In the context of a claim brought by Strident Publishing Limited ("Strident") against Creative Scotland ("CS"), the UK's Competition Appeal Tribunal ("CAT") has reiterated that UK and EU competition law only applies to a public body where it is acting as an "undertaking".
The CAT found that CS was not acting as an undertaking, meaning that UK competition law did not apply to its activity, and that the CAT did not have jurisdiction to hear the claim.1
While the CAT's analysis is specific to the role of CS as a public-sector arts funder, it nevertheless provides helpful guidance for the purposes of assessing whether a public body is acting as an undertaking, such that UK and/or EU competition law would apply to its activities.
The case also highlights the possibility of having the point determined as a preliminary issue (i.e. in advance of any main trial), so as to seek to dismiss a claim at an early stage in proceedings.
Strident's allegations against CS
Strident (an independent literary publisher) claimed that CS (the principal public-sector arts funder in Scotland) had breached UK competition law by providing grant funding to three other literary publishers, placing Strident at a competitive disadvantage.
CS had provided the grant funding via a programme known as the Open Project Fund ("OPF"). Funding was available under the OPF for projects across the arts, and was to be used for activities that promoted the public good, rather than for private or commercial gain. Applications for funding were assessed against specific award criteria.
Strident had made five applications for OPF grant funding between 2016 and 2018, although none of these were successful. However, three other literary publishers did receive OPF grant funding from CS.
Strident alleged that CS's award of OPF grant funding to the publishers constituted investment finance, and that CS had therefore acted as an undertaking meaning that UK competition law applied to this activity.
This argument was advanced on the basis that the publishers used the grant funding to publish books, which subsequently became income producing assets for those publishers. Strident argued that such funding gave rise to a different outcome when compared to other creative projects more generally, in relation to which grant funding did not create subsequent income producing assets.
In view of Strident's claim, CS applied to the CAT for an order that either the CAT did not have jurisdiction to hear the claim, or that the claim was struck out, on the basis that CS was not an undertaking.
The CAT subsequently directed that CS's application be heard as a preliminary issue, which was to be determined in advance of any main trial.
The concept of an undertaking under UK and EU competition law
In considering the preliminary issue, the CAT reiterated that UK and EU competition law only applies to undertakings.
While the CAT confirmed that there is no legislative definition of an undertaking, it observed that the case law of the Court of Justice of the European Union and national courts does provide guidance.
From the relevant case law, the concept of an undertaking encompasses every entity (regardless of its legal status or how it is financed) that is engaged in the economic activity of offering goods and/or services on a market, where that activity could be carried out by a private actor for profit.2
When is a public body (not) acting as an undertaking?
In an earlier case, the CAT considered as a preliminary issue whether one party was an undertaking, and set out within its judgment the following guidance derived from the relevant case law in relation to this assessment:3
- A functional approach is appropriate: where a body carries out several activities, it is necessary to consider whether the activity in question can properly be regarded as a discrete function.4
- Where the activity is of its nature a core function of the State, the body will not be an undertaking.5
- The fact that the body does not operate for profit is relevant, but by no means decisive.6
- Where the activity in question has been (or is also) carried out by a private body on a commercial basis, that indicates that it is to be regarded as an economic activity, such that the body carrying it out is an undertaking.7
- Where the charges levied by the body are determined not by it, but by a public authority, that indicates that it is not an undertaking.8
- Where the power exercised by the body derives directly from legislation, or is exercised on behalf of the State or a public authority, that indicates that it is not an undertaking.9
Strident and CS both focussed upon this guidance, although it was common ground that point five had no bearing on the preliminary issue before the CAT, as CS did not levy charges.
The CAT's consideration of the relevant guidance
The CAT's consideration and application of this guidance to CS is outlined below.
- Was CS carrying out a discrete function in providing investment finance to literary publishers?
The CAT considered that "the essential nature of CS's activity was the awarding of grants from public funds to support creative activity for the public benefit".10
Further, the CAT found that CS awarded OPF grant funding to literary publishers on the same terms, and by reference to the same award criteria, as it awarded OPF grant funding to other applicants.
Therefore, the CAT did not find that CS's award of OPF grant funding to literary publishers was a discrete activity. The CAT also rejected the argument that CS was active in providing investment finance to such publishers, on the basis that "the distribution of public monies as grants, with no financial gain or return obtained or expected by CS, does not fall to be characterised as the provision of investment finance".11
- Was CS's activity a core function of the State?
