HM Insights

Creative Scotland is not an "undertaking" under the Competition Act 1998

The Competition Appeal Tribunal has issued its judgement following its first sitting in Scotland in 15 years.  On 2 March 2020, the Tribunal, chaired by The Honourable Lord Doherty, heard legal arguments on whether or not Creative Scotland, the public body that supports the arts, screen and creative industries across Scotland, is an "undertaking" for the purposes of the Competition Act 1998 (CA98).

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Jennifer Jack and James McMorrow, partners at Harper Macleod LLP, represented Creative Scotland, together with Morag Ross QC (Axiom Advocates) and Julianne Morrison (Monckton Chambers), in its successful defence of the competition law claim brought by Strident Publishing Limited.

Strident alleged that Creative Scotland was providing "investment finance" to publishers receiving Open Project Fund (OPF) grant funding and had "abused a dominant position", contrary to the Chapter II prohibition set out in section 18 of the CA98. The prohibitions in the CA98 only apply to "undertakings", therefore the preliminary issue in the case was to establish whether or not Creative Scotland was an undertaking for the purposes of the CA98 in respect of the activity about which Strident complained.

Is Creative Scotland an Undertaking?

"Undertaking" has no statutory definition but the principal jurisprudence is neatly summarised in the 2017 Competition Appeal Tribunal case UKRS Training Limited v NSAR Limited (at para [67]).  

Creative Scotland argued that there were various factors pointing to it not being an "undertaking", including that it is a public authority exercising its statutory powers to distribute public funds as grants to support literary activity.  Also, it had not been engaging in economic activity providing “investment finance” as, in making grants, Creative Scotland was not making a commercial investment for a financial return. It is a condition of Creative Scotland OPF funding that no profit is made over the project period and a recoupment mechanism operates where any profit is generated, which is a rare occurrence.  While not decisive, this is a relevant factor, when taken with the others that were set out, in favour of the conclusion that Creative Scotland was not engaged in economic activity as an undertaking.

Strident, however, claimed that Creative Scotland was providing “investment finance” and that awarding grants to the publishers was different to the provision of grants for creative projects generally because publishing projects created books which became an income-producing asset and could be sold for profit long after the end of the project period. Strident also argued that Creative Scotland had not exercised its powers on behalf of the State or a public authority. 

Decision

The Tribunal unanimously held that distribution of public monies as grants, with no financial gain or return obtained or expected by Creative Scotland, does not fall to be characterised as the provision of investment finance. The Tribunal held that Creative Scotland is a statutory public body exercising statutory functions which are typically those of a public authority, for no profit, and it is not an undertaking.  It said "In our opinion it could hardly be clearer that CS is a public authority.  Accordingly, the power to make grants which CS exercised derives from legislation, and it was exercised on behalf of a public authority. In short, application of the guidance in [67](6) [UKRS Training Limited v NSAR Limited] suggests that the making of the grants to the publishers was not an economic activity carried on by an undertaking.  In the whole circumstances, applying the guidance in UKRS Training Limited v NSAR Limited at [67], we are satisfied that the pursuer’s provision of grants to the publishers was not an economic activity carried on by an undertaking. "

As Creative Scotland is not an undertaking in terms of the CA98, the activity complained of is not conduct prohibited by the CA98 Chapter II and the Tribunal has no jurisdiction.

Comment

This is a significant decision because it addresses head-on the extent to which public authorities are subject to the CA98.

Crucially, for the many public bodies that provide grant funding throughout the UK in a variety of sectors, the case provides welcome guidance and clarity on how to assess their activities against the various criteria that will determine whether they are subject to the requirements of the CA98.