Summary of Findings, Recommendations, Comparative Legal Analysis
| Author | Th. Jestaedt; J. Derenne; T. Ottervanger |
| Profession | Jones Day; Lovells; Allen & Overy |
| Pages | 33-54 |
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Section 1 of this study contains the summary of findings, recommendations, an outline of cases that could be brought before national courts and a comparative analysis of those cases. Sections 2 and 3 contain an outline of the judicial relief available in each Member State and an analysis of individual cases.
* Member States' courts apply EC State aid law in a wide variety of procedural settings ranging from actions brought by a Member State against the beneficiary of aid and actions commenced by taxpayers alleging that tax legislation providing for exemptions for certain categories of other taxpayers violates State aid law, to more "classical" private enforcement scenarios, i.e. actions by private parties against Member States or aid recipients alleging that the aid granted in a specific case was unlawful.
* Overall, there has been a significant increase in the number of cases over the past six years (from 116 to 357);
* France, Italy and Germany account for the largest number of cases followed by the Netherlands, Spain, Belgium and the United Kingdom; and
* Along with the development of EC State aid law at Community level over the past few years, parties have become more sophisticated in invoking EC State aid law in national court proceedings.
The vast majority of cases (more than 50% of all cases) initiated by private parties concern situations where a private party sought to relieve itself of a burden that was not imposed on another party by way of an exemption under the aid scheme in question (mostly in the form of a tax exemption). One example are court actions in connection with environmental tax schemes.
The number of cases in which private parties have brought direct actions against competitors that are being granted aid is still limited (in a quarter of all cases), but total numbers are increasing:
- where private parties have successfully brought actions against unlawful aid granted to their competitors, they were able to obtain a suspension of the Page 34 aid and/or recovery only; the authors have found no decisions where private parties were awarded monetary damages based on the grant of illegal aid to a competitor;
- most actions by private parties relating to aid granted to their competitors were brought directly against the Member States; only a handful of cases were brought against aid beneficiaries; in a number of Member States, the legal basis of the action against aid beneficiaries still appears to be unclear; and
- the number of State aid cases initiated in the context of public procurement (i.e. in situations where the claimant competes with the aid recipient in a public tender) is increasing; however, there are not many cases in which tenderers have successfully invoked violations of EC State aid law.
* Private enforcement of EC State aid law at Member State level is still in its infancy. This is not due to shortcomings or inefficiencies in the Member States' legal systems or a lack of knowledge of EC law by Member States' judges but is, instead, due to the diversity of Member States' procedural and substantive rules applicable to situations involving the grant of State aid and the uncertainties (cost risks, uncertain outcome) resulting from the absence of uniform procedures with a clear legal basis.
* While recovery of illegal or incompatible State aid has improved over the past few years, the authors have found that recovery of such aid by Member States still faces a number of obstacles:
- lack of clarity as to the identity of the national body responsible for issuing recovery decision, of the beneficiary required to repay the aid and as to the exact amount of the aid to be repaid;
- absence of a clear predetermined procedure to recover aid in some Member States;
- no availablility or no use of interim relief to recover aid;
- stay of the recovery proceedings while an appeal is pending; and
- difficulties experienced by the governmental authorities of a Member State when recovering aid at local level.
The authors of the study recommend that the Commission:
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* adopts a new notice based on the 1995 Commission notice on cooperation between the Commission and national courts ("Cooperation Notice")3, which should address all aspects of the application of EC State aid law by Member States' courts; in particular, the new notice should clarify that, pursuant to most recent case law of the European Court of Justice ("ECJ"), competitors and other parties affected by a measure granting aid must be granted a remedy in national courts;
* discusses with Member States means to create a minimum standard to enable the competitor of the recipient of unlawful aid (i) to obtain swift recovery of the aid; and (ii) to obtain interim relief where a breach of Article 88 (3) EC is obvious, without having to show that the competitor would suffer irremediable harm in the absence of interim relief; one possible means of creating such a standard would be to adopt a remedies directive for State aid cases, which could be modeled on the remedies directive for procurement cases;
* discusses with Member States the desirability of creating uniform conditions for the award of damages to competitors in the event of an infringement of Article 88 (3) EC; and
* adopts best practice guidelines for recovery of State aid (discussed in more detail in Part II of this study).
The Commission and the national courts have complementary and distinct roles in the application of the State aid rules.
