OverviewPolicy and track record
Outline your jurisdiction’s state aid policy and track record of compliance and enforcement. What is the general attitude towards subsidies in your system?
This chapter states the applicable law relating to state aid in the UK as at the time of publication. However, following the UK’s decision to withdraw from the European Union, significant changes to the UK state aid regime are expected. In particular, the Competition and Markets Authority (CMA) will take over from the European Commission (Commission) as the primary regulator of state aid in the UK. Where appropriate, this chapter will make reference to the impact of potential changes to the UK state aid regime following the withdrawal from the European Union, but state the law currently in force.
The UK government has consistently emphasised the importance of adhering to state aid rules and encourages public bodies at all levels to ensure that any assistance offered by such bodies is compliant with state aid rules. By way of example, guidance was issued by the Department of Business, Innovation & Skills (which has since been replaced by the Department for Business, Energy & Industrial Strategy, collectively referred to as BEIS in this chapter) encouraging public bodies in the first instance to grant state aid through existing aid schemes, the General Block Exemption Regulation (GBER) or the De Minimis Regulation, rather than seeking separate approval for aid measures. Given the general preference for using approved schemes, most state aid notifications from the UK concern general aid schemes.
The UK has a good record of compliance with state aid rules. The Directorate-General for Competition’s state aid database shows that, in the past 10 years, 13 formal investigations have been opened into state aid measures provided or proposed by the UK. Out of these 13 formal investigations, a negative decision with recovery was issued in only three cases: (i) SA34775 - British aggregates levy, (ii) SA34914 - UK-Gibraltar Corporate Tax regime (ITA 2010) and (iii) SA44896 - State aid scheme UK CFC Group Financing Exemption. In the same time period, the Commission has not adopted a negative decision in respect of a UK state aid measure without also ordering recovery of the aid. Although the Commission’s role as the primary regulator of state aid in the UK following the planned withdrawal from the EU remains unclear, it is clear that the Commission is still actively policing UK aid measures as illustrated by the recent British Capacity Market scheme case (SA35980), where a formal investigation was opened in February 2019 to determine whether the UK’s scheme to safeguard security of electricity supply complies with EU state aid rules.
In the past 10 years, the Commission has not initiated any infringement proceedings against the UK for non-compliance with a recovery order.Relevant authorities
Which national authorities monitor compliance with state aid rules and have primary responsibility for dealing with the European Commission on state aid matters?
BEIS has a state aid unit that acts as the main government department for overseeing state aid notifications and responding to queries in relation to state aid. It is responsible for state aid issues across the whole of the UK government, including local and regional government and the devolved administrations.
As part of BEIS’s remit, it monitors compliance with state aid rules, publishes guidance on state aid and provides advice to interested parties (including local government) on both the application of the state aid rules and UK government policy regarding state aid.
BEIS usually monitors and submits any state aid notifications to the Commission and is the main liaison with the Commission regarding UK state aid issues. The aim is for a central body to oversee all state aid notifications and coordinate the government capabilities in this area.
While a number of other government departments (eg, the Department for the Environment, Food and Rural Affairs, the Department for Transport, the Department for Communities and Local Government and Her Majesty’s (HM) Treasury) and devolved administrations (ie, the Scottish government, the Welsh government and the Northern Ireland Executive) have their own state aid teams, they will usually liaise with BEIS on state aid matters.
If the current Withdrawal Agreement negotiated between the UK and the EU is passed, a transitional period will apply until at least the end of December 2020. During this transitional period, the Commission will continue to apply EU state aid rules and be responsible for monitoring compliance. Following the transitional period, the intention is for the CMA to take over responsibility as the state aid regulator in the UK. However, to prepare for the possibility that the Withdrawal Agreement is not passed and that the UK leaves without a deal at all (a no deal Brexit), the government has laid a Statutory Instrument, titled The State Aid (EU Exit) Regulations 2019 (State aid SI), before Parliament. The State aid SI would ensure that a domestic state aid regime is in place in the event of the UK leaving the EU without a deal. Under the State aid SI, public authorities will need to notify state aid to the CMA rather than the Commission. Aid measures that have already been approved or exempted by the Commission in advance of the UK’s exit will not need to be approved by the CMA under the terms of the State aid SI. However, aid measures that have been notified to the Commission, but where the Commission has not made a decision by the time the UK leaves the EU, will need to be re-notified to the CMA for approval. The passage of the State aid SI has been fraught with political tension between the UK, Scottish and Welsh governments and its future is unclear at the time of writing.
Which bodies are primarily in charge of granting aid and receiving aid applications?
Aid is granted by all bodies capable of granting aid, and there is no centralised function within government that deals with the granting of aid. All local authorities and entities that are considered to constitute state resources are capable of granting aid, but can liaise with BEIS on compliance.
Nevertheless, BEIS is the centralised body that aims to submit all aid notifications to the Commission. As mentioned above, under the terms of the Withdrawal Agreement, the Commission will retain its functions as regards state aid during the transitional period. At the expiry of the transitional period, the responsibility will pass to the CMA. Under the terms of the State aid SI, the CMA will be responsible for granting and receiving aid applications.General procedural and substantive framework
Describe the general procedural and substantive framework.
