Germany
| Author | Th. Jestaedt; J. Derenne; T. Ottervanger |
| Profession | Jones Day; Lovells; Allen & Overy |
| Pages | 205-259 |
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The purpose of this report is to analyse whether and to what extent judicial relief is available in State aid proceedings. For the analysis of the availability of judicial relief under the German legal system, the following types of procedures were distinguished:
* Procedures concerning the direct effect of Article 88 (3) EC (section 2.1)
* Procedures concerning the enforcement of negative Commission decisions (section 2.2)
* Procedures concerning the enforcement of positive Commission decisions (section 2.3)
A brief section (section 2.4) analyses the case law by German courts in State aid matters (described in section 3). The analysis discusses, in particular, whether and to what extent judicial relief was used and whether it can be considered satisfactory from a State aid perspective.
The infringement of Article 88 (3) EC can be contested both in public law disputes (section 2.1.1) and private law disputes (section 2.1.2).
Public law disputes ("öffentlich-rechtliche Streitigkeiten") are disputes where at least one of the parties is a public authority acting in its capacity as a public authority (as opposed to public authorities acting in the private market place), and where the legality of a legislative or administrative act is challenged. In the context of Article 88 (3) EC, the question is whether the legislative or administrative act involves unlawful State aid and therefore infringes Article 88 (3) EC.
Public law disputes can be further distinguished into two main categories:
* actions by a company or individual to challenge a legislative or administrative act by which allegedly unlawful State aid is granted to a third party, usually a competitor ("complaints directly targeted at competitors")
* actions, by a company or individual to challenge a legislative or administrative act which is directly addressed to the company or individual. These actions are not directly targeted at the benefits granted to third parties, for example competitors ("complaints targeted at imposition of burden").
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a) Complaints directly targeted at competitors
Complaints directly targeted at competitors are actions by which a company or an individual challenges a legislative or administrative act by which allegedly unlawful State aid is granted by a public authority to a competitor. These actions can either be aimed at preventing the grant of the aid, or, if the aid has already been granted, at requiring the public authority to recover the aid180.
The type of proceedings to be followed to bring a public law complaint targeted at a competitor depends both on the aim of the action (preventing the grant of State aid or requiring the public authority to recover State aid) and the way in which State aid was granted (by unilateral administrative decision or by means of a public contract).
Usually, the company or individual intending to challenge the grant of aid (or to require recovery) must lodge a complaint ("Widerspruch", "Einspruch") with the authority that adopted the measure. Only if the objection is rejected, can a court action be brought.
In most cases, the administrative courts will be competent. Decisions by the administrative courts can be appealed to the Courts of Appeal ("Oberverwaltungsgerichte"), and can be further appealed to the Federal Administrative Court ("Bundesverwaltungsgericht"). However, depending on the subject matter to which the aid relates, the dispute may also fall within the competence of the tax courts ("Finanzgerichte") or social courts ("Sozialgerichte").
The appropriate action to be brought depends, again, on the aim of the action and the way in which State aid was granted. German administrative law provides for a wide variety of different actions which are used according to the circumstances ("Anfechtungsklage"; "Verpflichtungsklage"; "Feststellungsklage"; "Allgemeine Leistungsklage" or "Folgenbeseitigungsanspruch"). Usually, it will be necessary to dispose of the administrative act by which the aid was granted by means of an Anfechtungsklage. Interlocutory proceedings are available if the relevant conditions (for example, urgency) are satisfied.
A company or individual has standing to bring an action against an unlawful aid granted to a competitor if the administrative act by which the aid was granted is unlawful and, at the same time, violates the claimant's rights. In 1998, the Verwaltungsgericht of Magdeburg expressly stated for the first time that a violation of Article 88 (3) EC confers standing on a company that is directly affected by the grant of aid to a competitor.
b) Complaints targeted at imposition of burden
Complaints targeted at the imposition of a burden are complaints brought by a company or an individual against a legislative or administrative measure by which the company or individual is negatively affected ("belastende Maßnahmen"). Usually, the contested legislative or administrative measure requires the company or individual to pay a tax or otherPage 207 contribution. To avoid payment of the tax or contribution, the company argues that either the request for payment itself (i.e. the administrative act) or the legislative act on which the administrative act is based are unlawful. One of the arguments that can be made is that the tax or contribution (or the interpretation of the relevant provisions which were adopted by the public authority) amounts to unlawful State aid that infringes Article 88 (3) EC and is unenforceable. It follows from the ECJ's case law181 that the court must, if it accepts this argument, suspend the application of the legislative or administrative act that imposes the tax or other contribution.
Variations of these cases are actions by which a company or an individual challenges the decision of a public authority not to grant some form of tax benefit or other contribution. The argument that is made in these cases is that the refusal to grant the tax benefit or contribution benefits the claimant's competitors, which in turn would constitute unlawful State aid. An infringement of Article 88 (3) EC therefore requires an interpretation of the relevant legislative or administrative act establishing the tax exemption or contribution of which the claimant is the beneficiary.
An example of this category of cases is the case decided by the Verwaltungsgericht of Würzburg of 15 November 2004, where the claimant challenged an invoice for a participation fee ("Teilnehmerentgelt"), arguing that the fee constituted State aid and was therefore unenforceable.
The proceedings to be followed by the company or individual depend largely on the legislative or administrative act in question. As a general rule, the action must be brought against the administrative act, since it is usually not possible to challenge legislative acts directly. However, any court must, when assessing the legality of the administrative act, assess the legality of the legislative act on which the administrative act is based at the same time. If the legislative act infringes Article 88 (3) EC and is therefore unlawful, the administrative measure was adopted without a valid legal basis ("Ermächtigungsgrundlage") and is therefore automatically unlawful and unenforceable.
Since these cases relate to measures which are directly addressed to the company or individuals, both these addressees will always have standing to bring an action. In administrative proceedings the addressee is usually required to lodge a complaint ("Widerspruch", "Einspruch") with the authority that adopted the measure. Only if the objection is rejected, can a court action be brought.
Most disputes involving a private party, on the one hand, and a public authority, on the other hand, (i.e. administrative law disputes) are dealt with by administrative courts ("Verwaltungsgerichte"). Decisions by the administrative courts can be appealed to the Courts of Appeal ("Oberverwaltungsgerichte"), and can be further appealed to the Federal Administrative Court ("Bundesverwaltungsgericht"). In disputes involving tax matters, the taxPage 208 courts ("Finanzgerichte") are competent, whose decisions can be appealed to the Federal Tax Court ("Bundesfinanzgericht"). For other matters, the social courts ("Sozialgerichte") or the civil courts ("Zivilgerichte") may be competent.
The direct effect of Article 88 (3) EC can be an issue in disputes involving two or more private persons ("civil law disputes", "zivilrechtliche Streitigkeit"), as opposed to disputes where at least one of the parties involved is a public authority. Similarly to public law disputes, private law disputes can be further distinguished into two main categories:
* disputes, where a company or individual challenges the grant of State aid to a third party ("private law disputes directly targeted at competitors"), and
* disputes, where a company or individual challenges a payment obligation, or an obligation to provide specific services, by arguing that the legal basis of the obligation infringes Article 88 (3) EC and that the obligation is therefore unenforceable ("private law disputes targeted at imposition of burden").
a) Private law disputes directly targeted at competitors
Apart from public law complaints, which are aimed at preventing a public authority from granting State aid to a third party, it is conceivable that a company or individual may bring a complaint against the beneficiary of the State aid, arguing that the aid is unlawful and infringes Article 88 (3) EC. However, it is not entirely clear whether there is a legal basis for such complaints under German law.
A complaint could be based on Article 3 of the Act Against Unfair Competition ("Gesetz gegen den unlauteren Wettbewerb", "UWG"), which provides for cease and desist orders. The UWG generally prohibits competitive activities that are contrary to generally accepted business behaviour. A vast body of case law has been developed by the German courts as to what may be considered to be contrary to generally accepted business behaviour. One of the situations where German courts will often find the UWG applicable is where a company obtains a competitive advantage over its competitors by either breaching the law or by taking advantage of a breach of the law by a third party ("Vorsprung durch Rechtsbruch"). However, according to established case law, not every infringement of the law is contrary to generally accepted business behaviour. Rather, the UWG requires that the infringement is of a rule whose object is the protection, although not necessarily exclusively, of the fairness of competition ("sekundärer Marktbezug"). Accordingly, a complaint based on Article 3 UWG against the beneficiary of unlawful State aid can only be made if the courts accept the argument that Article 88 (3) EC is aimed at protecting the fairness of competition.
It is further conceivable to base a cease and desist order on section 823 (2) of the Civil Law Code ("Bürgerliches Gesetzbuch", "BGB"). Section 823 (2) BGB provides for cease andPage 209 desist orders in the case of an infringement of a statute whose object is the protection of other persons ("den Schutz eines anderen bezweckenden Gesetzes"). A complaint based on section 823 (2) BGB against the beneficiary of unlawful State aid can thus only be made if the courts accept the argument that Article 88 (3) EC is aimed at protecting other persons.
A judgment of the Oberlandesgericht of München of 15 May 2003 suggests that a competitor cannot rely on Article 1 UWG (which, following an amendment of the UWG, is now Article 3 UWG) or section 823 (2) BGB to challenge illegal State aid. The judgment concerned the claim of an operator of a business who was in direct competition with a business operated by the City of Munich that the business of the City of Munich should not be exempt from sales tax. The Oberlandesgericht of München dismissed the claim based on the UWG and section 823 (2) BGB and expressly stated that Articles 87 and 88 EC were not intended to protect competitors.
b) Private law disputes targeted at imposition of burden
A different category of private law actions are disputes where a company or individual challenges a payment obligation or an obligation to provide specific services, by arguing that the legal basis for such an obligation infringes Article 88 (3) EC, and that the obligation is therefore unenforceable. One of the most prominent cases was the dispute before the Landgericht of Kiel which resulted in the ECJ's Preussen Elektra decision182.
In a civil law dispute, a private party usually requires the other party or parties to pay a given amount of money or to provide a further defined service. Any such claim must have a legal basis ("Anspruchsgrundlage") that justifies the claim. The legal basis can either be a contractual legal basis ("vertragliche Anspruchsgrundlage") or a legal basis provided by law ("gesetzliche Anspruchsgrundlage"). A claim based on a legal basis provided by law can only be enforced if the legal basis is lawful and enforceable.
In the context of State aid, the party objecting to the claim may argue that the legal basis constitutes unlawful State aid, infringes Article 88 (3) EC and is therefore unenforceable. It follows from the ECJ's case law183 that national courts may not apply legislative acts that infringe Article 88 (3) EC. Accordingly, any German court competent to decide a private law dispute will have to reject a claim based on a legal basis that infringes Article 88 (3) EC.
In the case before the Landgericht of Kiel, the claimant, an electricity supply company, was required by the Law on Feeding Electricity from Renewable Resources into the Public Grid ("Stromeinspeisungsgesetz", "StrEG") to purchase electricity from renewable resources and to pay a fixed price. The claimant initially paid the fixed price, but later brought a complaint against the operator of the renewable resources, requesting a refund and arguing that the StrEG constituted unlawful State aid. The Landgericht of Kiel confirmed that the complaint would be well-founded if the StrEG indeed constituted State aid - which was the subject of aPage 210 reference for a preliminary ruling by the Landgericht of Kiel to the ECJ and, accordingly, the subject of the decision by the ECJ.
A claim for damages will normally have to be brought against the public authority that granted the unlawful State aid. Under German law, public authorities are required to indemnify private persons who suffered loss by reason of a breach of their official duties. The obligation to notify State aid is an official duty intended to protect third parties, i.e. the competitors of the beneficiary of the State aid. It is thus conceivable for damages claims to be brought under section 839 of the German Civil Code ("Bürgerliches Gesetzbuch", "BGB").
In theory, an action for damages by the beneficiary of unlawful State aid could be based on either section 3 UWG or section 823 (2) BGB. In practice, any claimant will encounter the problem that it is not necessarily accepted that section 3 UWG or section 823 (2) BGB constitute valid legal bases for claims alleging an infringement of Article 88 (3) EC (see above). In addition, the claimant will have to show that there is a causal link between the damage and failure to notify the State aid. It is likely to be very difficult, in most cases, to show that the existence of such a causal link.
When a public authority has granted unlawful State aid by means of an administrative act, it can order repayment, also by means of an administrative act ("Verwaltungsakt").
The beneficiary of the State aid can lodge a complaint ("Widerspruch") with the authority requesting recovery. If the complaint is rejected, the beneficiary of the aid can bring an action before the administrative courts ("Verwaltungsgerichte").
It is also conceivable that a third party might bring a complaint against a public authority to require the public authority to recover the State aid that has been declared unlawful by the Commission. The third party must show that it has standing to bring the complaint by arguing that the public authority is under an obligation to recover the State aid, and that non-recovery would violate the rights of the third party.
One of the problems often encountered in proceedings concerning the repayment of unlawfully granted State aid arises from section 48 of the German Act on Administrative Procedure ("Verwaltungsverfahrensgesetz", "VwVfG"). Section 48 VwVfG protects private persons against the revocation of an administrative act (such as, for example, the act granting State aid) if certain conditions are satisfied. Several German administrative courts referred questions concerning the compatibility of section 48 VwVfG with the EC State aidPage 211 rules to the ECJ. In the Alcan case, the ECJ decided that section 48 VwVfG must not be interpreted in a manner that makes it impossible to recover the illegal aid.
In principle, aid granted by way of a civil law transaction must be recovered by relying on civil law rules. However, a recent case decided by the Administrative Court of Berlin suggests that, in the future, German authorities will be able to reclaim all of the unlawful aid on the basis of administrative law. The Kvaerner case involved the grant of operating aid by the Federal Institute for Special Tasks related to Reunification ("Bundesanstalt für vereinigungsbedingte Sonderaufgaben" or "BvS"), the privatisation agency for East-German businesses, to the Kvaerner shipyard. The Commission issued a decision pursuant to which part of that aid was incompatible. When Kvaerner refused to repay the aid, BvS issued an administrative act ordering immediate repayment of the amount in question rather than bringing an action against Kvaerner for repayment of the aid before the ordinary courts (which have jurisdiction in civil law matters). BvS declared that act to be immediately enforceable, because immediate enforcement was in the public interest. When Kvaerner brought an action concerning immediate enforcement only, the Administrative Court of Berlin annulled the decision declaring BvS's administrative act immediately enforceable. The decision of the Berlin Court is based on a principle of German constitutional law pursuant to which any claim for reimbursement of aid by a State authority must have a statutory basis ("Gesetzesvorbehalt"). In fact, the German Constitution prohibits actions by administrative authorities against private parties for which there is no statutory basis. On 8 November 2005, the Higher Administrative Court ("Oberverwaltungsgericht") of Berlin set aside the decision of the lower court and held that the effet utile of the Commission decision required that BvS be allowed to recover the aid by way of an administrative act. In the opinion of the Higher Administrative Court of Berlin, the public party recovering the aid is not necessarily bound to recover the aid in the same manner in which it was granted in the first place. If the decision of the Higher Administrative Court of Berlin is confirmed in the main proceedings, it can be expected that, in the future, recovery of aid in Germany will, in principle, be carried out pursuant to administrative rules.
