Residex Capital IV CV v Gemeente Rotterdam.

• Jurisdiction: European Union
• Court: Court of Justice (European Union)
• Writing for the Court: Tizzano
• ECLI: ECLI:EU:C:2011:354
• Date: 26 May 2011
• Docket Number: C-275/10
• Procedure Type: Reference for a preliminary ruling

OPINION OF ADVOCATE GENERAL

KOKOTT

delivered on 26 May 2011 (1)

Case C‑275/10

Residex Capital IV CV

v

Gemeente Rotterdam

(Reference for a preliminary ruling from the Hoge Raad der Nederlanden, Netherlands)

(Competition – State aid – Recovery of State aid granted in breach of European Union law – Guarantee for a loan – Invalidity of transactions under national law on the ground of infringement of mandatory statutory provisions – Powers of national courts – Third sentence of Article 108(3) TFEU)

I – Introduction

1. Can a guarantee be invoked against a public entity if it itself has previously given that guarantee in breach of provisions of European Union law (‘EU law’) on State aid and without the approval of the European Commission? This is, essentially, the legal problem to be considered by the Court in the present case.

2. In 2003, an authority of the Municipality of Rotterdam in the Netherlands provided a guarantee, in mysterious circumstances, for a loan in the approximate amount of EUR 23 million, which the firm of Residex granted to the Aerospace company. When Aerospace failed to repay the loan in full, Residex called on the Municipality to honour the guarantee and, at the end of 2004, sued it for payment of a sum in excess of EUR 10 million. The Municipality’s defence in the legal proceedings was based, in particular, on the argument that the guarantee at issue had been provided in breach of EU law and was therefore null and void under civil law.

3. The Court is now asked whether EU competition law – specifically the prohibition on implementing State aid under the third sentence of Article 108(3) TFEU – authorises, or even obliges, a national court to treat a municipal guarantee that has not been notified to the European Commission or approved by it as being null and void.

II – Legal framework

A – EU law

4. The framework for this case in EU law is provided by the third sentence of Article 108(3) TFEU (formerly the third sentence of Article 88(3) EC). Reference also has to be made to the notifications and notices in which the European Commission, as the EU competition authority, makes known its administrative practice and legal view with regard to certain issues of the law on State aid. In the present case the Guarantee Notice and the Notice on the role of national courts are of significance.

The Guarantee Notice

5. It is apparent from the ‘Commission Notice on the application of Articles 87 and 88 of the EC Treaty [now Articles 107 TFEU and 108 TFEU] to State aid in the form of guarantees’ (2) (the Guarantee Notice) that a guarantee given by a public authority for a loan or other financial obligation may constitute aid to both the borrower and the lender.

6. Section 2.2 (‘Aid to the borrower’) states:

‘Usually, the aid beneficiary is the borrower. ... When the borrower does not need to pay the commission, or pays a low commission, it obtains an advantage. ... In some cases, the borrower would not, without a State guarantee, find a financial institution prepared to lend on any terms. ...’

7. The following is added, however, in section ‘2.3. Aid to the lender’:

‘2.3.1. Even if usually the aid beneficiary is the borrower, it cannot be ruled out that under certain circumstances the lender, too, will directly benefit from the aid. In particular, for example, if a State guarantee is given ex post in respect of a loan or other financial obligation already entered into without the terms of this loan or financial obligation being adjusted, or if one guaranteed loan is used to pay back another, non-guaranteed loan to the same credit institution, then there may also be aid to the lender, in so far as the security of the loans is increased. ...

2.3.2. Guarantees differ from other State aid measures, such as grants or tax exemptions, in that, in the case of a guarantee, the State also enters into a legal relationship with the lender. Therefore, consideration has to be given to the possible consequences for third parties of State aid that has been illegally granted. ... The question whether the illegality of the aid affects the legal relations between the State and third parties is a matter which has to be examined under national law. National courts may have to examine whether national law prevents the guarantee contracts from being honoured, and in that assessment the Commission considers that they should take account of the breach of [EU] law. ...’

8. Section 3.1 of the Guarantee Notice, under the heading ‘General considerations’, sets out the ‘conditions ruling out the existence of aid’:

‘If an individual guarantee ... entered into by the State does not bring any advantage to an undertaking, it will not constitute State aid. ...’