While the Commission has the exclusive power to decide whether aid is compatible with the Common Market, national courts are responsible for the protection of rights and the enforcement of duties, usually at the behest of private parties. In the Cooperation Notice, the Commission points out that, while it is not always in a position to act promptly to safeguard the interests of third parties in State aid matters, national courts may be better placed to ensure that breaches of the last sentence of Article 88 (3) EC are dealt with and remedied4.
The following actions can be brought before national courts:
* actions by the Member State to obtain recovery from the beneficiary (or actions by the beneficiary against recovery procedures by the Member State);
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* actions by a company against the Member State for annulment of the (discriminatory) imposition of a financial burden (for example, a tax or other levy) from which another company is exempted or where the tax or levy is used to finance unlawful aid;
* disputes between different branches of the Administration as to the permissibility of State aid measures (institutional disputes)5;
* actions by a competitor against the Member State for damages, recovery and/or injunctive measures; and
* actions by a competitor against the beneficiary for damages, recovery and/or injunctive measures.
In this subsection 1.4, we discuss actions available on the basis of the case law of the European courts and the decisional practice of the Commission6. Section 1.4.2 describes enforcement by the Commission. Sections 1.4.3 to 1.4.5 set out examples of cases where a national court could be required to deal with State aid issues.
Articles 88 (3) and 88 (1) EC provide for a specific procedure under which the European Commission ("Commission") monitors new aid and keeps existing aid under constant review. A Member State must notify the Commission of any plans to grant or alter aid before it can be put into effect. Following notification, the Commission conducts an initial review of the planned aid scheme during which it may not be put into effect. The Commission has a period of two months in which to raise objections. If the Commission does not take action within this two-month time limit7, the Member State may proceed to implement its plans and the aid shall become existing aid, subject to the supervision rules contained in Article 88 (1) EC. If the Commission deems at the end of that review that there are questions on the compatibility of the aid with the Common Market, it must without delay initiate the formal investigation procedure under Article 88 (2) EC. In this case, the prohibition continues until the Commission reaches a decision on the compatibility of the planned aid with the Common Market.
The Article 88 (2) EC procedure that allows the Member State concerned and all other interested parties to submit comments within a period which normally does not exceed one month is concluded by issuing either a negative decision prohibiting the aid, a conditional decision allowing the aid subject to certain conditions or a positive decision. Non-notification does not automatically make such aid incompatible with the Common Market. ThePage 37 Commission is not relieved of the duty to examine the aid and test its compatibility with Article 87 EC.
If the Commission finds aid incompatible and the aid has already been paid, it will ask the Member State to recover the aid from the recipient with interest as from the day on which the recipient had the aid at its disposal8. A Member State is obliged to recover the aid and may not allow a rule of its domestic law to prevent recovery9. The ECJ has stated that a Member State may not plead provisions, practices or circumstances of its own legal system as a reason for not complying with EC law, while recipients of unlawful (or illegal) aid (i.e. non-notified aid) cannot, save in exceptional circumstances10, invoke the principle of the protection of legitimate expectations. The CFI upheld the Commission's decision to make its authorisation of a new aid package subject to the suspension of payment of that aid until a prior aid to the same undertaking, which was declared incompatible, has been recovered11. Furthermore, the Commission stipulates that it may make an interim decision, requiring the beneficiary to immediately reimburse the non-notified and illegal aid to the Member State with interest, pending the Commission's decision on compatibility12.
The Commission has also issued the Cooperation Notice. The Commission pointed out that national courts must, until the Commission renders its final decision, preserve the rights of individuals confronted with a potential breach of the prohibition contained in Article 88 (3) EC by State authorities. National courts are encouraged to use all national remedies to freeze payment or order repayment of sums illegally paid.
While national courts have no jurisdiction to rule on the compatibility of aid with the Common Market, they must ensure that Member States comply with their procedural obligations.
The role of the national courts is to safeguard rights which individuals enjoy due to the direct effect of the prohibition in the last sentence of Article 88 (3) EC. National courts should use all appropriate means and remedies and apply all relevant provisions of national law to implement the direct effect of this obligation. The initiation of a procedure by the Commission under either Article 88 (3) EC or Article 88 (2) EC does not relieve national courts of their duty to safeguard rights of individuals in the event of a breach of the requirement to give prior notification13.
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First, a national court may have cause to interpret and apply the concept of aid in Article 87 (1) EC to determine whether State aid introduced without observing the preliminary examination procedure of Article 88 (3) EC ought to have been subject to this procedure14.