A potential aid beneficiary may have a claim against a public authority in relation to the provision of State aid which was authorised by the Commission. Whether such a claim arises depends on the specific legal basis and on whether that legal basis actually confers a right on the claimant to make such claims. For example, a valid claim could exist where the potential aid beneficiary has entered into a contract with a public authority about the granting of aid that was subsequently authorised by the Commission. There are, however, no published cases relating to such claims.
Competitors of an aid beneficiary may challenge the granting of aid according to the generally applicable rules. However, it is conceivable that there is no legal basis, under German law, for challenging State aid that has been authorised by the Commission.
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Overall, there are 69 cases that deal with questions of State aid law. 39 of these cases were decided after the 1999 Report.
In general, the discussion of State aid concepts in German court judgment has become more detailed and sophisticated. Most of the courts are aware of the jurisprudence of the Community courts and the practice of the Commission.
The large majority of cases (41 cases, 62.1 per cent) are complaints targeted at the imposition of a burden (for example, taxes). The next largest group is procedures concerning the enforcement of negative Commission decisions (seven cases, 22.7 per cent). There are relatively few cases where the granting of State aid was directly challenged by a competitor (nine cases, 13.6 per cent). There are no reported cases at all concerning actions for damages.
In general, the availability of judicial relief can be considered to be satisfactory, although there are exceptions:
* As shown by the limited number of cases, the effectiveness of direct complaints against competitors seems to be limited. Although German courts seem to accept that competitors may have standing to bring such complaints, there seems to be uncertainty as to the appropriate legal basis (in particular with regard to civil law claims which are brought directly against the beneficiary of the aid).
* Actions for damages - either against the public authority or against the beneficiary of the aid - may not be seen as an effective means of enforcing State aid law. Part of the reason may be that it is generally difficult to make successful damages claims against public authorities. Also, in particular with regard to damages claims against the beneficiaries of State aid, it is not entirely clear whether there is a legal basis for such claims.
Overall, there are 50 cases (75.7 per cent) relating to procedures concerning the direct effect of Article 88 (3) EC. 22 of these cases have been added since the 1999 Report.
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a) Public law disputes
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Complaints directly targeted at competitors
Overall, there are seven published cases in this category. Three of these cases have been added since the 1999 Report, the most prominent being the decision by the Bundesverwaltungsgericht that led to the ECJ's Altmark Trans decision.
In all three cases since 1999, transport companies challenged the granting of a public transport licence to competitors, arguing that the grant of the licence involved State aid. Standing does not appear to have been an issue in any of these cases.
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Complaints targeted at imposition of burden
Overall, there are 35 cases in this category. 16 of these cases have been added since the 1999 Report.
Published cases deal with a large variety of factual matters (for example, TV licence fees, investment grants, motor tax law, home owner allowances). The decisions by the courts discuss in some detail the question whether a legislative or administrative act constitutes State aid and usually decide either that this is not the case or that the question can be left open. Occasionally, national courts themselves assess whether a measure satisfies the conditions for an exemption according to Article 87 (2) and Article 87 (3) EC.
b) Private law disputes
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Private law disputes directly targeted at competitors
Overall, there are two cases in this category, both added since the 1999 Report.
In the decision by the Oberlandesgericht of Koblenz of 21 August 2001, the Oberlandesgericht of Koblenz decided that no State aid was involved and therefore did not discuss the question whether the claimant actually had a legal basis for the claim against a competitor based on an infringement of Article 88 (3) EC.
The decision by the Oberlandesgericht of München of 15 May 2003 denies that German civil law provides for a legal basis for claims against competitors. However, it is difficult to reconcile the decision by the Oberlandesgericht with established case law of the Community courts regarding State aid, and it seems unlikely that the Oberlandesgericht's decision, and, in particular, the reasoning adopted by the Oberlandesgericht, will be followed by other German courts.
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Private law disputes targeted at imposition of burden
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Overall, there are six cases in this category. Four of these cases have been added since the 1999 Report, the most prominent being the decision by the Landgericht of Kiel that led to the ECJ's Preussen Elektra decision.
c) Action for damages from a public authority
There are no reported decisions in this category.
A major obstacle for private persons to bring liability claims under section 839 BGB is that the claimant must show and prove a causal link between the damage suffered by the private person and the non-notification of the State aid. The claimant - for example a competitor - will have to prove that the granting of unlawful State aid resulted in financial loss. Usually, it will be difficult to prove causation. This may explain why there are no published cases dealing with claims made under section 839 BGB for failing to notify State aid.
d) Action for damages from the beneficiary
There are no reported decisions in this category.
Actions for damages against the beneficiary of unlawful State aid are unlikely to be successful under current German law. Any claimant will encounter the problem that it is not necessarily accepted that section 3 UWG or section 823 (2) BGB are valid legal bases for claims alleging an infringement of Article 88 (3) EC. In addition, the claimant will have to show a causal link between the damage and the non-notification of the State aid. In most cases, it is likely to be very difficult to demonstrate that there is such a causal link.
Overall, there are 15 cases in this category. 11 of these cases have been added since the 1999 Report.
The most noticeable development in this category was the decision of the Federal Court of Justice ("Bundesgerichtshof"), the highest German court in civil law matters, of 4 April 2003 which, for the first time, established clearly that a violation of Article 88 (3) EC leads to the nullity of the underlying transaction in its entirety under German civil law. The relevant provision of the German Civil Code is section 134, which provides that any transaction that infringes a legal prohibition is null and void. It was unclear whether Article 88 (3) EC constitutes such a legal prohibition within the meaning of the German Civil Code and whether its violation leads to the nullity of the underlying transaction in its entirety. The argument for not applying section 134 of the German Civil Code to a transaction involving State aid was that Article 88 (3) EC is addressed to the Member State only and should therefore not affect a private law transaction. The Federal Court of Justice rejected that argument and found that it was necessary to find the entire contract null and void in order to remove the distortions of competition.
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Another noticeable decision is the decision by the Administrative Court ("Verwaltungsgericht") of Berlin of 15 August 2005. The Administrative Court of Berlin confirmed that, where State aid has been granted by contract (rather than a specific unilateral administrative decision), for example in the case of loans or guarantees, the public authority that granted the State aid cannot simply (unilaterally) order repayment once the Commission has issued a negative decision imposing an obligation to recover the aid. Instead, the agency must take action before either the civil or the administrative courts by bringing an Allgemeine Leistungsklage.
There is one case in this category. No cases have been added since the 1999 Report.
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Public law disputes (disputes involving a public authority)
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Complaints directly targeted at competitors
Facts and legal issues: The claimant, a transport company, challenged the licence for local public transport services granted to another transport company ("third party") by the defendant, a local public authority. The claimant argued that the third party would not be able to provide the transport services without public financial support.
Decision: The Oberverwaltungsgericht of Lüneburg rejected the claimant's claim. It acknowledged that public financial support granted as compensation for the supply of public transport services may constitute unlawful State aid. However, the Law on Transportation of Persons ("Personenbeförderungsgesetz", "PBefG") provides that various criteria must be taken into account when a licence for local public transport services is granted. Whether or not the owner of the licence will require public financial support to operate the licensed transport services is not among the criteria to be taken into account. The Oberverwaltungsgericht of Lüneburg therefore concluded that public financial support did not affect the legality of the licence itself, even if the financial support constituted unlawful State aid.
Facts and legal issues: The claimant, a transport company, challenged the licence for local public transport services granted to another transport company ("third party") by thePage 216 defendant, a local public authority. The claimant argued that the third party would not be able to provide the transport services without public financial support, and that such financial support constituted unlawful State aid.
Decision: The Verwaltungsgericht of Freiburg rejected the claim. The evidence presented in court showed that the third party would be able to provide transport services in the foreseeable future without having to rely on public financial support. Financial support would be required only during the first years of operating the service. Such "start-up" support would also be granted by a private investor in situations where this would promote long-term profitability interests. The Verwaltungsgericht of Freiburg therefore concluded that, according to the private investor test, financial support to the third party would not constitute State aid.
Comment: This judgment is one of the few decisions by German courts where the private investor test was applied by a national court.
Facts and legal issues: In 1990, the transport company Altmark Trans obtained licences and State aid to operate passenger transport within the district of Stendal. The licence was renewed by the defendant, a local public authority, in 1994. The claimant, a competitor of Altmark Trans who had also applied for the licence, challenged the renewal of the licence, arguing that Altmark Trans was not financially viable because it could not have survived without public financial support.
Decision: The Bundesverwaltungsgericht referred the question whether public financial support to cover deficits in local public transport could amount to State aid and whether such support could affect trade between Member States to the ECJ. The ECJ held184 that the existence of State aid did not depend on the local or regional nature of the transport services supplied or on the scale of the activity concerned. In addition, the ECJ clarified the conditions according to which public authorities may grant financial compensation to safeguard the fulfilment of public services obligations. At the time of the ECJ's decision, the licence for Altmark Trans had expired and the proceedings were terminated without a final decision.
Facts and legal issues: In Germany, the Federal Agency for Special Tasks related to German Unification ("Bundesanstalt für vereinigungsbedingte Sonderaufgaben", "BvS") and a private law company acting on behalf of BvS were responsible for allocating agricultural and forest estate formerly owned by the German Democratic Republic to individuals upon application. The relevant rules provided for different categories of eligible persons, since one of the aims of these rules was to compensate for irreversible expropriations carried out byPage 217 the Soviet authorities from 1945 to 1949 and thereafter by the authorities of the German Democratic Republic, and the land was sold to eligible applicants at less than half the market value. This land acquisition/compensation scheme was never notified by Germany to the Commission. After various third party complaints the Commission opened an investigation under Article 88 (2) EC on 18 March 1998 and informed Germany accordingly by letter dated 30 March 1998. The Commission's position was that any transfer of land that was not intended to provide or exceeded the level of compensation required for past expropriations may constitute aid incompatible with the Common Market.
The claimant (who belonged to a category of persons fully eligible for compensation) challenged the decision to transfer certain land to another applicant in interlocutory proceedings on the grounds that this applicant was not eligible and that Article 88 (3) EC prohibited the granting of aid to that applicant.
Decision: The Administrative Court of Magdeburg found in favour of the claimant and stated that the decision to transfer the land in issue to the applicant violated both the relevant legal criteria for eligibility (which had been wrongly applied in this case) and that Article 88 (3) EC prohibited the transfer.
Comment: The decision by the Administrative Court of Magdeburg was the first published decision that explicitly acknowledged that a violation of Article 88 (3) EC conferred standing on a company that was directly affected by the grant of aid to a competitor.
Facts and legal issues: A waste paper collection company challenged an administrative act granting State aid to a competitor. The decision to grant State aid was not notified to the Commission.
The claimant first lodged an objection with the administrative agency responsible for the grant of the aid. As the grant of the aid was of immediate effect, the objection had no suspensory effect, i.e. it could not prevent the beneficiary from actually receiving the aid.
Decision: The complainant attempted to obtain suspensory effect of its objection in interlocutory proceedings before the Administrative Court ("Verwaltungsgericht") of Aachen. The Admininstative Court of Aachen, however, rejected the application. The Administrative Court of Aachen held that suspensory effect of the objection could be granted only if the administrative act granting the aid was clearly unlawful, i.e. if it clearly violated the rights of the complainant, for example under Article 88 (3) EC. The Administrative Court of Aachen held that it was not sufficiently clear whether a violation of these rights had been established in this case. The Administrative Court of Aachen, stated that, for there to be a violation of Article 88 (3) EC the aid must be qualified as State aid within the meaning of Articles 87 andPage 218 88 EC. According to the Administrative Court of Aachen this was doubtful as it could not be denied that consideration was given for the grant of the aid. As the beneficiary was obliged under its Articles of Association to pursue certain social goals, such as educating and training unemployed teenagers, the Administrative Court of Aachen held that this amounted to consideration for the aid.
The appeal brought before the Higher Administrative Court of Münster was also dismissed. In support of its claim the appellant put forward further arguments and in particular, that the decision of the Administrative Court of Aachen was based on an erroneous interpretation of the notion of State aid. The appellant stressed that the Commission, in a letter dated 9 August 1995, appeared to have taken the view that the aid amounted to State aid.
Although the Higher Administrative Court of Münster confirmed that Article 88 (3) EC was designed to safeguard the interests of the competitors of a potential beneficiary and that it was the task of national courts to protect those interests, it reached the conclusion that it was doubtful whether the aid amounted to State aid. The Higher Administrative Court of Münster indicated that it was possible that the aid was merely intended to compensate the beneficiary for certain costs incurred as a result of the purposes it pursued. Furthermore, the Higher Administrative Court of Münster did not want to rule out the possibility that the aid amounted to an educational measure, which would mean that it could not qualify as State aid according to a decision of the Commission of 26 March 1991185. The letter of the Commission was interpreted as a preliminary statement. The Higher Administrative Court of Münster refused to make a reference for a preliminary ruling to the ECJ under Article 234 EC, taking the view that there was no corresponding obligation in interlocutory proceedings. Moreover, the Münster Court refused to make a reference under Article 234 EC since the Commission had previously commenced proceedings under Article 88 (2) EC and since non-compliance by the German authorities with a negative decision of the Commission (if any) could be challenged directly before the ECJ.
Facts and legal issues: The case concerned the provision of a guarantee by the Government of Lower Saxony. The guarantee amounted to DM 35 million and was granted as collateral security for bank loans granted for the purposes of the beneficiary's business. This was challenged in court by third party competitors of the beneficiary, who sought interlocutory relief.
Decision: Both the Administrative Court of Hanover and the Higher Administrative Court of Lower Saxony rejected the competitors' claim. The decisions dealt exclusively with the question of whether the grant of the guarantee violated the rights of the competitors underPage 219 German law, which was denied. The question of whether Article 88 (3) EC had been complied with was not addressed. Only one sentence in the decision of the Administrative Court of Hanover mentioned EC law without going into any detail. The Administrative Court of Hannover merely stated that a violation of EC law had not been established by the claimant (although proceedings before the administrative courts are generally inquisitorial, requiring the Administrative Court of Hanover to investigate a violation of EC law ex officio).
