Introduction
Although the subsidy control jurisdiction has been ‘live’ since January 2023, only one application has been issued under the Subsidy Control Act 2022, Durham Company Limited v Durham County Council, which was determined by a judgment dated 27 July 2023.2 There are no other applications pending before the Competition Appeal Tribunal at the time of writing (October 2023). Given the anticipation of new cases before the 2022 Act came into force, this dearth is a little surprising. Although inevitably speculative, but with the benefit of hindsight, we consider the reasons for this dearth in this article.
To do so, it is necessary to begin by focussing on the treaty origins of subsidy control, and the subsidy control cases that have been heard since EU Exit, to see what these matters tell us about this new jurisdiction. We will also address the (related) question of what this new jurisdiction needs to work effectively; and we will say a few words about the Durham case, although it is not for us to defend or justify that decision.
The Trade and Cooperation Agreement
Prior to EU Exit, the UK was subject to the EU State aid regime. Under EU law, State aid is generally prohibited, unless exceptionally justified. For those who are used to working with those rules, it is helpful to remember that the EU State aid regime is unusual (albeit it can be traced in some respects back to WTO rules). There is no comparable supranational or federal system with comparable prohibitions.3 This is a regime inextricably tied in with the notion and goal of an internal market, going back to the European Coal and Steel Community which was based on investment and State aid monitoring and control.4
The aim is.5 to protect the internal market by maintaining a level playing field across the EU, and to prevent gaming between Member States which could distort that market, for example via subsidy races. The focus is on inter-state trade within the EU, with the aim of promoting an open and competitive internal market with fair opportunities for business across the EU to compete and grow. Further, the EU can and does use State aid as a policy tool, to allow for certain interventions perceived as beneficial or to achieve certain goals such as environmental protection or economic development.6
For those accustomed to working under the EU State aid rules, it might be difficult to keep in mind how distinct the regime is from other subsidy control regimes generally. For example, compared to WTO rules, the EU rules are much more stringent: they apply more broadly, have more powerful remedies available to more parties, are much less permissive, and apply prospectively.7
Under the EU State aid laws, there is room for public and private enforcement. According to a DG Comp study analysing trends between 2007 and 2018,8 in those years there was a considerable increase in the number of private enforcement cases.9 That may reflect the increasing interest in private enforcement in competition law generally, both across the EU and in the UK. Despite this, the national courts in EU State aid cases rarely concluded that an unlawful aid had been granted and so rarely awarded remedies. In 66% of the identified cases of private enforcement, the national court rejected the claim.10 In the UK in this period, the number of public and private enforcement rulings was low compared to other Member States. The EU has since issued a new notice on the enforcement of EU State aid rules to assist national courts with enforcement.11
Following EU Exit, the UK and the EU entered into the Trade and Cooperation Agreement (TCA), a treaty whose subjects included trade in goods and services, energy, law enforcement, public procurement, and subsidy control. The TCA also contained sections on trade remedies. Announced in December 2020, it set out the framework for EU-UK trade following EU Exit.
State aid was one of the most controversial areas during negotiations over the TCA and one of the last issues to be resolved.12 During negotiations, a House of Commons briefing paper reports that the EU indicated that enforcement of State aid rules was one of its main concerns in the negotiations. The UK’s negotiating objectives focused on the WTO rules as a basis for subsidy control, where both sides would notify the other bi-annually of their subsidies, with the possibility of requesting a consultation on a subsidy of concern and a requirement to use best endeavours to address any adverse effects. In contrast, the EU’s negotiating position was that the UK should give effect to EU State aid law, with the referral of questions of interpretation of EU law to the CJEU. The TCA was a compromise between these two positions.13 The TCA required the UK to implement subsidy control based on a number of principles, to set up an independent authority to oversee its regime, and to ensure the UK courts had the power to review compliance with the principles.
Although the recitals to the TCA do not, of course, reference the benefits of an internal market, of which the UK is no longer a part, they do highlight the need to ensure the partnership is “underpinned by a level playing field for open and fair competition and sustainable development”, and the need for an “open and secure market for businesses, including small and medium-sized enterprises, and their goods and services through addressing unjustified barriers to trade and investment”.
The TCA is therefore still rooted in notions of the importance of a level playing field and fair competition between the EU and the UK. The subsidy control chapter of the TCA, which went onto form the basis of the Subsidy Control Act, echoes a number of aspects of the EU State aid regime, including, for example, many of the components of the definition of a “subsidy”, the market economic operator principle, many of the exemptions, conditions and prohibitions on certain subsidies, and most of the principles which govern subsidy grants. It remains to be seen how this part-transplantation of State aid rules and concepts from inter-member state subsidies into EU-UK subsidies works in practice.
