Cost cap in first subsidy control case set aside by Court of Appeal

26/06/23

The substantive provisions of the Subsidy Control Act 2022 (“the 2022 Act”) entered into force on 4 January 2023. On 3 February 2023, the Durham Company Limited, trading as Max Recycle (“Max Recycle”), issued the first application for statutory judicial review under section 70 of the 2022 Act in the Competition Appeal Tribunal (“the Tribunal”). Max Recycle contends that Durham County Council (“the Council”) has unlawfully subsidised its own commercial waste collection operations, an allegation that is denied by the Council. The substantive hearing of the application for statutory review is due to take place next week.

Following a case management conference on 17 February 2023, the Tribunal (the President, Sir Marcus Smith, sitting alone) handed down a judgment ([2023] CAT 14) on 21 March 2023, containing general guidance on costs management in applications under s.70 of the 2022 Act. The Tribunal held that costs control was of peculiar importance in subsidy control cases, and it imposed a costs cap of £60,000 on the Council, and £50,000 on Max Recycle, with effect from the date of the CMC. The Tribunal imposed the costs caps without first requiring the parties to prepare cost budgets. On 6 April 2023, the President of the Tribunal granted the Council leave to appeal to the Court of Appeal against the imposition of the costs cap ([2023] CAT 24).

Following an expedited hearing of the Council’s appeal on 6 June 2023, the Court of Appeal (Sir Julian Flaux C, Newey & Nugee LJJ) has today handed down judgment allowing the Council’s appeal against the costs caps, which it held the Tribunal had been wrong in principle to impose.

The Court of Appeal decided that in the absence of authorisation by legislation or Tribunal Rules, the Tribunal had no jurisdiction to cap the parties’ costs in a manner that was not designed to delimit costs to what would be a reasonable and proportionate amount to incur. That was a derogation from the normal position that a successful party was entitled to recover its reasonable and proportionate costs, and such a derogation could only be effected by Tribunal Rules or legislation.

The Court further held that the Tribunal had imposed an “artificial and arbitrary” cap of £60,000 in circumstances where there was no evidence that the Council would otherwise incur disproportionate costs and where the President had himself recognised that the reasonable and proportionate costs of the application might well be in the region of £250,000. Any risk of disproportionate costs being incurred could be managed either through costs budgeting or detailed assessment, and in a rare case where those mechanisms would not adequately control the risk of disproportionate costs being incurred, a cost capping order could only be made for the purpose of controlling that risk.

The judgment of the Court of Appeal ([2023] EWCA Civ 729) is here.