Introduction

The Durham Company Ltd v Durham County Council ([2022] EWCA Civ 66) is a pivotal case adjudicated by the England and Wales Court of Appeal (Civil Division) that delves into the complexities of State aid under the Treaty on the Functioning of the European Union (TFEU). The dispute arose between The Durham Co Ltd trading as Max Recycle ("TDC") and Durham County Council ("the Council"), where TDC alleged that the Council unlawfully provided State aid in breach of Article 108(3) TFEU. The core issues revolved around whether the Council's pricing strategies for commercial waste collection services constituted selective advantages, thereby distorting competition and whether such breaches were sufficiently serious to merit State liability under the principles established in Francovich v Italian Republic.

Summary of the Judgment

The High Court initially dismissed TDC's claims for breach of Article 108(3) TFEU through summary judgment. TDC appealed this decision, contending that the Council's actions amounted to unlawful State aid and seeking declaratory relief, an injunction, and damages. The Court of Appeal upheld the High Court's decision, finding that TDC failed to demonstrate a sufficient prospect of success in proving that any breach of Article 108(3) was sufficiently serious to warrant State liability. Additionally, the appeal was dismissed on procedural grounds, and TDC's claims for declaratory relief were deemed moot due to Brexit-related legal changes.

Analysis

Precedents Cited

The judgment extensively referenced several key precedents in EU State aid law:

• Francovich v Italian Republic ([1991] ECR I-5357): Established the doctrine of State liability, outlining conditions under which a Member State may be liable for damages to individuals resulting from breaches of EU law.
• Brasserie du Pêcheur SA v Federal Republic of Germany ([1996] ECR I-1029): Refined the conditions for State liability, emphasizing the necessity of the infringement being "sufficiently serious."
• R (on the application of Negassi) v Secretary of State for the Home Department ([2013] EWCA Civ 151): Provided guidance on assessing the seriousness of a breach, introducing a multifactorial test to evaluate whether a violation warrants State liability.
• Credit Suisse (Securities) Ltd v Commissioners for Her Majesty's Revenue and Customs ([2019] EWHC 1922 (Ch)): Discussed the application of the selectivity condition in State aid cases, outlining a three-stage analysis for complex assessments.
• R (TDC) v Commissioners for HM Revenue and Customs ([2016] UKUT 417 (TCC)): Addressed the VAT treatment of commercial waste collection services by local authorities, influencing the current case's context.

Legal Reasoning

The court's legal reasoning centered on two main aspects:

• State Aid Analysis: TDC contended that the Council's commercial waste collection services were priced below market rates due to cross-subsidization from household waste services funded by council tax revenues. This pricing strategy, TDC argued, constituted State aid as it provided a selective advantage, thereby distorting competition in violation of Article 107(1) TFEU.
• State Liability (Francovich Conditions): For TDC to succeed in its claim for damages, it needed to establish that the Council's breach of Article 108(3) TFEU was sufficiently serious. The court applied the multifactorial test from Negassi, considering factors such as the importance of the breached rule, the clarity of the rule, intent behind the breach, and the behavioral response of the infringer upon recognizing the breach.

The Court of Appeal agreed with the High Court that TDC failed to demonstrate a realistic prospect of success in proving that any breach was sufficiently serious. The argument hinged on the Council's selective advantage not being conclusively established and the absence of intentional wrongdoing or egregious disregard for State aid rules. Furthermore, the procedural aspects, such as the late raising of the selectivity condition argument by the Council, were deemed unfair to TDC, undermining the validity of the Council's defenses.

Impact

This judgment has significant implications for future State aid and liability cases:

• Clarification of Francovich Conditions: Reinforces the stringent requirements for establishing State liability, emphasizing that breaches must not only occur but also be sufficiently serious.
• Selectivity Condition: Highlights the complexities in proving whether a measure confers selective advantages and the procedural fairness required in raising such arguments during litigation.
• State Liability Precedent: As no previous cases successfully awarded Francovich damages for State aid breaches, this judgment maintains the high threshold for such claims, possibly discouraging similar lawsuits.
• Impact of Brexit: The dismissal of declaratory relief due to Brexit underscores the shifting legal landscape and the transition from EU State aid rules to the UK's own subsidy control regime.

Complex Concepts Simplified

Conclusion

The Durham Company Ltd v Durham County Council case underscores the rigorous standards applied in assessing State aid breaches and the conditions required for State liability under EU law. By dismissing TDC's claims, the Court of Appeal affirmed the difficulty of proving sufficiently serious breaches warranting State liability, particularly in the absence of clear evidence of intentional wrongdoing or egregious disregard for regulatory obligations. Moreover, the procedural fairness in raising legal arguments during litigation is paramount, as highlighted by the court's remedying of the Council's untimely selectivity argument. This judgment serves as a critical reference point for future cases involving State aid and reinforces the need for meticulous adherence to both substantive and procedural legal standards.