The Court of Appeal (CoA) heard the first case dealing with the subsidy control regime post-Brexit.
Background:
This appeal concerns two decisions made by the Secretary of State (SoS) for Energy Security and Net-Zero relating to the transfer of the business of Bulb Energy Ltd. to Octopus Energy Group Ltd.
Bulb was an energy supply company that held electricity and gas supply licences. In 2021, Bulb ran into serious financial difficulties. On the 24th of November 2021, on the application of the energy regulator, the Office of Gas and Electricity Markets’ Adam Johnson J., made an Energy Supply Company Administration (ESCA) order in respect of Bulb, pursuant to s.94 of the Energy Act (EA) 2011.
British Gas and E.ON brought judicial review proceedings in the Administrative Court claiming a breach of the subsidy control provisions in the UK/EU Trade and Cooperation Agreement (TCA), which has been incorporated into domestic law by the EU (Future Relationship) Act 2020.
The first challenged decision, namely the funding decision, related to the decision of the SoS in October 2022 to provide funding to Bulb through to the 31st of March 2023, by way of an amendment to the Administration Funding Agreement (AFA). The second challenged decision, the approval decision, relates to the transfer of Bulb's business pursuant to the Energy Transfer Scheme (ETS). British Gas and E.ON claimed that defects in the tender process leading to the selection of Octopus as the acquirer meant that the subsidy could not properly be regarded as the minimum necessary and that subsidy had been granted to Octopus as well as to Bulb. They also claimed a breach of the specific TCA provisions relating to restructuring subsidies.
The Divisional Court rejected their claims in March of 2023 on the grounds of delay. British Gas and E.ON appealed to the CoA.
Decision:
The CoA, while concluding that the Divisional Court was wrong to refuse permission, rejected the appeal on the merits. The Court noted that regarding delay, the Divisional Court was entitled to reach its conclusion in view of the urgency and prejudice to third parties. The Judge noted, “Faced with the fact, as the appellants themselves had contended, that undoing the transfer effected by the ETS would have been catastrophic, including for third parties such as Octopus and the many customers whose contracts were transferred to it, the delay was rightly measured in days.” So based on the broad range of discretion afforded to the courts, in light of the harm third parties could have faced if the relief was granted, any delay in appeal was not acceptable.
Regarding the standard of review, the Court noted that many of the SC Principles, “taken together, reflect the broader concept of proportionality, and Article 366(1)(b) specifically refers to it.” The Court asked itself what the TCA requires in terms of substance relating to subsidies. It made clear there is a distinction to be drawn “between two different uses of the concept of "proportionality": first, as a legal standard of review of a relevant decision and, second, as a component of the decision under review.” The Court noted that the TCA “does not oblige the UK to create a power to grant a subsidy, but to impose a system of control where a public authority in the UK, pursuant to such powers that already exist in domestic law, grants something which falls within the definition of subsidy in Article 363.” Consequently, the TCA does not require courts or tribunals to apply anything other than existing domestic principles when reviewing the decision of a public authority.
Implications:
This decision highlights the need for timely judicial review claims in high-stakes commercial transactions. Although this case is slightly peculiar due to the nature of the market in question, this ruling is still relevant for any company wanting a judicial review when the transaction affects third parties. Indeed, the CoA adopted a balanced approach in assessing the potential harm to third parties if such a decision were delayed.
Public authorities thus have a margin of appreciation to apply the approach that is deemed appropriate, based on the nature of the market in subsidy decisions.