Secondly, third parties, such as competitors who stand to suffer loss due to the grant of illegal aid (i.e. aid implemented prior to notification or during the contentious procedure) can obtain an injunction from a national court, thus preventing the actual grant of the aid.
Moreover, a national court may be required to declare prematurely granted aid unlawful and order recovery of such aid, without ruling on its compatibility. Even if the Commission finds the unlawfully granted aid compatible with the Common Market, the national court should declare measures adopted before such a finding unlawful and order the State to recover the aid with interest. When deciding on recovery of the non-notified aid, a national court may take account of general principles, including the principle of the protection of legitimate expectations, the circumstances of the case and earlier Commission decisions in which the recovery of aid was declined on the grounds of general legal principles15. Furthermore, national courts will have to keep in mind that, where the method of financing is an integral part of an aid measure, they must, in principle, in the event of non-notification order recovery of charges or contributions levied specifically for the purpose of financing that aid16.
Finally, third parties who can prove that they have suffered loss as a result of the unlawful implementation of aid may have an action for damages in a national court against the Member State that granted the aid. In SFEI v La Poste17, the ECJ also addressed the question of whether the recipient of aid who does not verify whether the aid has been notified to the Commission in accordance with Article 88 (3) EC may incur liability on the basis of Community law. The ECJ held that Article 88 EC does not impose a specific legal basis for the recipient to incur liability in such a case. Nevertheless, the ECJ held that this does not prejudice the possible application of national liability law to the grant of aid in breach of Article 88 (3) EC where acceptance by an economic operator of unlawful assistance causing damage to other economic operators creates a cause of action under national law.
A national court can enforce a Commission decision under Article 88 (2) EC declaring a particular aid contrary to Article 87 EC. In Carmine Capolongo v Azienda Agricole Maya18, the ECJ clarified that for aid declared incompatible with the Common Market, "the provisions of Article [87 (1)] are intended to take effect in the legal systems of Member States, so that they may be invoked before national courts, where they have been put in concrete form by Page 39 acts having general application provided for by Article 94 or by decisions in particular cases envisaged by Article [88 (2)]".
Where recovery of aid is sought following a negative decision of the Commission, recovery must take place in accordance with the relevant procedural provisions of national law. The provisions are not to be applied in such a way that recovery required by Community law is rendered practically impossible19. However, national insolvency laws may have a negative impact on the immediate and effective execution of the decision. Part II of this study contains a more detailed analysis of these issues and of the relevant case law.
Following a negative Commission decision, an action to obtain an injunction to prevent the actual grant of an aid or an action for damages by a third party (for example, a competitor or a creditor of the beneficiary who suffers loss as a result of recovery) may be initiated in a national court.
The competitor of a beneficiary of aid declared compatible with the Common Market by the Commission may want to challenge the Commission decision concerning the aid.
In Salt Union v Commission, which involved a challenge by a competitor of the grant of aid to a specific company under a general aid scheme approved by the Commission, the ECJ stated that it is open to competitors to contest, before the national courts, the decision of national authorities to grant State aid to an undertaking competing with them20. If the aid forms part of a general aid scheme, undertakings may call into question, in such national proceedings, the validity of the Commission's decision to approve the scheme. This can also apply to individual positive Commission decisions.
The ECJ further stated that, if these types of actions are brought in a national court, the latter will be obliged to refer a question to the ECJ for a preliminary ruling under Article 234 EC21. Where the claimant would, manifestly, not have standing to challenge the Commission decision directly before the CFI (and has not done so in the prescribed time limit), such a preliminary procedure will not be possible to incidentally review the validity of the decision22.
We have analysed the case law of different Member States according to the categories in which the individual cases fall:
* recovery actions by Member State authorities
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* discriminatory imposition of burden (tax)
* institutional disputes (central government/region)
* competitor against Member State: injunction and/or recovery
* competitor against Member State: damages
* competitor against beneficiary: injunction and/or recovery
* competitor against beneficiary: damages
* public procurement cases
* successful competitors
These categories were determined by reference to the economic goal pursued by the parties rather than the specific procedural setting in a given Member State.
