Waste Collection Company loses appeal against Council over EU State Aid Rules

On 1 February 2022, the Court of Appeal rejected The Durham Company Ltd.’s (trading as ‘Max Recycle’) appeal over a High Court decision to award Durham County Council (the ‘Council’) summary judgment in relation to a damages claim for an alleged breach of EU State aid rules regarding their waste collection service.

Max Recycle argued that a breach of European Union state aid rules had occurred. Max Recycle appealed against an order dismissing its claim for breach of Article 108(3) of the Treaty on the Functioning of the European Union.

The Council provided both household waste collection service and some commercial waste collections. The Council charged for the collection of commercial waste. Both the commercial and household waste were disposed of together. As a result, Max Recycle stated the Council’s charge for the disposal of commercial was lower and therefore Max Recycle lost business.

Max Recycle further argued that because the Council was able to use the same vehicles and infrastructure for both types of waste, the Council was able to charge lower prices. Max Recycle claims the Council cross-subsidised the charges of commercial waste collection out of its general revenues, and in particular revenues from council tax. Therefore, this resulted in the use of state aid contrary to EU law. Max Recycle claimed damages and a declaration as a result. Max Recycle made a further point claiming that the Council’s commercial waste collection was exempt from VAT, unlike Max Recycle trading as a private firm. However, this was challenged at an earlier proceeding and Max Recycle was unsuccessful in its challenge.

Max Recycle complained to the European Commission in July 2018 that the Council had breached EU state aid rules however, this complaint was rejected but the Directorate General for Competition. The Council argued that Max Recycle did not plead any facts that could be relied upon to support the allegation regarding a breach of Article 108(3). On appeal, the Court found the following:

Selective advantage - there was no real prospect of establishing the grant of state aid contrary to art.107(1) because Max Recycle had not satisfied the requirement that a "selective advantage" had to be conferred by the measure complained of favouring certain undertakings over others in a comparable legal and factual situation.

Sufficiently serious breach - Max Recycle argued the High Court judgment erred in finding that it had no real prospect of showing that any breach of Article 108(3) could be sufficiently serious to merit damages. Furthermore, it was found that reliance on the Council’s selectivity argument – whether a state measure favours ‘certain undertakings or the production of certain goods’ was found to be procedurally unfair and he erred in finding that declaratory relief under Article 107(1) would serve no useful purpose. The Court of Appeal found the judgment in the High Court had not been inconsistent in allowing the Council’s selectivity argument and found both the judgment in the High Court and the Commission’s assessments showed “the present case was a long way from the kind of egregious, wilful, deliberate or at least manifest breach of EU law that is required for an award of Francovich damages”.

Declaratory Relief - The Court of Appeal found the application for declaratory relief made by Max Recycle would serve no useful purpose as “the judge was clearly correct to say that a declaration would be academic given that the UK was no longer going to be bound by EU law on this subject”. Max Recycle argued that a declaration as to the position under EU law “could cast light on the position under the [Subsidy Control] Bill, assuming it becomes law”. Arnold LJ stated, “in my view this is a hopeless argument. It would plainly do no such thing”. The Court of Appeal dismissed Max Recycle’s application.

If you would like further information on the issues discussed in this article, please contact Declan Magee or another member of the Litigation and Dispute Resolution team.