The Queen on the application of BT3G Limited and One 2 One Personal Communications Limited v Secretary of State for Trade and Industry

A financial advantage arising incidentally from the operation of auction rules does not necessarily constitute State aid. The relevant question is whether the State acted as a rational commercial party would have acted, having regard to its regulatory obligations. Objective justification and the absence of discriminatory treatment may be relevant, particularly where the affected undertakings are in materially different positions. A regulator may insist on satisfying a competition-related precondition before granting licences, even if this delays payment and produces a temporary comparative financial benefit. Public law review likewise requires assessment of rationality, fairness and proportionality in the regulatory and commercial context.

The appellants were successful bidders for third-generation mobile telecommunications licences. Vodafone and Orange were also successful bidders, but their mutual association meant that their licences could not be granted until the association ended. Consequently, they paid approximately four months later than the appellants.

The appellants challenged the Secretary of State’s refusal to use paragraph 1.1.6 of the Auction Rules to disregard the association at the grant stage, or alternatively to defer all payments. Silber J granted permission for judicial review but dismissed the substantive applications. The central issues were whether the resulting payment advantage was State aid and whether the Secretary of State’s conduct was irrational, discriminatory, unfair or disproportionate.

1. Appeal dismissed. The statutory appeals were not pursued. The Court of Appeal endorsed Silber J.’s reasoning and refused leave to appeal to the House of Lords.
2. The Court accepted, without deciding conclusively, that the financial advantage caused by deferred payment was capable of falling within Article 87(1) of the EC Treaty. It was nevertheless necessary to determine whether aid had actually been granted.
3. The normal market conditions test was appropriate. It required comparison with the conduct of a rational commercial party in the Secretary of State’s position. Such a party would have retained the precondition as leverage where substantial sums were involved and the precondition was vital to the regulatory objective of preventing one entity from holding more than one licence.
4. The Secretary of State had objective justification for refusing to exercise paragraph 1.1.6 at the grant stage. Permission to participate in the auction while the association was temporary involved a lesser risk than granting licences while the association continued. Vodafone and Orange were materially different from the other successful bidders because they remained subject to a significant precondition and lacked an accrued right to their licences.
5. The operation of generally applicable Auction Rules, which could affect any bidder subject to a precondition, did not amount to discrimination or favouritism. Any financial advantage was fortuitous and was accompanied by potential adverse consequences, including the obligation to divest Orange.
6. The Court agreed that the auction had the important attributes of a competitive trade sale and that the rules were rational, transparent and accepted without objection. The alleged payment holiday therefore did not constitute aid granted by a Member State or through State resources.
7. The public law challenge also failed. The Secretary of State acted rationally, fairly and proportionately. Relevant considerations included safeguarding competition, the accepted Auction Rules, the necessity of satisfying the precondition, the possible detriment to Vodafone and Orange, the limited scale of the alleged benefit, and the inadequacy of the proposed alternatives.

BT was ordered to pay the Secretary of State’s costs and Vodafone’s costs before Laws LJ, but not the costs of the appeal.

• Court of Appeal (Civil Division): appeal from the judgment of Silber J. dated 21 December 2000, reported at [2001] EuLR 325. Appeal dismissed.
• Administrative Court, Queen’s Bench Division: permission for judicial review granted, but the substantive applications refused.