Guidance on the state aid rules in the UK (including the procedural and substantive framework) is mainly found in various documents issued by BEIS. This guidance is primarily addressed to public bodies and aims to assist them in the process of granting aid. In particular, the guidance encourages public bodies to consider the potential state aid implications of any proposed grants at an early stage and to seek advice as early as possible in cases where there is doubt as to the proposed measure’s compatibility with state aid rules. The CMA has also issued a number of guidance documents which elaborate on the role to be played by the CMA in the monitoring and enforcement of state aid following the UK’s withdrawal from the EU. The CMA is in the process of consulting on draft procedural guidance which will provide general information on the process it envisages adhering to when examining and investigating aid.
By completing a state aid assessment form, public bodies were previously able to obtain guidance and advice from BEIS in relation to a specific proposed aid measure before implementing it. However, as of January 2017, this form has been withdrawn and replaced with a self-assessment document.
General guidance on how to manage public funds is set out in a document titled ‘Managing Public Money’, which is issued by HM Treasury.National legislation
Identify and describe the main national legislation implementing European state aid rules.
The UK currently has no specific legislation implementing the EU state aid rules. Section 2(1) of the European Communities Act 1972 (ECA) provides that ‘rights, powers, liabilities, obligations and restrictions from time to time created or arising by or under the Treaties, and all such remedies and procedures from time to time provided for by or under the Treaties, as in accordance with the Treaties are without further enactment to be given legal effect or used in the United Kingdom shall be recognised and available in law, and be enforced, allowed and followed accordingly’. Section 3 ECA provides for the courts of the UK to apply the decisions of the EU courts when interpreting EU law. The English courts have considered themselves bound by the findings of fact contained within Commission state aid decisions (Betws Anthracite Limited v DSK Anthrazit Ibbenburen GmbH  EWHC 2403).
Given that articles 107 and 108 of the Treaty on the Functioning of the European Union (TFEU) have direct effect, any award of unlawful state aid by any UK public authority may be struck down by judicial review (see questions 20 and 21).
The courts of England and Wales have repeatedly applied the principle of sincere cooperation contained within article 4(3) TFEU and avoided taking decisions that would contradict a decision of the Commission. This includes decisions relating to alleged state aid from member states other than the UK. Micula v Romania  EWCA Civ 1801 concerns an arbitral award resulting from a breach of an investment treaty that was itself brought about as a result of the subsidies awarded to investors being held by the Commission to constitute unlawful state aid. In this case, the Court of Appeal upheld the High Court’s decision to stay the enforcement of an International Centre for Settlement of Investment Disputes arbitration award against Romania, as to order the stay lifted would breach the principle of sincere cooperation under article 4(3) TFEU. The Court also ordered that Romania must provide security for £150 million as a term of the stay of enforcement, but on the basis that non-compliance would not lead to a termination of the stay (in so doing, overturning the decision of the High Court) (ie stopping just short of ordering a payment that would contradict EU law). Micula is now on appeal to the Supreme Court. The Micula brothers are also attempting to enforce arbitral awards against Romania in litigation in other EU member states as well as appealing the adverse state aid decision itself at the EU General Court.
The principle of sincere cooperation will end upon Britain’s exit from the European Union; however, the transitional period provided for under the Withdrawal Agreement, due to last until the end of 2020, will likely require the courts to continue to respect the principle of sincere cooperation. The Withdrawal Agreement also provides for the current EU state aid rules to continue to apply in the UK during the transitional period.
If the State aid SI is passed, it will represent the main piece of legislation governing state aid rules and enforcement in the UK. To ensure certainty and business continuity, the rules of procedure under the State aid SI are similar to the current Commission rules. The State aid SI requires the CMA to publish a notice ahead of the UK’s withdrawal containing details on the form and content of notifications, complaints and information regarding aid that is exempt from notification.
What are the most significant national schemes in place governing the application and the granting of aid, that have been approved by the Commission or that qualify for block exemptions?
Significant recent national schemes in place include the following:
- The Regional Growth Fund: launched in 2010, the scheme has invested over £2.6 billion to aid the growth of local businesses and help such businesses employ more staff. The scheme is projected to create and safeguard some 289,000 jobs. There have been six funding rounds; the first four were open to both private and public organisations whereas the final two were open only to the private sector. Following a spending review in 2015, no further regional growth fund grants are proposed. However, companies and programmes that have already been awarded grants will continue to receive funding and all projects have committed to deliver their benefits by 2020.
- The UK operates four main venture capital schemes, which help various businesses to raise money by offering tax relief to investors on their investments, as follows:
- Enterprise Investment Scheme (EIS) and Venture Capital Trusts Scheme (VCT): both schemes aim to help small but high-risk trading companies to access financing. In November 2017, several changes to the EIS and the VCT were announced (as part of the Autumn Budget 2017), including an increase to the investment limits under the schemes and new restrictions on the type of assets that EIS and VCT funds can invest in.
- The Seed Enterprise Investment Scheme: the scheme is designed to help companies raise money when they are starting to trade subject to certain eligibility criteria (ie, trading for less than two years with less than £200,000 of assets). Companies can receive a maximum of £150,000 through the scheme on which investors can claim tax relief.
- The Social Investment Tax Relief: the scheme helps social enterprises (eg, community benefit societies) to raise finance for qualifying business activities (in particular, the enterprise must be trading commercially and trying to make a profit). Under the scheme, investors making eligible investments to social enterprises can deduct 30 per cent of the cost of their investment from their income tax liability.