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Table I
The summary of our analysis is shown in the following table:
Total cases
Recovery actions by Member State authorities
Discriminatory imposition of burden (tax)
Institutional disputes (central government/region)
Competitor against Member State: injunction and/or recovery
Competitor against Member State: damages
Competitor against beneficiary: injunction and/or recovery
Competitor against beneficiary: damages
Public Procurement cases
Successful competitors
AUT
7
3
2
2
BE
28
12
9
2
4
2
1
DK
0
FIN
3
3
F
62
3
35
0
5
4
3
5
5
2
GER
70
18
42
7
1
2
1
GR
9
1
2
6
IRL
0
IT
78
0
59
8
3
3
1
7
LUX
1
1
NL
45
7
19
15
2
1
2
POR
2
1
1
SP
32
3
16
12
1
SWE
1
1
UK
19
1
10
1
5
1
1
0
Total
357
46
179
25
62
8
16
7
18
3
100%
12.89%
50,14%
7,0%
17,37%
2.24%
4,48%
1.96%
5,04%
0,84%
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The 1999 Report used the same categorisation. The relevant table was as follows:
Table II
| Total cases | Beneficiary resisting recovery by Menber State | Discriminatory imposition of burden (tax) | Institutional disputes (central government J. region) | Competitor agaisnt Member State: injunction and/or recovery | Competitor agaisnt Member State: damages | Competitor agaisnt beneficiary: injunction and/or recovery | Competitor agaisnt beneficiary: damages | Public procurement cases | Sucessful competitors | |
| AUT | 1 | 1 | ||||||||
| BE | 5 | 2 | 1 | 1 | 1 | 1 | ||||
| DK | 0 | |||||||||
| FIN | 1 | 1 | ||||||||
| F | 35 | 2 | 28 | 1 | 3 | 1 | ||||
| GER | 30 | 5 | 21 | 4 | 1 | |||||
| GR | 1* | 1* | 1* | |||||||
| IRL | 0 | |||||||||
| IT | 22 | 5 | 4 | 9 | 2 | 1 | 1 | |||
| LUX | 1 | 1 | ||||||||
| NL | 7 | 2 | 2 | 1 | 2 | |||||
| POR | 0 | |||||||||
| SP | 7 | 4 | 3 | |||||||
| SWE | 1 | 1 | ||||||||
| UK | 5 | 1 | 1 | 3 | 1 | |||||
| Total | 116 | 17 | 60 | 11 | 21 | 3 | 2 | 2 | 3 | 3 |
| 100% | 15% | 52% | 9% | 18% | 2% | 2% | 2% | 2% | 2% |
While it is always difficult to draw conclusions from a limited number of court cases, it appears that, as compared to the situation described in the 1999 Report:
* there has been a very significant increase in cases (from 116 to 357); and
* the percentage of each category of cases of the total number of cases has remained more or less identical, with the exception, notably, of recovery actions (which have declined from 15 per cent to 12 per cent) and public procurement cases (which have increased from 2 per cent to 5 per cent). With regard to the former, this may suggest that Member States needed to resort to judicial recovery actions less frequently than in the period preceding 1999.
As to the allocation of cases among Member States, while Germany, Italy and France continue to be in the lead group, there is a significant increase in cases in the Netherlands, Belgium, Spain and the United Kingdom.
The categorisation of cases suggests that private parties are still mainly reactive rather than proactive in raising State aid questions in national courts. The most frequent cases are those where parties invoke State aid arguments in response to the discriminatory imposition ofPage 43 burdens (such as taxes) (179 cases). The next category consists of cases brought by parties resisting recovery of aid (62 cases). There has been a steady increase in cases where competitors seek to enforce the State aid rules against the Member State or against the beneficiary. However, the number of these cases is still relatively limited in the light of the total number of cases and the State aid issues that arise in most of these jurisdictions.
Commission Cooperation Notice
We have found no evidence that the Cooperation Notice has ever been used by national courts to refer questions to the Commission. The Commission's services with whom we have discussed this are not aware of any such request either. Obviously, the Cooperation Notice may have been used by national courts in analysing what the position of private parties should be in litigation concerning State aid. We are not aware of any express reference to the Cooperation Notice on any key points such as locus standi or the legal basis for a claim by private party. In preparing a new notice, we suggest that the title and scope of the Cooperation Notice be broadened to include litigation in the Member States as a whole and in order not to be limited to cooperation between the Commission and Member States' courts. This may give the Cooperation Notice more prominence with courts and parties in the Member States.
