Portugal
| Author | Th. Jestaedt; J. Derenne; T. Ottervanger |
| Profession | Jones Day; Lovells; Allen & Overy |
| Pages | 409-417 |
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The obligations provided for in Article 88 (3) EC, as amended, are part of the Portuguese legal system, under to the principle set out in Article 8 (2) of the Constitution of the Portuguese Republic353 (the "CRP"). The Article determines the system of automatic incorporation of the provisions of adequately ratified or approved International Conventions. It further states that EU Treaties and the acts of the EU institutions apply internally as provided in EU law. There exist, therefore, no obstacles under national law to the application of Article 88 (3) EC with direct effect, as recognised by the ECJ in, notably, Capolongo354and Lorenz355. It is up to national courts to establish all of the consequences arising from the application of Article 88 (3) as part of Portuguese law regarding the relationship between the State and individuals, as well as between individuals, in accordance with the rules and judicial remedies available.
According to the established case law of the ECJ, the prohibition in the last sentence of Article 88 (3) extends to aid granted during the Commission's preliminary examination and, in particular, to aid granted before any notification is made to the Commission356. Therefore, despite the fact that the prohibition has a preventative or interim function, its violation constitutes a material or substantive breach of the law, as opposed to a mere formal or procedural one, for all the relevant effects in Portuguese law. The notion that the prohibition is independent from the procedural obligation to notify, neither starting nor terminating with such notification, its breach being substantive in nature, is in line with the ECJ position that a favourable decision of the Commission on the compatibility of the aid with the Common Market does not have the retrospective effect of legalising the illegal granting of the aid before such a final decision, in violation of Article 88 (3)357.
Aid granted in Portugal by means of an administrative decision, in breach of Article 88 (3) EC, may be subject to judicial review through a "special administrative action" before the competent administrative court. The administrative courts - which are independent from thePage 410 Administration itself - are a separate jurisdiction from the ordinary courts, and have as their highest instance the Supreme Administrative Court ("Supremo Tribunal Administrativo") ("STA").
The action referred to above is not restricted to the purpose of the annulment of an administrative decision. The claimant can also ask for a judicial order aimed at compelling the appropriate administrative body to take a decision that is legally due, as well as a decision regarding the recovery of damages arising from administrative acts or a failure to act. This means that, after the reform of the administrative jurisdiction in 2004358, the judicial remedies available to challenge the Administration's behaviour are no longer confined to the traditional "action for annulment" inspired by the French concept of "recours pour excès de pouvoir". Furthermore, court actions are no longer subject to the rule that only "final acts" ("actos definitivos") - i.e. final decisions adopted in the corresponding proceedings by the highest body in the hierarchy concerned - can be challenged. Accordingly, a prior appeal filed with the Administration, in order to obtain a final decision, is no longer a prerequisite for judicial action under Portuguese law359.
The standing of competitors to bring the action for annulment does not depend on the grounds invoked. As long as the party bringing the action demonstrates that it has a direct and individual interest in such annulment, it may allege the violation of any rule or legal principle or the mere existence of a material error of fact. Portuguese administrative courts have admitted for some time360 that being a competitor is sufficient to entitle a company to challenge the Administration's acts capable of illegally benefiting another company. Thus the claimant is not required, under Portuguese law, to demonstrate that the granting of aid has violated its specifically protected rights or interests.
The administrative courts' jurisdiction being now unrestricted, its decisions can include any injunctions or other measures aimed at prescribing the action to be taken by the Administration as a consequence of the annulment in order to redress the situation of the claimant and constrain the Administration to comply with its unfulfilled obligations. Until 2004, these measures (or some of them) could only be adopted, in the event that the administrative authority failed to take the appropriate initiatives, in the context of judicial enforcement proceedings subsequent to the annulment, and after several intermediary steps and delays.
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The annulled act can be renewed (with ex nunc effects) only if the existing irregularity may be remedied. It is generally understood that formal irregularities, such as the lack of notification, are capable of remedy361. However, it is not likely that a Portuguese court will accept, on the basis of an ex-post notification, the renewal of the decision granting the aid, since the fulfillment of the notification requirement at a later stage is not sufficient to overcome the prohibition in the last sentence of Article 88 (3) EC.