- The Innovate UK (Technology Strategy Board) Research, Development and Innovation Scheme: the majority of the support granted by Innovate UK, the UK’s innovation agency, is covered by the GBER exempt Innovate UK (Technology Strategy Board) Research, Development and Innovation scheme. Under the scheme, Innovate UK offers financial support to encourage business investments in research and development. Innovate UK’s 2017/18 Delivery Plan estimates approximately £500 million to be expended (as part of a broader investment of £4.7 billion in research and development over four years) both in competitions to support business-led innovation and in innovation infrastructure that allows businesses to access expertise, equipment and facilities. In 2018, Innovate UK ceased to report to BEIS and became a council of the newly established UK Research and Innovation (the national funding agency investing in science and research in the UK).
- In addition, HM Treasury offers various tax reliefs for research and development businesses. Finally, many research and development schemes are implemented on a regional basis (see, for example, the English Research, Development and Innovation State Aid Scheme 2014-2020 and the Scottish Enterprise Research, Development and Innovation Scheme 2014-2020).
Various schemes focus specifically on the environment, including the following:
- the Renewable Heat Incentive schemes: these consist of two separate schemes, one for the domestic sector and one for the non-domestic sector, which promote the use of renewable heat. The domestic scheme is open to anyone who meets the joining requirements, whether supplied on or off the gas grid. Various changes to the domestic scheme came into force in September 2017 and further changes were introduced in 2018 (including tariff changes, the introduction of heat demand limits and assignment of rights to help householders overcome the barrier of initial capital cost of renewable heating systems). The non-domestic scheme provides incentives designed to increase the uptake of renewable heat by businesses, non-profits and public sector organisations;
- the Renewable Obligation Scheme: this supports the deployment of large-scale renewable electricity generation in the UK. The scheme closed to new generating capacity on 31 March 2017. A similar scheme to encourage small-scale renewable and low-carbon electricity generation technologies in the UK also exists called Feed-in-Tarrifs, which closed to new applicants on 1 April 2019; and
- the Natural England Management Agreement Scheme: operated by Natural England, this focuses on Sites of Special Scientific Interest. The scheme, which ran from November 2013 to December 2018, has a notified budget of £250 million (£50 million annually).
Are there any specific rules in place on the implementation of the General Block Exemption Regulation (GBER)?
BEIS has issued various guidance documents covering the new GBER, including a document specifically on the GBER as well as the general State Aid Manual. While the guidance explains the main provisions of the GBER, it does not refer to any specific rules designed to implement the GBER.
In relation to transparency in particular, the GBER includes new provisions (as discussed in the BEIS guidance) obliging member states to publish details online of any individual aid awards made.
Public ownership and Services of General Economic Interest (SGEI)Public undertakings, public holdings in company capital and public-private partnerships
Do state aid implications concerning public undertakings, public holdings in company capital and public-private partnerships play a significant role in your country?
The UK has a large number of state-owned enterprises that provide goods and services to the public. These range from the National Health Service (NHS) and educational institutions (such as schools and universities) to more commercial enterprises (see question 9). Where state aid issues arise within these entities, they are required to self-assess and any necessary notifications are made through BEIS, as set out above. Following the UK’s withdrawal from the EU, any state aid notifications will be made to the CMA, rather than the Commission.SGEI
Are there any specific national rules on SGEI? Is the concept of SGEI well developed in your jurisdiction?
Various parts of the UK government have invested in public infrastructure as well as commercial entities, and despite many decades of privatisation, there are a number of sectors with government or state-owned sections. These range from entities such as the NHS to the ownership of a number of banks that were bailed out by the UK government during the financial crisis in 2008.
BEIS provides guidance on how state-owned entities or public-private joint ventures can operate within the ambit of state aid law through its ‘State Aid: Frequently Asked Questions’ publication.
In Stagecoach v Secretary of State for Transport, the UK courts applied the Altmark criteria to determine the application of SGEI, in line with EU jurisprudence.
Considerations for aid recipientsLegal right to state aid
Is there a legal right for businesses to obtain state aid or is the granting of aid completely within the authorities’ discretion?
Subject to any potential arguments based on legitimate expectations generated by the actions of a public body, businesses do not have any general rights to insist on receiving aid. Rather, the granting of aid in the UK falls within the discretion of the relevant authority. In addition, several aid schemes in the UK impose specific eligibility criteria that must be satisfied before a business will qualify to receive aid under the scheme.Main award criteria
What are the main criteria the national authorities will consider before making an award?
As mentioned in question 10 above, the criteria that national authorities consider before deciding whether to grant an award will vary depending on the relevant scheme. The application of such criteria is often clarified in guidance, framework documents or on the administrating body’s website. Under the State aid SI, specific provisions are made for aid measures in urgent cases where the aid grantor can grant aid before obtaining CMA approval. This provision can be used in certain cases where aid is granted to remedy serious disturbances in the UK, preserve financial stability or prevent serious social hardship. However, before granting aid in urgent cases, the grantor must inform the CMA and must have regard to any relevant CMA statement of policy.Strategic considerations and best practice
What are the main strategic considerations and best practices for successful applications for aid?
In order to receive aid under a general scheme, applicants must normally demonstrate that they satisfy the eligibility conditions of the particular scheme. Applicants will often address the relevant eligibility conditions in their initial application, and it is important that application forms are drafted so as to clearly identify how the relevant criteria are met. The exact process for applying for aid often varies depending on the relevant administrating body, and prospective aid recipients should therefore contact the relevant body for information on how to apply for aid.Challenging refusal to grant aid
How may unsuccessful applicants challenge national authorities’ refusal to grant aid?