Outline of analysis
Below we will discuss, first, those categories of cases which can be summarised under the heading of "Private Enforcement", i.e. cases where the initiative to review a State measure as to its compliance with Articles 87 EC and 88 EC was taken by private parties. Thereafter, we will analyse litigation brought to recover illegal aid following a negative Commission decision. Finally, we will briefly discuss cases involving institutional issues between the different governmental entities of a Member State.
a) Most frequent cases: imposition of discriminatory (tax) burdens (Category B)
More than a third of all cases (179 cases) relate to disputes regarding discriminatory impositions of taxes or other burdens. In those cases, the main concern has mostly been discrimination among beneficiaries and other market players. An example is the series of private cases brought in connection with the so-called Prodi Law in Italy which provided for beneficial treatment of large companies in insolvency proceedings. Another example is litigation about the environmental tax system in a number of Member States (such as Austria and Germany).
On their face, these cases concern situations where the action by competitors is often more reactive than proactive (typically, the State aid argument will be raised in response to a request to pay a tax). However, these cases do represent a significant contribution to thePage 44 enforcement of State aid rules by private litigation at Member State level. They provide a procedural vehicle to detect State measures that will often not be recognised as such at first sight. The fact that the number of these cases appears to be large is an encouraging sign that awareness of the relevance of State aid law in tax and other legislation on financial burdens and benefits is increasing among private parties. The authors believe that it is important to include these cases when assessing the overall level of private enforcement of EC State aid law in the Member States' courts.
b) Actions for annulment of aid decisions (recovery of aid) against Member States and injunctive relief against Member States (Category D)
In total, there have been 62 cases where a competitor sued a Member State for an injunction against the grant of the aid or a recovery of aid. This is a significant increase from 21 as compared to 1999.
When considering the total number of actions brought by private parties in State aid cases before national courts, it is important to be aware of the wide variety of procedural settings in which State aid arguments are raised. The appropriate court and procedure will depend on the nature of the aid, the entity that granted the aid and the defendant against whom the action is brought. Where an aid was granted under administrative law provisions of a Member State by an administrative agency which a claimant competitor wishes to sue, the action must typically be brought under administrative law rules in the courts competent to hear such actions. Where the State aid being challenged was granted in the context of a civil law transaction, an action must, in most cases, be brought under the civil law rules in the courts having jurisdiction to hear such cases in the respective Member State. Sometimes, both administrative law and civil law actions are available. Typically, actions against the recipient of the aid must be brought in the civil courts.
No uniform procedure at Member State level
The procedure and court chosen by a private party in the context of an action against the State aid determine questions such as locus standi, the availability of interim relief, the method of evidence collection and production, and the allocation of the burden of proof. The cases analysed by us show that there is great diversity in the treatment of these issues depending on the applicable procedure and the individual judicial traditions of the Member States. The lack of a uniform procedure at Member State level for private parties to challenge the grant of State aid to a competitor and the uncertainties attaching to the wide diversity of procedures that may be applicable could be one of the main reasons for the low number of private actions.
Denmark has specific national laws that create a right for private parties to challenge the grant of State aid as a matter of competition law before the national authorities. That right is limited to cases that have no effect on trade between Member States and, thus, fall outside the scope of Articles 87 EC and 88 EC. While it is difficult to assess, based on the DanishPage 45 experience, how such a system would work in an Article 87 EC scenario (i.e. in cases affecting trade between Member States), it can be said, at least, that there is a large number of cases that have been brought by private parties under the respective Danish provisions. In Spain, there is a procedure under the Spanish competition Act which enables the Tribunal for the Defence of Competition, of its own initiative or upon request of the Minister of Finance, to issue advisory reports addressed to the Government in connection with particular aids or aid schemes. This procedure is without prejudice to the application of Articles 87 to 89 EC Treaty, but it appears not to be used in practice.
The experience in public procurement cases was that, following the adoption of the remedies directives, all Member States created procedures pursuant to which a private party that feels treated unfairly in a tender procedure can complain and go to court, which suggests that the creation of a uniform procedure leads to an increase in private actions. There are obvious similarities between public procurement and State aid cases and the cases that we have reviewed illustrate that private parties will pursue a State aid action most vigorously in tender situations or situations similar to tenders, i.e. where they compete directly with the aid recipient. The creation of a uniform procedure may be limited in effect where the measure in question does not clearly constitute State aid, but may be beneficial in the case of a clear violation of Article 88 (3) EC. However, the authors believe that the adoption of a "remedies directive" for State aid along the lines of the public procurement directives would enhance private enforcement.
