CoA removes costs cap in long running state aid dispute

The Court of Appeal has overturned a costs cap imposed by the Competition Appeal Tribunal in a long-running dispute between Durham County Council and a waste management firm named The Durham Company, which trades as Max Recycle.

Various rounds of legal action have taken place since 2014 over whether Durham exploits unlawful state aid when it competes with Max Recycling for handling business customers’ wastes.

Max Recycle has argued at each stage that Durham enjoys an unlawful cross-subsidy as its commercial trade waste operation is subsidised by its non-commercial household waste service.

It has said this means the council can charge trade waste customers below market rates - costing Max Recycle customers - as it could not sustain these rates were it a standalone business handling only trade waste.

In its latest litigation, Max Recycle has brought an action against the council under the Subsidy Control Act 2022.

Sir Julian Flaux noted following a case management conference in February tribunal president Sir Marcus Smith imposed a costs cap of £60,000 on the council, and £50,000 on Max Recycle, but without first requiring the parties to prepare cost budgets.

Sir Marcus granted the council leave to appeal against the imposition of the costs cap and Sir Julian said: "The council advances four grounds of appeal. The judge did not consider that any of them had a real prospect of success but gave permission to advance them on the basis that it was important that the Court of Appeal should determine whether the general guidance as to the appropriateness of cost capping in subsidy control cases which the judge was seeking to give was correct.”

The first of the council’s four grounds were that the tribunal erred in adopting a different starting point to costs management in applications for statutory review under section 70 of the 2022 Act from that in proceedings for judicial review and in proceedings for statutory review before the courts and the CAT.

Its second ground was that Sir Marcus capped the council’s costs at £60,000, which was “an irrationally low level”.

Durham further argued that Sir Marcus failed to provide adequate reasons for his decision, and precluded Durham - were it successful - from recovering its reasonable and proportionate costs.

The council also said the costs cap was unfair as Sir Marcus had not invited submissions from the parties on that issue, and the effect of his decision was that almost all the costs the council incurred preparing its defence were subject to an effective cap of £10,000 but Max Recycle’s equivalent pleading and evidential costs had already been incurred before that date and hence are uncapped.

Sir Julian said in his judgment: “The judge’s aim of seeking to ensure that the costs of subsidy control reviews under section 70 of the 2022 Act do not become excessive, thereby discouraging challenges under the section, was an entirely laudable one, but unfortunately the tool which he employed of imposing limiting costs caps of £60,000 and £50,000 on the council and Max Recycle respectively, irrespective of their actual reasonable and proportionate costs, was one which, in my judgment, he had no jurisdiction to impose.

“With respect to the judge in the present case, he did not consider whether the three conditions required under CPR 3.19(5) for a costs capping order were met, no doubt because the cap he was intending to impose was a limiting one, not related to the council’s reasonable and proportionate costs.”

He said Sir Marcus erred and the appeal must be allowed on the first ground as it had been wrong to impose a limiting costs cap. Lord Justice Newey and Lord Justice Nugee agreed.

Commenting on the case, Richard Howell of Brick Court Chambers, who appeared as junior counsel for the council, said: “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.”

Mark Smulian