Challenging subsidies in future: Further thoughts on the Subsidy Control Bill

The bill is currently in the Committee Stage and it will be interesting to see whether any significant amendments are proposed as it continues to progress.

You can find a copy of the previous article here and a recording of the webinar here.

One of the major outstanding questions as to how the new subsidy control regime will function is the issue of challenges to decisions to award subsidy. Under the “old” EU State aid regime the position was markedly different to that which will be in place when the Bill becomes law. Under EU law State aid is illegal unless it is approved in advance by the European Commission or falls under an exemption from this approval requirement. Therefore challenges could be brought on the basis that a measure constituted illegal State aid. A court considering such a challenge would simply assess whether a measure was State aid and if so whether it had been approved or qualified under an exemption.

In contrast under the Bill subsidy is not unlawful, rather the Bill imposes procedural requirements on bodies planning to award subsidy. Awarding bodies are required to consider the application of principles which must be satisfied in relation to any subsidy, and to only proceed if, in their view, the principles are satisfied. Therefore challenges will be based not on the fact that the measure is unlawful per se, rather they will be based on the reasonableness of the application of the principles by the awarding body. To this end the Bill specifies that challenges will be via a judicial review of the decision to award subsidy.

It should be noted that it is very difficult to prove unreasonableness in judicial review proceedings – it requires that the claimant establishes that no reasonable body could have reached the conclusion reached by the awarding body. This affords a very wide margin of discretion to the awarding body and, combined with the breadth of the principles themselves, could make it difficult to mount a successful challenge of a subsidy. Further, the one month time limit to bring a claim (in contrast to the ten year limitation period for the European Commission to pursue a claim under EU State aid law) could add to the challenges faced by aggrieved third parties.

Perhaps the greatest difference in challenging subsidy compared to State aid will be the lack of a regulator with enforcement powers. The European Commission is often the first option for an aggrieved third party in relation to State aid. The Commission has the power to investigate aid, decide on its legality and order recovery; the CMA will have no such powers under the Bill when it becomes law.

However, it is worth noting that the Commission’s resources are limited. It can be difficult to convince the Commission to take up a case unless it is high value, high profile or strategically significant. Also, there are aspects of the proposed law which could increase the likelihood of challenge. Arguably UK complainants will be more “comfortable” with the relatively familiar judicial review procedure. Also the transparency requirements in the Bill (requiring subsidies to be publicised on a central database) will facilitate objection. We should not forget that we are moving from legislation with well-established concepts backed by copious case law and administrative decisions to an entirely new piece of legislation – this could certainly increase the chances of cases being brought.

As with so many aspects of the Subsidy Control Bill we will have to wait to discover how this will operate. Further detail may emerge in guidance or in secondary legislation. Ultimately we will need to wait until the case law begins to be reported and applied before the picture becomes clearer.

Dean Murray is a commercial partner who specialises in competition and subsidy control, if you have any questions, please get in touch.