It is also worth bearing in mind that the Government additionally created a new framework post EU Exit for trade remedies, which was previously an EU competence and performed by the Commission. Very briefly, the Trade Remedies Authority has been set up pursuant to the Taxation (Cross border Trade) Act 2018 and the Trade Act 2021, to investigate alleged unfair trading practices against British industry. The UK maintained a number of the existing EU anti-dumping or anti-subsidy measures of the EU trade defence framework, and safeguard measures.14 The trade remedies regime is different to the subsidy control regime, although the TRA can conduct subsidy investigations and consider the implementation of countervailing measures.15 There does therefore seem to be some overlap between the two regimes, and these are certainly regimes that need to be applied consistently with each other. In many respects, they might be said to be two sides of the same coin.
Turning back to subsidy control, unusually, and in a significant departure from EU State aid law and the TCA, the Subsidy Control Act also governs subsidies which have a UK only effect. This is no longer only about a level playing field between members of a trading block or different sovereign states, but between enterprises within the UK (albeit it might concern competition issues between the devolved nations). In the Government’s statutory guidance on the SCA, it states that “the purpose of the subsidy control regime is to prevent public authorities from giving financial advantages to enterprises in a way that could distort competition”, with a particular focus on delivering value to taxpayers, delivery of policy priorities such as levelling up and net zero, and the provision of certainty to businesses investing in the UK.16 This is, arguably, a reformulation of the purpose of State aid in the UK (and EU), which to date had been focused on creating a trans-national level playing field. The question will no longer (always) be focused on measures which distort competition and affect trade between member states, but on measures which distort competition within the UK. We suspect those are quite different questions, and it will be harder in the latter case to assess which measures are compliant with and which infringe the new regime.
The relationship between subsidy control and the Chapter I and Chapter II prohibitions, with which competition lawyers will be familiar, is also new territory that will have to be explored. It is the Chapter I and the Chapter II prohibitions that are the primary controls over competition infringements in the UK; and the degree to which the subsidy control regime extends the scope of competition law will likely be a matter the subject of careful scrutiny in future.
Another significant change to the EU State aid regime is the focus on private enforcement. As already set out, the EU State aid rules do allow for private enforcement, but such challenges are brought infrequently and usually fail. Under the Subsidy Control Act, the only means of redress will be private enforcement.
Finally, the TCA is also in part derived from the rules of the World Trade Organisation, which regulate issues relating to the freedom of trade between signatory states (rather than between trading block members, or indeed between enterprises within one state).
Should this history inform the implementation of the subsidy control regime going forwards, and if so, how? At the very least, this brief and high level overview helps to explain why we now have a rather broad, self-standing State aid (or subsidy control) regime, which has moved away from a transnational focus on regulating an internal market and instead looks at regulating trade and investment between the UK and the EU, as well as competition and investment internally.
The treaty origins of the subsidy control regime, the intense political debate surrounding the topic, and the close connection with trade remedy issues also indicate that the “light touch” approach adopted by the High Court in the cases set out below in considering subsidy provisions is correct for a number of reasons.
High Court Consideration of the TCA
Before we turn to the Durham case, we propose to consider a couple of cases heard in the High Court relating to the TCA provisions on State aid, which provide some potentially useful guidance.
In British Sugar,17 the claimant brought a challenge to a tariff introduced by the government relating to raw cane sugar, arguing that it was a breach of the subsidy control provisions under the TCA, and that it was unlawful State aid under the Northern Ireland Protocol. Foxton J dismissed both grounds, finding the measure was not unlawful State aid nor was it a subsidy. The claimants’ application for permission to appeal was granted, and that appeal is pending.
Singh LJ and Foxton J also rejected a recent challenge under the TCA to Octopus’ takeover of Bulb.18 British Gas, Scottish Power and E.ON challenged the takeover on both public law and subsidy control grounds. They argued that the decision of the government to provide funding to facilitate the sale of Bulb to Octopus, and the Government’s approval of the energy transfer scheme which gave effect to the sale, failed to meet the requirements of the subsidy control principles in the TCA, amounted to a prohibited unlimited guarantee, and had made various errors in law in categorising the purpose of the subsidy under the TCA.
The challenge was refused due to undue delay by the claimants in bringing it, but the court made some relevant observations for our purposes. In particular, the court noted that the commercial context of the challenge is one where the court is called upon to perform a relatively light touch intensity of review. Although the court accepted that the review included consideration of the principle of proportionality, the context affected the intensity of review. In particular, an enhanced margin of appreciation will be given when reviewing decisions of the executive in scientific, predictive or technical assessments. The court noted that when applying the EU principle of proportionality and considering measures of EU institutions exercising a discretion involving critical economic or social choices, the court will usually only intervene if the measure is “manifestly inappropriate”.
