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03 December 2020
Strident's allegations against CS
Concept of an undertaking under UK and EU competition law
When is a public body (not) acting as an undertaking?
CAT's consideration of relevant guidance
CS was not acting as an undertaking
In the context of a claim brought by Strident Publishing Limited against Creative Scotland (CS), the Competition Appeal Tribunal (CAT) has reiterated that UK and EU competition law applies to a public body only 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 had no 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 or EU competition law would apply to its activities.
The case also highlights the possibility of having the point determined as a preliminary issue (ie, in advance of any main trial), so as to seek to dismiss a claim at an early stage in proceedings.
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 were successful. However, three other literary publishers received 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 with other creative projects more generally, in relation to which grant funding created no subsequent income-producing assets.
In view of Strident's claim, CS applied to the CAT for an order that either the CAT had no jurisdiction to hear the claim or that the claim be 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.
In considering the preliminary issue, the CAT reiterated that UK and EU competition law applies only to undertakings.
While the CAT confirmed that there is no legislative definition of an undertaking, it observed that the case law of the European Court of Justice and the national courts provides guidance.
From the relevant case law, the concept of an undertaking encompasses every entity (regardless of its legal status or how it is financed) engaged in the economic activity of offering goods or services on a market, where that activity could be carried out by a private actor for profit.(2)
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)
Strident and CS both focused on this guidance, although it was common ground that the fifth point had no bearing on the preliminary issue before the CAT, as CS did not levy charges.
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 the United Kingdom 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.
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?
With 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 was a statutory public body, which was accountable to the Scottish ministers who exercised significant control over CS and its activity.
Among 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)
Therefore, the CAT concluded that CS's power to award grants was derived from legislation and 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.
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 had no jurisdiction to hear the claim.
While focusing on 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 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.
For further information on this topic please contact Samuel Beighton or Bernardine Adkins at Gowling WLG by telephone (+44 207 379 0000) or email (email@example.com or firstname.lastname@example.org). The Gowling WLG website can be accessed at www.gowlingwlg.com.
(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.
(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.
(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  CAT 4.
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