With regard to interim measures, the administrative jurisdiction's reform of January 2004 was the culmination of the changes initiated by a constitutional amendment of 1997. With the purpose of reinforcing the system of judicial remedies and the guarantees of individuals, the 1997 constitutional amendment added to these guarantees the granting of "appropriate interim measures" by administrative courts. Accordingly, Portuguese law now allows the claimant to apply for a wide range of preventative or anticipatory orders found necessary to preserve the effectiveness of the court's final ruling, which go far beyond the single measure traditionally admitted (the suspension of the effects of an administrative act). The new interim remedies include admission in ongoing proceedings, permission to initiate an action the provisional payment of a sum, and the order to act or to abstain from acting in a given situation.
Despite the importance of this reform, it may not prove to be a crucial one for companies seeking relief against an aid-granting administrative decision that unlawfully benefits a competitor. In these cases, the chosen interim remedy will probably still be the suspension of the effects of the contested decision. That suspension can be requested of the court at any time - before, together with or after the filing of the action. But it may be granted only when the company bringing the action demonstrates that (i) the action is prima facie admissible and not groundless, (ii) the immediate enforcement of the contested act causes damage not easily capable of repair and (iii) the suspension, in turn, does not cause damage to a public interest which is deemed greater than the interests of the claimant.
The condition identified under (ii) depends on the reasons for granting the aid. Portuguese courts tend to consider that loss of market share, because it is difficult to evaluate, is a difficult loss to make good362. Losses, however, are traditionally required to be a direct, immediate and necessary consequence of the act under review. This has led the courts to exclude those losses suffered by competitors of the beneficiary. In our view, such understanding is no longer acceptable, given the constitutional guarantee of an effective judicial protection of individuals' rights and interests against administrative offences. In fact, this guarantee requires an interpretation that allows those seeking the annulment of an act toPage 412 apply for its interim suspension. No judicial decision, however, can yet be cited to confirm this understanding.
The remedies referred to above are no longer applicable when the aid is granted through acts not qualified as administrative acts. This happens, for example, with aid granted through the participation in the share capital of companies, the subscription of bonds, financial operations by State-owned credit or financial institutions, civil law contracts or similar acts. In these cases, the remedies available before the administrative courts are scarce, because the jurisdiction of these courts does not cover the review of acts governed by civil or commercial law.
Therefore, despite the fact that the administrative courts have now powers of injunction that enable them to impose specific measures on the Administration (outside the narrowly defined context of judicial enforcement of annulment decisions), it would be difficult, and anyhow not supported by existing case law, to persuade the administrative courts to find themselves competent in cases where aid has been granted through civil law or commercial law mechanisms. Administrative courts can only rule on matters that involve administrative law or the protection of rights emerging directly from administrative law.
This scarcity of effective guarantees before administrative courts can hardly be overcome by having recourse to ordinary courts and civil actions. Ordinary courts, for their part, will also not find themselves, in principle, competent to rule on rights infringed through the violation of public law rules, as is the case in the prohibition set out in Article 88 (3) EC. The separation of public law and private law jurisdictions can therefore lead to situations where none of them recognises itself as the competent jurisdiction.
Supposedly in order to avoid these situations, the statute enacting the 2004 reform established that it would be within the administrative courts' jurisdiction to "verify the invalidity of any contracts resulting directly from the invalidity of the administrative act upon which the contract has been entered into"363. However, no case law is available as yet to clarify the actual reach of this provision. Only time can clarify the ambiguities of the new regime, such as the meaning of the word "verify", or of the expression "any contracts", as well as the criteria for establishing the existence of an administrative act, especially when no proceedings or formalities are applicable.
The infringement of the prohibition in Article 88 (3) EC may be invoked as a ground for an action for damages by the competitors of the company benefiting from the aid. Portuguese courts do not accept such claims when based on the disregard of merely procedural orPage 413 formal requirements, unless they are specifically aimed at protecting the claimant's interest364. However, this type of restriction does not affect the liability of public authorities for the violation of Article 88 (3) EC, since that violation must be considered as a substantive breach of the law and will therefore always be seen as an administrative tort.
In principle, the action should be brought against the administrative entity granting the aid and not against the company benefiting from it, since it was the Administration that caused the damage through its own action. The possibility of claiming damages from the beneficiary, instead of from the Administration, could be envisaged only where the former caused the breach of the law, and was at fault by misleading the Administration with regard to any relevant factual element for the application of Article 88 (3) EC. Even then, however, the Portuguese courts would not easily admit an action brought directly against the beneficiary of the aid, given that there is no immediate link between the behaviour of the latter and the damage suffered by the third party.