The CAT observed that public funding had supported the arts in Great Britain since 1940, and considered that the award of grants to fund the arts involved the exercise of powers which were typically those of a public authority.
The CAT considered this to be a factor which tended to point to CS's activity not being an economic activity carried out by an undertaking.
- Did CS operate for profit?
While not decisive, the CAT considered the fact that CS did not operate for profit to be a further factor which tended to point to CS's activity not being an economic activity carried out by an undertaking.
- Could CS's activity be carried out by a private body on a commercial basis?
On the basis that CS provides grants (and not investment finance), the CAT held that this activity could not be carried out by a private body on a commercial basis for profit.
Again, the CAT considered that this tended to point to CS's activity not being an economic activity carried out by an undertaking.
- Does the power exercised by CS derive directly from legislation, or is it exercised on behalf of the State or a public authority?
Having regard to the legislation that established CS,12 the CAT held that CS's power to award grants derived directly from that legislation.
In addition, the CAT held that CS itself was a statutory public body, which was accountable to the Scottish Ministers, who exercised significant control over CS and its activity.
Amongst other aspects, the CAT also observed that CS was a Scottish public authority for the purposes of the Freedom of Information (Scotland) Act 2002, and was a specified authority for the purposes of the Public Appointments and Public Bodies etc. (Scotland) Act 2003: "in our opinion, it could hardly be clearer that CS is a public authority".13
The CAT therefore concluded that CS's power to award grants was derived from legislation, and was exercised on behalf of CS as a public body. This again suggested to the CAT that CS's activity was not an economic activity carried out by an undertaking.
CS was not acting as an undertaking
Considering the available evidence holistically, and applying the guidance derived from the relevant case law, the CAT found that CS's award of grant funding to literary publishers was not an economic activity carried on by an undertaking.
In light of this finding, the CAT confirmed that CS's activity was not prohibited by UK competition law, and that the CAT did not have jurisdiction to hear the claim.
Guidance from the CAT's judgment
While focussing upon CS and its role, the judgment provides helpful guidance for the purposes of assessing whether a public body is acting as an undertaking, such that UK and/or EU competition law would apply to its activities.
Procedurally, the judgment also emphasises the possibility of having the point determined as a preliminary issue in advance of any main trial, so as to seek to dismiss a claim at an early stage in proceedings.
1 See, Strident Publishing Limited v Creative Scotland 2020 CAT 11.
2 See, for example, Case C-41/90 Höfner and Elser v Macrotron ECLI:EU:C:1991:161; Cases C-180/98 to C-184/98 Pavlov and Others v Stichting Pensioenfonds Medische Specialisten ECLI:EU:C:2000:428; and Case C-475/99 Ambulanz Glöckner v Landkreis Südwestpfalz ECLI:EU:C:2001:577.
3 See, UKRS Training Limited v NSAR Limited [ 2017 ] CAT 14, paragraph 67.
4 See, Case C-82/01P Aéroports de Paris v Commission EU:C:2002:617; Case C-364/92 SAT Fluggesellschaft v Eurocontrol EU:C:1994:7; and Case C-113/07P SELEX Sistemi Integrati v Commission EU:C:2009:191.
5 See, Case C-343/95 Diego Cali & Figli v SEPG EU:C:1997:160; Case C-364/92 SAT Fluggesellschaft v Eurocontrol; and Case C-41/90 Höfner and Elser v Macrotron.
6 Case C-475/99 Ambulanz Glöckner v Landkreis Südwestpfalz; Case C-41/90 Höfner and Elser v Macrotron; and Case C-113/07P SELEX Sistemi Integrati v Commission.
7 Case C-475/99 Ambulanz Glöckner v Landkreis Südwestpfalz; and Case C-41/90 Höfner and Elser v Macrotron.
8 Case C-343/95 Diego Cali & Figli v SEPG; Case C-364/92 SAT Fluggesellschaft v Eurocontrol; and Case C-82/01P Aéroports de Paris v Commission.
9 Case C-364/92 SAT Fluggesellschaft v Eurocontrol; Case C-113/07P SELEX Sistemi Integrati v Commission Case C-343/95 Diego Cali & Figli v SEPG; and The Institute of Independent Insurance Brokers v DGFT 2001 CAT 4.
10 Strident Publishing Limited v Creative Scotland, paragraph 42.
12 See, the Public Services Reform (Scotland) Act 2010.
13 Strident Publishing Limited v Creative Scotland, paragraph 50.
Originally published May 1, 2020.
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