Applying that light touch of review, the Court refused the challenge on all grounds, although it did state it would have granted permission for the challenge on the subsidy control grounds.
The court also highlighted it was permissible to have regard to CJEU case law as a supplementary means of interpretation of the TCA, and it looked to CJEU case law, BEIS statutory guidance about the Subsidy Control Act, WTO case law, and European Commission Notices to assist its analysis. This indicates that post EU Exit, these authorities will continue to be useful, although in Durham such materials were cited to the Tribunal by the parties, but not found especially helpful by the Tribunal.19
Practicalities in the exercise of the new jurisdiction
This is a new jurisdiction that will be articulated in the course of future decisions.20 The Tribunal is keeping a very close eye on how the jurisdiction should evolve whilst, of course, ensuring a fair process for all the parties. The financial advantages of subsidies cannot and should not be subsumed in challenges to their making or not making in terms of legal costs. It is intrinsic to subsidy cases that they can have an unfortunate “freezing” effect on the giving or not-giving of subsidies. This means it should be a fast, cheap and simple jurisdiction. The Durham case, by way of example, was commenced on 3 February 2023; had its first case management conference on 17 February 2023; had a cost capping order imposed on 21 March 2023,21 the appeal of which was heard on 6 June 2023, with a judgment revoking the order on jurisdictional grounds on 6 June 2023; had a final determination on the merits heard on 3 and 4 July 2023 (by a full panel of the Tribunal: President, Lord Young, KC and Professor Ulph) with judgment handed down on 27 July 2023. Permission to appeal to the Court of Appeal was refused by the Tribunal. At the time of writing, that is the present state of play, and the matter may of course go further.
The subsidy control regime in the United Kingdom is a United Kingdom jurisdiction. Of course, subsidies are local, and any given subsidy challenge will (as appropriate pursuant to Rule 18 of the Competition Appeal Tribunal Rules 2015.22) be allocated a jurisdictional “home” in England and Wales, in Scotland or in Northern Ireland. That jurisdictional home is relevant for many reasons, one of which is the route by which appeals from the Tribunal’s orders are determined. It would, however, be unfortunate if the Tribunal’s Rules – when on appeal – evolved on an unduly England and Wales basis, simply because most cases are allocated to an England and Wales jurisdictional home. Both the subsidy control regime and the Tribunal Rules are explicitly UK-wide.23
Turning then to the specifics:
- Careful cost management is important in any case, but it will be particularly important in this jurisdiction given the likely size of the parties in many challenges, and the importance of costs not acting as an undue deterrent on those bringing, or those defending, challenges – including considerations for the public purse.
- Connected to this is the fact that the subsidy control jurisdiction is exercised according to the rules of judicial review as those rules are understood in the various relevant jurisdictions. In the Durham case disclosure, witness and expert evidence was minimal and at the trial the extent of factual investigation highly constrained. There was no oral evidence.
The substance of the Durham decision
The authors are, inevitably, constrained in what can be said about a Tribunal decision. However, two uncontentious points can be made:
- European Union law on State aid has, at the most, a persuasive effect when construing the provisions of the Subsidy Control Act. The UK Government presented reform to the UK’s State aid regime as one of the benefits of EU Exit – the Explanatory Notes to the Subsidy Control Act state “[h]aving left the European Union, the UK is no longer subject to EU State aid rules (the EU’s particular approach to subsidy control). In September 2020, the Government announced its intent to design a new domestic subsidy control regime that best suited the needs of the UK, representing value for money to the UK taxpayer, and complying with international obligations.” The extent to which the subsidy control regime will mark a departure from the EU State aid regime is something that is yet to be fully clarified. But the existence of a distinct and self-standing regime means that convergence is not a given.
- Whilst Article 107 of the Treaty of the Functioning of the European Union prohibits State aid in relation to the “undertaking”, the Subsidy Control Act uses the terms “public authority” and “enterprise”, both defined as “persons”. An “enterprise” is further defined as “a person who is engaged in an economic activity that entails offering goods or services on a market, to the extent that the person is engaged in such an activity”. The definition of the term “undertaking”, whilst not contained in the Treaty, is well-established, focusing on entities engaged in economic activities, regardless of their legal personality, status, or form of finance.24
Conclusion
We began by asking why there was a dearth of subsidy control cases. It is difficult – particularly for those (like us) not involved in the decision to bring claims – to suggest an answer. It may be that because the regime is undeniably different and new – although to what extent remains for future decision – potential applicants are treading carefully and adopting a “wait-and-see” approach. That being said, the new regime constitutes a power and new way of scrutinising decisions of public bodies and – like procurement – it would be surprising if the regime did not become more used. But the significance of the regime will become clearer as more subsidy control cases are litigated in the Tribunal and appellate courts.