Where an applicant has been unsuccessful in applying for aid, it might be possible to challenge the public authority’s negative decision through judicial review proceedings. Such proceedings essentially involve a challenge to the manner in which a decision has been made, rather than the substance of the decision. Further, if the applicant can prove that it has suffered loss caused by the negative decision, it might, in limited circumstances, be possible to lodge an action for damages against the authority in the civil courts. Further detail is provided in questions 20, 21 and 22.Involvement in EU investigation and notification process
To what extent is the aid recipient involved in the EU investigation and notification process?
The process for notifying state aid, as well as any potential investigations into aid, will predominantly involve the relevant member state rather than the aid recipient. However, while the aid recipient does not enjoy any formal rights to be involved in the notification or investigation process, in practice the relevant public authority is often willing to engage with the recipient. The aid recipient is particularly likely to be afforded an opportunity to engage with the notification or investigation process where it possesses information or expertise that is required to advance the notification or to address any Commission concerns.
This may well change when the CMA takes over state aid enforcement from the Commission (see question 2). However, it should be noted that, under the State aid SI, the obligation to notify aid will remain with the aid grantor rather than the recipient.
Strategic considerations for competitorsComplaints about state aid
To which national bodies should competitors address complaints about state aid? Do these bodies have enforcement powers, and do they cooperate with authorities in other member states?
There are no national bodies with specific competence to which competitors can address state aid complaints. Typically, any complaints can be addressed to the courts. BEIS normally refers complainants directly to the Commission, and BEIS guidance refers complainants to the Commission’s online complaints form.
As mentioned, following the UK’s withdrawal from the EU, the CMA will be responsible for state aid issues in the UK. While the exact workings of the post-Brexit state aid regime in the UK are still to be decided, it is worth noting that under the terms of the State aid SI the CMA is obligated to examine any properly submitted complaint regarding alleged unlawful aid. Therefore, if the State aid SI is ultimately passed by Parliament, competitors would be able to complain directly to the CMA.Dealing with illegal or incompatible aid
How can competitors find out about possible illegal or incompatible aid from official sources? What publicity is given to the granting of aid?
As there is no centralised register of aid granted or aid measures, it is difficult to find out about possible illegal or incompatible aid from official sources. Details of approved schemes are often announced by the granting body, and these can be found by monitoring the official pages of the relevant government body in a particular industry or locality.
As mentioned above, the CMA is envisaged to take over the role of overseeing the implementation of state aid rules in the UK following the UK’s withdrawal from the EU. Investigations by the CMA into possible state aid, and the decisions made in relation to aid measures, are likely to be published on the CMA website (eg, as it currently publishes merger and cartel investigations and decisions). For example, under the terms of the State aid SI, the CMA is obliged to publish (subject to limited exceptions) certain details, including the decision and the reason for the decision, as soon as reasonably practicable after taking a decision following its examination of a complete notification. The same publication requirement applies when the CMA examines state aid on its own initiative or pursuant to a properly submitted complaint.
Give details of any legislation that gives competitors access to documents on state aid granted to beneficiaries.
There is no specific legislation for state aid. However, there is a right to information under the Freedom of Information Act 2000, and applicants can submit a Freedom of Information Act Request to obtain specific information from government and public authorities that are subject to the act. A similar act, the Freedom of Information (Scotland) Act 2002, applies in Scotland.
Public bodies have the ability to refuse the grant of information if certain exemptions apply (as specified in the relevant Freedom of Information Acts). In the past, the UK government has been successful in refusing to grant access to such information (eg, the Information Commissioner’s decision refusing to grant access to BEIS documents regarding state aid to the Post Office).
The UK has wide rules regarding disclosure, making it possible to obtain greater access to information during the course of court proceedings relevant to the matter.
What other publicly available sources can help competitors obtain information about possible illegal or incompatible aid?
There are a wide array of public sources available, but these will vary depending on the sector that is being monitored. Good sources of information can include monitoring national, local and trade press, websites of the relevant local authorities and publications of minutes (eg, local council minutes). In addition, information on aid may be made available from annual reports, board resolutions or shareholder resolutions published on a company’s website or through Companies House. Finally, information may also be available from prospectuses or public offer documents.
See also the discussion regarding the CMA’s new role set out in question 16.Other ways to counter illegal or incompatible aid
Apart from complaints to the national authorities and petitions to national and EU courts, how else may complainants counter illegal or incompatible aid?
There are very few other avenues of submitting complaints. Apart from the Commission and the courts, which offer the most obvious avenue for raising complaints, other strategies include lobbying ministers or Members of Parliament or complaining to other member states.
Although the precise parameters of the CMA’s new state aid role post-Brexit have not been determined, it is likely that complainants will be able to bring issues of potential illegal or incompatible aid directly to the CMA’s attention. For example, the State aid SI contains express provisions allowing interested parties to submit complaints to the CMA regarding alleged unlawful aid or misuse of aid (see question 15). Such complaints must display reasonable grounds to show the existence of unlawful aid or the misuse of aid.
Private enforcement in national courtsRelevant courts and standing
Which courts will hear private complaints against the award of state aid? Who has standing to bring an action?
Private claims for damages or injunctive relief may be brought:
- in England and Wales, at the High Court or the County Court;
- in Scotland, at the Court of Session; and
- in Northern Ireland, at the High Court of Northern Ireland.
In most cases, the appropriate remedy is not to seek damages or injunctive relief but rather a judicial review of the governmental decision that gave rise to the alleged aid. In England and Wales, such a claim is launched in the Administrative Court, a branch of the High Court. The usual appeal routes for each of those courts will then apply.