Shortly after the case was closed, the Commission was informed of the grant of the guarantee. Having asked the German authorities on 30 June 1994 to comment in detail on the guarantee (whereupon Germany notified the guarantee by letter dated 13 October 1994) the Commission initiated proceedings under Article 88 (2) EC186. By decision of 29 May 1996187, the Commission declared the aid partly incompatible with the Common Market and ordered that Germany obtain repayment of that part of the aid which was incompatible. The application for annulment brought by Germany was rejected by the ECJ188.
Facts and legal issues: The case concerned State aid granted by the defendant municipality to a large hotel chain for the construction of a hotel. The grant was by way of several agreements providing for a building lease and a loan on very favourable terms. A competitor of the beneficiary of the aid brought an action for annulment of the decision granting the aid before the administrative courts.
Decision: Both the Administrative Court and the Higher Administrative Court of Münster found that the claimant did not have standing to challenge the building lease because the lease was a private law contract that could not be challenged in the administrative courts. Both Courts did, however, find that the loan agreement constituted financial aid which was governed by public law. However, the Courts held that the claimant's rights were not directly affected by the grant of the aid. The Courts specifically stated that the entry of a new competitor to the market does not affect the rights of existing players on that market. In dismissing the action, the Courts stated that Article 87 EC was not directly applicable because the Commission could declare aid compatible with the Common Market under Article 88 (2) EC.
Comment: The case is a typical example of the traditional view held by the administrative courts in Germany, which prevents competitors from challenging decisions by which State aid was granted.
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Complaints targeted at imposition of burden
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Facts and legal issues: The claimant challenged an invoice for the participation fee ("Teilnehmerentgelt") imposed by the defendant, a public authority with special competences in the field of media. The claimant argued, inter alia, that the participation fee constituted unlawful State aid and, accordingly, that it could not be enforced. The Bavarian media law ("Bayerisches Mediengesetz", "BayMG") provided for the participation fee, which was imposed on operators of TV cable networks and TV cable network customers. It was imposed in addition to fees charged by the cable network operators ("Kabelgebühr") and TV licence fees ("Rundfunkgebühren"). The purpose of the participation fee was to promote local and regional TV and radio stations. The claimant argued, inter alia, that the participation fee constituted unlawful State aid and, accordingly, that it could not be enforced.
Decision: The Administative Court of Würzburg rejected the claim, holding that the participation fee did not involve direct or indirect State resources within the meaning of Article 87 EC. The Administative Court of Würzburg referred to the Amsterdam Protocol on Public Service Broadcasting ("the Protocol"), without discussing the Protocol's impact on the interpretation of Article 87 (1) EC. In addition, the Administative Court of Würzburg argued that, even if the participation fee amounted to State aid, it would be exempt under Article 87 (2) (iii) (d) EC.
Comment: This decision exemplifies that some German courts were still unaware of even the most basic State aid rules: the Administative Court of Würzburg fails to appreciate that an exemption according to Article 87 (2) or (3) EC can only be granted by the Commission.
Facts and legal issues: The city of Heidelberg intended to build tracks for a new tramway. The construction of the new tramway was subject to the formal approval of a plan ("Planfeststellungsbeschluss", "plan"), which was adopted by the defendant, the competent regional authority. To secure the financing of the project, the City of Heidelberg had applied for funds under a special aid scheme for local infrastructure projects "(Gemeindeverkehrsfinanzierungsgesetz", "GVFG"). The claimant, who owned property adjacent to the planned tracks, challenged the plan, arguing that the financing of the tramway would amount to unlawful State aid and that this would affect the legality of the plan.
Decision: The Higher Administrative Court of Mannheim rejected the complaint. It acknowledged that a plan may be void if, due to a lack of financing, it is unlikely to be realised. All parties to the procedure agreed that the tramway project could not be realised without GVFG-financing. The relevant question was therefore whether GVFG-financingPage 221 amounted to unlawful State aid. The ECJ established in its Altmark Trans decision189 that State aid in the field of local public transport could affect trade between Member States since the transport market had been open to competition since 1995. However, the same is not necessarily true for the provision of infrastructure services for tramways. The claimant did not contest the defendant's assertion that there is no competition in respect of the construction of tramway infrastructure facilities. In addition, neither the ECJ nor the Commission had decided that the financing of infrastructure projects constituted unlawful State aid. This could be explained by the fact that infrastructure projects most often did not favour specific undertakings. The Higher Administrative Court of Mannheim concluded that there was no reason for the defendant to believe that the financing of the project constituted unlawful State aid, and that the plan had insofar been lawfully adopted.
Facts and legal issues: The claimant challenged an invoice for the participation fee ("Teilnehmerentgelt") imposed by the defendant, a public authority with special competences in the field of media (see case 3.1).
Decision: The Administrative Court of München rejected the claim on the basis of the ECJ's Preussen Elektra decision190, holding that the participation fee did not involve direct or indirect State resources within the meaning of Article 87 EC. In addition, the Administrative Court of München took the view that the Amsterdam Protocol on Public Service Broadcasting ("the Protocol") applied to the same extent to participant fees and TV licence fees. The Administrative Court of München did not further discuss the Protocol's impact on the interpretation of Article 87 (1) EC.
Facts and legal issues: The defendant, a public entity, offered facility management contracts through a public procurement procedure. The complainant, a medium-sized company, complained that the tendered lot should have been subdivided to allow small and medium-sized companies to submit offers. The claimant relied on section 97 of the Act against Restraints of Competition ("Gesetz gegen Wettbewerbsbeschränkungen", "GWB"), which expressly provided that the interests of small and medium-sized undertakings "shall primarily be taken into account in an appropriate manner by subdividing contracts into trade-specific and partial lots". The defendant refused to do so, arguing, inter alia, that section 97 GWB amounted to unlawful State aid.
Decision: The Higher Regional Court of Düsseldorf found in favour of the claimant holding that section 97 GWB did not constitute State aid. The provision did not distort competition,Page 222 but rather increased competition by affording small and medium-sized companies the opportunity to participate in public procurement in which big companies were also allowed to participate. Since the same conditions apply to all companies, small-and medium-sized companies are not favoured over big companies.
Facts and legal issues: The claimant, who operated a wind power plant, complained against a decision by the tax authorities according to which the claimant did not qualify for an investment grant under the law on investment grants ("Investitionszulagengesetz," "InvZulG"). One of the issues was whether the denial of the investment grant was justified on the grounds that producers of energy from renewable sources benefited from financial aid under the Law on Feeding Electricity from Renewable Energy Sources into the Public Grid ("Stromeinspeisungsgesetz", "StrEG").
Decision: The Federal Tax Court confirmed that the StrEG did not amount to unlawful State aid on the basis of the ECJ's Preussen Elektra decision191.
Facts and legal issues: The defendant, a local public authority, entered into a service contract for the provision of certain regional transport services with a transport company without having carried out a public procurement procedure. The service contract required the transport company to provide rail services for which it would receive up to a certain amount in financial compensation from the defendant. The claimant, a competing transport company, complained that the defendant had not adhered to the public procurement procedure. One of the claimant's arguments was that a service contract that provided for financial compensation could not be awarded without a public procurement procedure, which would amount to unlawful State aid.
Decision: The Higher Regional Court of Brandenburg decided that the complaint was inadmissible, since the defendant was not required to respect the public procurement rules. The Higher Regional Court of Brandenburg agreed that financial compensation for discharging public service obligations may amount to State aid, referring to the criteria laid down by the ECJ in the Altmark Trans decision192. However, the ECJ did not decide that awarding financial compensation without a public procurement procedure necessarily constituted State aid. The Member States may instead determine an adequate level of compensation by carrying out a detailed cost analysis. Consequently, the Altmark Trans decision does not prevent Member States from entering into agreements that provide for financial compensation for discharging public service obligations without respecting thePage 223 public procurement rules. Since the complaint was rejected as inadmissible, the Higher Regional Court of Brandenburg did not take a position as to whether the level of compensation agreed in the service contract actually met the criteria laid down in the Altmark Trans decision.
Facts and legal issues: The defendant, a public entity, tendered regional rail transport services by means of a public procurement procedure. The complainant, a provider of rail transport services, competed in the tendering procedure with Deutsche Bahn AG ("DB"), a major provider of rail transport services. The complainant argued that DB had received unlawful State aid in the past, and that competition would be distorted if the defendant did not take this aid into account during the tendering procedure. The Public Procurement Tribunal ("Vergabekammer") accepted the complaint and ordered the defendant to reinitiate the procedure, allowing for unlawful State aid to be taken into account when making the decision. The defendant appealed.
Decision: The Higher Regional Court of Düsseldorf annulled the decision by the Public Procurement Tribunal. The Higher Regional Court of Düsseldorf left open whether DB had actually received unlawful State aid. The fact that a company that participated in the tendering procedure had received unlawful State aid in the past was not something that had to be taken into account during the tendering procedure.
Facts and legal issues: Under the German Motor Vehicle Tax Law ("Kraftfahrzeugsteuergesetz", "KraftStG"), certain new cars equipped with a catalytic converter were tax privileged over old cars equipped with a catalytic converter. The claimant, the owner of a not tax privileged old car, challenged the tax assessment by the tax authority, the defendant. One of the claimant's arguments was that the distinction between new and old cars constituted unlawful State aid and was therefore unenforceable.
Decision: The Federal Tax Court rejected the claim. The Federal Tax Court agreed that, whereas the tax privilege primarily benefits consumers, it may create general market conditions in favour of the automobile industry. However, the tax privilege provided for in the
KraftStG did not constitute State aid since it did not favour specific undertakings in the automotive sector.
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Facts and legal issues: The claimant challenged an invoice for TV licence fees issued by the defendant, a public authority charged with collecting TV licence fees ("Gebühreneinzugszentrale der öffentlich-rechtlichen Rundfunkanstalten in der Bundesrepublik Deutschland, "GEZ"). One of the claimant's arguments was that TV licence fees amounted to unlawful State aid.
Decision: The Administrative Court of München argued that TV licence fees did not amount to State aid, since they were aimed at compensating public service broadcasters for the discharge of public service obligations. Furthermore, even if licence fees constituted an advantage within the meaning of Article 87 (1) EC, this could be justified under Article 86 (2) EC.
Facts and legal issues: The German law on home owner allowances ("Eigenheimzulagengesetz", "EigZulG") provided that individuals could apply for home owner allowance if they bought shares in a building society ("Wohnungsbaugenossenschaft"). The claimant, an individual, bought shares in a building society and subsequently applied for the allowance. The defendant, the tax authority, refused to accept the application, arguing that the defendant did not actually use housing space owned by a building society. One of the arguments brought forward by the defendant was that if the allowance was granted automatically upon the purchase of shares in a building society, this would constitute unlawful State aid in favour of the building societies.
Decision: The Federal Tax Court rejected the defendant's argument, holding that the claimant was entitled to obtain home owner allowance. The allowance did not constitute State aid, since it was granted to individuals, not undertakings. Admittedly, the allowance was effectively used by the individual to provide the building society with capital. However, by acquiring shares in the building society the individual obtained adequate consideration.
Facts and legal issues: Under the German Insolvency Code ("Insolvenzordnung", "InsO") and the Social Security Code ("Sozialgesetzbuch"), the employees of an insolvent company may request the German Federal Employment Agency ("Bundesanstalt für Arbeit, "BfA") to assume the insolvent company's salary obligations ("Insolvenzgeld"). BfA, the claimant, had paid Insolvenzgeld and had subsequently requested the insolvency administrator, the defendant, to treat the payment of Insolvenzgeld as a preferred claim ("Masseverbindlichkeit") during the insolvency proceedings. The defendant refused, arguingPage 225 that the payment of Insolvenzgeld was not one of the preferred claims listed in the InsO. The claimant took the position that the refusal to regard the payment of Insolvenzgeld as a preferred claim amounted to unlawful State aid.
Decision: The Federal Labour Court rejected the claim. The payment of Insolvenzgeld by the claimant afforded insolvent companies relief from the obligation to pay salaries. The fact that the payment of Insolvenzgeld was not regarded as a preferred claim was intended to facilitate restructuring efforts. The refusal to regard the payment of Insolvenzgeld as a preferred claim could only amount to unlawful State aid if it benefited specific undertakings. This was not the case since Insolvenzgeld was available to all companies without distinction.
Facts and legal issues: The Law on Investment Grants ("Investitionszulagengesetz", "InvZulG") allowed for investment grants of 12 per cent of the purchase price of certain goods in specific regions. In 1993, the Commission decided that the InvZulG amounted to unlawful State aid. The InvZulG was subsequently amended, henceforth allowing for investment grants of only 8 per cent of the purchase price. The claimant applied in 1993 for an investment grant for goods he had purchased in 1992. The defendant granted an investment grant of 8 per cent, but refused to grant 12 per cent. The claimant challenged the refusal, arguing that it was retroactively deprived of a vested legal entitlement.
Decision: The Federal Tax Court rejected the complaint, holding that the claimant had not been unlawfully deprived of a vested legal entitlement. The amendment of the InvZulG was based on a decision by the Commission that had not been challenged within the mandatory time limit laid down in Article 230 (5) EC. Germany was therefore under an obligation to amend the InvZulG. In addition, the claimant could not rely on the principle of good faith since, at the time the investment was made, the Commission had already initiated a formal State aid investigation. Consequently, the claimant should have been aware that the investment grant of 12 per cent provided for in the InvZulG amounted to unlawful State aid.
Facts and legal issues: The complainants acquired land from a sub-agency of the Bundesanstalt für vereinigungsbedingte Sonderaufgaben ("BvS"), which was charged with the privatisation of formerly State-owned land in Eastern Germany. The land was sold under the Indemnification and Compensation Act ("Ausgleichsleistungsgesetz", "AusglLeistG"), which provided for the possibility to sell the land below market price. In 1999, the Commission decided that parts of the AusglLeistG amounted to State aid, which was incompatible with the Common Market and ordered Germany to recover the incompatible aid193. Following the signing of the purchase contracts, the complainants requested toPage 226 formally register the respective transfers of property ("Auflassung"). The registry of deeds ("Grundbuchamt") refused to do so, arguing that the transfers of property infringed Article 88 (3) (3) EC and were therefore null and void. The complainants challenged the refusal.
Decision: The Higher Regional Court of Dresden ordered the registry of deeds to register the transfers of property. The Higher Regional Court of Dresden left open whether and to what extent contracts that infringe Article 88 (3) (3) EC are void. In particular, it did not decide whether an infringement merely affects the legality of the purchase contracts or whether the nullity extends to the contract by which the property was transferred. The Commission's decision in respect of the AusglLeistG made a distinction between different groups of land owners, some of which were entitled to receive State aid while others were not. The Higher Regional Court of Dresden found that it was not the duty of the registry of deeds to assess to which group of landowners the complainants belonged.
