Germany
| Author | Th. Jestaedt; J. Derenne; T. Ottervanger |
| Profession | Jones Day; Lovells; Allen & Overy |
| Pages | 577-602 |
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The Federal Ministry of Finance of the Federal German government is responsible for dealing with the Commission on State aid matters.55 The Federal Ministry of Finance also oversees the implementation of negative Commission decisions with recovery obligations.
Under the German Constitution, the Federal government can only implement recovery decisions where the aid which is to be recovered was granted by the Federal government or one of the public bodies controlled by it (such as the former Privatisation Agency for Businesses in the New Federal States ("Treuhandanstalt") and its legal successors). Where the aid to be recovered was granted by one of the sixteen Federal States ("Länder") or a municipality (or an entity controlled by one or more Federal States or a municipality), the Federal government must liaise with the officials of the Federal States responsible for State aid matters. Normally these officials are employed by the Federal Ministry of Finance of the respective Federal State. Sometimes, where several Federal States have an interest in a recovery case (such as in those Landesbanken cases where the banks were owned by several Federal States), the Federal government will consult with officials from more than one Federal State.
Since the officials of the Federal States are responsible for all State aid issues arising at the level of the Federal States (including the assessment of aid projects and the preparation of draft notifications), they have developed extensive knowledge and experience over time. Generally, the exchange between the Federal Ministry of Finance and the competent officials of the Federal States appears to function well.
We have not found any indications of differing opinions between the Federal Ministry of Finance and any of the Federal States in the matters which we have reviewed. In so far as there are difficulties in German recovery cases, they do not appear to be due to the German federal structure.
Theoretically, in the event of differing opinions between the Federal government and one of the Federal States on a recovery matter, the Federal government would have the right, under the German constitutional principle of "federal loyalty" ("Bundestreue"), to demand that a Federal State takes all steps necessary to recover aid in a specific manner.
When examining recovery of State aid in Germany, a distinction must be made between recovery under administrative law and recovery under civil law. Where an aid has beenPage578 granted under administrative law measures, such as State aid granted under a public law contract, the aid must be recovered pursuant to German administrative law. Any litigation regarding such recovery claims must be brought before the administrative courts.
If the illegal aid was granted by way of a civil law transaction, for example an injection of capital into a privately owned company or the issuance of a guarantee, the State aid must be recovered pursuant to the provisions of the German Civil Code ("Bürgerliches Gesetzbuch"). A court action regarding a recovery claim of this type must be brought before the ordinary courts.
Where illegal State aid has been granted by way of an administrative act ("Verwaltungsakt") under public law, the recovery of that State aid will normally also be effected pursuant to a so-called "negative administrative act" ("belastender Verwaltungsakt") under German public law. German administrative law is laid down in the Act on Administrative Procedure ("Verwaltungsverfahrensgesetz") which applies to administrative acts of the Federal government and its subdivisions. Similar legislative acts exist with respect to administrative acts of the Federal States. Also, similar rules apply where aid is granted in the form of tax benefits.
For a long time, legal discussion of administrative proceedings for the recovery of State aid in Germany has focused on the extent to which the recipient can rely on the principle of legitimate expectations. Section 48 (2) of the Act on Administrative Procedure contains a provision which specifically provides that the recipient of illegal State aid (irrespective of whether the illegality is based on EC law or on domestic German law) can prevent recovery of the aid if it relied in good faith on the legality of the grant. Section 48 (4) of the Act on Administrative Procedure provides that the recovery of aid is illegal if more than a year has expired since the administration learnt of the reasons for recovery. The recipient of the illegal aid invoked this provision in the Alcan case which was ultimately decided by the ECJ. The ECJ held that domestic law on recovery must not be applied in a manner that makes recovery impossible. Following the decision of the ECJ, the beneficiary of the aid went to the Federal Constitutional Court and claimed a violation of its basic rights. The Federal Constitutional Court rejected the claim in 2000.
It is notable that, since the final judgment in the Alcan case, there have been very few recovery cases before German administrative courts. Apparently, recipients of State aid and German courts have realised that reliance on general principles of administrative law is no longer possible, unless there is a clear case of reliance on good faith.
Recovery of State aid is more complex in cases where incompatible aid was granted by way of a civil law transaction. Under German law, the Federal government, the Federal States'Page579 governments and public entities all have the ability to enter into civil law contracts and transactions where this is necessary to carry out their tasks. Examples include capital injections, loans, and guarantees, as well as contracts for the purchase or sale of real estate, supply contracts and other transactions.
Where the State aid to be recovered was granted through a civil law transaction, recovery must, in principle, be sought through civil law means. Normally, recovery occurs pursuant to the provisions of the German Civil Code relating to unjust enrichment ("ungerechtfertigte Bereicherung") (sections 812 et seq.). These provisions require that the transaction underlying the grant of the aid be declared null and void.
Under German civil law, contracts and other civil law acts that violate a legal prohibition are null and void (section 134 BGB). It has long been in dispute whether section 134 BGB should be applied to violations of Article 88 (3) EC. The argument of those advocating non-applicability was that section 134 of the German Civil Code requires that both parties to the transaction must be in violation of the law. Since Article 88 (3) EC, on its face, is addressed to Member State only, the recipient of the aid would not be in violation of the law.
The legal uncertainty was removed in 2003 by a landmark decision of the Federal Court of Justice ("Bundesgerichtshof"), the highest German court for civil law matters, which held that section 134 BGB is indeed applicable to violations of Article 88 (3) EC. This is important, in particular, for transactions involving triangular relationships, such as the grant of a bank loan guaranteed by the State. In such case, where Article 88 (3) EC is violated, the question turns on whether it is only the actual payment of the loan by the bank to the ultimate recipient that is invalid or whether the breach of law also affects the guarantee given by the State to the bank. The decision of the Federal Court of Justice suggests that, because the transaction, in its entirety, is regarded as being in breach of the law, within the meaning of section 134 BGB, the grant of the guarantee to the bank by the State will also be affected.
It can be expected that the 2003 decision of the Federal Court of Justice, which it confirmed in another decision in early 2004, will further increase State aid discipline in Germany, in particular as regards the involvement of banks in the financing of such transactions.