9. The earlier version of the Guarantee Notice (3) from the year 2000 also contained more or less the same wording.

Notice on the role of national courts

10. The Commission notice on the enforcement of State aid law by national courts (4) (‘Notice on the role of national courts’) contains a section 2.2 on ‘Unlawful State Aid’.

11. Subsection ‘2.2.1. Preventing the payment of unlawful aid’ contains the following provision:

‘28. National courts are obliged to protect the rights of individuals affected by violations of the standstill obligation. National courts must therefore draw all appropriate legal consequences, in accordance with national law, where an infringement of Article [108(3) TFEU] has occurred. ... However, the national courts’ obligations are not limited to unlawful aid already disbursed. They also extend to cases where an unlawful payment is about to be made. ... Where unlawful aid is about to be disbursed, the national court is therefore obliged to prevent this payment from taking place. ...’

12. Furthermore, it is stated in subsection ‘2.2.2. Recovery of unlawful aid’:

‘30. Where a national court is confronted with unlawfully granted aid, it must draw all legal consequences from this unlawfulness under national law. The national court must therefore in principle order the full recovery of unlawful State aid from the beneficiary. ...’

B – National law

13. The Netherlands law of relevance is Article 3:40(2) of the Burgerlijk Wetboek (5) (‘BW’), which provides as follows:

‘Infringement of a mandatory statutory provision renders a legal transaction null and void; if this provision serves solely to protect one of the parties to a multilateral legal transaction, such a transaction is merely voidable; in both cases this is on condition that nothing to the contrary is to be inferred from the objective of the provision.’

III – Facts and the main proceedings

14. In 2001, Residex Capital IV CV (‘Residex’) acquired shares in MD Helicopters Holding NV (‘MDH’), a subsidiary of RDM Aerospace NV (‘Aerospace’). (6) At the same time, Residex was granted an option entitling it to sell back its holding in MDH to Aerospace at a later date, subject to certain conditions.

15. Residex exercised that option in February 2003. However, Residex did not then have the sales price paid over to it but instead, in March 2003, converted the sum of EUR 8.5 million due to it in that respect into a loan to Aerospace. In addition, Residex made a further USD 15 million (7) available to Aerospace as a loan. This meant that the total value of the loan extended to Aerospace by Residex amounted, following conversion, to approximately EUR 23 million.

16. The grant of this loan was apparently due to the conduct of the former head of the municipal port authority of Rotterdam, (8) who offered Residex a guarantee from the port authority for a loan to be granted to Aerospace. In March 2003, the port authority of Rotterdam did indeed give Residex a guarantee in the maximum sum of EUR 23 012 510, plus loan charges and interest.

17. According to information provided by the referring court, without that guarantee – which was not notified to the European Commission and was therefore not approved by it – Aerospace would not have been able to obtain such a loan.

18. According to Residex, Aerospace repaid only an amount of approximately EUR 16 million of the loan. In December 2004, Residex therefore invoked the guarantee from the Municipality of Rotterdam in the amount of EUR 10 240 252, plus interest and recovery costs. The Municipality refused payment, however.

19. Residex and the Municipality of Rotterdam are now disputing in the court proceedings whether the guarantee assumed by the municipal port authority is at all valid. The legal argument turns, first, on the representative powers of the head of the port authority and the compatibility of the guarantee with provisions of municipal law. Secondly, the Municipality is claiming that the guarantee is null and void as being in breach of the prohibition of State aid under EU law. The Municipality is also disputing the quantum of the debt sued for by Residex.

20. Residex was unsuccessful in its arguments both at first instance before the Rechtbank Rotterdam (Rotterdam District Court) and on appeal before the Gerechtshof te ‘s-Gravenhage (Regional Court of Appeal, The Hague). On the basis of Article 3:40(2) BW, both of those courts concluded that the guarantee was null and void because it constituted State aid within the meaning of Article 87(1) EC (now Article 107(1) TFEU) and had not been notified to the European Commission, contrary to Article 88(3) EC (now Article 108(3) TFEU).

21. Following an appeal on a point of law filed by Residex, the main proceedings are now pending before the Hoge Raad der Nederlanden (Supreme Court of the Netherlands), which is the referring court.

IV – Request for a preliminary ruling and procedure before the Court of Justice

22. By decision of 28 May 2010, lodged with the Court of Justice on 2 June 2010, the Hoge Raad referred the following question to the Court for a preliminary ruling:

‘Does the provision in the last sentence of Article 88(3) EC, now...