Facts and legal issues: The claimant, an operator of a combined heat and power ("cogeneration") plant, requested permission from the defendant, a public authority, to use a specific, tax privileged heating oil. According to the Law on Petroleum Tax ("Minerölsteuergesetz", "MinöStG"), heating oil could be tax privileged if it was used in a cogeneration plant that satisfied certain criteria. The parties agreed that the plant operated by the claimant did not satisfy these criteria. However, the claimant argued that granting the tax privilege to only a limited number of cogeneration plants amounted to State aid.
Decision: The Federal Tax Court rejected the claim, arguing that the provisions in the MinöStG did not favour specific undertakings. In addition, even if the MinöStG favoured certain undertakings, this could be justified by the nature of the tax system. The Federal Tax Court referred insofar to the Commission notice on the application of the State aid rules to measures relating to direct business taxation194.
Facts and legal issues: The complainant acquired land from a sub-agency of the Federal Agency for Special Tasks related to German Unification ("Bundesanstalt für vereinigungsbedingte Sonderaufgaben", "BvS"), which was charged with the privatisation of formerly State-owned land in Eastern Germany. The land was sold under the Indemnification and Compensation Act ("Ausgleichsleistungsgesetz", "AusglLeistG"), which provided for the possibility to sell the land below market price. In 1999, the Commission decided that parts of the AusglLeistG amounted to State aid which was incompatible with the Common Market and ordered Germany to recover the incompatible aid195. Following the signing of thePage 227 purchase contract, the complainant requested to formally register the transfer of property ("Auflassung"). The registry of deeds ("Grundbuchamt") refused, arguing that the transfer of property infringed Article 88 (3) (3) EC and was therefore null and void. The complainant challenged the refusal.
Decision: The Regional Court of Dresden ordered the registry of deeds to register the transfer of property. The Regional Court of Dresden acknowledged that, generally, contracts that infringe Article 88 (3) (3) EC are void. However, the infringement of Article 88 (3) (3) EC occurred as a consequence of the purchase contract ("Kaufvertrag"), in which the parties agreed on a purchase price below market value. The purchase contract required the seller to transfer the property to the buyer. Yet, according to the Abstraktionsprinzip, a pivotal principal of German law, the nullity of the purchase contract did not affect the legality of the contract with which the property was transferred.
Comment: The Dresden Court's decision is one of many cases dealing with questions arising from the AusglLeistG. However, the particularity of the decision is that it touches upon the relationship between Article 88 (3) (3) EC and the Abstraktionsprinzip, a pivotal principle underlying German civil law. The question is also discussed in the decision of the Higher Regional Court ("Oberlandesgericht") of Dresden of 10 December 1999 (see above).
Facts and legal issues: The claimant challenged an invoice for TV licence fees issued by the defendant, a public authority charged with collecting TV licence fees ("Gebühreneinzugszentrale der öffentlich-rechtlichen Rundfunkanstalten in der Bundesrepublik Deutschland", "GEZ"). One of the claimant's arguments was that TV licence fees amounted to unlawful State aid.
Decision: The Administrative Court of Düsseldorf argued that TV licence fees did not amount to State aid, since they were aimed at compensating public service broadcasters for the discharging of public service obligations. The Administrative Court of Düsseldorf left open whether, if the licence fees constituted State aid, they would be exempt under Article 87 (3) (d) EC or Article 86 (2) EC.
Comment: The Administrative Court of Düsseldorf did not seem to be aware of the fact that exemptions according to Article 87 (3) EC could only be granted by the Commission.
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Facts and legal issues: This case involved the German rules relating to employment of disabled or handicapped persons. Companies that employed 16 employees or more were under a legal obligation to employ disabled or handicapped persons (on a defined pro rata basis). If they failed to do so, they were obliged to pay monetary compensation.
The claimant hairdresser in this case had a widespread network of branches in Germany. Although each individual branch employed less than 16 employees, the competent administrative authority aggregated the number of employees at the claimant's different branches and reached the conclusion that the claimant exceeded the relevant threshold. This was challenged by the claimant in court with, inter alia, the argument that the obligation of companies of a certain size to employ disabled or handicapped persons constituted State aid for small companies that were not under this obligation, and therefore came within the meaning of Article 87 EC.
Decision: The State Social Court rejected this argument. The State Social Court referred to the jurisprudence of the ECJ196 according to which an advantage resulting from legal rules constituted State aid only if it contained a benefit that was granted directly or indirectly through public resources.
Facts and legal issues: State aid amounting to DM 5.9 million was granted to construct a German commercial vessel. The State aid was granted under a so-called public law contract (as opposed to granting State aid pursuant to a unilateral administrative act). The public law contract imposed an obligation on the beneficiary to reimburse the aid in the event that title to the vessel was transferred to third parties within a specified period of time after completion of the vessel. The defendant in this case, a shareholder of the company that owned the vessel, accepted joint and several liability to repay the agency that had granted the aid.
When the vessel was acquired by third parties as a result of bankruptcy proceedings within the relevant time limit, the agency brought a claim against the joint and several debtor for repayment of the aid.
Decision: Both the Administrative Court of Hamburg and the Higher Administrative Court of Hamburg found in favour of the claimant and ordered the defendant to repay the money. A further appeal was not allowed by the Federal Administrative Court.
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One of the arguments raised by the defendant was that the public law contract granting the aid was void as it violated Articles 87 and 88 EC, the underlying argument being that the joint and several liability of the defendant only covered contractual claims for repayment as opposed to non-contractual claims, for example unjust enrichment. It was held that the grant of the aid did not breach these provisions. The Higher Administrative Court of Hamburg stressed that aid to shipbuilding may be considered compatible with the Common Market under Article 87 (3) (c) EC (on which the applicable, older version of the EC Directive on aid to shipbuilding was based). The Higher Administrative Court of Hamburg stated that there was sufficient proof that Germany had complied with the notification obligations provided for in this directive and that there had been no objection from the Commission.
Facts and legal issues: This case involved the imposition of an import duty on certain imported products (for example, fruit and vegetables), which was challenged by an importer.
Decision: The Federal Administrative Court held that the fund that was financed by the relevant import duties and the purpose of which was to promote sales of German goods ("Absatzfonds") was not incompatible State aid within the meaning of Articles 87 and 88 EC. The Federal Administrative Court referred to the ECJ's case law197 according to which the German act underlying the relevant fund had been notified to the Commission in compliance with Article 88 EC and had not been objected to by the Commission.
Facts and legal issues: The case involved a claim under German tax law for the grant of a depreciation allowance on capital expenditure. The grant of the allowance depended on whether the capital expenditure served the purpose of protecting the environment. The administrative authority, which was the defendant in this case, raised the defence that the grant of a conditional depreciation allowance would constitute State aid within the meaning of Article 87 EC.
Decision: The Federal Administrative Court took the view that, even if this argument were correct, the grant of the aid would not be incompatible with the EC Treaty since it would be covered by Article 87 (3) (b) EC. This view was based on the legislative history of the rules of German tax law in issue and the fact that the Commission had intervened during the legislative proceedings in the German parliament because of a possible violation of the State aid rules of the EC Treaty. This intervention had resulted in the enactment of new rules, which had been modified in accordance with the Commission's intervention.
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Facts and legal issues: The case involved the German rules under which importers of foreign meat were obliged to pay a contribution into a German fund to promote the sale of German agricultural products. The claimant brought an action for annulment against the administrative act ordering payment of this contribution.
Decision: The Administrative Court of Frankfurt made a reference for a preliminary ruling to the ECJ under Article 234 EC. It asked the ECJ whether the national rules providing for the contribution could be declared compatible with EC law, in particular Article 87 EC, and whether the financing of the fund through contributions amounted to a protectionist mechanism comparable to State aid within the meaning of Article 87 EC. The Administrative Court also asked whether the contributions to the fund were incompatible with Article 87 EC.
Comment: In its judgment, the ECJ found that the contributions to the fund could constitute State aid within the meaning of Article 87 EC and that, subject to judicial review by the ECJ, the Commission had the authority to apply Article 87 EC198.
Facts and legal issues: The case concerned the social security contributions of the claimant, an agricultural company. The claimant challenged the method of calculation of these contributions based on the size of the area used for agricultural purposes by the company. One of the claimant's main arguments was that this method of calculation amounted to granting aid to smaller competitors, which was incompatible with the Common Market under Article 87 EC. Furthermore, the claimant argued that the aid had not been notified to the Commission under Article 88 (3) EC. The claimant therefore contended that the rules on the method of calculating the contributions were invalid.
Decision: These arguments were rejected by the Federal Social Court. First, the Federal Social Court stated that the question of whether an aid is incompatible with the Common Market could only be decided by the Commission and not by the national courts. The Federal Social Court added that the argument of incompatibility raised in this case might nonetheless justify a reference for a preliminary ruling under Article 234 EC. However, the Federal Social Court took the view that it was not required to make a reference for a preliminary ruling, as the rules on the method of calculation were older than the EC Treaty and had never been challenged by the Commission. The consequences of this method of calculating the contributions, i.e. that small companies enjoy the benefit of comparatively lower contributions than larger companies such as the claimant, was inherent in the German system of socialPage 231 security, so that the contributions did not amount to State aid. The Federal Social Court therefore came to the conclusion that there was no State aid in this case and therefore no violation of Article 88 (3) EC.
The lower court ("State Social Court") had adopted a similar approach. The State Social Court discussed the notion of State aid and held that, as a general rule, it can be argued that a provision of national law that violates Article 88 (3) EC is not applicable. However, the State Social Court was of the opinion that the rules challenged by the claimant did not constitute State aid, since they did not exempt certain companies from obligations that would otherwise apply, but rather laid down ex ante rules for calculating social security contributions. In other words, the State Social Court took the view that potential benefits for certain companies were inherent in the social security system.
Facts and legal issues: The claimant was allegedly entitled to certain benefits which would reduce its social security contributions.
Decision: The Federal Social Court found that the rules on which the claimant based its claim may violate Article 87 EC and considered making a reference for a preliminary ruling to the ECJ for clarification. However, as the findings of fact of the lower court were insufficient, the Federal Social Court referred the case back to the lower court, but no further decision has been reported.
Facts and legal issues: The case concerned duties that were imposed on pork meat.
Decision: The Federal Administrative Court rejected the appeal against the decision of the Higher Administrative Court ("Oberverwaltungsgericht") of Hessen, which was based, inter alia, on the argument that certain duties imposed on pork meat constituted State aid within the meaning of Article 87 EC. The Federal Administrative Court stated that it was not for the national courts to decide this question unless the scope of Article 87 EC was sufficiently defined by general rules under Article 89 EC or by individual decisions of the Commission under Article 88 (2) EC. The Federal Administrative Court held that this was not the case in the present case. The question whether an order for a preliminary ruling by the ECJ should be made to clarify the notion of State aid was not addressed in the decision.
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Facts and legal issues: The claimant challenged acts requiring it to pay contributions to the Absatzfonds.
Decision: The Federal Administrative Court referred to ECJ case law199 and held that the German act establishing the fund had been notified to the Commission in compliance with Article 88 (3) EC and had not been objected to by the Commission.
Facts and legal issues: The case concerned a claim by an importer of whiskey for an exemption from a duty. The claim was based on the argument that certain distillers in Germany were granted State aid and that importers should be treated similarly by exempting them from the duties imposed on them, since the prohibition in Article 91 EC would otherwise apply.
Decision: The Fiscal Court of Hamburg held, however, that the mere fact that State aid had been granted (the compatibility of which with the Common Market falls within the exclusive jurisdiction of the Commission and the ECJ according to an obiter dictum in the judgment) did not necessarily result in the application of the prohibition laid down in Article 91 EC to the duties imposed on importers. This would require a closer connection between the aid and the duty at issue, particularly in economic terms.
Facts and legal issues: The case concerned a claim raised by a distiller for a tax reduction, since other distillers were in receipt of financial aid.
Decision: To the extent that the financial aid constituted State aid within the meaning of Articles 87 and 88 EC, the Fiscal Court of Hamburg stated that the aid would in any event have been granted illegally, since it had not been notified pursuant to Article 88 (3) EC. As a general rule, German law does not recognise claims for equal treatment of beneficiaries of unlawful aid. Therefore, no claim could be made in this case for benefits equivalent to the aid (i.e. by means of tax reductions).
Facts and legal issues: The case concerned the reduction of duties imposed on distillers.
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Decision: The Fiscal Court of Hamburg referred the case to the ECJ. The Fiscal Court of Hamburg asked the ECJ whether certain reductions in the duties imposed on distillers came within the scope of Articles 91 and 31 EC or rather within the scope of Articles 87 and 88 EC and, in case of the latter, whether the general principle of equal treatment entitled other distillers who did not yet benefit from a reduction in the amount of duty imposed to receive the same benefit.
The ECJ held that there was no need to determine whether Articles 87 and 88 EC applied. Even if this were the case, the case would have to be decided under Article 91 EC since State aid granted pursuant to an obligation that is applied in a discriminatory manner fell within its scope200.
Facts and legal issues: The case concerned duties imposed on imported distilled alcoholic beverages.
Decision: The Fiscal Court of Hamburg referred the case to the ECJ. The Fiscal Court of Hamburg asked the ECJ whether certain increases in the duties imposed on imported, distilled, alcoholic beverages came within the scope of Article 31 EC, although these measures contained elements of State aid. In its judgment, the ECJ found that Article 31 EC was lex specialis to Articles 87 and 88 EC with regard to measures taken by the State in connection with the exercise of a State monopoly. The ECJ held that the case should be decided under Article 31 EC201.
Facts and legal issues: The case concerned a reduction in the duties granted to certain domestic producers.
Decision: The Fiscal Court of Hamburg referred the case to the ECJ. The Fiscal Court of Hamburg asked the ECJ whether a reduction in the duties granted to certain domestic producers constituted State aid within the meaning of Article 87 EC or whether only Article 90 EC was applicable. The ECJ held that the case must be decided under Article 90 EC202.
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Facts and legal issues: An order requiring payment of a duty levied on the importation of agricultural products was challenged by an importer before the Administrative Court of Frankfurt.
Decision: The Administrative Court of Frankfurt took the view that the German rules providing for the imposition of an import duty on certain importers of agricultural products constituted State aid that was incompatible with the Common Market under Article 87 EC. Accordingly, the Administrative Court of Frankfurt made a reference for a preliminary ruling to the ECJ. The question referred by the Administrative Court of Frankfurt was whether the procedural rules of Article 88 EC prohibited references for a preliminary ruling on Article 87 EC and subsequent decisions by the national courts on the applicability of Article 87 EC.