An appeal against an administrative act normally has suspensory effect (section 80 (1) of the Administrative Court Act ("VWGO")). However, the administrative body issuing the act can decide that an appeal should not have suspensory effect. This is permissible where the immediate execution of the act is in the "public interest" (section 80 (2) (4) VWGO). Generally, where State aid must be recovered pursuant to a negative Commission decision, immediate recovery and thus immediate enforcement of the administrative act ordering recovery are in the public interest. Thus, where recovery is sought pursuant to administrative law, it is relatively easy to ensure immediate enforcement of the national recovery decision.
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This is different where recovery is sought pursuant to civil law. Under the German Code of Civil Procedure ("Zivilprozessordnung"), the claimant can freeze the assets of the defendant ("Arrest") against whom a payment action is brought, if it is able to show that, in the absence of a freezing order, enforcement of the judgment might become impossible ("Arrestgrund"). In addition, the claimant must show that the underlying claim is prima facie well-founded ("Arrestanspruch"). Similarly, a claimant in civil proceedings can obtain an injunction ("einstweilige Verfügung", for example, a prohibition on the defendant from spending certain monies) if it can show that, in the absence of an injunction, irremediable harm would be caused to the claimant. The thresholds to obtain an Arrest or an einstweilige Verfügung in civil proceedings are, therefore, very high. Whereas, in practice, defendants faced with private law actions for the recovery of State aid may accept mutually agreed interim measures, it is almost impossible to obtain an Arrest or Einstweilige Verfügung by means of a court decision. Thus, if the beneficiary refuses to repay the aid, the State must await the outcome of the court proceedings before any monies are repaid.
In certain cases, this is why, in order to ensure the swift and efficient implementation of a negative Commission decision in Germany, it is preferable to use administrative rather than civil law proceedings. The authority seeking recovery is not allowed to use its powers under administrative law in a case that is clearly governed by civil law. The applicable law is determined by statute. There is no discretion. However, the dividing line between administrative and civil law matters in the area of State aid is not always clear under German law. This is why the Federal government has very recently attempted to enforce a recovery claim in administrative proceedings based on the negative Commission decision alone (i.e. without a specific national legal basis).
The first test case was Kvaerner, which 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 which concerned 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 bePage581 allowed to recover the aid by way of an administrative act. In the opinion of the Higher Administrative Court, 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.
The question of whether a negative Commission decision as such can constitute the legal basis for recovery under German law was also discussed in Saxonia. In that case, the negative Commission decision provided that Saxonia should repay part of the amount originally granted to its parent, Lintra. In national proceedings, commenced by a privatisation agency intending to recover those amounts, Saxonia claimed that there was no evidence in the Commission decision that any of the amounts paid to Lintra had actually been passed on to Saxonia. The Higher Administrative Court of Dresden found that, in the absence of proof that the monies had actually been transferred to Saxonia, the only legal basis for recovery of these amounts was the negative Commission decision itself. Since that decision had been challenged before the CFI, the Higher Administrative Court of Dresden thought it appropriate to suspend the proceedings pending the appeal.
The Saxonia case illustrates that, in practical terms, reliance on a national legal basis for recovery creates, under the German legal system, an incentive for parties to challenge aspects that may already have been dealt with in the Commission decision, whose implementation is being sought, such as the amount to be recovered, interest, and other aspects. Direct reliance on the negative Commission decision in national proceedings would limit the issues that could be addressed by the national court to those not expressly dealt with in the Commission decision.
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Of the 45 German recovery cases pending as of 1 July 2005, 2056 are recovery cases against an insolvent beneficiary. Of these, 17 cases relate to aid beneficiaries located in the New Federal States (i.e. Eastern Germany), which became insolvent following a failed privatisation. The remaining cases concern sensitive sectors such as steel and shipyards. Thus, while the number of recovery cases involving insolvency does appear to be large, once he remaining privatisation cases in the New Federal States have been closed, their number can be expected to decrease significantly.
Insolvency proceedings are governed by the Insolvency Act ("Insolvenzordnung") which entered into force on 1 January 1999 and which, in part, was designed to address the special situation of companies in the New Federal States. Pursuant to the Act, following the opening of insolvency proceedings, the local court ("Amtsgericht") appoints a trustee in insolvency ("Insolvenzverwalter") who administers the asset of the insolvent company. Creditors must notify the trustee of their claims. Where the trustee does not recognise the validity of a claim, the creditor can bring an action for a declaratory judgment before the ordinary courts. Following recognition of a claim (either by the trustee or by the court), the assets of the insolvent party are distributed to the creditor. The 1999 Insolvency Act abolished differential treatment of preferred and non-preferred creditors. The Act only distinguishes between normal creditors and subordinate creditors (for example, shareholders requesting repayment of their capital or shareholder loans). Secured creditors (for example, those who have a lien over a particular asset), and creditors of claims created by the trustee ("Massenschulden", i.e. claims arising after insolvency has been declared). In particular, tax, social security and other claims by the State no longer enjoy preferential treatment over other creditors.
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The 1999 Insolvency Act introduced the so-called "insolvency plan procedure" ("Insolvenzplanverfahren") which is a restructuring procedure modelled on US-style Chapter 11 proceedings. In essence, the Insolvenzplanverfahren consists of a plan jointly worked out by the creditors pursuant to which each creditor waves a certain percentage of its claim in order to secure the continued existence of the debtor. Since the insolvency plan is designed to ensure the financial survival of the debtor, participation in such a plan may, in some cases, contravene the purpose of recovery of unlawful aid which, where full recovery cannot be secured, may require that the aid beneficiary be forced to stop its economic activities.
Capital injections and loans by the Federal government
In practice, since the entering into force of the 1999 Insolvency Act, there are fewer difficulties in assessing the correct treatment of State aid claims in insolvency proceedings in Germany:
The key question concerned capital injections into companies. Pursuant to the Insolvency Act and German company law, a shareholder in a company who reclaims its capital is treated as a subordinate creditor. The same is true for a shareholder attempting to recover a loan at a time when a prudent shareholder would have provided capital ("kapitalersetzendes Gesellschafterdarlehen"). In the Neue Max Hütte case concerning a shareholder loan which the Federal State of Bavaria granted to a steel producer, the Regional Court of Amberg and, on appeal, the Higher Regional Court of Nürnberg were faced with the question of whether the claim for repayment of the loan by the Federal State (following a negative decision by the Commission) was a subordinate or an ordinary claim. The Regional Court of Amberg took the position that the reclaiming of the loan by the Federal State of Bavaria should be treated like any other claim for repayment of capital by a shareholder and thus be subordinate. The Higher Regional Court of Nürnberg rejected that approach and stated that it was necessary to disregard the position of shareholder of the Federal State of Bavaria when assessing the correct treatment of the claim for insolvency purposes, in order to safeguard the effet utile of the negative Commission decision. Thus, the Higher Regional Court of Nürnberg treated the loan repayment claim of the Federal State of Bavaria like an ordinary claim. The same results could have been achieved by relying on German law alone. Since, following the negative Commission decision, the loan agreement was null and void (pursuant to section 138 of the German Civil Code), the claim for repayment brought by the Federal State of Bavaria was no longer a claim by a normal shareholder, but should rather have been based on unjust enrichment. If the claim had been categorised accordingly, there would have been no question of subordination.
