose advising on subsidy control and Joel Heap, Michelle Maher and Elinor Jackson having conduct of the litigation. Aidan Robertson KC and Richard Howell from Brick Court Chambers were the barristers who acted for the Council.
Please free to get in touch with our Subsidy Control lawyers if it would be useful to discuss any of the issues raised in this article or other matters related to the compliance of public funding.