To bring judicial review proceedings, an applicant must show that it has ‘sufficient interest’ to have standing to bring the review. Competitors of the recipient of alleged unlawful state aid have been regarded as having sufficient standing to challenge state aid decisions. (see, for example, R v Attorney-General ex parte ICI (1987) 1 CMLR 72 (CA)).
Applications for judicial review must be brought promptly and in any event no later than three months from the date of the decision awarding the alleged aid (CPR Part 54).
As mentioned in response to question 19, the provisions of the State aid SI will also allow interested parties to submit complaints to the CMA regarding unlawful aid or misuse of aid. Under the State aid SI, an interested party means any person, undertaking or association of undertakings whose interests might be affected by the granting of aid, and may in particular include beneficiaries, competing undertakings and trade associations. If the State aid SI is passed, it remains to be seen how this will operate in practice but the reference to ‘whose interest might be affected’ (emphasis added) suggests a relatively low threshold.Available grounds
What are the available grounds for bringing a private enforcement action?
Damages are available in principle for a claimant that has been injured by an award of unlawful state aid - the English courts applied Francovich v Italy C-6/90 and C-9/90 in Secretary of State for Employment v Mann (1997) ICR 209. However, although available in principle, Francovich damages have never been awarded by the English courts to a party injured by a decision to grant unlawful state aid.
A decision may be set aside by judicial review where the court concludes that it was illegal, irrational or procedurally unfair. See Council of Civil Service Unions v Minister for the Civil Service (1985) AC 374.
The application for judicial review is made to the court, with the defendant being the UK public authority that made the contested decision. The following remedies may be sought:
- a declaration that the decision made was unlawful;
- an order quashing the decision; and
- an order prohibiting or compelling an action.
In practice, the public authority is likely to remake the decision prior to trial if the applicant’s case is strong and the decision easily amended to correct the behaviour that is the subject of the complaint.
State aid arguments have also been used as a defence in private actions. In Eventech v Parking Adjudicator  EWHC 1903, the appellant used state aid arguments in order to suggest that the fines imposed were unlawful, as the enforcement of traffic restrictions against one group (private hire taxis) and not another (black cabs) amounted to a grant of state aid to the latter.Defence of an action
Who defends an action challenging the legality of state aid? How may defendants defeat a challenge?
As with the Commission’s state aid enforcement, claims for both damages and judicial review are directed at the public authority awarding the aid and not the recipient of the aid itself, which is an interested third party.
With regard to damages, the English courts applied SFEI v La Poste C-39/94 in Betws Anthracite Limited v DSK Anthrazit Ibbenburen GmbH  EWHC 2403 and held that a competitor cannot claim damages from a recipient of unlawful aid. Betws Anthracite does, however, suggest that a competitor of an unlawful state aid recipient may have a claim against the member state that is the addressee of the Commission decision finding the aid unlawful. This claim would be for damages suffered as a result of the unlawful aid (ie, Frankovich damages), for a mandatory injunction compelling the member state to recover the aid, or for both.Compliance with EU law
Have the national courts been petitioned to enforce compliance with EU state aid rules or the standstill obligation under article 108(3) TFEU? Does an action by a competitor have suspensory effect? What is the national courts’ track record for enforcement?
Judicial review cases based on state aid are rare. At the time of writing, there have been four reported judicial review cases in the English courts since 2010 advancing arguments that the decision under review amounted to a grant of unlawful state aid. None of these arguments were successful. It appears that state aid arguments in judicial review cases in the English courts have only been successful in two cases. Both of these relate to discriminatory tax treatment (R v Attorney-General, ex parte ICI (1985) 1 CMLR 588 (Div Ct); (1987) 1 CMLR 72 (CA) and R v Commissioner for Customs and Excise, ex parte Lunn Poly (1998) EuLR 438 (Div Ct); (1999) EuLR 653 (CA)).
As noted above, there is no record of the English courts awarding damages for breach of the state aid rules.
Arguments based on state aid have also been advanced in cases other than judicial review or damages actions. For example, in Brown v Carlisle City Council  EWHC 707, the grant of planning permission to an airport was challenged on (among others) state aid grounds. In Eventech v Parking Adjudicator  EWHC 1903, the fining of private hire taxis but not black cabs for driving in London bus lanes was challenged on the grounds that the decision amounted to unlawful state aid for black cabs. In both cases, the state aid arguments were ultimately unsuccessful.
In Micula, the High Court and Court of Appeal both held that the appropriate remedy in cases where there is a risk that the court might come to a different finding from the Commission is to stay the claim pending the conclusion of the appeal against the Commission’s decision holding that unlawful state aid has been awarded.
In Advocate General For Scotland v John Gunn & Sons Limited and John Gunn & Sons Holding Limited  CSOH 39, the Scottish Court found that enforcement of a recovery order (in this case, the payment of the Aggregates Levy where the would-be payer had been exempted by virtue of unlawful state aid) would only take place against the entity that had been the beneficiary of the unlawful state aid. Notably, the court did not conclude that the application of state aid law to the undertaking required it to grant enforcement orders against the top company in the recipient’s corporate group.Referral by national courts to European Commission
Is there a mechanism under your jurisdiction’s rules of procedure that allows national courts to refer a question on state aid to the Commission and to stay proceedings?
There is no mechanism for the English courts to refer a question to the Commission (as opposed to the European courts). The Commission is, however, able to intervene in proceedings or to provide an amicus curiae. Where a Commission decision is pending on a matter that might affect the outcome of a case, the courts will stay proceedings (in whole or in part) as part of their duty of sincere cooperation (see, for example, Micula v Romania  EWCA Civ 1801).Burden of proof
Which party bears the burden of proof? How easy is it to discharge?
