Blog: 14 April 2023 - Womble Bond Dickinson, Corporate Partner

Will the CAT Have Claws? Thoughts on the first challenge under the Subsidy Control Act 2022

The first challenge alleging that a subsidy has not been awarded in accordance with the Subsidy Control Act 2022 (Act) has been brought in the Competition Appeal Tribunal (CAT). The Durham Company Limited, trading as Max Recycle, a commercial waste disposal business, alleges that Durham County Council (DCC) cross-subsidises its commercial waste disposal operations. Allegedly, DCC is using the same staff and resources it uses for its domestic waste disposal activities (provided under a statutory duty) – allowing it to price its services lower than if it were operating the two waste streams on a stand-alone basis.

The case follows a failed attempt by the complainant to seek damages for breach of State aid rules on the same basis. The Court of Appeal held last year that if the practice breached the State aid rules the breach was not sufficiently serious to justify the award of damages to Max Recycle.

It will be interesting to see how the CAT approaches the case. If there is subsidy involved here then it will not have been awarded in accordance with the Act, which requires that an awarding body consider the subsidy control principles and satisfy itself that the subsidy accords with them. DCC will not have done this since its position is that there is no subsidy. If the CAT finds that there is subsidy involved it could decide that the subsidy has not been awarded in accordance with the Act and order recovery. This would create the possibility that DCC subsequently assesses the subsidy against the principles in the Act and concludes that its subsidy is compliant (presumably prompting a further appeal by Max Recycle).

It appears more likely that, should the CAT find there is subsidy, it will go on to consider whether the subsidy is in accordance with the principles set out in the Act. However, even this approach is unlikely to prevent an appeal to the Court of Appeal (as much was recognised by the presiding judge, CAT President Mr Justice Marcus Smith, in the case management conference).

I also expect that we will soon see further challenges to subsidies.  The CAT President himself acknowledged that he had expected a more straightforward first challenge  – one in which the public authority had consciously decided to grant a subsidy and had sought to apply the rules under the Act. In such circumstances we would see the standard to which a public body's application of the principles under the Act would be held and the extent to which its evidence, assumptions and conclusions will be tested.

The current case and those to come will be invaluable in providing further guidance to public bodies (and the lawyers advising them).

Dean Murray

Mr Justice Marcus Smith – CAT President