In this post, Luke Kelly and Michael Bowsher KC discuss the Court of Appeal’s judgment in R (British Gas Trading and E.ON) v Secretary of State for Energy Security and Net Zero [2025] EWCA Civ 209.
Background
In 2021, wholesale energy prices in the UK increased by more than 400%. This posed an existential threat to Bulb Energy Limited (Bulb). At the time, Bulb held electricity and gas licences and supplied 1.5 million domestic consumers. In November 2021, the Office of Gas and Electricity Markets (Ofgem) intervened in a bid to rescue Bulb. It applied for and obtained an Energy Supply Company Administration Order (ESCA Order) pursuant to section 94 of the Energy Act 2011 (EA 2011), placing Bulb under the control of Joint Energy Administrators (JEAs). The Secretary of State for Energy Security and Net Zero (SoS) provided the JEAs with funding to enable Bulb to continue trading.
The statutory purpose of the ECSA Order was to secure energy supply from Bulb until the Order became unnecessary due to one or both prescribed means under section 95 EA 2011. Those means are (1) the rescue of the company as a going concern; and (2) a transfer of the business (or parts of the business) to one or more undertakings pursuant to section 95(3) EA 2011. In February 2022, the JEAs embarked on a process to transfer the business of Bulb. Octopus was the only bidder. Its bid was contingent on receiving financial support from the SoS. The JEAs recommended the acceptance of Octopus’ bid, which culminated in the SoS taking two decisions: the first was to provide funding to Bulb until 31 March 2023 (the Funding Decision); the second was to approve the transfer to Octopus (the Approval Decision).
Both decisions were challenged by British Gas and E.ON on public law grounds. The Funding Decision was challenged on the additional ground that it failed to meet the requirements relating to subsidy controls provided for in the “Trade and Co-operation Agreement between the European Union and the European Atomic Energy Community, of the one part, and the United Kingdom of Great Britian and Northern Ireland of the other part” (the TCA). The Divisional Court (Singh LJ and Foxton J) refused permission to apply for judicial review based on undue delay but nevertheless considered the substance of the claims. The Divisional Court concluded that (1) it would have refused permission on the public law grounds; and (2) would have granted permission on the subsidy control grounds relating to the Funding Decision but refused judicial review on the merits. British Gas and E.ON appealed to the Court of Appeal.
Before dealing with the judgment of the Court of Appeal (Zacaroni, Dingemans and Underhill LLJ), we deal briefly with the relevant aspects of subsidy control under the TCA.
Subsidies under the TCA
The TCA sets out a framework for co-operation between the UK and the EU across various areas, including subsidies. The parts of the TCA dealing with subsidies have now been given effect to in the UK through the Subsidy Control Act 222 (SCA 2022). However, at the time that the Funding Decision was made, the SCA 2022 was not in force. This meant that the subsidy control provisions in the TCA were implemented pursuant to the general provisions of section 29(1) of the European Union (Future Relationship) Act 2020 (EUFRA 2020). In Heathrow Airport Limited v HMRC [2021] EWCA Civ 783, Green LJ (at §228) found that provisions of the TCA were transposed into domestic law “expressly and mechanistically”.
Article 366(1) of the TCA provides that each “party” (i.e. the UK and the EU) is obliged to put in place and maintain an effective system of subsidy control that adheres to certain principles. These include, for example, the principle that subsidies are proportionate and limited to what is necessary to achieve their objective (Article 366(1)(b)). Article 372 of the TCA obliges the parties to ensure that their courts or tribunals are competent to inter alia review subsidy decisions and impose remedies, including to provide for a remedy to recover a subsidy from a beneficiary (Articles 372(1)(a) and (c)). Article 372(3) provides that nothing requires either party to the TCA to create rights of action, remedies, or to widen grounds of review, beyond those already in existence under domestic law. The subsidy control provisions in the TCA also contain time periods for interested parties to institute proceedings to challenge a decision to grant a subsidy (see Article 373(2) read with Article 373(3)(b)).
The parties accepted before the Divisional Court that the funding made available by the SoS pursuant to the Funding Decision constituted a subsidy for purposes of the TCA that was capable on having an effect on trade or investment between the UK and the EU.
The core issues of principle before the Court of Appeal
Delay
The first ground of appeal concerned the threshold issue of undue delay. On this the main points were crisp:
- First, was there any basis to interfere with the Divisional Court’s finding that the appellants had unduly delayed in challenging the Funding Decision?
- Second, are domestic law principles of undue delay incompatible with Article 373(2) of the TCA which specifies a period of one month to institute a challenge to a subsidy, and Article 369(5) which requires the relevant public authority to provide relevant information concerning the decision within 28 days to enable the interested party to determine whether to pursue a challenge?
As to the first issue, the Court of Appeal found that no basis existed to interfere with the Divisional Court’s broad discretion to conclude that the appellants had been aware of the essential basis of their complaint and had delayed unduly from that time in launching their challenge. The crux of this finding was that the circumstances mattered – undoing the transfer of Bulb to Octopus would have profound consequences such that delay “was rightly measured in days” (§44).