1.UK Competition Appeal Tribunal. All views are personal; and all errors the authors’ alone.
2. Durham Company Limited v Durham County Council [2023] CAT 50.
3. Faull and Nikpay, The EU Law of Competition, 3rd ed, 17.01: “It would seem that no other supranational or federal system has a comparable principle of the prohibition of government support for undertakings, which in addition is enforced by a supranational regulator, namely the Commission.”
4. See, for example, comments made at the European Standing Committee, 9 February 2000 – “…since 1964 the European Coal and Steel Community has defined successive aid codes to ensure that member states’ aid to the coal and steel industries is compatible with the rules on aid and subsidies in the ECSC treaty”. See Faull and Nikpay, 17.01 to 17.04.
5. So far as the UK is concerned, the past tense is appropriate; but these rules continue in force in the EU.
6. See, for example, discussion in: EU State Aid rules and WTO Subsidies Agreement – House of Commons Library (parliament.uk).
7. EU State Aid rules and WTO Subsidies Agreement – House of Commons Library (parliament.uk).
8. State Aid (mybit.nl)
9. “The first trend identified … concerns the overall increase in the number of judgments handed down by national courts during the period covered by the Study. A second trend concerns the increase in private enforcement cases, which have exceeded the number of public enforcement rulings. The Consortium has identified 172 cases of public enforcement of State aid rules and 594 private enforcement cases, thus making the number of private enforcement cases more than triple the number of public enforcement cases. The increase in the number and size of State aid measures put in place by Member States in the aftermath of the 2008 financial crisis may have contributed to the substantial increase in the number of private enforcement cases in the first half of the 2010s.”
10. “Despite the increase of court litigation, national courts have rarely concluded that unlawful aid has been granted and hence rarely awarded remedies. In 32% of the identified cases of public enforcement and in 66% of the identified cases of private enforcement, the national court rejected the claim…On the other hand, the low number of remedies awarded by national courts in the identified private enforcement cases calls for further reflection. National courts rarely either order the recovery of the unlawful aid or adopt interim measures to suspend the implementation of the aid measure. This trend is particularly evident in relation to damages claims: only in six of the identified relevant rulings did national courts award compensation due to the harm caused by a breach of the standstill obligation by a Member State (i.e. less than 1% of the private enforcement cases identified in the Study).” 11. 2022_brochure_state-aid_new-enforcement-notice_e-version.pdf (europa.eu)
12. The UK-EU Trade and Cooperation Agreement_ Level playing field.pdf.
13. The UK-EU Trade and Cooperation Agreement_ Level playing field.pdf.
14. trade-and-customs-in-the-uk-beyond-brexit.pdf (cliffordchance.com)
15. How we carry out a subsidy investigation – GOV.UK (www.gov.uk).
16. Statutory Guidance for the United Kingdom Subsidy Control Regime (publishing.service.gov.uk), 1.24, 1.26.
17. R (on the application of British Sugar plc) v Secretary of State for International Trade, [2022] EWHC 393 (Admin).
18. R (on the application of British Gas Trading Ltd) v Secretary of State for Energy Security and Net Zero, [2023] EWHC 737 (Admin).
19. As reflected in the terms of the judgment itself.
20. As well as the recent decisions in The Durham Company Ltd v Durham County Council, [2023] CAT 14, appealed to the Court of Appeal, [2023] CAT 23 (permission to appeal), and there overturned, [2023] EWCA Civ 729.
21. [2023] CAT 14. The reason for the gap between the Case Management Conference and the decision was the need for written submissions from the parties: see [5].
22. SI 2015 No 1648.
23. The Court of Appeal’s decision in Durham, [2023] EWCA Civ 729 drew heavily on the law of England and Wales – at [5], [20]ff, [30]ff – and in particular the Civil Procedure Rules of England and Wales. Whilst, no doubt, these rules are indirectly relevant to the true construction of the Tribunal’s Rules, that can or at least should only be where the relevant Scottish and Northern Ireland rules are considered in parity.
24 See, for example, Case C-41/90, Hofner and Elser, ECLI:EU:C:1991:161; Cases C-189, 202, 205-208/02, P Dansk Rorindustri A/S v Commission, ECLI:EU:C:2005:408; Case 96/82, IAZ International Belgium SA v Commission, ECLI:EU:C:1983:310; Case 155/73, Italy v Sacchi, ECLI:EU:C:1974:40; Case C-475/99, Ambulanz Glockner v Landkreis Sudwestpflaz, ECLI:EU:C:2001:284.