Locus standi
The 1999 Report identified locus standi as an issue which may present a hurdle for private litigation. Simply put, the question is to what extent a private party should be allowed to claim that there was a violation of Article 88 (3) EC by a State measure that is not directly addressed to it.
A Member State in which this appears to be an issue is Italy where the courts have differed in their treatment of the question of locus standi: in a judgment of 13 July 1999, the Court of Appeal of Cagliari23 stated that a claimant does not have standing in national proceedings concerning the implementation of a negative Commission decision if the decision is not directly addressed to it. The Court of First Instance of Genoa24 appears to have come out the opposite way on the same question when deciding an action for unfair competition brought by the competitor of a cargo ferry service that had received State aid in 1993.
An illustration of how locus standi is dealt with by the French courts can be found in the decision of the Administrative Court of Pau in the RyanAir case of 3 May 200525. In this case, the complaint against the aid granted to RyanAir by the airport of Pau was brought by an air carrier flying into the airport of Lourdes. The Administrative Court of Pau began its analysisPage 46 by remarking that a non-negligible part of passengers on the subsidised RyanAir flights to Pau were likely to go to Lourdes. Thus, the claimant was accorded standing in the administrative court proceedings.
Any remaining doubts as to the locus standi of private parties in national proceedings on State aid questions should have been removed by the preliminary rulings of the ECJ in the Streekgewest Brabant NFJ and Pape cases26 (C-174/02; C-175/02). These cases concerned national proceedings brought against levies imposed on the claimants. The purpose of these levies was to finance aid granted to another company. That company, however, was not a competitor of the claimants. The actions were based on a breach of Article 88 (3) EC. The key question was whether persons subject to a levy that finances aid granted to other parties can also rely on Article 88 (3) EC irrespective of whether or not they are affected as competitors. The ECJ answered in the affirmative.
It is clear from Streekgewest and Pape that Member States must make available a procedure to private parties affected by the grant of aid in violation of Article 88 (3) EC. In the future, the locus standi question will have to be limited to a finding of whether or not the claimant is indeed affected by the measure. This will probably require a showing of either that the claimant is a (direct) competitor (on both the relevant market(s)) of the aid recipient or that the claimant will suffer economic loss as a consequence of the aid being granted.
The Streekgewest and Pape decisions give important guidance to national courts. It is essential to make national courts aware of these decisions. We suggest to include an explanation of these decisions in the new version of the Cooperation Notice.
No uniform substantive rules
A question directly related to that of locus standi concerns the national legal basis on which a claimant wishes to rely. It is established case law of the European courts that the direct effect of Article 88 (3) EC must be enforced by relying on national law. The rules applicable are the same as those normally applicable under national law in similar situations. In applying domestic rules in the enforcement of Article 88 (3) EC, national courts must secure the effet utile of this provision of the EC Treaty: the provision requires that aid that has been granted in violation of Article 88 (3) EC be repaid.
Since the enforcement of Article 88 (3) EC in national courts is based both on the substantive and the procedural rules of the respective Member State, there is considerable diversity in the practice of Member States as regards private litigation to enforce Article 88 (3) EC. Where aid has been granted through an administrative procedure in violation of Article 88 (3) EC, most Member States and legal systems will find that the administrative decision is null and void or must be annulled. This can be the result of either the direct application ofPage 47 Article 88 (3) EC, such as it appears to be the case in France, or the application of general principles of national administrative law, such as, for instance, in the Netherlands where a breach of EC State aid law will be considered as a violation of the requirement of due care and leads to the nullity of the decision. While all Member States that distinguish between administrative and civil law systems eventually provide that State aid granted in administrative proceedings in violation of Article 88 (3) EC is null and void and must be repaid, it is a different question whether a private party can bring an action before an administrative court seeking a declaration that aid granted to a competitor is illegal and must be repaid.
Examples of administrative court proceedings in which private claimants were able to obtain a swift remedy where illegal aid had been granted27 to competitors are the decisions of the Administrative Court of Strasbourg of 24 July 2003, the Administrative Court of Appeal of Nancy of 18 December 200328 and the decision of the Administrative Court of Pau29 of 3 May 2005 in the RyanAir cases. In both cases, the administrative courts had to assess, independent of the Commission, whether the agreements between RyanAir and the respective regional authorities contained State aid elements, since there was no Commission decision on that point yet. In both cases, the administrative courts found that there was State aid and ordered the annulment of the underlying administrative decision.