Actions for damages against administrative entities are tried by administrative courts when the damage is a consequence of public law acts. The notion of a public law act is wider than that of an administrative act and the limits are not always clear. Some hesitation may be expected when the aid results from civil and commercial contracts because they must be analysed simultaneously under both public and private regimes. The clarification of these issues could be brought about only by a wider use of the notion of "separable acts", in order to make it possible to consider individually the contract and the decision (explicit or implicit) to grant a particular aid.
The enforcement, by national authorities, of Commission decisions declaring the incompatibility of State aid may be effected by non-judicial means, under the provisions concerning the revocation of administrative acts, as long as the aid has been granted by an administrative decision. However, the reimbursement may be challenged in these cases by the beneficiary of the aid, on the basis of the rule under which unlawful acts are only revocable within the longest time limit for bringing an action for annulment (currently one year). This rule has a long-standing basis in Portuguese law because of the accepted principle that time eliminates the consequences of invalidity, unless the law exceptionally considers an act as being null and void as opposed to merely voidable365.
The ECJ has considered, in the Alcan366 case, that the expiry of national time limits for revocation cannot prevent Member States from enforcing Commission decisions and that the beneficiary undertaking may not invoke its legitimate expectations in the maintenance of aid considered incompatible with the Common Market or granted in violation of Article 88 (3) EC.
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This understanding is not in accordance with the rationale behind Portuguese law, which tends to protect individuals, irrespective of their good faith, and to preserve the stability of non-challenged administrative acts. This general principle has been consistently applied by the administrative courts, but cases cannot be found where it was confronted with the obligation to recover aid granted in violation of Article 88 (3) EC. The protection of individuals in such situations is not a constitutional guarantee and if that conflict ever arises, it seems reasonable to expect the EC law obligation of recovery to prevail without great difficulty.
An obstacle which may have to be faced in the enforcement of negative Commission decisions concerns the aid granted by independent public administration entities, whether at local level ("autarquias locais", mainly municipalities) or at regional level ("regiões autónomas").
As a consequence of their constitutionally protected autonomy, the government has no means to impose on these local or regional entities the enforcement of the reimbursement of aid granted in violation of last sentence of Article 88 (3). The government's supervisory powers over municipalities are restricted to inspections and other investigative procedures. The results of these inspections can lead to the dismissal of the responsible authority or authority member, but only in a certain number of situations strictly defined by law, none of which cover the infringement of Article 88 (3). As to the "regiões autónomas" (Azores and Madeira), they are not subject to any control by government.
This lack of means of enforcement can hardly be compensated by the use of judicial remedies, either before the administrative courts, or any other courts. Outside the collection of taxes and debts, judicial enforcement of public authority decisions is exceptional in the Portuguese law system. The government, as a rule, may not by itself apply to the courts for any kind of orders or injunctions against individuals or lower authorities. The 2004 reform allowed public bodies to apply in court for injunctions against other authorities in vertain situations, but the scope of this new form of action is far from clear and only future case-law will determine whether it can be used to obtain the recovery of illegal aid.
Judicial remedies may be sought on behalf of the government by special magistrates acting as public attorneys ("Ministério Público" agents). However, Ministério Público magistrates are seen as part of the judiciary rather than an executive body, and enjoy an accordingly large degree of autonomy. Unless the law imposes on them a specific obligation to apply to the courts (as in the case of actions for dismissal of local authorities or their members, when applicable), the decision to bring an action remains within their discretion, although they are expected to act on the government's well-grounded requests. Moreover, Ministério Público have locus standi to seek injunctions in administrative courts only when fundamental rights or an "especially relevant public interest" are involved. In our view, the enforcement of law obligations should fall within this general concept. However, so far no case law exists to support this understanding.
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The possibility for competitors to apply for judicial enforcement of negative Commission decisions is of considerable importance. After the 2004 reform, Portuguese law extended the possibility for competitors to obtain appropriate remedies, allowing them to ask, not only for the annulment of an administrative decision granting aid declared incompatible with the Common Market, but also for an order constraining the Administration to act as necessary to redress the situation. Some difficulties may arise from the locus standi rules, as the latter remedy can be sought only by those who show a right or a legally protected interest in obtaining it. The competitor's interest is accepted as a direct one, but it is not certain that the courts will see it as an interest specifically protected by State aid rules.
