On Friday 10 February 2023, the Competition Appeal Tribunal (“CAT”) published a notice of the first ever appeal for review under the Subsidy Control Act 2022 (the “Act”).

The appeal, raised by Durham Company Limited (trading as “Max Recycle”) relates to Durham County Council subsidising its own trade waste business by sharing resources (employees, vehicles, premises, etc.) from its residential waste service. Fundamentally, the argument is that this allows the trade waste business (which, unlike the residential waste service, is commercial and operates on a competitive market) to benefit from the economies of scale achieved - therefore giving them an unfair advantage over other enterprises such as Max Recycle.

As this resource-sharing has not been awarded as a subsidy by Durham County Council, this case will not give much insight into the new “Subsidy Control Principles”, but will look at the more fundamental question of what a subsidy is.

The Four Limbs – What is a Subsidy?

A subsidy is defined by S2(1) of the Act, which applies a four-limbed test. Financial assistance is a subsidy if:

• it is given, directly or indirectly, from public resources by a public authority,
• it confers an economic advantage on one or more enterprises,
• it is specific, that is, is such that it benefits one or more enterprises over one or more other enterprises with respect to the production of goods or the provision of services, and
• it has, or is capable of having, an effect on:

- competition or investment within the United Kingdom;

- trade between the United Kingdom and a country or territory outside the United Kingdom; or

- investment as between the United Kingdom and a country or territory outside the United Kingdom.

Max Recycle’s appeal is littered with potential questions relating to this definition. It remains to be seen on what basis the Council will respond, but the Tribunal may well be asked to consider any of the following:

• does sharing of resources in this way count as “financial assistance”?
• is Durham County Council’s trade waste business an “enterprise”?
• does the measure only effect “competition or investment within the United Kingdom” (which is a new element of the test compared to the equivalent definition under EU state aid law)?

Why now?

Max Recycle previously – unsuccessfully - raised this challenge under state aid law. The operative provisions of the Act came into force on 6 January 2023, and they clearly haven’t wasted any time in testing the new regime. According to the notice of appeal, the Council’s refuse arrangements have been in place since “at least 2013” - but the Act presents a new opportunity to challenge the Council’s practice in a new way.

While this is somewhat speculative, here are three factors which may affect the outcome under the Subsidy Control regime:

• the definition of a “subsidy” now includes measures with an effect on competition within the United Kingdom – where the Council may have argued before that this was only a local issue, so didn’t effect trade between EU member states, that potential defence has now been removed;
• having domestic legislation committed to subsidy control may raise the profile of this dispute: where EU law may have been seen as obscure or complex, subsidy control is now governed by Westminster; and
• the lack of clarity around the extent to which EU law and precedent will carry over into the new regime leaves an element of uncertainty for public authorities and possibility for potential challengers.

All of the factors listed above could lead to a wider uptake of subsidy appeals. Public Authorities should keep a close eye on the frequency with which the CAT publishes such notices of appeal, and may want to consider carefully the position that subsidy control occupies on their risk register.

The other factor to raise here is time bar. If Durham County Council had considered their resource-sharing to be a subsidy, and registered it on the transparency database, then this appeal could already have been thrown out. In most cases, interested parties only have thirty days from the “transparency date” to raise an appeal with the CAT on a subsidy.

This could be an example where, for the public authority, the lower risk approach would have been to err on the side of caution and treat the measure as a subsidy – if for no other reason than to start the clock ticking on time bar.

A Lesson from Liverpool?

One interesting question that this appeal raises is the extent to which EU state aid law and precedent will be applied by the CAT. On the face of it, the facts of this case are very similar to a case assessed by the European Commission in 2014.

In that case, Liverpool City Council was held to have awarded state aid to themselves, by constructing and operating a cruise terminal, which was commercially exploited by the Council through a provision of services to cruise liners against remuneration.

Fundamentally, this Durham case is also an example where a public body is being accused of acting as an economic operator and subsidising itself. It will be interesting to see whether the CAT recycles any of the Commission’s analysis in the Liverpool case, or discards it and forges its own way forward.

Public authorities have, explicitly and implicitly, been interpreting the new subsidy control regime in light of the old state aid regime. Many of the concepts are overlapping (or exactly the same), and so this approach provides a broader basis of understanding. However, there’s no legal guarantee that the two will be applied consistently. This Durham case could be a fascinating test-case as to whether the two regimes will run in parallel or diverge.

You can read the full CAT notice of appeal here. We will be keeping a close eye on the Durham case, and the CAT’s interpretation of the Subsidy Control Act in general. If you are a public authority, a recipient or a competitor (or indeed – all three!) and have any questions on Subsidy Control we would love to hear from you.

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