A party raising an argument usually bears the burden of proof.
This means that an applicant in a judicial review case or a claimant in a damages case must prove any state aid arguments advanced on the balance of probabilities. A damages claimant must also prove the quantum of damages claimed on the balance of probabilities. Conversely, where a defendant wishes to advance state aid arguments in its defence (as in Eventech v Parking Adjudicator  EWHC 1903), these must be proved on the balance of probabilities.
In relation to access to documents or evidence, orders for disclosure (which is a statement that a document exists or has existed) are typically made at the first case management conference. The case management conference is essentially an early hearing allowing the court to identify the real issues in dispute and direct how the dispute will be conducted. There are different approaches to disclosure under UK law, and the applicable approach will depend on, for example, whether there are electronic documents to be disclosed and what track the dispute has been allocated to. In fast- and multi-track claims involving personal injury claims, the default order is for standard disclosure which, broadly, requires disclosure of documents that assist or harm the case of any of the parties to the dispute. In multi-track claims not involving personal injury claims, the default position is that the judge will decide the particular order for disclosure (the Civil Procedure Rules provide a number of available options) in light of the overriding objective and the need to limit disclosure to what is necessary to justly deal with the case. Separate disclosure rules apply to small-track claims.
Distinct from disclosure, which as mentioned above merely confirms that a document exists or has existed, is the actual inspection of the disclosed documents. Inspection usually takes place by the parties exchanging copies of the relevant documents. Some documents, such as those covered by privilege, can be withheld from inspection.Deutsche Lufthansa scenario
Should a competitor bring state aid proceedings to a national court when the Commission is already investigating the case? Do the national courts fully comply with the Deutsche Lufthansa case law? What is the added value of such a ‘second track’, namely an additional court procedure next to the complaint at the Commission?
Deutsche Lufthansa AG v Flughafen Frankfurt-Hahn GmbH C-284/12 was cited in Micula as preventing the court from enforcing an arbitration award made against Romania, mandating the payment of sums regarded by the Commission as constituting unlawful state aid (see question 5).
Deutsche Lufthansa AG was interpreted narrowly in the Scottish case Cloburn Quarry Company Limited  CSOH in relation to a case concerning the Aggregates Levy, exemptions to which were being reviewed by the Commission in order to assess their legality under the state aid rules. In this case, the judge concluded that the Commission’s investigation into the exemptions did not preclude the court from determining that the Aggregates Levy itself constituted unlawful state aid. Further, Micula notes that although the enforcement of an arbitral award containing unlawful state aid will breach the principle of sincere cooperation, the payment of security with respect to the award does not.
The value of a second track can therefore be seen (i) in cases where the decision being sought does not align precisely with the subject matter under investigation by the Commission; and (ii) potentially, to take preparatory steps enforcing the payment of sums that may be owing to a beneficiary pending the outcome of a Commission investigation or appeal to the European courts with respect to the state aid status of those sums.Economic evidence
What is the role of economic evidence in the decision-making process?
Depending on the facts of the case, expert economic evidence can play a role in state aid cases. The court may order that a single expert witness be used, or alternatively that each party have its own expert(s). Evidence may be heard from the parties’ experts simultaneously, in a procedure known as ‘hot tubbing’.
In R v Attorney-General, ex parte ICI, the economic evidence of an expert witness was discussed by both the High Court ((1985) 1 CMLR 588) and the Court of Appeal ((1987) 1 CMLR 72).Timeframe
What is the usual time frame for court proceedings at first instance and on appeal?
At the time of writing, the latest available statistics for civil proceedings cover the period January to December 2018. For cases that proceeded to a hearing during this period, the average length of a judicial review case from the time that the application was lodged with the court to the permission stage was 90 days. This excludes judicial review applications relating to immigration, asylum or criminal matters but includes state aid cases.
For the same period, the average length of time between the application being lodged and the final hearing was 290 days. There are no statistics available specifically for state aid damages claims.
The increased length of time taken to bring a judicial review claim to trial can, in part, be explained by the applicant’s need to receive permission from the court to bring a judicial review claim prior to bringing the review itself. No such permission is required in order to bring a civil claim for damages.Interim relief
What are the conditions and procedures for grant of interim relief against unlawfully granted aid?
The English courts have a wide discretion to grant interim injunctive relief. The criteria for deciding whether to grant such relief are set out in American Cyanamid Co v Ethicon Ltd (1975) AC 396. They are:
- whether there is a serious question to be tried;
- whether damages awarded at trial would be an adequate remedy as an alternative to an interim injunction;
- whether on the balance of convenience of each party an injunction should be granted; and
- whether there are any additional relevant factors.
A party seeking an interim injunction will normally be required to give an undertaking to compensate the defendant against which the injunction is sought for any damages incurred as a result of the interim injunction in the event that the party’s case fails at trial. As discussed in question 32, the State aid SI makes provisions for the CMA to issue interim recovery orders in certain circumstances.Legal consequence of illegal aid
What are the legal consequences if a national court establishes the presence of illegal aid? What happens in case of (illegal) state guarantees?
As the below cases show, the question of whether a measure is unauthorised (and therefore unlawful) state aid comes up mainly in the context of a judicial review, a successful application resulting in the government body being required to make the decision again.