In its judgment of 22 March 1977203, the ECJ found that Article 88 EC did not prohibit references for a preliminary ruling concerning the interpretation of Article 87 EC, but that national courts could not themselves determine whether State aid was compatible with the Common Market that had not been the object of a relevant decision of the Commission. The ECJ thereby required the Administrative Court of Frankfurt to find against the claimant since the relevant German rules had been duly notified to the Commission under Article 88 (3) EC and the Commission had not raised any objections.
The Administrative Court of Frankfurt subsequently asked the Federal Constitutional Court whether it had jurisdiction to declare the German rules providing for the imposition of an import duty on certain importers of agricultural products compatible with Article 87 EC. The Federal Constitutional Court rejected the reference made by the Administrative Court of Frankfurt. It stated that it had no power to interpret the provisions of the EC Treaty in a way that differed from the interpretation adopted by the ECJ as far as the applicability of these provisions in Germany was concerned.
Facts and legal issues: The claimant, a German distiller, sought compensation for the export of its products from the German authority administering the monopoly in distilled alcoholic beverages. The claimant was legally entitled to this compensation.
Decision: The Fiscal Court of Hessen found that, under the rules governing the monopoly in distilled alcoholic beverages, the claimant was entitled to such compensation. The Fiscal Court of Hessen added that the claim was well-founded irrespective of the concern that thePage 235 compensation might not comply with Article 87 EC, since the purpose of the compensation was to increase the competitiveness of German distillers abroad.
The Fiscal Court of Hessen held that Article 87 EC was not directly applicable but rather required action by the Commission. Such action may, however, result in an obligation to abolish national rules which violate Article 87 EC.
Facts and legal issues: The case concerned house-building financial aid granted by the German authorities to a German citizen who was a public servant of the EC. When the beneficiary decided to use the aid to build a house in Belgium, the German authorities demanded repayment of the funds, which was challenged by the beneficiary.
Decision: The Federal Fiscal Court found in favour of the beneficiary. The Federal Fiscal Court stated, inter alia, that the financial aid did not constitute State aid within the meaning of Article 87 EC since it not only promoted the German construction industry but also foreign construction companies that were active in Germany.
Facts and legal issues: The case concerned the imposition of a tax on road transport of goods.
Decision: The Fiscal Court of Baden-Wurttemberg referred the case to the ECJ. The Fiscal Court of Baden-Wurttemberg asked whether the imposition of a tax on the road transport of goods infringed certain EC tax rules. The Fiscal Court of Baden-Wurttemberg held that the imposition of a tax on certain companies did not amount to granting State aid to the competitors of those companies, i.e. in this case the beneficiary of the road transport companies' obligation to pay tax was the Federal German railroad company.
The decision handed down by the ECJ on 21 October 1970204 did not deal with the EC rules on State aid.
Facts and legal issues: The case concerned the imposition of a tax on road transport of goods.
Decision: The Fiscal Court of Munich referred the case to the ECJ. The questions asked by the Fiscal Court of Munich mainly concerned the compatibility of the relevant German rulesPage 236 with EC tax rules and, by way of precaution only, the Fiscal Court of Munich raised the question whether Articles 87 and 88 EC also applied to transport and whether they prohibited the imposition of protective measures in favour of railroad companies operated by the State. On the latter issue, the reference was based on the claimant's argument that the law imposing the tax on road transport of goods violated Article 88 (3) EC since, in the absence of a positive decision of the Commission, Member States may not grant State aid.
In its decision of 6 October 1970205, the ECJ only addressed the tax law aspects of the case.
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Private law disputes
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Private law disputes directly targeted at competitors
Facts and legal issues: The claimant, an operator of a crematorium, provided its services in competition with the City of Munich, which also operated a crematorium. Whereas the services provided by the claimant were subject to sales tax, the services provided by the City of Munich were not. The claimant requested that the defendants, the City of Munich and the Federal State of Bavaria also impose sales tax on the crematorium services provided by the City of Munich.
Decision: The Higher Regional Court of Munich rejected the request.
(I) The Higher Regional Court of Munich left open whether the exemption from sales tax actually constituted State aid. It held that, even if the exemption constituted unlawful State aid, the claimant had no claim in law that could prevent the defendants from exempting the City of Munich from sales tax.
(II) The claimant could not rely on section 1 of the Law against Unfair Competition ("Gesetz gegen den unlauteren Wettbewerb", "UWG"). Section 1 UWG provides for cease and desist orders and damages if a person acts contrary to generally accepted business behaviour ("gute Sitten") in order to compete. Not every infringement of the law constitutes an action that is contrary to generally accepted business behaviour. Rather, section 1 UWG requires that the rule which is infringed is aimed at, although not necessarily exclusively, protecting the fairness of competition ("sekundärer Marktbezug"). According to the Higher Regional Court of Munich, the State aid provisions of the EC Treaty as well as the regulations implementing these provisions were not aimed at protecting the fairness of competition. Potential effects on competitors were an irrelevant consideration in the application of the prohibition of Article 87 EC, which was limited to public measures and justified by the fact that the unlawful aid was granted by a public authority. Whether thePage 237 conditions of demand and supply were affected by the aid was of no relevance to the prohibition of State aid.
(III) The claimant could not rely on section 823 (2) of the German Civil Code ("Bürgerliches Gesetzbuch", "BGB"). Section 823(2) BGB provided for damages (including cease and desist orders) in case of an infringement of a statute that is aimed at protecting other persons ("den Schutz eines anderen bezweckendes Gesetz"). Referring to its findings on section 1 UWG, the Higher Regional Court of Munich held that the State aid provisions as well as the regulations implementing these provisions were not aimed at protecting other persons.
Comment: It is difficult to reconcile the decision by the Higher Regional Court of Munich with established case law of the ECJ and CFI in the State aid area. The whole concept of Article 88 (3) EC being directly applicable is based on the very idea that the State aid provisions are aimed at protecting competitors. It is unfortunate that the Bundesgerichtshof decided to dismiss the appeal206. However, it seems unlikely that the decision by the Higher Regional Court of Munich, and in particular its reasoning, will be followed by other national courts.
Facts and legal issues: The defendant, the public broadcasting station ZDF, intended to construct a media-related amusement park ("the ZDF-Medienpark", "ZDFM"). The ZDFM was supposed to be operated by a private company ("operating company"), which would also bear the investment costs. The defendant would not participate as a shareholder in the operating company, but would provide some land and allow the operating company to use certain trademarks. The operating company would pay the defendant consideration for the land provided and the right to use the trademarks. The claimants, several operators of amusement parks, challenged the defendant under unfair competition rules, and alleged, in addition, that ZDFM amounted to unlawful State aid.
Decision: The Higher Regional Court of Koblenz rejected the claim. The defendant intended to provide land and the right to use the trademarks to the operating company in return for a consideration which would satisfy the private investor test. Accordingly, the operating company would not receive a benefit within the meaning of Article 87 (1) EC. This position was confirmed by the Commission in separate proceedings207.
Comment: Since the Higher Regional Court of Koblenz decided that no State aid was involved, it did not address the question whether an infringement of Article 88 (3) EC constituted a valid legal basis for the claimant's claim against its competitor.
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Private law disputes targeted at imposition of burden
Page 238
Facts and legal issues: The claimant, an operator of a wind power plant, requested from the defendant, an undertaking supplying electricity, to connect the wind power plant to the electricity network, to purchase the electricity produced and to pay the price laid down by the Law on Feeding Electricity from Renewable Energy Resources into the Public Grid ("Stromeinspeisungsgesetz", "StrEG"). The defendant refused, arguing, inter alia, that the StrEG amounted to State aid and was therefore unlawful.
Decision: Referring to the ECJ's Preussen Elektra decision, the Federal Court of Justice rejected the claim that the StrEG amounted to State aid208.
Facts and legal issues: The complainant, an electricity supply company, argued that the Law on Feeding Electricity from Renewable Energy Resources into the Public Grid ("Stromeinspeisungsgesetz", "StrEG"), notably the obligation to purchase energy from renewable resources at a fixed price, amounted to unlawful State aid.
Decision: Referring to the ECJ's Preussen Elektra decision, the Federal Constitutional Court rejected the claim that the StrEG amounted to State aid209.
Facts and legal issues: The claimant, an operator of a biomass energy plant, asked the defendant, an undertaking supplying electricity, to purchase the electricity produced by the biomass energy plant and to pay the price laid down by the Law on Feeding Electricity from Renewable Energy Resources into the Public Grid ("Stromeinspeisungsgesetz", "StrEG"). The defendant refused, arguing, inter alia, that the StrEG amounted to State aid and was therefore unlawful.
Decision: The Higher Regional Court of Schleswig rejected the claim, holding that the StrEG did not involve direct or indirect State resources within the meaning of Article 87 EC.
Comment: Although the Higher Regional Court of Schleswig (which is the competent court of appeals for the Landgericht Kiel) was aware of the preliminary reference to the ECJ by the Landgericht Kiel (see below) regarding the StrEG, the Schleswig Court did not consider it necessary to suspend the proceedings until the ECJ's final decision.
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Facts and legal issues: The German Law on Feeding Electricity from Renewable Energy Resources into the Public Grid ("Stromeinspeisungsgesetz", "StrEG") required electricity supply undertakings to purchase electricity from renewable sources paying a fixed price, as provided for in the StrEG. The claimant, an electricity supply company, accordingly paid DM 500,000 to the defendant, an operator of wind power plants. The claimant subsequently requested the defendant to refund the respective amount, arguing, inter alia, that the StrEG amounted to unlawful State aid.
Decision: The Regional Court of Kiel referred the question whether the StrEG amounted to State aid to the ECJ. In its decision210, the ECJ held that provisions like those in the StrEG did not involve advantages granted directly or indirectly by means of State resources.
Comment: The decision by the Regional Court of Kiel to make a preliminary reference to the ECJ and the subsequent decision by the ECJ had a significant influence on numerous other proceedings involving similar questions.
Facts and legal issues: The claimant brought an action to challenge the lawfulness of the termination of an employment contract. Under German law, small companies employing five or fewer employees are exempt from the fairly strict rules on the protection of employees against termination of employment contracts that would otherwise apply.
Decision: The Labour Court of Reutlingen took the view that this legal distinction between small companies and other companies, where only the latter are subject to strict employment protection rules, produced a considerable competitive advantage for small companies and must therefore be qualified as State aid. The Labour Court of Reutlingen made a preliminary reference to the EJC, asking whether this interpretation of the notion of State aid was correct.
The ECJ held that exempting small companies from certain rules of German law did not amount to State aid within the meaning of Article 87 EC, as it did not result in benefits being granted to the recipients out of State funds. In this judgment the ECJ emphasised that, when deciding whether the grant of State aid violates Article 88 (3) EC, a national court may ask the ECJ to interpret the notion of State aid within the meaning of the EC Treaty211.
Facts and legal issues: The case concerned certain rules of German labour law under which it was possible to employ non-German staff on German vessels under exemptionsPage 240 from rules of German labour and social security law. The labour law and social security law standards set for non-German staff were substantially lower than the standards applicable to German staff.
Decision: The Labour Court of Bremen made a reference to the ECJ for a preliminary ruling under Article 234 EC. The Labour Court of Bremen was of the opinion that the resulting benefits for ship owners, such as lower social security contributions, were State aid that came within the scope of Article 87 EC (and, furthermore, amounted to a violation of Article 136 EC).
In its judgment, the ECJ found that there was no State aid in this case, as the benefits for ship owners which resulted from the different legal standards were not financed out of State funds212.
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Action for damages from a public authority
Facts and legal issues: The case concerned a claim for damages arising out of an alleged failure of the Land of Sachsen-Anhalt to notify aid in the steel sector in a timely manner. The claim was based on a Commission decision under the ECSC Treaty allowing aid to steel producers in the German New Federal States provided that the aid was notified to the Commission by 30 June 1994. The German government notified the aid after the expiration of the notification period. The Commission found that the aid was incompatible. In the proceedings before the Regional Court of Magdeburg, the claimant claimed that the aid would have been compatible had the German government abided by the notification period. Accordingly, the claimant reclaimed a certain part of the amount that had been paid as damages under German tort law.
Decision: The Regional Court of Magdeburg dismissed the action. It was somewhat unclear to what extent the Commission would have been able to approve the State aid if the notification deadline of 30 June 1994 had been met. The claimant referred to another case ("EKO-Stahl") in which the Commission had granted such exceptional approval. The Regional Court of Magdeburg dismissed the action because the claimant had failed to show a causal link between the failure of the German Administration to notify the State aid in a timely manner and the declaration of incompatibility by the Commission. The Regional Court of Magdeburg also stated that, if it was to grant the claimant damages, this would amount to State aid on its own. Subsequently, the Higher Regional Court of Naumburg dismissed the claimant's appeal and the Federal Court of Justice ("Bundesgerichtshof") rejected the claimant's application to appeal further.
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Action for damages from the beneficiary
There are no published cases regarding this category.
Facts and legal issues: The case concerned the implementation of a negative Commission decision of 20 October 2004 in the so-called Kvaerner matter213. The Commission had decided that Kvaerner, a shipyard, had received unlawful State aid which Germany was required to reclaim. The Bundesanstalt für vereinigungsbedingte Sonderaufgaben ("BvS"), which was charged with the recovery of the State aid, had issued an administrative act ordering recovery. Kvaerner challenged the administrative act, arguing that it was not based on a valid legal basis ("Rechtsgrundlage"). The BvS took the view that it was entitled to base administrative acts either on Article 14 (3) of Regulation No. 659/1999 or directly on the Commission decision itself.
Decision: The Administrative Court of Berlin decided that the recovery decision by BvS was unlawful. The German constitution stipulates that any administrative act imposing a burden on a person must be based on a specified legal basis ("Vorbehalt des Gesetzes", Article 20 (3) Grundgesetz). According to the Administrative Court of Berlin, the administrative act ordering recovery was not based on a valid legal basis. Both Article 14 (3) of Regulation No. 659/1999 and the Commission decision provide that recovery of unlawful State aid must be implemented according to national law. The case law of the ECJ and CFI214 does not provide for an obligation to recover unlawful State aid by means of an administrative act. Similarly, current case law215 does not indicate that recovery of unlawful State aid can only be effective if implemented by means of an administrative act.
Comment: The Administrative Court of Berlin confirmed that, where State aid has been granted by contract (rather than by unilateral administrative decision), for example, in the case of loans or guarantees, the public authority that granted the aid cannot simply (unilaterally) order repayment once the Commission has issued a negative decision that provides for an obligation to recover. Instead, the public authority must take action before either the civil or the administrative courts by bringing an action for repayment ("Leistungsklage").
