On 27 July 2023 the Competition Appeal Tribunal (CAT) published the first and much anticipated judgment under the Subsidy Control Act 2022 - Max Recycle v Durham County Council.
Durham County Council (DCC) uses its household waste collection vehicles and employees for both household waste collection, for which no charge can be made, and commercial waste collection, for which charges are made. Max Recycle, a collector of commercial waste and competitor of DCC, argued this is an unlawful subsidy because DCC benefits from savings on assets and labour, as well as quantities of scale. In turn, this enables DCC to charge lower rates for commercial waste collection services than its commercial competitors, including Max Recycling.
On 18 March 2020, DCC decided that the charging for commercial waste collection services would be a multi-year, or even temporarily indefinite decision, which was to be reviewed annually. This “scheme decision” was made before the Subsidy Control Act 2022 came into force, therefore DCC argued that the “scheme decision” and subsequent “subsidy decisions” under that “scheme” were exempt from the Subsidy Control Act 2022.
Max Recycle contended there was a series of “subsidy decisions” that predated and post-dated the Subsidy Control Act 2022 coming into force. Therefore, a “subsidy decision” on 31 March 2023 was subject to the Subsidy Control Act 2022 and DCC had failed to comply with the subsidy control principles.
The CAT determined that whilst DCC had made a “subsidy decision”, the use of its household waste collection vehicles and employees to operate DCC’s commercial waste collection service was not an unlawful subsidy.
The CAT considered three issues:
The CAT held that DCC made a series of decisions, culminating in the decision on 31 March 2023 which came within the Subsidy Control Act 2022. The CAT considered the nature of repeat decisions and noted that “repeat decisions are entirely appropriate …where the original detailed analysis still pertains”.
This is providing that the repeat decision considers whether the “prior decision continues appropriately to apply”. The decision on 18 March 2020 did no more than to consider how household and commercial waste might be appropriately charged. There is nothing to suggest that DCC was binding itself to follow the decision in future years. Consequently, there was nothing to stop DCC from reviewing its approach year on year “to test for its continued appropriateness”.
The subsequent decisions that followed on from 18 March 2020 were a series of related decisions, not a subsidy scheme followed by a series of decisions made under that subsidy scheme. Accordingly, there is no subsidy scheme in this case, but the decision on 21 March 2023 was a decision within the meaning of the Subsidy Control Act 2022. Max Recycle, however, ultimately lost the case because there is no subsidy (see point 2 below).
The CAT held that a subsidy “must involve financial assistance given by a public authority so as to confer an economic advantage on one or more enterprises” and the very essence of a subsidy is that it moves from the public authority to an enterprise. DCC’s commercial waste collection service is not a service company or other subordinate entity owned by DCC, it is undertaken by DCC directly. DCC could not be both a public authority and an enterprise in respect of the alleged subsidy – i.e. it cannot subsidise itself. Therefore, the use of assets and employees for DCC’s commercial waste collection service cannot fall within the definition of a subsidy.
The CAT also considered that in the event DCC was an enterprise, whether any other part of the test for a subsidy were met. The CAT held that if any economic advantage was conferred by charging less for the collection of commercial waste, then it would be conferred on the consumers of the commercial waste collection service, not the enterprise. Max Recycle had misconstrued the situation. DCC had organised itself with “due regard to efficiency and with a view regard to economies of scale”. Where those benefits are passed onto the consumer, then it “would normally be viewed as the outcome of a properly functioning market”.
Conversely, increasing the charges for commercial waste collection might be said to be a subsidy to the household waste service collection. If DCC significantly overcharged or undercharged it would be open to challenge under public law principles. DCC is under a statutory duty to charge consumers of commercial waste collections and therefore this is not an economic activity under the Subsidy Control Act 2022. Finally, no financial assistance is given for the same reasons, rather common costs of waste collection are being apportioned.
DCC accepted that it did not consider the subsidy control principles, therefore this issue was not discussed further.
Given that Max Recycling previously pursued this matter via a state aid claim and failed, it seems likely that Max Recycling will seek permission to appeal the CAT’s decision under the subsidy control regime.
We were led to believe that the judgment in this case would offer much needed insight into the interpretation of the new Act, but in this respect, the judgment fell rather flat.
That being said, there is an interesting point to take away from this case. The CAT was keen to emphasise that the regime under the Subsidy Control Act 2022 is different, and should be applied and interpreted differently, to that under the EU State aid rules. In respect of the definition of enterprise for example, the CAT made a clear distinction from the concept of an undertaking under the EU State aid rules, such distinction being based on the actual wording of the Act.
In this regard, we note that the Subsidy Control Guidance produced by Government refers to EU case law in a number of areas of the new regime, including in respect of the enterprise definition. It therefore remains relevant in certain areas, but the actual wording of the legislation should be the primary consideration.
In conclusion, does the recent case on the Subsidy Control Act 2022 make anything clearer? Not particularly. This is largely because the Durham case was unique in its facts and only discrete areas of the Act were called into play. Further clarification will, no doubt, come through as more cases are heard and so we watch this space.
More information on subsidy control can be found on our bitesize page.
If you have any further or specific queries in relation to the Durham case, or the subsidy control regime, please do get in touch with our public sector team.