The High Court of Northern Ireland has quoted with approval the principle set out in Dimosia Epicherisi v Olouminion Tis Ellados C-590/14 that the court of a member state is empowered to determine whether a measure amounts to state aid and can grant remedies to enforce the obligations of the member state not to put the state aid into effect without prior notification to the Commission and a positive decision (see In the matter of an application by the Renewable Heat Association Northern Ireland Limited and another for judicial review  NIQB 122 (Renewable Heat Association NI).
Where the UK courts have ruled in favour of a claimant seeking to establish that the payment of a benefit amounts to unlawful state aid, the remedy granted has been a declaration that the measure is unlawful: see Attorney-General, ex parte ICI (1985) 1 CMLR 588 (Div Ct); (1987) 1 CMLR 72 (CA) and R v Commissioner for Customs and Excise, ex parte Lunn Poly (1998) EuLR 438 (Div Ct); (1999) EuLR 653 (CA)).
Where claimants have attempted to claim a benefit that is being withheld by the UK on the grounds that the benefit constitutes state aid in the absence of an explicit decision of the Commission to the contrary, the courts have taken the likely unlawful state aid nature of the benefit into account when denying the claim (Renewable Heat Association NI).
As indicated by the refusal of the court to enforce an arbitral award in Micula, the likely result of a guarantee being held to constitute unlawful state aid will be that the court will refuse to enforce it.Damages
What are the conditions for competitors to obtain damages for award of unlawful state aid or a breach of the standstill obligation in article 108(3) TFEU? Can competitors claim damages from the state or the beneficiary? How do national courts calculate damages?
While damages stemming from an award of unlawful state aid have not been awarded to a claimant in the English courts, such damages would likely take the form of damages for a breach of statutory duty. Damages for a breach of statutory duty are intended to put the injured party in the position it would have been in had the breach not occurred and, as such, can include a claim for lost profits.
Interest (dating from the time that the damage accrued) is also available. The English courts normally award costs on a ‘loser pays’ basis. However, a successful claimant is, in practice, highly unlikely to recover all the costs incurred in bringing the claim.
The criteria for awarding damages against the member state that paid the unlawful aid are those for Francovich damages, as set out in R v Secretary of State for Transport ex parte Factortame joined cases C-46 and 48/93, namely:
- the rule of law infringed was intended to confer rights on individuals (Lorenz v Germany C-120/70 confirms that the article 108(3) TFEU does so);
- the infringement is ‘sufficiently serious’; and
- there is a direct causal link between the breach and the loss suffered.
The cause of action is unlikely to be able to be brought against the beneficiary of aid, but the beneficiary can be added to the claim by the state, or the state can bring an action for contribution in relation to an award. As national courts have not awarded damages, it is hard to determine how they would be calculated, but the courts will usually take a compensatory rather than punitive approach in calculating damages.
State actions to recover incompatible aidRelevant legislation
What is the relevant legislation for the recovery of incompatible aid and who enforces it?
The UK has not adopted any specific legislation to establish a process for recovering unlawful state aid. As a result, the basis of state aid recovery in the UK is not well established (see question 33).
In practice, however, local authorities frequently include ‘clawback’ provisions in their funding agreements with aid recipients. Such provisions are designed to offer the granting authority a contractual method of recovery (should it become necessary). Clawback provisions are particularly likely to be included in scenarios where it is reasonably clear from the outset that the measure involves state aid, but where the parties have concluded that it is lawful.
To ensure the effectiveness of UK state aid rules following the transitional Brexit period, the CMA will likely be given powers enabling it to make recovery orders for incompatible aid. It remains to be seen, however, whether such orders will be directed at the governmental agency that granted the aid (in which case the prevalence of clawback provisions is likely to continue) or directly to the beneficiary of the aid.
If the State aid SI is enacted, the process of recovering unlawful state aid will be put on a statutory footing. In particular, the CMA will have the power to make interim recovery orders if it has opened a formal investigation and considers that, for example, there is an urgency to act and a serious risk of substantial and irreparable damage to a competitor of the aid beneficiary unless an interim recovery order is made. If an interim recovery order is made, the aid grantor must take all necessary measures to provisionally recover the alleged unlawful aid and interest.
Under the State aid SI, where the CMA has taken a formal decision that aid is unlawful or that lawful aid has been misused, it must make a recovery order requiring the aid grantor to take all necessary measures to recover the aid (with interest) from the beneficiary. However, the CMA is not able to make a recovery order where to do so would contradict the protection of any legitimate expectation created by the CMA (by the aid grantor) or where the limitation period for the aid has expired.Legal basis for recovery
What is the legal basis for recovery? Are there any grounds for recovery that are purely based on national law?
As mentioned in question 32, in the absence of a contractual recovery right, the basis of recovery of illegal state aid in the UK is not well established. The first case heard before the English courts that involved state aid recovery (DTI v British Aerospace and Rover (1991) 1 CMLR 165) did not formulate the legal basis on which such recovery could be realised. In the DTI case, the Commission had previously found that the aid received by British Aerospace to assist with its purchase of Rover constituted illegal state aid. Following the Commission’s decision, the UK government brought an action against the aid recipient in the English High Court to recover the aid. The government based its case on the duty to comply with the earlier Commission decision. However, the UK recovery proceedings were stayed pending the outcome of an action for annulment of the Commission’s decision. The Commission ultimately made a new recovery order that was effected without a court order.