Facts and legal issues: The claimant, the Bundesanstalt für vereinigungsbedingte Sonderaufgaben ("BvS"), sued the insolvency trustee of Zemag which had been part of thePage 242 Lintra group and in respect of which insolvency proceedings were opened on 1 March 2001. The Lintra group had received State aid which the Commission had declared illegal by decision of 28 March 2001. Part of that aid had been allocated to Zemag. When BvS applied to have the recovery claim registered as an insolvency claim, the trustee rejected the request on the grounds that section 41 (1) of the German Insolvency Act allowed for the registration of claims only if they were issued before the commencement of insolvency proceedings. In addition, the trustee claimed that BvS did not show that the amount in question had actually been paid by Lintra to Zemag. Finally, the trustee claimed that recovery of the State aid would violate the principle of good faith laid down in section 242 of the German Civil Code.
Decision: The Regional Court of Halle found in favor of the claimant. It applied the case law developed by the Bundesgerichtshof in 2003 pursuant to which contracts that involve the grant of illegal State aid are null and void ab initio (under section 134 of the German Civil Code). Thus, section 41 (1) of the Insolvency Act did not preclude registration of the claim. The Regional Court of Halle also rejected the argument that the principle of good faith precluded recovery during insolvency proceedings.
Facts and legal issues: The case concerned the implementation of a negative Commission decision of 28 March 2001 in the so-called Lintra matter. Lintra was a holding company in the New Federal States and was privatised in January 1995. The holding company comprised eight businesses, including Saxonia Edelmetalle GmbH, which was sold to a third party in June 1997. As part of the original privatisation deal, the German privatisation agency committed to paying a total of DM 824.2 million in restructuring aid. The Commission approved the restructuring aid in 1996, but subsequently opened proceedings for misappropriation of State aid. In these proceedings, concluded by decision of 28 March 2001, the Commission ordered that an amount of DM 35 million should be repaid by the subsidiaries of Lintra. DM 3.2 million of the overall amount was allocated to Saxonia, the defendant. The defendant challenged the Commission decision before the CFI. Since the defendant was not prepared to repay the amount voluntarily, the privatisation agency sued the defendant in the Regional Court of Chemnitz.
Decision:
(I) During the proceedings before the Regional Court of Chemnitz, the defendant argued that there was no basis for the privatisation agency to reclaim any amount under the provisions concerning unjust enrichment of the German Civil Code (section 812 Bürgerliches Gesetzbuch ("BGB")). The defendant argued that, to be able to rely on section 812 BGB, the claimant had to show that it had actually paid the amount reclaimed to the defendant. In thePage 243 defendant's view, the State aid had been paid to the parent company, Lintra, and there was no evidence that any part of that payment had been passed on to the subsidiary. The Regional Court of Chemnitz held that these considerations under national law were irrelevant because the Commission decision stated that a specific amount must be reclaimed from Saxonia. The Regional Court of Chemnitz explained that it was in no position to challenge the Commission decision on this point.
(II) The Higher Regional Court of Dresden did not follow the decision by the Regional Court of Chemnitz and suspended the proceedings pending Saxonia's court action against the decision before the CFI. The Higher Regional Court of Dresden took the position that there was no basis under German law to recover the State aid from Saxonia because there was no proof that part of the State aid had actually been paid to Saxonia. The only basis for direct recovery was the Commission decision which specified that a specific amount should be reclaimed from Saxonia. The Higher Regional Court of Dresden stated that the decision by the CFI was prejudicial to the outcome of the proceedings before it. Thus, it suspended the proceedings pursuant to a section of the German Code of Civil Procedure which allows suspension in the event that prejudicial proceedings are pending in another court. In the opinion of the Higher Regional Court of Dresden, this suspension did not violate Article 242 EC (which establishes that actions against Commission decisions do not have suspensory effect). In the opinion of the Higher Regional Court of Dresden, since there were substantial doubts as to the legality of the Commission decision, the alternative to a suspension of the national proceedings would have been to refer the case to the ECJ under Article 234 EC. In the light of the proceedings pending before the CFI, the Higher Regional Court of Dresden decided to suspend its own proceedings.
Comment: The decision by the Higher Regional Court of Dresden conforms to Community law. The CFI explicitly stated that "[...] Community law does not preclude the national court from ordering suspension of the application for recovery lodged by [the Member State] pending settlement of the case before the [CFI] or from referring a question to the Court of Justice for a preliminary ruling under Article 234 EC. Since the applicant has contested the legality of the contested decision under Article 230 EC, the national court is not bound by the definite nature of that decision216."
Facts and legal issues: The case concerned an action for the repayment of shareholders' loans granted by the privatisation agency for businesses in the New Federal States ("Treuhandanstalt") to SKET, an equipment manufacturer. During the entire privatizationPage 244 period in the early 1990s, SKET had received State aid on an ongoing basis from Treuhandanstalt. In 1996, privatisation efforts finally failed and bankruptcy proceedings were opened regarding SKET's assets. In 1997, the Commission declared (some of) the State aid received by SKET incompatible and ordered its repayment. Treuhandanstalt brought proceedings before the Regional Court of Magdeburg against the trustee in bankruptcy who refused to recognise the recovery claim and, alternatively, took the position that the claim should be treated as a subordinate shareholders' loan. The decision by the Regional Court of Magdeburg had to address a number of issues raised under German law relating to unjust enrichment and the question of whether a claim for the recovery of a loan granted by a public shareholder that had been found to constitute State aid can be treated as a subordinate loan (pursuant to section 32 (1) (a) of the German Act on Companies with Limited Liability).
Decision: The Regional Court of Magdeburg found in favour of the claimant ("Treuhandanstalt") and set aside the defendant's arguments based on the law of unjust enrichment and the subordination of the loan. The Regional Court of Magdeburg based its decision on considerations of German law only. Following the defendant's appeal to the Higher Regional Court of Naumburg, the Higher Regional Court of Naumburg affirmed the decision of the lower court and, in addition, declared that the effet utile of the Commission decision required that the recovery claim be treated as a normal bankruptcy claim. The provision of German corporate law which provides that claims for the repayment of a loan by a shareholder who had granted a loan in a situation in which a prudent shareholder would have provided capital instead cannot be applied to a situation where State aid is reclaimed pursuant to a Commission decision.
Facts and legal issues: The two judgments concern the recovery of State aid pursuant to a negative decision of the Commission of 31 October 1995 in the case of Hamburger Stahlwerke GmbH. In its decision, the Commission found that loans granted to Hamburger Stahlwerke GmbH during the period from 1992 to 1993 in the sum of DM 204 million constituted restructuring aid that was incompatible with Article 4 (c) of the ECSC Treaty. It ordered Germany to recover those amounts from the aid beneficiary. During the period in which the loans were granted, Hamburger Stahlwerke GmbH underwent a series of restructuring steps each of which was accompanied by successive loans granted by Hamburger Landesbank, the public bank which was wholly controlled by the City of Hamburg. Ultimately, the business of Hamburger Stahlwerke GmbH was transferred to an Indian steel manufacturing group ("ISPAT"). That group acquired the loans granted to Hamburger Stahlwerke GmbH from Hamburger Landesbank at a price that was DM 90 million less than face value. The loans were subsequently transferred to another group member and eventually repaid by the new company operating the business of Hamburger Stahlwerke. Thus the loans had eventually "disappeared". In implementing the negativePage 245 Commission, the City of Hamburg filed a court action against the defendant operator of the Hamburger Stahlwerke business to recover the balance between the face value of the loans and the price paid by the ISPAT group.
Decision: The Federal Republic of Germany filed an appeal against the negative Commission decision which was still pending when the Regional Court of Hamburg had to render its decision on the court action by the City of Hamburg for the recovery of the loan amounts. In its decision, the Regional Court of Hamburg notes that both the claimant and the defendant were of the view that the Commission decision was illegal and should be annulled by the ECJ. Nevertheless, the Regional Court of Hamburg went on to decide the case as if the Commission decision could stand. On the question before it, the Regional Court of Hamburg reached the conclusion that the action by the City of Hamburg should be dismissed because the loan was paid out by Hamburger Landesbank and not by the City of Hamburg and, due to the transfer of the loans to another entity of the ISPAT group and the subsequent repayment of the loan amounts, there were no open claims that could be the basis for a recovery action. The Regional Court of Hamburg noted that this result (which it regards as compulsory under national law) may be unfortunate, because the purpose pursued by the illegal aid - the continued operation of the business of Hamburger Stahlwerke GmBH - had been achieved and there was nothing that could be done to reverse this. However, according to the Regional Court of Hamburg, the result was inevitable, given the structure of the national legal provisions under which the illegal aid had to be recovered.
When the case was before the Oberlandesgericht of Hamburg, the action by the German government against the negative Commission decision was dismissed by the ECJ. The Oberlandesgericht of Hamburg set aside the judgment of the Landgericht of Hamburg and held that the new owners of the business of Hamburger Stahlwerke GmbH would have to repay the loan amounts received from Hamburger Landesbank directly to the City of Hamburg. In reaching this decision, the Oberlandesgericht of Hamburg held that the violation of Article 88 (3) EC resulted in the invalidity of both the loan granted by Hamburger Landesbank to Hamburger Stahlwerke GmbH and the underlying agreement between the City of Hamburg and Hamburger Landesbank pursuant to which the loan was granted. Thus, the City of Hamburg was in a position to bring a direct claim against Hamburger Stahlwerke GmbH (and its successors) for unjust enrichment. The Oberlandesgericht of Hamburg reasoned that it was necessary to regard all contractual relationships surrounding the grant of the loan as null and void in order to preserve the effet utile of the Commission decision.
Facts and legal issues: The defendant, a producer of synthetic fibres and yarns, had received an investment grant ("Investionszuschuss") of DM 1.2 million in 1982 from the claimant, a publicly owned bank. In addition, the claimant received an investment allowance ("Investitionszulage") of DM 1.7 million in 1984 from another public authority. In 1985, thePage 246 Commission decided that both the investment grant and the investment allowance constituted unlawful State aid and that they had to be recovered217. The Commission's decision was subsequently confirmed by the ECJ218, and the defendant repaid the investment allowance. In 1995, the claimant requested repayment of the investment grant plus interest from the defendant. The defendant refused, arguing, inter alia, that recovery of the investment grant would be contrary to the principle of good faith ("Treu und Glauben", section 242 BGB).
Decision: The Bundesgerichtshof confirmed that contracts that infringe Article 88 (3) (3) EC are void according to section 134 BGB. Any payments or goods received under the respective contracts must be returned on the basis of the provisions of unjust enrichment ("ungerechtfertigte Bereicherung"). The Bundesgerichtshof held that the defendant could not refuse to repay the investment grant on the basis of the principle of good faith. In particular, the defendant could not draw any conclusions from the fact that it took eight years since the ECJ judgment for the defendant to be asked to repay the investment grant. Also, recovery was not precluded by reason of the fact that German public officials had frequently assured the defendant that the investment grant would not be recovered. As regards recovery of unlawful State aid, national authorities do not have any discretionary powers. Their role is limited to executing the Commission's decisions. Finally, the Bundesgerichtshof decided that the claimant was entitled to ask for payment of interest, and that the claimant was correct in calculating the level of interest on the basis of national law.
Comment: The Bundesgerichtshof fails to acknowledge that Article 14 (2) of Regulation No. 659/1999 provides that "the aid to be recovered pursuant to a recovery decision shall include interest at an appropriate rate fixed by the Commission".
Facts and legal issues: The claimant, a sub-agency of the Bundesanstalt für vereinigungsbedingte Sonderaufgaben ("BvS"), was charged with the privatisation of formerly State-owned land in Eastern Germany. The land was sold under the Indemnification and Compensation Act ("Ausgleichsleistungsgesetz", "AusglLeistG"), which provided for the possibility to sell the land below market price. In 1997, the claimant sold 150 acres to the defendant, some of which were sold below market price. In 1999, the Commission decided that parts of the AusglLeistG granted State aid that was incompatible with the Common Market and ordered Germany to recover the unlawful aid219. The AusglLeistG was subsequently amended and a new provision (section 3 (a) AusglLeistG) was introduced. Section 3 (a) AusglLeistG allowed for the purchase price to be adapted retroactively to the market price. Based on section 3 (a) AusglLeistG, the claimant asked the defendant for anPage 247 additional payment for the land sold. Since the defendant refused, the claimant brought an action in the civil courts, requesting the additional payment. The defendant refused to pay, arguing that the Commission's decision was unlawful.
Decision: The Bundesgerichtshof ordered the defendant to make the additional payment.
(I) The Bundesgerichtshof found that the question of the legality of the Commission decision was relevant to the case. However, the Bundesgerichtshof held, with reference to ECJ case law220, that the defendant was precluded from questioning the lawfulness of the Commission decision before a national court. The defendant, as beneficiary of the unlawful State aid, could have challenged that decision before the CFI, but instead allowed the mandatory time limit laid down in Article 230 (5) EC to pass.
(II) The Bundesgerichtshof subsequently confirmed that recovery of unlawful State aid can be excluded in exceptional circumstances according to the principle of good faith ("Treu und Glauben", section 242 BGB). However, the arguments brought forward by the defendant were not sufficient to establish the existence of such exceptional circumstances.
Facts and legal issues: The claimant, a sub-agency of the Bundesanstalt für vereinigungsbedingte Sonderaufgaben ("BvS"), was charged with the privatisation of formerly state-owned land in Eastern Germany. The land was sold under the Indemnification and Compensation Act ("Ausgleichsleistungsgesetz", "AusglLeistG"), which provided for the possibility to sell the land below market price. In 1997, the claimant sold 200 acres to the defendant, some of which were sold below market price. In 1999, the Commission decided that parts of the AusglLeistG granted State aid which was incompatible with the Common Market and ordered Germany to recover the unlawful aid221. The AusglLeistG was subsequently amended and a new provision (section 3 (a) AusglLeistG) was introduced. Section 3 (a) AusglLeistG allowed for the purchase price to be adapted retroactively to the market price. Based on section 3 (a) AusglLeistG, the claimant asked the defendant for an additional payment for the land sold. Since the defendant refused, the claimant brought an action in the civil courts, requesting the additional payment. The defendant refused to pay, arguing that section 3 (a) AusglLeistG was unconstitutional, since it deprived him retroactively of a vested legal entitlement.
Decision: The Bundesgerichtshof ordered the defendant to make the additional payment.
(I) Section 3 (a) AusglLeistG could have deprived the defendant only of a vested legal entitlement if the purchase contract entered into in 1997 was valid. But this was not the case. The sale of the land below market value infringed Article 88 (3) (3) EC. Under section 134 ofPage 248 the German Civil Code ("Bürgerliches Gesetzbuch", "BGB"), a contract that infringes a legal prohibition ("gesetzliches Verbot") is void. Referring to the ECJ's case law222, the Bundesgerichtshof held that section 134 BGB must be understood as applying to infringements of Article 88 (3) (3) EC. This applies regardless of whether the Commission subsequently approves the State aid in question. Only the nullity of the contract succeeds in removing distortions of competition since it enables competitors to request recovery of the unlawful State aid.