As to the second issue, the Court of Appeal upheld the Divisional Court’s finding that there is no incompatibility between the domestic law principle of undue delay and the TCA and found that “[i]t remains open to the court in any given case to conclude that the applicant for judicial review has sufficient information such that it should have acted without waiting for its request to be answered” (§51). In other words, nothing in the subsidy control provision of the TCA cut across or disabled the application of domestic principles of undue delay.
The correct standard of review
A key point of contestation between the parties before the Court of Appeal concerned the appropriate standard of review to be applied to the Funding Decision. The appellants had argued before the Divisional Court (and continued to argue before the Court of Appeal) that it is for the court to determine whether a subsidy under the TCA complies with the subsidy principles in the TCA which, as noted above, include that a subsidy must be “proportionate” and limited to what is necessary to achieve its objective (Article 366(1)(b)).
The appellants’ case was that the court is required to arrive at its own conclusion as to whether the subsidy flowing from the Funding Decision was necessary and proportionate. That is because section 29 EUFRA 2020 implemented the obligation in Article 366 that any subsidy granted by a public authority in the UK must comply with the subsidy principles in the TCA. The SoS and Octopus took a different view. Their primary argument was that the TCA does not require a court to stray beyond the rationality standard of review; in the alternative they submitted that if a proportionality standard of review does apply, it must be applied with a “light touch” in the circumstances of the case.
The Divisional Court approached the issue on the basis that a “light touch” principle of proportionality applied, meaning that the decision-maker (the SoS in this case) was afforded an enhanced margin of appreciation. The Divisional Court referred to the Supreme Court’s judgment in R (Lord Carlile of Berriew) v Secretary of State for the Home Department [2014] UKSC 60 where at §31 Lord Sumption stated that even in the context of the Human Rights Act 1998 where courts adopted a more exacting standard of review “…it stops short of transferring the effective decision-making power to the courts”.
The Court of Appeal disagreed with the position adopted by the Divisional Court that a “light touch” proportionality standard of review applied. It did so by posing and then answering two questions:
- First, what does the modification to UK law required by the TCA as implemented by section 29 EUFRA 2020 entail?
- Second, what is the standard of review of a decision by a granting authority (in this case the SoS) that is required under English law to satisfy the UK’s obligations under the TCA?
Before turning to these questions the Court made the following observations about the applicability of the concept of “proportionality” (at §67):
“It is also necessary, in my judgment, to distinguish 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. There is no doubt that proportionality is a component of the decision to be made by the relevant public authority pursuant to the [subsidy principles]: Article 366(1)(b) expressly requires the decision-maker to determine whether the subsidy is “proportionate … to achieve the objective”. It does not follow, however, that upon a review of that decision the court is required itself to apply a proportionality standard of review.”
In relation to the first question, the Court of Appeal found that section 29 EUFRA 2020 implements Article 366(1) of the TCA (the subsidy control principles) by modifying domestic law, which in this particular case was section 165 of the EA 2011, to provide that the decision by the SoS to extend a loan or make a grant under that section is consistent with the subsidy control principles, but it does not require a UK court or tribunal “to apply anything other than existing domestic law principles when reviewing the decision…” (§73). Remarking on the import of Heathrow Airport, the Court of Appeal concluded that there is nothing in the judgment that compelled the conclusion that the subsidy control principles are implemented in domestic law as “hard-edged” principles of law (§77).
The Court of Appeal found that this conclusion was fortified by several provisions of the TCA (Articles 4, 372 and 373) that when read together make it clear that the extent of the UK’s obligation under the subsidy control provisions of the TCA is to put in place a system of subsidy control that requires the decision-maker to adhere to the subsidy principles, and that enables an interested party to review that decision before a court or tribunal in terms of domestic law. It was also consistent with the provisions of SCA 2022 that had subsequently implemented the relevant provisions of the TCA. The Court of Appeal held that the principle that later legislation on the same subject matter could be an interpretative aid to earlier legislation applied with particular force (§§86 to 88).
As to the second question, the answer was bound up with the first. The Court of Appeal found that the Divisional Court was wrong to have found that the standard of review to be applied included proportionality as a distinct ground. According to the Court of Appeal, conventional domestic principles of judicial review apply and “proportionality” (save insofar as it may be a component of rationality, an issue which the Court did not address) is not a distinct ground of review of subsidy decisions under the TCA. However, the Court of Appeal rejected the argument advanced by the SoS that the standard of review should be limited to rationality and found that it encompasses errors of law and procedural fairness (§90).
The outcome of the appeal
Having examined the Divisional Court’s evaluative findings on alleged errors in the application of the subsidy control principles, alleged errors of law relating to the competitive bidding process and alleged unfairness in the bidding process, the Court of Appeal ultimately found that no basis existed to interfere on appeal. In doing so the Court of Appeal emphasised that the threshold for interference in relation to findings of fact by a lower court is high: see Henderson v Foxworth [2014] UKSC where at §67 it was held that an appellate court will only interfere with a finding of fact it has no basis in the evidence, or is premised on a demonstrable misunderstanding of the evidence, such that the decision “cannot reasonably be explained or justified”.
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