Transfer of business
Another practical issue, which has arisen in a number of insolvency proceedings in Germany in the past, is the extent to which the trustee in insolvency is able to transfer all or part of thePage584 insolvent business to a third party without exposing the acquirer to the risk of State aid recovery claim. This issue has been the subject of litigation at Community level (in Seleco, SMI, and other banks). The ECJ has established the principle that, where the fair market value is paid for the business, a recovery claim stays with the original beneficiary (i.e. the insolvent estate). A number of questions may arise regarding the proper method of valuation of the business, the requirement of a tender and other practical issues. However, in general, it is to be expected that issues regarding the resale of a business to secure payment of creditor claims will be handled more efficiently in the future. The authors of the report have not found a recent example of a German court case involving these issues.
The treatment of State aid recovery claims in insolvency plan proceedings is an open issue. There are no court cases on this point. A creditor voting on an insolvency plan will have to weigh whether the non-acceptance of the plan would lead to a situation where it recovers less than the percentage of the claim recoverable under the insolvency plan. For the State this is a difficult judgment to make. We understand that the Commission takes the position that it is only possible for the State to participate in an insolvency plan if the plan provides for the complete repayment of the entire recovery claim within a short period of time (one year).
It should be noted that an insolvency plan can be accepted by a majority of creditors only if the voting creditors also hold more than 50 per cent of the claims (section 244 Insolvency Act). Thus, it is possible that, where the State rejects an insolvency plan, the plan will nevertheless be adopted by a majority of creditors. Any insolvency plan must be confirmed by the insolvency courts ("sofortige Beschwerde"). It is possible to challenge the confirmation decision by immediately bringing a complaint. It is an open question whether the court before which such a complaint is brought must set aside the insolvency plan despite the positive vote of the creditors, merely because the plan was rejected by the State reclaiming recovery of the aid.
Facts and legal issues: The case concerns the implementation of a negative Commission decision of 20 October 2004 in the so-called Kvaerner matter57. The Commission decided that Kvaerner, a shipyard, had received unlawful State aid which Germany was required to recover. The Federal Institute for Special Tasks related to Reunification ("Bundesanstalt für vereinigungsbedingte Sonderaufgaben" or "BvS"), which was responsible for recovering thePage585 State aid, issued an administrative act ordering recovery of the aid. Kvaerner challenged the administrative act, arguing that it was not based on a valid legal basis ("Rechtsgrundlage"). BvS took the view that it was entitled to base administrative acts either on Article 14 (3) of Regulation 659/1999 or directly on the Commission decision itself.
Decision: The Administrative Court of Berlin decided that the recovery decision issued by BvS was unlawful. The German Constitution stipulates that every administrative act that imposes 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 (EC) No. 659/1999 and the Commission decision provided that recovery of unlawful State aid had to be implemented according to national law. The case law of the Community courts58 does not, according to the Administrative Court of Berlin provide for an obligation to recover unlawful State aid by means of an administrative act. Similarly, the Berlin Court took the position that established case law59 does not indicate that recovery of unlawful State aid can only be carried out if implemented by means of an administrative act.
On 8 November 2005, the Higher Administrative Court of Berlin set aside the decision of the Administrative Court of Berlin and ruled that the administrative act for recovery issued by BvS was well-founded. According to the Higher Administrative Court, the effet utile of the negative Commission decision required that administrative law provided means of recovery to the grantor of the aid.
Comment: The decision of the Administrative Court of Berlin and of the Higher Administrative Court of Berlin were handed down in preliminary proceedings. If the position adopted by the Higher Administrative Court of Berlin is confirmed in the main proceedings, it can be expected that recovery of aid in Germany will only be sought in administrative proceedings in the future.
Facts and legal issues: The claimant, the Federal Institute for Special Tasks related to Reunification ("Bundesanstalt für vereinigungsbedingte Sonderaufgaben" or "BvS"), sued the insolvency trustee of Zemag, which had been part of the Lintra group and in respect of which insolvency proceedings were opened on 1 March 2001. The Lintra group had received aid declared illegal by the Commission 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 Insolvency Act only provided for the registration of claims created before the commencement of insolvency proceedings. In addition, the trustee claimed that BvS failed to show that the aid in question had actually been paid by Lintra to Zemag. Finally, the trustee claimed thatPage586 recovery of the aid would violate the principle of good faith laid down in section 242 of the German Civil Code.
Decision: The Halle Court found in favor of the claimant. It applied the case law developed by the Federal Court of Justice in 2003 pursuant to which contracts that involve the grant of illegal 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 prevent registration of the claim. The Halle Court also rejected the argument that the principle of good faith precluded recovery in 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 that was privatised in January 1995. The holding company comprised eight businesses, including Saxonia Edelmetalle GmbH that was sold to a third party. 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 aid in 1996, but subsequently opened proceedings for misappropriation of State aid. These proceedings were concluded by decision of 28 March 2001, in which the Commission ordered that an amount of DM 35 million should be repaid by the Lintra subsidiaries. DM 3.2 million of the total amount was allocated to Saxonia, the defendant. The defendant challenged the Commission decision before the CFI. Since the defendant refused to repay the amount voluntarily, the privatisation agency sued the defendant in the Regional Court of Chemnitz.