Positive Commission decisions are mandatory as far as the assessment of the compatibility of the aid with the Common Market is concerned. Such decisions must be complied with by both, national administrative authorities and national courts of any kind. The act granting the aid may, nevertheless, be judicially challenged by a competitor of the beneficiary, under the general procedures in an action for annulment. However, if the ground for annulment is the incorrect application of Article 87 EC by the Commission, the Portuguese courts may refer the issue to the ECJ under Article 234 EC Treaty. The same would apply where the competitor brings an action for damages against the authority granting the aid.
The rules and principles described above allow for the conclusion that Portuguese national law, as a whole, provides a reasonably efficient set of judicial remedies against administrative decisions granting aid without observance of the examination procedure of Article 88 (3) EC. Especially after the 2004 reform, which reinforced the administrative courts' jurisdiction, no legal difficulty should in theory prevent competitors from obtaining the appropriate decisions in order to suppress illegal aid. Under standing rules, an individualised direct interest in challenging the unlawful act shall be sufficient, therefore allowing competitors to invoke public policy rules, like those in Article 88 (3) EC, to their own advantage.
Interim measures, including the suspension of the effects of the administrative decision, are available in broad terms and are no longer subject to the priority of public interest (as was the case before 2004). The annulment can be complemented or followed by injunctions aimed at restoring the plaintiff's situation, as well as by awarding damages. To a large extent, damages can also be sought in a separate action, at least when losses could not be effectively avoided through the diligent use of interim suspension and annulment remedies.
The assessment is less positive when it comes to aid granted by means of civil or commercial acts, given the difficulties usually connected with the system of separate jurisdictions. Neither can we be optimistic about the enforcement of negative CommissionPage 416 decisions, whenever aid has been granted by local or regional authorities independent from government, against which an administrative action is not possible and judicial remedies are still unproven.
These obstacles do not fully explain the near absence of cases decided by Portuguese courts in connection with Article 88 (3) EC. Remedies are largely available to competitors wanting to challenge administrative acts, but even there the same scarcity can be observed. The lack of litigation in this field should not be attributed only to the length and cost of judicial proceedings. It may also be the consequence of a relative unawareness of EC rules, along with a policy of self-restraint of competitors who think of themselves as potential beneficiaries of State aid. The fact is that Article 88 (3) EC is yet to make its entrance in Portuguese courts.
As underlined above, we are not aware of any cases in which the Portuguese courts have applied Articles 87 or 88 EC to invalidate administrative decisions, or any other acts of a public body. The search of all available databases has not shown any annulment or injunction decisions or the awarding of damage, as a result of direct application of Article 88 (3) EC.
State aid has been discussed in a small number of cases, in which the court has either ruled (i) on an issue different from the legality of the act granting the aid, or (ii) decided that there was no illegal State aid at all.
The first situation (i.e. that where the court did not rule directly on the legality of the aid) was the subject of the STA decision of 10 October 2002, which discussed the awarding of a contract under a procurement procedure for the transportation of patients. The awarding authority was the Oliveira de Azeméis Hospital and the selected contractor was the Portuguese Red Cross, beneficiary of several public subsidies.
One of the tenderers, a private company, claimed that a subsidised entity could not, under State aid law, compete against non-subsidised entities. The awarding decision was first annulled by the Coimbra Circle Administrative Court, but this ruling was reversed by the STA on appeal.
According to the STA, the contract could be awarded to such a candidate as the Red Cross. More precisely, the STA decided that State aid rules "are not part of the legal set of rules governing the awarding act" in procurement procedures. The STA decision dealt with national law, but its reasoning is arguably applicable as regards EC Treaty provisions as well.
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The second type of ruling (i.e. that where the court decided that there was no illegal State aid) can be found in a series of STA decisions that had to deal with a specific situation concerning a State-owned savings bank, the Caixa Geral de Depósitos ("CGD").
CGD was, until some years ago, legally entitled to claim the collection of debts before the same courts and under the same enforcement rules as the State itself. This advantage was linked to the legal status of CGD as a public entity since its creation in 1876. Until 1993, CGD was entitled to claim its credits under the procedure of "execução fiscal", an enforcement procedure designed, notably, for the collection of taxes. In some occasions, the proceedings were challenged by the debtor(s) as contrary to both national and EC competition and State aid rules.
The Tax Courts367 and, following appeal, the STA, consistently rejected the claimant's view, refusing to consider such legal provision as the State aid rules. The most recent of these rulings, according to the available data, were the STA decisions of 15 March 2000 and of 13 November 2002. The former of these decisions - whose grounds were followed in the latter decision - ruled that CGD could not be seen as a "mere competitor" of the other credit institutions, given its duties and responsibilities, as a public body, in the implementation of the government's credit policy. In addition, the STA raised doubts about the real impact of the disputed provisions, which, being creditor-friendly, could discourage rather than attract new clients.