(II) Generally, if a contract is void according to section 134 BGB, the parties to the contract must return any payments or goods received under the contract. Hence, the defendant would have been obliged to return the land to the claimant. However, the Bundesgerichtshof held that, following the amendment to the AusglLeistG (section 3 (a) AusglLeistG), the contract was affirmed ("Bestätigung", section 141 BGB) subject to modified conditions, namely with a purchase price that did not amount to unlawful State aid.
(III) Finally, the Bundesgerichtshof discussed whether the recovery of unlawful State aid could be excluded according to the principle of good faith ("Treu und Glauben", section 242 BGB). Usually, the Community interest in restoring competition prevails over the interests of the beneficiary of the aid, even if the beneficiary did not act negligently when receiving the unlawful aid. The Bundesgerichtshof left open whether recovery may be excluded in exceptional cases, since the defendant did not argue that such exceptional circumstances existed in his case.
Comment: The Bundesgerichtshof's decision resolves the highly debated question under German law of the nature of the legal implications for a civil law contract if that contract infringes Article 88 (3) EC. Prior to the judgment, the majority of commentators had argued that, as long as recovery of the unlawful aid is guaranteed, ECJ case law223 did not necessarily require the nullity of a contract infringing Article 88 (3) EC, and that section 134 BGB could not be applied.
Facts and legal issues: The claimant, a sub-agency of the Bundesanstalt für vereinigungsbedingte Sonderaufgaben ("BvS"), was charged with the privatisation of formerly State-owned land in Eastern Germany. The land was sold under the Indemnification and Compensation Act ("Ausgleichsleistungsgesetz", "AusglLeistG"), which provided for the possibility to sell the land below market price. In 1998, the claimant sold some land to the defendant, a local farmer. Some plots of land were sold below market price. In 1999, the Commission decided that parts of the AusglLeistG granted State aid which was incompatiblePage 249 with the Common Market and ordered Germany to recover the unlawful aid224. The AusglLeistG was subsequently amended and a new provision (section 3 (a) AusglLeistG) was introduced. Section 3 (a) AusglLeistG allowed for the purchase price to be retroactively adapted to the market price. Based on section 3 (a) AusglLeistG, the claimant asked the defendant for an additional payment for the land sold. Since the defendant refused, the claimant brought an action in the civil courts, requesting the additional payment. The defendant refused to pay, arguing that, at the time the contract was concluded, it could not have known that the AusglLeistG provided for unlawful State aid.
Decision: The Landgericht of Rostock decided in favour of the defendant, rejecting the claimant's request for additional payment.
(I) The Landgericht of Rostock discussed in detail the ECJ's jurisprudence, in particular the Alcan decision225 and subsequent decisions by German courts. The Landgericht of Rostock acknowledged that the legitimate expectations of the recipients of unlawful State aid could be protected only in exceptional circumstances. In particular, the beneficiary of the State aid could not rely on legitimate expectations if it knew or could have known that the State aid, although notifiable, had not been notified to the Commission. These principles apply regardless of whether the State aid was granted by an administrative act or by means of a private contract.
(II) The Landgericht of Rostock held that the request for additional payment was legitimately based on section 3 (a) AusglLeistG, but that it was contrary to the principle of good faith laid down in section 242 of the German Civil Code ("Bürgerliches Gesetzbuch", "BGB"). The defendant had, in reliance on the validity of the purchase contract, assumed various financial commitments, which, if it had been obliged to repay the aid, could have threatened its entire financial existence. As a local farmer, the defendant could not have known that the sale of land under the AusglLeistG contained elements of State aid. The situation in the Alcan case was different, since Alcan was a globally active company, which knew that it was in receipt of State aid. Taking into account that the effect of the unlawful State aid was regionally limited, the Landgerich of Rostockt held that, in this particular case, the interests of the defendant outweighed the Community interest, and that the claimant was therefore unable to recover the State aid.
Comment: The Landgericht of Rostock distinguished this case from the Alcan case on the basis that Alcan was a large company, while the defendant was only a small farmer, whose existence would have been threatened by the recovery of the State aid. It seems unlikely that these findings can be reconciled with the ECJ's case law and Commission practice. The mere fact that the beneficiary of the aid is not a large company does not prevent recovery, and the disappearance of a market player following a recovery decision is an explicitly recognised and accepted consequence of such a decision.
Page 250
Facts and legal issues: The defendant, a sub-agency of the Bundesanstalt für vereinigungsbedingte Sonderaufgaben ("BvS"), was charged with the privatisation of formerly State-owned land in Eastern Germany. The land was sold under the Indemnification and Compensation Act ("Ausgleichsleistungsgesetz", "AusglLeistG"), which provided for the possibility to sell the land below market price. In 1997, the defendant sold some land to the claimant. Plots of the land were sold below market price. In 1999, the Commission decided that parts of the AusglLeistG granted State aid which was incompatible with the Common Market and ordered Germany to recover the unlawful aid226. The AusglLeistG was subsequently amended and a new provision (section 3 (a) AusglLeistG) was introduced. Section 3 (a) AusglLeistG allowed for the purchase price to be retroactively adapted to the market price. Based on section 3 (a) AusglLeistG, the defendant asked the claimant for an additional payment for the land sold. The claimant paid the additional amount and subsequently brought an action in the civil courts, requesting repayment.
Decision: The Kammergericht of Berlin decided in favour of the defendant, rejecting the claimant's request for repayment. The request for additional payment was legitimately based on section 3 (a) AusglLeistG.
The Kammergerich of Berlin held that BvS was bound by the Commission's finding that the initial purchase contract constituted State aid. The Kammergerich of Berlin found that, as a consequence, the contract was void according to section 134 of the German Civil Code ("Bürgerliches Gesetzbuch", "BGB"). However, the contract was subsequently affirmed by means of section 3 (a) AusglLeistG. Section 3 (a) AusglLeistG was found to be constitutional.
The Kammergericht of Berlin furthermore discussed whether the request for additional payment could be challenged according to the principle of good faith ("Treu und Glauben", section 242 BGB). However, the Community interest in restoring competition prevailed over the interests of the beneficiary of the aid, even if the beneficiary did not act negligently when receiving the unlawful aid. The Kammergericht of Berlin left open whether recovery may be excluded in exceptional cases, since the claimant did not argue that such exceptional circumstances existed in this case.
Facts and legal issues: The claimant, a public authority, granted an investment grant to the beneficiary in 1993. In 1997, the beneficiary filed for bankruptcy and insolvency proceedings were initiated. According to the then applicable law, the insolvency administrator decided that all claims by the creditors must be registered with the competent insolvency court by the end of August 1997 at the latest. In 2002, the Commission decided that the investment grantPage 251 constituted State aid and had to be recovered. The claimant subsequently registered the recovery claim with the insolvency court. According to section 14 of the Regulation on the Execution of Insolvency Proceedings ("Gesamtvollstreckungsordnung", "GesO"), late claims cannot be admitted unless the delay can be justified. The claimant argued that it was only in the position to register the claim once the Commission had decided that the investment grant must be recovered. The insolvency court rejected the request, arguing that the Commission decision did not have an influence on the insolvency proceedings.
Decision: The Landgericht of Meiningen reversed the decision by the insolvency court. It held that national law could not hinder the implementation of recovery decisions. The Landgericht of Meiningen left open whether the delay could be justified. Instead, the Landgericht of Meiningen decided that section 14 GesO did not apply if its application prevented the implementation of recovery decisions by the Commission. The claimant's claim regarding the recovery of the investment grant was thus allowed.
Facts and legal issues: The decisions concerned the enforcement of a negative Commission decision in the Neue Maxhütte case. In its decisions of 18 October 1995 and of 13 March 1996, the Commission held that loans granted by the Land of Bavaria to the ailing steel maker Neue Maxhütte-Stahlwerke GmbH, amounting to DM 74 million in total, constituted State aid granted in violation of Article 4 (c) of the ECSC Treaty. The Commission ordered recovery of that amount. During the entire period in which the loans were granted, the Land of Bavaria was a shareholder in Neue Maxhütte-Stahlwerke GmbH. Under the applicable section 32 (a) (1) of the Act on Companies with Limited Liabilities ("GmbH Gesetz"), a shareholder who granted a loan to a company with limited liability in a situation where a diligent shareholder would have subscribed to equity (because the company was in a crisis), was treated as a non-preferential creditor with a secondary claim ("nachrangige Insolvenzforderung") in respect of the loan if the company became insolvent. In the case before the Landgericht of Amberg, the insolvency administrator claimed that, since the Land of Bavaria ("Freistaat Bayern") was a shareholder when it granted the loans in question, it should be treated as a non-preferential, secondary creditor.
Decisions: The Landgerich of Amberg held that the loans should be treated as ordinary claims in bankruptcy (not as unsecured, secondary claims, as the insolvency administrator had suggested). The Landgericht of Amberg reasoned that any other treatment of the loans would jeopardise the effet utile of the negative Commission decision. The Oberlandesgericht of Nürnberg rejected the appeal brought by the insolvency administrator as it was inadmissible. In particular, the Oberlandesgericht of Nürnberg did not feel that it was necessary to refer the question relating to the proper treatment of the loans granted by thePage 252 Land as a shareholder to the ECJ. It followed the decision of the Landgericht of Nürnberg which had ruled that the ECJ in Alcan required that illegal State aid be recovered under national law in a manner which did not render recovery of the illegal State aid practically impossible.
Comment: The decisions deal with a fairly complicated issue ("Eigenkapitalersetzende Darlehen") involving questions of insolvency law, the GmbH-Gesetz and State aid law. Interestingly, the Landgericht of Erfurt (see below) decided a similar case raising the same questions only a few weeks after the Landgericht of Amberg - and came to a very different conclusion.
Facts and legal issues: From 1993 to 1997 the Weida Leder GmbH received various loans and guarantees from the defendant, a bank owned by the New Federal State of Thüringen ("Freistaat Thüringen"). From 1995 onwards, the defendant was acting as the main shareholder of Weida Leder. Occasionally, Weida Leder paid interest on loans granted by the defendant. In 1998, insolvency proceedings were initiated against Weida Leder and the claimant was appointed as insolvency administrator. In 1999, the Commission decided that Weida Leder had received about DM 30 million in unlawful State aid and requested Germany to recover the aid227.
The claimant requested repayment of the interest paid by Weide Leder from the defendant. The claimant argued that, under the then applicable section 32 (a) (1) of the Act on Companies with Limited Liabilities ("GmbH-Gesetz", "GmbHG"), a shareholder who granted a loan to a company with limited liability in a situation where a diligent shareholder would have subscribed to equity (because the company was in a crisis), must be treated as having granted equity and would therefore not be entitled to file a claim in the insolvency case. For loans granted on or after 1 January 1999, section 32 (a) (1) GmbHG now provides that such claims are treated as unsecured secondary claims ("nachrangige Insolvenzforderung", i.e. different from equity, but a less valuable insolvency claim than ordinary insolvency claims). The defendant rejected the claimant's request, arguing that, since it was obliged to recover the unlawful State aid, section 32 (a) (1) GmbHG did not apply.
Decision: The Landgericht of Erfurt held that the loans should be recoverable as secondary claims. The Landgericht of Erfurt did not apply section 32 (a) (1) GmbHG, which provided that loans granted prior to 1 January 1999 must be treated as equity and could therefore not be reclaimed in insolvency proceedings. However, the Landgericht of Erfurt rejected the suggestion that the defendant's claim, since the implementation the Commission's recovery decision, should be treated as an ordinary insolvency claim.
Page 253
The Landgericht of Erfurt agreed that the ECJ's case law required that incompatible State aid be recovered under national law in a manner which did not render recovery practically impossible. The Landgerich of Erfurt took the view that the classification of the claim as a secondary insolvency claim was sufficient to satisfy these requirements. The main purpose of the State aid rules - maintaining effective and undistorted competition - had been achieved by Weida Leder being liquidated and having disappeared from the market as a consequence of the insolvency proceedings. There was therefore no need to treat the defendant's claim as an ordinary insolvency claim. In addition, the Landgericht of Erfurt held that treating the defendant's claim as an ordinary insolvency claim would unjustifiably reward the defendant who had knowingly granted unlawful State aid to Weida Leder for political reasons.
Facts and legal issues: In 1983, the claimant had received DM 8 million in contributions for an aluminium plant from the defendant, a public authority. Prior to the granting of the State aid, detailed negotiations had taken place between the claimant and the defendant. Although the Commission, who had become aware of the intention to grant State aid, had requested that the notification requirement be complied with, the State aid was granted without prior notification. The Commission subsequently found that the State aid was incompatible and had to be recovered. After several years of litigation between Germany and the Commission, the defendant finally ordered the claimant to repay the State aid. The claimant refused on the basis of the principle of legitimate expectations and the principle of good faith. The Bundesverwaltungsgericht referred the case to the ECJ, asking whether and to what extent the beneficiaries of unlawful aid could rely on the principle of legitimate expectations and the principle of good faith. The ECJ decided that recovery of unlawful aid could be excluded only in exceptional cases228. The Bundesverwaltungsgericht subsequently ordered the claimant to refund the State aid. The claimant complained to the Federal Constitutional Court, arguing that recovery of the State aid infringed its constitutional rights.
Decision: The Federal Constitutional Court rejected the constitutional complaint. The Bundesverwaltungsgericht had, based on the ECJ's Alcan decision, correctly applied the law. In particular, the Bundesverwaltungsgericht had taken sufficient account of the claimant's legitimate expectations and other rights derived from the principle of good faith. The fact that the Federal Constitutional Court decided that the Community interest in recovering unlawful State aid outweighed the claimant's interests did not infringe the claimant's fundamental rights. In addition, the Federal Constitutional Court saw no reason to discuss whether the ECJ's Alcan decision had exceeded the limits of Community law ("ausbrechender Rechtsakt").
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Comment: The Federal Constitutional Court's decision marks the end of the "Alcan-saga" described below.
Facts and legal issues: The case involved State aid in the amount of DM 8 million that was granted to an aluminium plant operator in order to safeguard the future operation of the plant. Before the State aid was granted detailed negotiations had taken place between the administrative agency granting the aid and the operator of the plant. Although the Commission, which became aware of the agency's intention to grant State aid through press coverage, had requested that a notification be made under Article 88 (3) EC, no notification was made. The Commission found that the aid was incompatible with the Common Market and ordered recovery229. However, the German authorities did not claim repayment. The Commission's order for recovery was affirmed by the ECJ230.