Decision: In the proceedings before the Regional Court of Chemnitz, the defendant argued that there was no basis for the privatisation agency to reclaim the money under the provisions of unjust enrichment contained in the German Civil Code (section 812 "Bürgerliches Gesetzbuch" or "BGB"). The defendant argued that, to be able to rely on section 812 BGB, the claimant would have to show that it had actually paid the amount reclaimed to the defendant. In the defendant's view, the aid had been paid to the parent (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 this specific amount should be reclaimed from Saxonia. The Regional Court of Chemnitz explained that it was in no position to challenge the Commission decision on this point. The Higher Regional Court of Chemnitz did not follow 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 Chemnitz took the position that there was no legal basis under German national law for recovery of the aid from Saxonia because there was no proof that the aid had actually been paid to Saxonia. The only legal basis for direct recovery was the Commission decision specifying that this specific amount should be reclaimed from Saxonia. The Higher RegionalPage587 Court of Chemnitz stated that the decision of the CFI was prejudicial to the outcome of the proceedings. It therefore suspended the proceedings pursuant to a section of the German Code of Civil Procedure that allows for the suspension of proceedings in the event that prejudicial proceedings are pending before another court. In the opinion of the Higher Regional Court of Chemnitz, this suspension did not violate Article 242 EC (which provides that an action against a Commission decision does not have suspensory effect). In the opinion of the Higher Regional Court of Chemnitz, the alternative to suspending national proceedings would have been to refer the case to the ECJ under Article 234 EC given the substantial doubts as to the legality of the Commission decision. The Higher Regional Court of Chemnitz considered that this was not advisable, since proceedings were already pending before the CFI and, accordingly, decided instead to suspend the proceedings.
Facts and legal issues: These two judgments concerned 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 amounting to DM 204 million constituted restructuring aid that was incompatible with Article 4 (c) ECSC. It ordered Germany to recover those amounts from the beneficiary of the aid. 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 a public bank that was controlled by the City of Hamburg, Hamburger Landesbank. Ultimately, the business of Hamburger Stahlwerke GmbH was transferred to an Indian steel manufacturing group ("ISPAT"). ISPAT 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 GmbH. Thus, the loans had eventually "disappeared". To implement the negative Commission decision, the City of Hamburg filed a court action against the defendant operator of the business of Hamburger Stahlwerke GmbH to recover the balance between the face value of the loans and the price paid by the ISPAT group.
Decision: The Federal government filed an appeal against the negative Commission decision, which was still pending when the Regional Court of Hamburg rendered its decision in the case brought by the City of Hamburg regarding the recovery of the loan. In its decision, the Regional Court of Hamburg noted 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 had been paid out by Hamburger Landesbank and not by the City of Hamburg and,Page588 due to the transfer of the loans to another entity of the ISPAT group and their subsequent repayment, 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 regarded as obligatory 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 Higher Regional Court of Hamburg, the action by the Federal government against the negative Commission decision was dismissed by the ECJ. The Higher Regional Court of Hamburg set aside the judgment of the Regional Court of Hamburg and held that the new owners of the business of Hamburger Stahlwerke GmbH would have to repay the loans received from Hamburger Landesbank directly to the City of Hamburg. In reaching this decision, the Higher Regional Court 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 had been 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 Higher Regional Court of Hamburg explained 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 fibers and yarns, received an investment grant ("Investitionszuschuss") amounting to DM 1.2 million in 1982 from the claimant, a publicly owned bank. In addition, the claimant received an investment allowance ("Investitionszulage") amounting to DM 1.7 million in 1984 from another public authority. In 1985, the Commission decided that both the investment grant and the investment allowance constituted unlawful State aid and that they must be recovered60. The Commission's decision was subsequently confirmed by the ECJ61, 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 Federal Court of Justice confirmed that contracts that infringe Article 88 (3) (3) EC are null and 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 unjustPage589 enrichment ("ungerechtfertigte Bereicherung"). The Federal Court of Justice held that the defendant could not refuse to repay the investment grant by invoking the principle of good faith. In particular, the defendant could not draw conclusions from the fact that it took eight years from the ECJ judgment for the defendant to be asked to repay the investment grant. Also, recovery was not precluded by the fact that German public officials had frequently assured the defendant that the investment grant would not be recovered. With regard to recovery of unlawful State aid, national authorities do not have discretionary powers. Their role is limited to executing Commission decisions. Finally, the Federal Court of Justice decided that the claimant was entitled to ask for payment of interest, and that it was correct in calculating the level of interest on the basis of national law.
Facts and legal issues: The claimant, a sub-agency of the Federal Institute for Special Tasks related to Reunification ("Bundesanstalt für vereinigungsbedingte Sonderaufgaben" or "BvS"), was responsible for the privatisation of formerly state-owned land in Eastern Germany. The land was sold under the Indemnification and Compensation Act ("Ausgleichsleistungsgesetz" or "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 contained State aid which was incompatible with the Common Market and ordered Germany to recover the unlawful aid62. 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 the Commission decision was unlawful.
Decision: The Federal Court of Justice ordered the defendant to make the additional payment.
(I) The Federal Court of Justice found that the question of the legality of the Commission decision was relevant for the case. However, it held, with reference to established ECJ case law63, that the defendant was precluded from questioning the lawfulness of the Commission decision before a national court. The defendant, as the beneficiary of the unlawful State aid, could have challenged the decision before the ECJ, but instead allowed the mandatory time limit laid down in Article 230 (5) EC to pass.
(II) The Federal Court of Justice subsequently confirmed that recovery of unlawful State aid can be excluded in exceptional circumstances according to the principle of good faithPage590 ("Treu und Glauben", section 242 BGB). However, the arguments brought forward by the defendant were not sufficient to establish exceptional circumstances.
Facts and legal issues: The case concerned a claim for damages arising out of the alleged failure of the Federal State of Saxony-Anhalt ("Land of Sachsen-Anhalt") to notify aid in the steel sector within the time limit. The claim was based on a Commission decision under the ECSC Treaty allowing aid to steel producers in the German Federal States provided that the aid was notified to the Commission by 30 June 1994. The Federal 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 Federal government abided by the notification period. Consequently, the claimant reclaimed a certain part of the amount that it was required to repay as damages under German tort law.
Decision:
The Regional Court of Magdeburg dismissed the claimant's action. It was unclear to what extent the Commission would have been able to approve the aid if the notification deadline of 30 June 1994 had been met. The claimant had 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 aid within the time limit and the declaration of incompatibility of the aid by the Commission. The Regional Court of Magdeburg also stated that if it was to grant the claimant damages, that would amount to aid of its own. Subsequently, the Higher Regional Court of Naumburg dismissed the claimant's appeal and the Federal Court of Justice rejected the claimant's application for a further appeal.