Interim relief
There are no cases in which claimants successfully applied for interim relief to stop the grant of illegal State aid to a competitor. The Member States' legal systems all appear to require that, for a claimant to apply for interim relief, it must show: (i) a prima facie case, i.e. an obvious breach of the law, (ii) urgency; and (iii) harm that will be caused to it in the event that the measures being challenged will be put into effect. When challenging the grant of State aid to a competitor, a claimant, as a general rule, will be able to show only the first requirement: if the aid has not been notified, it is clear that it breaches Article 88 (3) EC. It might be more difficult to prove the second requirement of urgency. However, that condition may be met if the aid is granted by way of a measure that is irrevocable or can be revoked only on the basis of very narrow conditions in the respective Member State. The element that is most difficult to show in applying interim relief is that of imminent harm to the claimant in the event that the aid measure is implemented. In attempting to show harm, a claimant will encounter the same difficulties as when suing for damages: the claimant will have to show that the grant of the aid will cause economic loss.
Against the background of these uniform requirements of Member States' legal systems, the reference in paragraph 10 of the Cooperation Notice pursuant to which "[t]he judge may, as Page 48 appropriate and in accordance with applicable rules of national law [...] grant interim relief, for example by ordering the freezing or return of monies illegally paid" appears to be wishful thinking. To create a meaningful procedure whereby interim relief can be obtained by competitors, interim relief would have to be available based on a mere showing that Article 88 (3) EC has been violated and that the party applying for relief is directly affected by this violation.
c) Damages actions against Member States or beneficiaries (Categories E and G)
The total number of cases (15 cases) remains small but there is an increase as compared to 1999. We have found no cases in which competitors were actually awarded monetary damages. In one 2004 French case (see France, Fontanille)30, an administrative court awarded monetary damages to a beneficiary who had relied on the lawfulness of the aid granted to it (violation by the State of Article 88 (3) EC).
Obviously, there is a reluctance on the part of the courts of a particular Member State to award damages to a private party who has suffered harm as a result of the anticompetitive conduct of the authorities of that very same Member State. The 2003 Betws Anthracite Ltd v DSK Anthrazit Ibbenburen GmbH31 case illustrates how that reluctance could be overcome where claimants choose the right court for their actions in damages. In that case, the High Court of London had to decide an action brought by a UK claimant against a German defendant for loss suffered as a result of a misuse of aid (pursuant to a Commission decision) granted by the German authorities. The High Court dismissed the action because there was "no applicable Community law tort" which was, in its view, required. It should rather have analysed the extent to which the misuse of the aid constituted a tort under English law, because it harmed a UK competitor and, if English law was not applicable, the extent to which the claimant would be entitled to damages under German law. Since the claimant's loss had been suffered in the United Kingdom, the High Court did have jurisdiction pursuant to the Brussels Convention. The case is noteworthy because it is the only "cross-border" damages action which the authors have found with the claimants seeking relief from a court that was not located in the Member State that granted the aid.
The case illustrates the main obstacle to damages actions brought by private parties based on a violation of EC State aid law: the lack of a clear legal basis under domestic law. In SFEI32, the ECJ merely stated that a breach of EC State aid law should trigger the normal consequences of similar breaches under domestic law. The ECJ did not require Member States to create a specific damages remedy. Private parties are therefore left with what the Member States' legal systems offer them.
While all Member States' systems provide for some form of damages action against public authorities for breaches of the law, the standards applicable in each case appear to be very Page 49 different. Again, Member States may differ in the treatment of the question whether a private party can obtain damages for a breach of Article 88 (3) EC. The main problem, however, appears to be the requirement to prove causation between the breach of Article 88 (3) EC and the economic loss sustained by the claimant. While this is already a challenging exercise in cartel cases33, it is even more difficult to prove loss by a competitor in a State aid case: as a matter of fact, this requires a showing of how the market share of the claimant would have developed if no State aid had been granted to the competitor.
d) Action/injunction by competitor against aid beneficiary (Category F)
The questions of locus standi of a private party and of the legal basis for a claim that illegal State aid has been paid to a competitor also arise in cases brought before the civil courts based on national civil law. In civil law cases, claimants will often rely on provisions such as unfair competition to prevent aid from being granted to a competitor.