Following the ECJ's decision, the administrative agency issued an order for repayment of the State aid. This order was challenged in court by the beneficiary who invoked the principle of legitimate expectations by way of defence. It further argued that the money received as State aid had been spent and that the order for repayment violated the one-year time limit under section 48 of the German VwVfG that was applicable to orders for repayment.
Decision: Both the Administrative Court of Mainz and the Higher Administrative Court of Koblenz found in favour of the beneficiary. The Higher Administrative Court of Koblenz stated that, in the absence of rules of Community law providing for an obligation to repay illegally granted aid that is compatible with the Common Market, any obligation to repay is governed by national law, for example, section 48 VwVfG in Germany. The rationale of the judgment is that the order for repayment violates the one-year time limit laid down in section 48 VwVfG. The Higher Administrative Court of Koblenz found that time started to run in June 1986, i.e. when the negative decision of the Commission became final and absolute. The order for repayment was issued on 26 September 1989.
On a further appeal to the Federal Administrative Court, the Federal Administrative Court referred the case to the ECJ, asking whether an order for repayment of illegally granted State aid could be issued by the national authority notwithstanding that the time limit for orders of repayment under national law had expired. The Federal Administrative Court further asked whether a positive obligation to order repayment existed despite the fact that the national authority was fully responsible for the illegal grant of the aid, and that an order for repayment may therefore be regarded as an act of bad faith on the part of the national authority. Finally,Page 255 the Federal Administrative Court asked whether an order for repayment could be issued, even if the beneficiary has fully spent the money received in State aid and may therefore argue that it was not unjustly enriched by receiving State aid. All these issues raised corresponded to various provisions of section 48 VwVfG which govern, inter alia, orders for repayment.
In its decision231, the ECJ answered all three questions in the affirmative. The ECJ stated, in particular, that a legitimate expectation as to the lawfulness of the granting of State aid may only exist on the part of the beneficiary if the beneficiary duly ascertains that the procedures laid down in Article 88 EC have been fully observed.
This reasoning was adopted in its entirety by the Federal Administrative Court in the national proceedings. The Federal Administrative Court emphasised that it was bound by the ECJ's judgment. The Federal Administrative Court refuted the argument of the beneficiary that the ECJ's judgment was ultra vires. In the aftermath of the judgment, the beneficiary took the view that the consequences for the interpretation of the German rules on recovery of illegally granted State aid, which are as far reaching as the ones that resulted from the ECJ's judgment, could be based only on a Council Regulation under Article 89 EC. The Federal Administrative Court stressed that, notwithstanding the very restrictive interpretation of the defence of legitimate expectations in the ECJ's judgment (such that legitimate expectations may be asserted only if the beneficiary duly verifies that the notification and control procedures set forth in Article 88 EC have been complied with), the beneficiary could bring an action before the ECJ against Commission decisions ordering the recovery of State aid in exceptional circumstances, such as where legitimate expectations could be established.
The judgment does not indicate when such an exception can be established. If one considers the general rule emphasised by both the ECJ and the Federal Administrative Court, i.e. that a beneficiary must check compliance with Article 88 EC if it wants to successfully bring the argument relating to legitimate expectations, it is clear that such exceptional cases will be extremely rare.
Facts and legal issues: The case concerned a constitutional complaint by, inter alia, an investment fund that invested in the purchase of ships. German tax rules applying until 25 April 1996 provided for a special accelerated depreciation scheme for the owners of new commercial ships. This depreciation scheme was abolished by an act adopted by the Federal parliament on 7 November 1996, which provided that the special depreciation scheme would no longer be applicable to purchase agreements for ships concluded after 24 April 1996. This cut-off date was chosen because, on 25 April 1996, the Federal government introduced a billPage 256 amending the depreciation scheme. The original government bill stated that the depreciation scheme would not apply to contracts concluded after 1 May 1996. The cut-off date of 24 April 1996 was introduced by the Federal parliament at a later stage.
The claimant concluded a purchase agreement for a ship on 30 April 1996 and brought a constitutional claim against the retroactive cut-off date based, inter alia, on the principle of legitimate expectations ("Vertrauensschutz"). The Federal government argued that there was no reason for the claimant to have legitimate expectations because, when the bill was introduced in parliament, it was clear that the tax depreciation scheme would be abolished. In addition, the German government argued that, at the time of the conclusion of the relevant contract (i.e. 30 April 1996) the Commission had not yet approved the German tax depreciation scheme. Indeed, at that time the notification by the German government was still pending. It was only in October 1996 that the Commission declared the scheme compatible with the Common Market.
Decision: The Federal Constitutional Court rejected the constitutional complaint, holding that there was no reason for the claimant to rely on the tax depreciation scheme after the abolition of the scheme had been announced by the Federal government. The Federal Constitutional Court stated that it did not have to decide the question of whether the pending decision of the Commission on the notification of the tax depreciation scheme had a bearing on whether or not the claimant should have relied on the continuation of the depreciation scheme.
Facts and legal issues: The case concerned the grant of State aid to the receiver of a company that was subject to bankruptcy proceedings without prior notification under Article 88 (3) EC. The subsidy was granted by governmental agencies in Baden-Württemberg. The purpose of the State aid was to fund the acquisition of a newly established rescue company (of which the receiver was the sole shareholder) by a third party company. The rescue company used the aid to finance an increase in its share capital. Subsequently, the third party company merged with the rescue company and continued business under the name of the latter.
In its decision of 17 November 1987 addressed to Germany232, the Commission found the financial aid to be State aid that was incompatible with the Common Market under Article 87 EC and ordered recovery of the aid. This decision was neither challenged by Germany nor complied with by the German authorities. In an action brought by the Commission against Germany, the ECJ handed down a declaratory judgment that Germany was in breach of the EC Treaty233. The governmental agency that had granted the State aid was informed of thisPage 257 judgment (and of the negative Commission decision) by the German Federal Ministry of the Economy and then issued an order for repayment. This order was challenged by the rescue company as addressee of the order.
Decision: The judgment of the Higher Administrative Court of Baden-Württemberg mainly dealt with the issue of when the one-year time limit for orders concerning the repayment of illegally granted State aid started to run under the applicable German rules. The Higher Administrative Court held that the time limit had been complied with. It started to run when the governmental agency responsible for recovery was informed of the negative Commission decision and of the judgment of the ECJ. The Higher Administrative Court of Baden-Württemberg also emphasised that, as a general rule, the public interest in the repayment of State aid granted in violation of EC law takes precedence over the legitimate expectations of the beneficiary to keep the State aid. It appears that the Higher Administrative Court of Baden-Württemberg would be more inclined to consider the legitimate expectations of the beneficiary if the grant of State aid "only" violated German rules.
Comment: It is interesting to note that the Higher Administrative Court of Baden-Württemberg stated in an obiter dictum that an order for repayment cannot be issued if the order could be regarded as an act of bad faith on the part of the governmental agency. The ECJ clearly took a different view in its judgment in the AIcan case, which was delivered only a few months after the judgment of the Higher Administrative Court of Baden-Württemberg. There, the ECJ held that a governmental agency must recover illegally granted aid even if its behaviour may be attributed to bad faith.
Facts and legal issues: The case concerned the grant of tax allowances. The Commission found that this amounted to illegal State aid as no notification had been made under Article 88 (3) EC. It further found the aid to be incompatible with the Common Market under Article 87 EC and ordered recovery by decision of 10 July 1985.
The beneficiary challenged the administrative act ordering recovery of the State aid (which was issued on 27 March 1986, i.e. when the Commission had handed down its decision but before the ECJ delivered judgment234, confirming the Commission's view when the beneficiary had already challenged the decision before the ECJ). This administrative act was based on section 48 of the German Act on Administrative Proceedings ("VwVfG") that empowers administrative agencies to annul illegal administrative acts.
Page 258
Decision: The Federal Administrative Court fully upheld the previous judgments in the case and dismissed the beneficiary's action. The Federal Administrative Court stated that orders for the recovery of illegally granted State aid must be based on section 48 VwVfG. The Federal Administrative Court further stated that, although the interest of the beneficiary in not being required to repay the State aid had to be balanced with the public interest in recovering the illegally granted State aid, as a general rule the beneficiary would have no legitimate interest worthy of protection if the State aid at issue was granted without due notification under Article 88 (3) EC. This amounted to a narrow construction of section 48 VwVfG, which states that, as a general rule, repayment of illegally granted payments must not be ordered if the beneficiary has a legitimate interest in retaining the sum granted. The provision further states that a legitimate interest will generally exist if the recipient has already spent the sum granted. The provision also lists cases where the beneficiary may not invoke a legitimate interest, i.e. if it obtained payment by fraud or by misrepresentation of fact or if it was aware of the unlawfulness of the payment, or if its ignorance of the unlawfulness was caused by gross negligence.
The Federal Administrative Court further stated that, as a general rule, a beneficiary can reasonably be required to check whether a notification pursuant to Article 88 (3) EC has been made. Finally, the Federal Administrative Court found that the order for repayment complied with the rule that such an order must be made within one year after the date when the administrative authority concerned became aware that the State aid had been unlawfully granted.
Comment: It is interesting to note that the Higher Administrative Court stated in this case that the mere fact that the State aid was illegally granted due to the non-notification of the aid under Article 88 (3) EC is insufficient ground for making an order for recovery. Although this is only an obiter dictum, it would exclude actions by third party competitors aimed at obtaining an order for recovery, before the Commission has decided whether the State aid is compatible with the Common Market.
Facts and legal issues: The case concerned a depreciation allowance on capital expenditure in connection with production facilities under German tax law. The depreciation allowance applied only where the capital expenditure was incurred before 1 January 1975 and served the purpose of environmental protection. A relocation of the claimant's production facilities after 1 January 1975 precluded the application of the depreciation scheme. As a general rule, a relocation is considered to amount to the construction of new production facilities unless the reconstruction is necessary for the purposes of environmental protection.
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Decision: The Federal Administrative Court held that the relocation could not be justified by considerations of environmental protection and that the depreciation scheme did therefore not apply. The Federal Administrative Court went on to state that the application of the limitation in the scope of the depreciation scheme to capital expenditure incurred on or before 31 December 1974 was expressly required by the Commission following its investigation of the relevant German rules under Article 88 (2) EC.
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[180] Case C-39/94, SFEI and Others v La Poste [1996] ECR I-3547.
[181] Case C-354/90, FNCE v France [1991] ECR I-5505.
[182] Case C-379/98, Preussen Elektra AG v Schleswag AG [2001] ECR I-2099.
[183] Case C-354/90, FNCE v France [1991] ECR I-5505.
[184] Case C-280/00, Altmark Trans GmbH v Nahverkehrsgesellschaft Altmarkt GmbH [2003] ECR I-7747.
[185] OJ (1991) L 215/11.
[186] OJ (1995) C 201/16.
[187] OJ (1996) L 246/43.
[188] Case C-288/96, Germany v Commission [2000] ECR I-8237.
[189] Case C-280/00, Altmark Trans v Nahverkehrsgesellschaft Altmark GmbH [2003] ECR I-7747.
[190] Case C-379/98, Preussen Elektra AG v Schleswag AG [2001] ECR I-2099.
[191] Case C-379/98, Preussen Elektra AG v Schleswag AG [2001] ECR I-2099.
[192] Case C-280/00, Altmark Trans GmbH v Nahverkehrsgesellschaft Altmark GmbH [2003] ECR I-7747.
[193] OJ (1999) L 107/21.
[194] OJ (1998) C 384/4.
[195] OJ (1999) L 107/21.
[196] Case C-189/91, Ketra Kirshammer-Hack v Hurhan Sidel [1994] ECR I-6185.
[197] Case C-78/76, Steinike Weinlig v Germany [1997] ECR 595.
[198] Case C-72/92, Herbert Scharbatke GmbH v Federal Republic of Germany [1993] ECR I-5509.
[199] Case C-78/76, Steinike & Weinlig v Germany [1977] ECR 595.
[200] Case C-17/81, Pabst & Richarz KG v Hauptzollamt Oldenburg [1982] ECR 1331.
[201] Case C-91/78, Hansen GmbH v Hauptzollamt Flensburg [1979] ECR 935.
[202] Case C-148/77, H Hansen jun. & O.C. Balle GmbH & Co. v Hauptzollamt Flensburg [1978] ECR 1787.
[203] Case C-78/76, Steinike & Weinlig v Germany [1977] ECR 595.
[204] Case C-20/70, Lesage v Hauptzollamt Flensburg [1970] ECR 861.
[205] Case C-9/70, Grad v Finanzamt Traunstein [1970] ECR 825.
[206] BGH, 4 December 2003, 1 ZR 140/03.
[207] Commission, 3 April 2002, NN 2/2002, ZDF Medienpark.
[208] Case C-379/98, Preussen Elektra AG v Schleswag AG [2001] ECR I-2099.
[209] Case C-379/98, Preussen Elektra AG v Schleswag AG [2001] ECR I-2099.
[210] Case C-379/98, Preussen Elektra AG v Schleswag AG [2001] ECR I-2099.
[211] Case C-189/91, Petra Kirshammer-Hack v Nurhan Sidel [1994] ECR I-6185.
[212] Joint Cases C-72/91 and C-73/91, Sloman Neptun [1993] ECR I-887.
[213] OJ (2005) L 120/21.
[214] Case T-155/96 R, Stadt Mainz v Commission [1996] II-1557.
[215] In particular, Case C-404/97, Commission v Portugal [2000] I-4922.
[216] Case T-181/02 R, Neue Erba Lautex v Commission ECR [2002] II-5081.
[217] OJ (1985) L 278/26.
[218] Case C-310/85, Deufil GmbH & Co. KG v Commission [1987] ECR 901.
[219] OJ (1999) L 107/21.
[220] Case C-188/87, TWD Textilwerke Deggendorf v Germany [1994] ECR I-833.
[221] OJ (1999) L 107/21.
[222] Case C-120/73, Lorenz v Germany [1973] ECR 1471 and Case C-354/90, FNCE v France [1991] ECR I-5505.
[223] In particular, Case C-354/90, FNCE v France [1991] I-5505.
[224] OJ (1999) L 107/21.
[225] Case C-24/95, Land Rheinland Pfalz v Alcan [1997] ECR I-1591.
[226] OJ (1999) L 107/21.
[227] OJ (2000) L 61/4.
[228] Case C-24/95, Land Rheinland-Pfalz v Alcan [1997] ECR I-1591.
[229] OJ (1986) L 72/30.
[230] Case C-94/87, Land Rheinland-Pfalz v Alcan [1989] ECR 175.
[231] Case C-24/96, Land Rheinland-Pfalz v Alcan [1997] ECR I-1591.
[232] OJ (1988) L 79/29.
[233] Case C-5/89, Commission v Germany [1990] ECR I-3437.
[234] Case C-310/85, Deufil v Commission [1987] ECR 901.