Facts and legal issues: The claimant, a sub-agency of the Federal Institute for special tasks related to reunification ("Bundesanstalt für vereinigungsbedingte Sonderaufgaben" ("BvS"), was responsible for 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 contained State aid which was incompatible with the Common Market and ordered Germany to recover the unlawful aid64. The AusglLeistG was subsequently amendedPage591 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 retroactively deprived the defendant of a vested legal entitlement.
Decision: The Federal Court of Justice ordered the defendant to make the additional payment.
(I) Section 3 (a) AusglLeistG could only deprive the defendant 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 price infringed Article 88 (3) (3) EC. Under section 134 of the German Civil Code ("Bürgerliches Gesetzbuch", "BGB"), a contract that infringes a legal prohibition ("gesetzliches Verbot") is void. Referring to the ECJ's case law65, the Federal Court of Justice 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 aid in question. Only the nullity of the contract can remove any distortions of competition by enabling 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 Federal Court of Justice 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 Federal Court of Justice discussed whether recovery of unlawful State aid can 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 does not act negligently when receiving the unlawful aid. The Federal Court of Justice left open whether recovery may be excluded in exceptional circumstances, since the defendant did not argue that such exceptional circumstances existed in his case.
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 privatisationPage592 period in the early 1990s, SKET had received aid on an ongoing basis from the Privatisation Agency. 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. The Privatisation Agency 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 subordinated shareholder loan. 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, which had been found to constitute State aid, can be treated as a subordinate loan (pursuant to section 32 (a) of the German Act on Companies with Limited Liability).
Decision: The Regional Court of Magdeburg found in favour of the Privatisation Agency 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 decisions only on considerations of German law. Following the defendant's appeal to the Higher Regional Court of Naumburg, that Court affirmed the decision of the Regional Court of Madgeburg 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 provisions of German corporate law which provide that claims for the repayment of a loan by a shareholder who granted a loan in a situation in which a prudent shareholder would have provided capital cannot be applied to a situation where State aid is reclaimed pursuant to a Commission decision.
Facts and legal issues: The claimant, a sub-agency of the Federal Institute for Special Tasks related to Reunification ("Bundesanstalt für vereinigungsbedingte Sonderaufgaben" or "BvS"), was responsible for 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 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 contained State aid which was incompatible with the Common Market and ordered Germany to recover the unlawful aid66. 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.
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Decision: The Regional Court of Rostock decided in favour of the defendant, rejecting the claimant's request for additional payment.
(I) The Regional Court of Rostock discussed the ECJ's jurisprudence in detail, in particular the Alcan decision67 and subsequent decisions by German courts. The Regional Court 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 aid recipient could not rely on legitimate expectations if he knew or should have known that the aid, although notifiable, had not been notified to the Commission. These principles applied regardless of whether the aid had been granted by an administrative act or under a private contract.
(II) The Regional Court 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 BGB. The defendant had, relying on the validity of the purchase contract, assumed various financial commitments, which, if it was required to repay the aid, could threaten its financial existence. As a local farmer, the defendant could not have known that a sale of land under the AusglLeistG comprised aid elements. The situation in the Alcan case was different, since Alcan was a globally active company, which knew that it had been granted aid. Taking into account that the effect of the unlawful aid was regionally limited, the Regional Court of Rostock held that, in this particular case, the interests of the defendant outweighed the Community interest, and that the claimant was therefore not allowed to recover the aid.
Facts and legal issues: These decisions concerned the implementation of the negative Commission decision in the Neue Maxhütte case. In its decisions of 18 October 1995 and 13 March 1996, the Commission held that loans granted by the Federal State of Bavaria ("Bayern") to the ailing steel maker Neue Maxhütte-Stahlwerke GmbH amounting to DM 74 million constituted State aid granted in violation of Article 4 (c) ECSC. The Commission ordered recovery of this amount. During the entire period in which the loans were granted, the Federal State of Bavaria was a shareholder in Neue Maxhütte-Stahlwerke GmbH. Under the applicable German Act on Companies with Limited Liability ("GmbH-Gesetz", section 32 (a) (1)), a shareholder who grants a loan to a company with limited liability in a situation in which a diligent shareholder would have subscribed to equity (because the company was in a crisis) will be treated as a non-preferential creditor with a secondary claim ("nachrangige Konkursforderung") with respect to its loan if the company becomes insolvent. In the case before the Regional Court of Amberg, the trustee in bankruptcy claimed that the FederalPage594 State of Bavaria should be treated as a non-preferential secondary creditor, since it was a shareholder when it granted the loans in question.
Decisions: The Regional Court of Amberg held that the loans should be treated as ordinary claims in bankruptcy (not as unsecured secondary claims as the trustee in bankruptcy suggested). The Regional Court of Amberg explained that treating the loans differently would jeopardise the effet utile of the negative Commission decision. The Higher Regional Court of Nürnberg rejected the appeal brought by the trustee in bankruptcy as inadmissible. In particular, the Higher Regional Court of Nürnberg did not consider that it was necessary to refer the question concerning the proper treatment of the loans granted by the Federal State of Bavaria in its capacity as shareholder to the ECJ. The Higher Regional Court of Nürnberg applied the reasoning of the Regional Court of Amberg which had stated that the ECJ required in Alcan that illegal aid be recovered under national law in a manner which does not render recovery practically impossible.
There are no published German court cases on recovery where the recovery action was brought by a competitor.
Facts and legal issues: The case concerned68 the grant of State aid to the receiver of a company in bankruptcy proceedings without prior notification under Article 88 (3) EC. The aid was granted by governmental agencies of the Federal State of Baden-Württemberg. The purpose of the aid was to allow for 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 Germany69, the Commission found that the financial aid was 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 holding that Germany was in breach of the EC Treaty70
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The governmental agency that had granted the State aid was informed of this judgment (as well as of the negative decision of the Commission) by the German Federal Ministry of the Economy and, accordingly, issued an order for repayment. This order was challenged by the rescue company as addressee of the order.
Decision on appeal (the decision of the Court of First Instance is unreported): The judgment of the Higher Administrative Court of Baden-Württemberg mainly dealt with the question of when the one-year time limit for orders of repayment of illegally granted State aid starts to run under the applicable German rules. The Higher Administrative Court of Baden-Württemberg held that the time limit had been complied with, which started to run when the governmental agency responsible for recovery was informed of the negative decision of the Commission and of the judgment of the ECJ. The Higher Administrative Court of Baden-Württemberg emphasised that, as a general rule, the public interest in obtaining 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 is more inclined to consider the legitimate expectations of the beneficiary if the grant of State aid only violates German rules.
