Commercial market operator principle clarified in CAT ruling on subsidy control challenge

Jonathan Blunden, Oliver Slater and Oliver Dickie analyse a recent Competition Appeal Tribunal (CAT) judgment rejecting a challenge to two loans made by a combined authority.

The Competition Appeal Tribunal (CAT) has issued an important judgment under the Subsidy Control Act 2022, rejecting a challenge to two development loans made by the Greater Manchester Combined Authority (GMCA) to local developer Renaker.

The decision is the first to interpret the commercial market operator (CMO) principle under the Act, providing key direction for both public bodies and subsidy challengers.

The ruling offers early and practical guidance on how the Tribunal will approach subsidy control disputes, particularly in the context of public sector lending decisions.

Background

The case concerned two loans issued by GMCA under the Greater Manchester Housing Investment Loans Fund:

• Approximately £70.8 million to Trinity Developments (Manchester) Limited (Trinity)

• Approximately £69.2 million to New Jackson (Contour) Investments Limited (Jackson)

Both Trinity and Jackson are special purpose vehicles within the Renaker corporate group.

Mr Aubrey Weis (the Appellant), a Manchester-based developer with a portfolio of major projects in the region, challenged the legality of the loans. He argued that they constituted subsidies which did not comply with the CMO principle, as required by the Act.

The CAT identified three key issues for determination:

1. Whether GMCA made a subsidy decision within the meaning of section 70 of the Act, and if so, when that decision occurred.
2. Whether a commercial market operator would have provided the loans on equivalent terms, including interest rates and charges.
3. Whether GMCA had breached its duty of candour during the proceedings.

Findings

The Tribunal found in favour of GMCA on all three grounds.

1. A subsidy decision had been made. The CAT confirmed that a subsidy decision was taken when GMCA approved the loans and delegated authority to implement them. This occurred before any legal entitlement to the funding had arisen. As a result, a challenge can be brought even before financial assistance is formally provided.
2. The loans satisfied the CMO test. The Tribunal accepted that GMCA’s decision to award the loans was rational. The interest rates were found to be reasonable and not low. The loans were assessed as low risk, and GMCA’s investment team was considered experienced and competent. On this basis, GMCA was entitled to conclude that the terms reflected market conditions and satisfied the CMO principle.
3. No breach of candour. GMCA was found to have complied fully with its duty of candour and to have properly assisted the Tribunal throughout the litigation.

Key Implications

1. Timing of subsidy decisions

The Tribunal adopted a broad view of when a subsidy decision occurs. It held that a decision can arise at the point a public authority agrees to pursue a specific course of action, even if formal agreements have not yet been signed. This interpretation broadens the potential scope for challenge and highlights the importance of early legal assessment in the decision-making process.

2. Interpretation of the CMO principle

The CAT drew on established EU State aid case law in its interpretation of the CMO principle. In particular, it referred to R (Sky Blue Sports) v Coventry City Council [2016] EWCA Civ 453 and British Gas Trading v Secretary of State for Energy Security and Net Zero (Bulb Energy) [2025] EWCA Civ 209. The Tribunal reaffirmed that public authorities are entitled to a margin of appreciation in determining whether a private investor would have acted similarly.

3. Contextual analysis over formality

The judgment emphasised that future appeals involving the CMO principle will be considered in their commercial and factual context, rather than through rigid judicial review standards. What matters is whether the authority’s market analysis was rational and supported by evidence.

4. Regulatory compliance is not determinative

The CAT clarified that compliance with The Subsidy Control (Gross Cash Amount and Gross Cash Equivalent) Regulations 2022 is not conclusive of market terms. Authorities must undertake an independent assessment of whether their financial arrangements are consistent with what a commercial market operator would offer.

Conclusion

This important decision provides early judicial guidance on the application of the Subsidy Control Act 2022. It confirms that public authorities retain commercial discretion in funding decisions, provided those decisions are rational, properly evidenced, and transparently made. It also reinforces the need for thorough internal processes and clear market justification when structuring public funding arrangements.

Sharpe Pritchard commentary

Our subsidy control team advises on all aspects of the Act, including the application of the CMO principle in practice. We support public bodies in designing lawful funding mechanisms and assist both claimants and public authorities in litigation under the subsidy control regime.

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