Mention should also be made of Opinion 41/2002 by the Attorney General's Advisory Council368, on the awarding procedure of a highway concession contract. The question submitted to the Advisory Council concerned one of the candidates, a company partially owned by the State, which was the beneficiary of certain public assistance (remission of debts, subsidising of costs, tax exemptions). The Advisory Council stated that the special link between the candidate and the State did not affect the competition between tenderers. The Portuguese Courts' decisions and the opinion cited can be searched on www.dgsi.pt.
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[353] As amended by Constitutional Law 1/82 of 30 September 1982, Constitutional Law 1/89 of 8 July 1989, Constitutional Law 1/92 of 25 November 1992, Constitutional Law 1/97 of 20 September 1997, Constitutional Law 1/2001, of 12 December 2001 and Constitutional Law 1/2004 of 24 July 2004.
[354] Case 77/72, Capolongo [1973] ECR 611.
[355] Case 120/73, Lorenz, [1973] ECR 1471.
[356] Case 84/82, Germany v Commission, [1984] ECR 1451, para.11; Case C-301/87, France v Commission ("Boussac") [1990] ECR 307, para. 17-19; , Case C-354/90, Fenacomex [1991] ECR 5505 para. 11-13; Joined Cases C-261 and C-262/01, Van Calster [2003] not yet published; and Joined Cases C-34/01 and C-38/01, Enirisorse [2003] not yet published.
[357] Such position is expressly set out in cases Fenacomex, para. 16, and in Van Calster [2003], para. 63.
[358] The reform was enacted by Law 13/2002 of 19 February 2002 (Statute of the Administrative and Tax Courts), and by Law 15/2002 of 22 February 2002 (Code of Procedure in the Administrative Courts). It came into force on 1 January 2004, as provided for in Law 4-A/2003 of 19 February 2003.
[359] The requirement of a "final act", as stated in Article 25(1) of the Administrative Courts Procedure Act (approved by Decree-Law 267/85 of 16 July 1985), became the subject of controversy over its constitutionality after 1989, when Constitutional Law 1/89 amended Article 268(4) of the Constitution in order to guarantee the right of the individuals to bring an action against every administrative act affecting their rights or interests. Until December 2003, however, administrative courts have held that Article 25(1) was, in principle, consistent with the Constitution, although their case law has shown some flexibility as regards preliminary or preparatory decisions. Some examples of the latter can be seen in the STA decision of 22 September 1994, published in "Acórdãos Doutrinais do Supremo Tribunal Administrativo" (hereafter "AD") n. 399,March 1995, p. 272.
[360] At least since the 50's: see STA decisions of 9 January 1953 and of 6 December 1957; more recently, see decision of 1 March 1990 (AD n. 347, November 1990, p. 1345).
[361] See, among others, STA decision of 21 March 1991 (AD n. 370, October 1992, p. 1114).
[362] See, for example, STA decisions of 12 June 1986 and 14 July 1988 (published in "Apêndices ao Diário da República", of 31 May 1991, p. 2530 and of 30 October 1993, p. 4105 respectively).
[363] Article 4(1)(b) of Statute of the Administrative and Tax Courts, supra, note 7.
[364] See STA decision of 1 July 1997 (published in "Cadernos de Justiça Administrativa", n. 7, January/February 1998, p. 32).
[365] The principle that unlawful acts are merely voidable is a main feature of the Portuguese system of administrative law, in contrast with common law systems, and implies the consolidation of non-challenged acts as definitive and conclusive resolutions: see, for example, decision by the STA of 24 May 1994 (AD n. 395, November 1994, p. 1250).
[366] Case C-24/95, Alcan Deutschland [1997] ECR I-1591, para. 1510.
[367] Tax courts are a special branch of the administrative courts.
[368] The Attorney General's Advisory Council is a consultative body for the Attorney General, the Government and the Parliament ("Assembleia da República"). When approved by the entity that requested it, the Advisory Council's opinion is published in the Official Journal ("Diário da República") and becomes "official interpretation", i.e. an interpretation binding on the services and public bodies subordinated to it. Opinion 41/2002 was approved by the Ministry of Public Works and published in the Diário da República of 28 September 2002.