It is interesting to note that the Higher Administrative Court of Baden-Württemberg stated, obiter dictum, that an order for repayment cannot be issued if governmental agency could be considered to have acted in bad faith. 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 Verwaltungsgerichtshof. The ECJ held that a governmental agency must recover illegally granted aid even where it acted in bad faith.
Facts and legal issues: The case71 involved72 the grant73 of tax allowances. The Commission found that this amounted to illegal State aid, since no notification had been made under Article 88 (3) EC. The Commission further found the aid incompatible with the Common Market under Article 87 EC and, by decision of 10 July 1985, ordered recovery of the aid.
The recipient challenged the administrative act ordering recovery of the aid (which was issued on 27 March 1986, i.e. once the Commission had rendered its decision but before the ECJ delivered its judgment74 confirming the Commission's view following the recipient's challenge of the decision before the ECJ). This administrative act was based on section 48 ofPage596 the German Act on Administrative Proceedings ("VwVfG"), which empowers administrative agencies to annul illegal administrative acts.
Final decision: The Federal Administrative Court upheld the previous judgments in the case in full and dismissed the beneficiary's action. The Federal Administrative Court stated that orders for recovery of illegally granted State aid must be based on section 48 VwVfG. The Federal Administrative Court further stated that, as a general rule, although the interest of the beneficiary not to be ordered to repay the State aid must be weighed against the public interest that illegally granted State aid is recovered, there will be no legitimate interest of the beneficiary worthy of protection if State aid 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 illegal payments must not be ordered where the recipient 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 the cases where no legitimate interest may be invoked by the recipient, i.e. if the recipient obtained payment by fraud or by misrepresentation of fact or was aware of the unlawfulness of the payment, or if the recipient's ignorance of the unlawfulness of the payment was due to gross negligence.
The Federal Administrative Court further stated that, as a general rule, a recipient can reasonably be required to check whether a notification pursuant to Article 88 (3) EC has been duly 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 of the date when the administrative authority concerned becomes aware that the aid has been unlawfully granted.
It is interesting to note that the Higher Administrative Court of Münster stated, in this case, that the mere illegality of the grant of aid due to lack of notification under Article 88 (3) EC does not constitute a ground for an order for recovery. Although only obiter dicta, this would exclude actions by third party competitors seeking to obtain an order for recovery, before the Commission has pronounced itself on the compatibility of the aid with the Common Market.
Facts and legal issues: The Law an Investment Grants ("Investitionszulagengesetz" or "InvZulG") allowed for investment grants of 12% 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% 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%, but refused to grant 12%. 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 was not unlawfully deprived of a vested legal entitlement. The amendment of the InvZulG was basedPage597 on a decision by the Commission, which had not been challenged within the mandatory time limit laid down in Article 230 (5) EC. Germany was therefore under the legal obligation to amend the InvZulG. In addition, the claimant could not rely on the principle of good faith, since, by the time the investment was made, the Commission had already initiated a formal State aid investigation. Accordingly, the claimant should have been aware that the 12% grant provided for in the InvZulG amounted to unlawful State aid.
Federal Administrative Court ("Bundesvewaltungsgericht"), 23 April 199875 after a reference for a preliminary ruling to the ECJ of 28 September 199476; Higher Administrative Court ("Oberverwaltungsgericht") of Koblenz, 26 November 199177 and Administrative Court ("Verwaltungsgericht") of Mainz, 7 June 199078
Facts and legal issues: The case involved aid amounting to DM 8 million granted to an aluminum plant operator in order to safeguard the future operation of the plant. Before the aid was granted detailed negotiations took 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 the aid through press coverage, had requested notification under Article 88 (3) EC, no notification was made. The Commission found that the aid was incompatible with the Common Market and ordered recovery79. The German authorities, however, did not claim repayment. The Commission's order for recovery was upheld by the ECJ80 in proceedings commenced by the Commission against Germany.
Following the ECJ's decision, the administrative agency issued an order for repayment of the aid. This order was challenged by the recipient of the aid, who invoked the principle of legitimate expectations as a defence to the claim for repayment. The defendant further argued that the amount granted in State aid had been fully spent and that the order for repayment violated the one-year time limit under section 48 VwVfG that applies to orders for repayment.
Decision by Court of First Instance and Court of Appeal: Both the Court of First Instance ("Verwaltungsgericht Mainz") and the Higher Administrative Court ("Oberverwaltungsgericht") of Koblenz found in favour of the recipient. The Higher Administrative Court of Koblenz reached a conclusion on the meaning of section 48 VwVfG that was contradictory to that set out in the judgment of the Higher Administrative Court of Münster handed down on the same day (and which is summarised above). The Higher Administrative Court of Koblenz stated that, in the absence of EC rules which provide for an obligation to repay illegal State aid that is compatible with the Common Market, any obligation to repay is governed by national law,Page598 like section 48 VwVfG. The Higher Administrative Court of Koblenz then went on to apply this provision, without modification, to this case (whereas the Higher Administrative Court of Münster construed the provision narrowly to be able to grant the order for repayment). The rationale for the judgment was that the order for repayment violated the one-year time limit of section 48 VwVfG. The Higher Administrative Court of Koblenz found that the time limit started to run in June 1986, i.e. when the negative decision of the Commission had became final and absolute. The order was issued on 26 September 1989.
Reference for preliminary ruling after further appeal: The Federal Administrative Court, to which the case was then appealed, asked the ECJ in its reference for a preliminary ruling, whether an order for the repayment of illegal State aid must be issued by the national authority even if the time limit under national law for orders of repayment has expired. The Federal Administrative Court further asked whether there is a positive obligation to order repayment regardless of the fact that the national authority is fully responsible for the illegality of the grant of the aid, and that an order for repayment may therefore amount to an act of bad faith on the part of the national authority. Finally, the Federal Administrative Court asked whether an order for repayment can be issued even if the recipient has fully spent the State aid granted who may argue that there was no unjust enrichment. All these issues raised by the Federal Administrative Court correspond to various provisions of section 48 VwVfG which governs, inter alia, orders for repayment.