The DTI case is not the only instance in which the Commission has ordered the UK to recover aid. However, like the DTI case, such cases have not offered any guidance as to the basis for recovery of aid. For example:
- in the BT Group plc case (Case C55/2007), an escrow account had already been put in place to hold the disputed funds and to effect recovery in the event that the European Court of Justice (ECJ) would confirm the Commission’s initial recovery decision. Therefore, the mechanics for effecting recovery were already established before the recovery order was confirmed. The ECJ confirmed the Commission’s decision on 22 October 2014 (see Commission decision of 11 February 2009; Case T-226/09 BT v Commission, T-230/09 BT Pension Scheme Trustees v Commission; and Case C-620/13P BT v Commission); and
- in the British Aggregates Levy case (Case SA34775), the Commission issued a recovery order in respect of an exemption to the Aggregates Levy (see Commission decision of 27 March 2015). At the time, the UK government stated an intention to cooperate with both the Commission and relevant businesses to minimise the impact of the recovery order. However, the exact shape of the recovery process remains unclear and, in particular, it remains to be seen whether it will result in any litigation.
As mentioned in question 32, if the State aid SI is enacted into law it will provide a statutory basis pursuant to which the CMA can issue recovery orders to aid grantors. However, the State aid SI is silent as to the basis of recovery as between the aid grantor (ie, the subject of any CMA recovery order) and the aid recipient. As such, the practice of inserting contractual claw-back provisions to facilitate recovery in the event that an aid measure is subsequently found to be incompatible with the state aid rules is likely to continue.
In Advocate General for Scotland v John Gunn, the Crown was able to successfully apply to the court for the recovery of unlawful aid, and this was considered to be a valid claim by itself in Scotland.Commission-instigated infringement procedures
Has the Commission ever opened infringement procedures before the CJEU because of non-recovery of aid under article 108(2) TFEU?
The Commission has not opened infringement procedures before the ECJ against the UK under article 108(2) TFEU, for alleged non-recovery of aid. However, the Commission has brought such actions against other member states of the EU. For example, it brought an action under the old article 88(2) TEU (now article 108(2) TFEU) seeking a declaration from the ECJ that Greece had failed to take all measures necessary, within the prescribed period, to effect repayment of the unlawful aid granted to Olympic Airways (C-415/03 Commission v Greece).Implementation of recovery
How is recovery implemented?
This very much depends on the nature of the grant, the entity that made the grant and any contractual provisions between the parties. It would need to be assessed on a case-by-case basis.Article 108(3) TFEU
Can a public body rely on article 108(3) TFEU?
Yes. In Renewable Heat Association NI, the presence of unlawful state aid was one of the grounds considered by the High Court of Northern Ireland for not enforcing claims of would-be beneficiaries to benefits granted under the Renewable Heat Incentive Scheme Regulations 2012 for a period of 20 years that were subsequently withdrawn a mere five years later by the Renewable Heat Incentive Scheme (Amendment) Regulations 2017.
In that case, the 2012 Regulations had been approved by a state aid decision of the Commission. However, the rate of return to beneficiaries envisaged in the Commission’s decision was far below the rate of return actually enjoyed by beneficiaries. This, the court concluded, could mean that the beneficiaries were enjoying state aid that had not been authorised by the Commission.
The court held that the UK government was entitled to take into account the likely non-compliance with state aid law of the 2012 Regulations as they were being applied in choosing to modify them with the 2017 Regulations.
In Micula, the English court held that it could not enforce an arbitral award against Romania that might involve the payment of unlawful state aid but that the Court could order the payment of security into court with respect to the unpaid sums, provided that these sums were not paid over to the claimants. See question 5.Defence against recovery order
On which grounds can a beneficiary defend itself against a recovery order? How may beneficiaries of aid challenge recovery actions by the state?
Aid beneficiaries can seek to resist any proposed recovery of state aid by challenging the UK government’s recovery actions before the national courts.
Alternatively, rather than waiting for a recovery action that can be challenged before national courts, aid recipients can also attempt to obtain a proactive determination that aid is unrecoverable in one of the following ways:
- where the state, through a decision, has announced its intention to pursue recovery and where that decision is in itself subject to review, the aid recipient can seek to commence judicial review proceedings to obtain a declaration of unlawfulness of the decision; and
- where both the grant and the subsequent recovery of the aid is based on contractual arrangements, the recipient can bring an action before the national courts to seek a declaration that the UK government lacks adequate contractual rights to recover the aid.
It might also be possible for recipients to use more specialist forums to resist recovery. For example, if the aid takes the form of tax relief, which is subsequently withdrawn by HM Revenue & Customs, it might be possible for the recipient to bring the case before a specialist tax tribunal.
In Advocate General for Scotland v John Gunn, the court rejected arguments that the repayment would have been a breach of human rights regarding the protection of property.Interim relief against recovery order
Is there a possibility to obtain interim relief against a recovery order? How may aid recipients receive damages for recovery of incompatible aid?
Aid recipients can seek to obtain interim injunctions to suspend a recovery order. In practice, however, a court is unlikely to grant such interim injunctions unless the applicant can show that the proposed recovery is without any clear legal basis (see question 29 regarding the conditions that must be met in order to obtain an interim injunction).
In addition to challenging the recovery, an aid recipient can bring a challenge before the European courts in respect of the underlying Commission decision finding the aid to be unlawful. Such a challenge will typically take the form of an action for annulment.
Under the regime set out in the State aid SI, aid grantors must be given an opportunity to send comments to the CMA before the regulator can make an interim recovery order.
Update and trendsRecent developments
Are there any emerging trends or hot topics relating to state aid control in your jurisdiction? What are the priorities of the national authorities? Are there any current proposals to change the legislation? Are there any recent important cases in the field of fiscal aid (taxes), infrastructure, or energy? Any sector enquires?No updates at this time.