As erstwhile State aid lawyers will know, under the UK’s new subsidy control regime, interested parties can challenge subsidy decisions in the CAT, which will apply the same principles applied by the High Court in a judicial review. But what standard of review will the CAT adopt when examining a substantive subsidy decision? The recent decision of the Divisional Court in the Bulb case (https://www.bailii.org/ew/cases/EWHC/Admin/2023/737.html) suggests that the answer is proportionality (rather than rationality) – but that the proportionality review may be so light touch as not to add much to the traditional ground.
Bulb was the rolled-up judicial review of the Secretary of State’s sale of the energy supplier to Octopus in circumstances that are well-known. Bulb ran into serious financial difficulties in 2021 and entered into a special administration programme with funding from BEIS (as it then was). BEIS swiftly took steps to sell the business, which it eventually did to Octopus in October 2022.
Octopus’s competitor energy suppliers quickly (although not promptly enough as it turned out) brought claims for judicial review of the Secretary of State’s decision, in essence complaining that the tender process had been insufficiently open, transparent and non-discriminatory and that, if they had been told what Bulb were told, they might have stayed in the tender process longer than they did. In addition to a raft of public law grounds, the claimants alleged that the Secretary of State’s decision amounted to an unlawful subsidy. Although the Divisional Court refused permission on the basis of delay, it also considered the merits and in doing so made some observations on the standard of review it should apply in subsidy control reviews.
The Secretary of State’s decision was taken after IP completion day but before the entry into force of the Subsidy Control Act 2022 (SCA), so the applicable regime was that set out in Articles 363-371 of the Trade and Cooperation Agreement (TCA) as implemented by s. 29 EUFRA 2020. However, given that the TCA provisions underpin the SCA, the Divisional Court’s observations should have some relevance to future challenges brought under s. 70 SCA.
The Divisional Court accepted that it should apply the proportionality standard. So far so not-very-surprising: the TCA itself (like the SCA) spells out in Article 366(1)(b) that subsidies should be “proportionate and limited to what is necessary to achieve [their] objective”; and in Article 366(3) that any national subsidy control regime must be able to examine whether a subsidy complies with the principles set down by the TCA – including proportionality.
But proportionality is a flexible standard. The Divisional Court went on to stress that it was context-dependent and that “in practice the outcome may not be materially affected by the distinction between the concept of rationality and the principle of proportionality” ([235]). The Court went on to cite various contexts in which proportionality is applied with a wide margin of appreciation: in the human rights context, where the decision involves scientific, technical and predictive assessments (see e.g. Mott v Environment Agency [2016] 1 WLR 4338); and in the EU context, where a complex assessment involving critical economic or social choices is in play (see e.g. Lumsdon v Legal Services Board [2016] AC 697). It concluded that domestic principles dictated that the proportionality standard should be applied with a relatively “light touch” in the context before it, involving as it did an assessment of the commercial circumstances of the private market.
Whatever this judgment gives prospective claimants in subsidy control reviews with one hand, it therefore seems to take away with the other. The cautious, deferential proportionality standard endorsed by the Divisional Court may well apply to the majority of subsidy control cases given their subject matter. And – as the Court itself said – the distinction between this standard and traditional rationality can be slight. Future claimants may be able to invoke the CAT’s special expertise to persuade it to take a closer look; but prospects of a very rigorous proportionality analysis currently seem distant.
COMPETITION BULLETIN 