Judgment of ECJ: The ECJ, by judgment of 20 March 199781, answered all three questions in the affirmative. The ECJ stated, in particular, that the recipient may only have a legitimate expectation as to the lawfulness of the granting of State aid if it has duly ascertained whether the procedures laid down in Article 88 EC have been fully complied with.
Final judgment of the Federal Administrative Court: The reasoning by the ECJ was fully adopted by the Federal Administrative Court in its judgment of 23 April 1998. The Federal Administrative Court emphasised that it was bound by the ECJ's judgment. The Federal Administrative Court rejected the argument of the recipient that the ECJ's judgment was ultra vires. Following the ECJ's judgment, the recipient argued that consequences as far reaching as the those resulting from the ECJ's judgment for the interpretation of German rules on recovery of illegally granted State aid can only be based on a Council Regulation under Article 94 EC. The Federal Administrative Court stressed that, notwithstanding the very restrictive interpretation of the defence of legitimate expectations by the ECJ (such that legitimate expectations may be asserted only if the beneficiary has duly verified that the notification and control procedure set forth in Article 88 EC have been complied with), the beneficiary can bring an action before the ECJ against Commission decisions ordering recovery of State aid in exceptional circumstances where the existence of legitimate expectations can be established.
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The judgment does not indicate when this 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 argue the defence of legitimate expectations successfully, it is clear that exceptional cases will be extremely rare. Up to now there has been only one case where the ECJ accepted the raising of the defence of legitimate expectations against an order for recovery82. In that case, aid was granted on the basis of a scheme approved by the Commission but more aid was granted than originally foreseen. The Netherlands notified this modification to the Commission, which decided after 26 months that the aid was incompatible with the Common Market and ordered recovery. The ECJ held that this period of time was excessive and gave rise to legitimate expectations on the part of the beneficiary.
It appears therefore that this argument can only be raised where the Commission, upon due notification of an aid, fails to reach a conclusion within a reasonable period of time. However, it is impossible to predict what period of time may be considered unreasonable. Although the Commission has set itself the ambitious goal of carrying out investigations under Article 88 (2) EC within six months, this deadline is rarely met in practice. In fact, investigations frequently last substantially longer.
Federal Constitutional Court ("Bundesverfassungsgericht"), 17 February 2000, 2 BvR 1210/98, EuZW 2000, 445
Decision: The Federal Constitutional Court rejected the complaint. The Federal Administrative Court had, based on the ECJ's Alcan decision, correctly applied the law. In particular, the Federal Administrative Court had taken sufficient account of the claimant's legitimate expectations and other rights stemming from the principle of good faith . The fact that the Federal Administrative Court had 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 had no reason to discuss whether the ECJ's Alcan decision exceeded the limits of Community law ("ausbrechender Rechtsakt").
The main difficulties encountered by the Commission in implementing recovery decisions in Germany in recent years are the following:
* Delay resulting from the ambiguity as to whether recovery in a specific case should be claimed pursuant to administrative or civil law;
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* Delay resulting from the suspension of national enforcement proceedings pending an appeal against a Commission decision before the Community courts;
* Transfer of the business or other assets of the recipient of the aid to another party; and
* Enforcement of recovery claims in insolvency proceedings (including questions arising in the context of an insolvency plan).
We have reviewed 45 pending German recovery cases (as of 1 July 2005). Despite the large number of pending cases, overall, there appears to be a clear improvement in recovery discipline over the years. Only a few cases show no regular progress. Where the recipient of the aid is financially viable, recovery usually takes place within the time frame set by the Commission. A positive example are the recent Landesbanken cases in which the Commission decided that a total amount of EUR 2.815 billion should be recovered as illegal aid, following capital injections by several Federal States in the early 1990s. Whereas there are still open questions relating to recovery, the banks made payment within the time frame set by the Commission.
Not surprisingly, a large number of cases in Germany (i.e. eighteen) concerns the recovery of aid granted to companies in the New Federal States. In almost all of these cases, successful recovery ultimately led to insolvency proceedings.
Major obstacles have arisen in recovery proceedings where the recipient business was transferred by the original owner. For instance, in the Hamburger Stahlwerke case, both the business and a loan (which constituted incompatible State aid) were transferred to another industrial group following a negative Commission decision. Having structured the transaction in such a way that the recoverable loan "disappeared", the transferee group was in a position to resist recovery for some time.
In general, it appears that both the Federal Ministry of Finance and officials of German authorities responsible for state aid enforcement in Federal States have extensive experience in implementing Commission decisions and are aware of the necessity to do so swiftly and efficiently. Obstacles to effective implementation usually arise on legal grounds. The requirement under German law to base each and every recovery decision on an appropriate national statutory provision leads to additional complexity in recovery proceedings. This results very often in the revisiting, by the court, of issues that have already been addressed by the Commission. It would therefore be desirable to have, at national level, only one set of rules applying to the recovery of aid. If recovery at the national level was based directly on negative Commission decision along the lines of the new practicePage601 adopted by the Federal government in Kvaerner Warnow and other cases, a more efficient and simpler way of enforcing negative decisions could be achieved. It remains to be seen whether this approach will be upheld by the courts or whether specific legislation, i.e. a "State Aid Act", will be required.
It is still unclear whether a stay of national proceedings is permissible when an action against the underlying negative decision is pending before the Community courts. The order of the Higher Regional Court of Dresden to stay the proceedings in the Saxonia case is an example of a German national court disregarding Article 242 EC.
Considering German recovery procedures, it might be helpful to grant the national courts more direct access to the Commission in recovery procedures. One way of achieving this might be to give the Commission the role of an amicus curiae, similar to the provisions laid down in Regulation (EC) No. 1/200383. Since recovery procedures following negative Commission decisions are limited in number, it would be helpful to give the Commission a regular role in national proceedings to assist the national government in clarifying any issues arising. This is particularly true if, in the future, recovery in Germany will be based directly on the negative Commission decision.
Identify administrative body (Federal government, Federal State or municipality or public entity) having to recover aid;
Identify beneficiary based on Seleco/Banks case law;
Calculate amount of aid to be repaid including interest based on Commission decision; and
Identify whether administrative or civil law procedure to be followed. Where the underlying transaction is not clearly a civil law transaction, use administrative procedure.
Administrative procedure
5.1 Issue negative administrative act ("belastender Verwaltungsakt") within two-month time limit for implementation of Commission decision. Provide for repayment ex tunc, i.e. with interest;
5.2 Declare administrative act immediately enforceable ("Anordnung der sofortigen Vollziehung");
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5.3 Where aid recipient successfully challenges decision to immediately enforce recovery act (before an Administrative Court), file complaint ("Beschwerde") immediately with Higher Administrative Court ("Oberverwaltungsgericht"); and
5.4 Where addressee of negative administrative act successfully challenges act before Administrative Court, immediately file appeal ("Berufung") to Higher Administrative Court and, where applicable, further appeal ("Revision") to Federal Administrative Court ("Bundesgerichtshof").
Civil law procedure
6.1 Set time limit of one month for payment by aid beneficiary. If no payment within time limit, immediate court action for payment before Regional Court ("Landgericht");
6.2 Seek interlocutory relief ("einstweilige Verfügung") where grant and use of aid would lead to serious distortion of competition; and
6.3 Where Regional Court rejects court action, immediately appeal to Higher Regional Court ("Oberlandesgericht") and, where applicable, to Federal Court of Justice ("Bundesgerichtshof").
Insolvency
7.1 Apply for registration of recovery claim in insolvency register ("Insolvenztabelle"). Recovery claim to be given same priority as other claims by government entities;
7.2 Where trustee in bankruptcy does not recognise recovery claim, bring declaratory action ("Feststellungsklage") immediately; and
7.3 No participation in an insolvency plan ("Insolvenzplan") unless plan provides for total repayment of aid.
No stay of any proceedings at any stage when underlying negative Commission decision challenged before Community courts; and
Provide Commission with copies of all briefs filed by parties in national proceedings.
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[55] Technically, correspondence is exchanged between the Commission and the Permanent Representation to the European Union.
[56] 2000/C31 Neuer Harzer Werke GmbH, 17/10/2001, L 134, 51-62, 22/05/2002, 10/12/2003, not yet published; 1992/C14 Bremer Vulkan Krupp & Hibeg, 25/02/1998, L 316, 25-32, 25/11/1998; 1994/C28 Hamburger Stahlwerke GmbH, 31/10/1995, L 78, 31-43, 28/03/1996; 1996/C07 MTW Schiffswerft und Volkswerft Stralsund, 22/07/1998, L 108, 34-43, 27/04/1999; 1997/C06 Dieselmotorenwerk Vulkan GmbH, 21/04/1999, L 232, 24-32, 02/09/1999; 1997/C45 SMI, 11/04/2000, L 238, 50-58, 22/09/2000; 1997/C56 Zeuro Möbelwerk, 21/12/2000, L 282, 1-14, 19/10/02; 1997/C58 Hartha, 03/02/1999, L 145, 32-36, 10/06/1999; 1997/C80 Pittler/Tomos, 28/07/1999, L 65, 26-32, 14/03/2000; 1998/C05 Brockhausen Holze, 28/07/1999, L 7, 6-13, 12/01/2000; 1998/C78, 21/04/1999, L 230, 4-8, 31/08/1999; 1995/C41, 13/03/1996, L 198, 40-46, 08/08/1996; 1994/C55, Neue Maxhütte Stahlwerke GmbH, 18/10/1995, L 53, 041-49, 02/03/1996; 1999/C26 Dessauer Geräteindustrie, 15/02/2000, L 1, 10-20, 04/01/2001; 1999/C36 Korn Fahrzeuge, 23/02/2000, L 295, 21-29, 23/11/2000; 1999/C41 Lintra, 28/03/2001, L 236, 3-14, 05/09/2001; 2000/C66 ZEMAG GmbH, 10/10/2001, L 62, 44-53, 05/03/2002; 2000/C44 SKL Motoren GmbH, 09/04/2002, L 314, 75-85, 18/11/2002; 2000/C28 Hirschfelder Leinen und Textil GmbH, 30/01/2002, L 314, 45-61, 18/11/2002; 2001/C13 Jahnke Stahlbau, 01/10/2003 not yet published; 1998/C42 CD Albrechts, 21/06/2000, L 318, 16/12/2000; 2000/C36 Henneberg Porzellan GmbH, 30/10/2001, L 307, 1; Lautex/ERBA Lautex, CR 23/97, CR 62/2001.
[57] OJ (2005) L 120/21.
[58] In particular, Case T-155/95, Stadt Mainz v Commission [1996] ECR I-1557.
[59] In particular, Case C-404/97, Commission v Portugal [2000] ECR I-4922.
[60] OJ (1985) L 278/1.
[61] Case C-310/85, Deufil GmbH & Co. KG v Commission [1987] ECR 901.
[62] OJ (1999) L 107/21.
[63] Case C-188/92, TWD Textilwerke Deggendorf GmbH v Germany [1994] ECR I-833.
[64] OJ (1999) L 107/21.
[65] Case C-120/73, Lorenz v Germany [1973] ECR 1471; Case C-354/90, FNCE v France [1991] ECR I-5505.
[66] OJ (1999) L 107/21.
[67] Case C-24/95, Land Rheinland-Pfalz v Alcan [1997] ECR I-159.
[68] Reported in NVwZ 1998, 87.
[69] OJ (1988) L 79/29.
[70] Case C-5/89, Germany v Commission [1990] ECR I-3437.
[71] Reported in NJW 1993, 2764.
[72] Reported in EuZW 1992, 286.
[73] Reported in EuZW 1990, 387.
[74] Judgment of 24 February 1987, Case C-310/85, Deufil GmbH & Co. KG v Commission [1987] ECR 901.
[75] Unreported; file no. 3 C 15.97.
[76] Reported in EuZW 1995, 314; Judgment of ECJ of 20 March 1997, Case C-24/95, Land Rheinland-Pfalz v Alcan [1997] ECR I-159.
[77] Reported in EuZW 1992, 349.
[78] Reported in EuZW 1990, 389.
[79] Decision of 14 December 1985, OJ (1986) L 72/30.
[80] Judgment of 2 February 1989, Case C-94/87, Commission v Germany [1989] ECR 175.
[81] Case C-24/95, Land Rheinland-Pfalz v Alcan Deutschland GmbH [1997] ECR I-1591.
[82] Case C-223/85, Rijn-Schelde-Berolme (RSV) Machinefabrieken en Scheepswerven NV v Commission [1997] ECR 4618.
[83] OJ (2003) L 1/1.
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Comprehensive legal content with documents across 100+ jurisdictions
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Advanced search capabilities with precise filtering and sorting options
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