Unfair competition law as a legal basis
There are different views in Member States' courts as to whether unfair competition law can be a legal basis for a claim challenging State aid in civil proceedings before Member States' courts. In a case involving aid to a ferry service between Genoa and Sicily, the Court of First Instance of Genoa found in 1993 that a violation of EC State aid law could constitute a violation of unfair competition law by the aid recipient34. Two cases by the Austrian Supreme Court of 2002 and 200435 also suggest that unfair competition law may be a legal basis, although in these specific cases the State aid issue was not dealt with specifically. However, the Higher Regional Court of Munich, in a judgment of 15 May 200336, refused to apply unfair competition law in a case involving a claim by an operator of a crematorium who provided its services in competition with the City of Munich which also operated a crematorium. While the services provided by the claimant were subject to sales tax, the services provided by the City of Munich were not. The Higher Regional Court of Munich found that unfair competition law should not be applied because, in its view, Article 88 (3) EC was not designed to protect competitors. It should be noted that the case concerned a rather specific set of facts and it is doubtful whether German courts would follow the general approach of the Munich Court (which probably violates the requirement of preserving the effet utile of Article 88 (3) EC) in the future.
Nullity of transaction as a risk leading to private litigation
Whether or not a recipient of unlawful aid should be exposed to direct claims by its competitors is a question on which Member States' legal systems appear to differ. One relevant consideration is that it is the Member State itself (or one of its subdivisions) thatPage 50 commits the unlawful act of granting the aid. Some Member States' legal systems will therefore hold the beneficiary liable only if it has actively induced the authorities to grant the aid.
As a practical matter, the more important question in the context of litigation between private parties based on EC State aid law is whether a violation of Article 88 (3) EC can lead to the nullity of the entire civil law transaction involving the aid37. There have been very significant recent developments at Member State level in this respect: two recent decisions of 2003 and 200438 by the highest German court in civil law matters ("Bundesgerichtshof") have taken the position that the transaction involving the aid is null and void. This jurisprudence illustrates that accepting illegal aid within the framework of complex high-value transactions entails a significant risk of nullity for the aid beneficiary.
e) Relief against beneficiaries in public procurement cases (Category H)
The number of cases in which State aid issues were raised in the context of public procurement tenders is increasing. The standard argument in those cases is that a tenderer should be excluded, because it has been favoured by receiving State aid. The high number of new cases in that area suggests that tenderers are becoming increasingly more sophisticated in identifying State aid issues in connection with public procurement proceedings.
EC Directives
The increase in public procurement cases is due to the fact that, pursuant to the EC procurement directives, the grant of illegal State aid to a tenderer may be a ground for rejecting the tender. This has been clarified in Directive 2004/18/EC of 31 March 2004 on the Coordination of Procedures39 for the Award of Public Works Contracts, Public Supply Contracts and Public Service Contracts which in Article 55 (3) now specifically provides:
"Where a contracting authority establishes that a tender is abnormally low because the tenderer has obtained State aid, the tender can be rejected on that ground alone only after consultation with the tenderer where the latter is unable to prove, within a sufficient time limit fixed by the contracting authority, that the aid in question was granted legally".
The predecessor directives already contained similar provisions. Although reliance on State aid arguments in public procurement cases therefore has a specific statutory basis, it appears that in practice, in most cases, tenderers that relied on this clause have been unsuccessful. The reason is that a tenderer must show that the illegal aid actually had an impact on the tender by his competitor and made that tender "abnormally low". It wouldPage 51 appear that, in practice, it is almost impossible to make such a showing unless the aid is specifically related to the tender.
An efficient remedy would probably require that a tenderer that has received illegal State aid be excluded from the tender altogether, regardless of whether the State aid had a specific influence on the tender submitted. At least, one should consider to reverse the burden of proof as to the effects of the illegal aid on the tender: the tenderer should not be excluded only if it is able to prove that the illegal aid had no effect on its bid.
The number of this type of case has increased to 46 from 17 in 1999. Recovery actions will be dealt with in more detail in Part II of this study.
Since the State aid issues addressed in negative Commission decisions have become more complex in recent years (for example, regarding the application of the private investor principle to capital injections in public companies or the ordering of the recovery of aid from acquirers of businesses who have benefited from aid), the variety of issues encountered at the level of the Member States where recovery is sought in court actions has increased, too.
With respect to the recovery of aid following a negative Commission decision, Member States obviously have an inherent conflict of interest where they must recover aid that they themselves granted. In many cases, Member States will try to mitigate the consequences for the aid recipients. This may be one of the reasons for the considerable length of recovery proceeding, for example, in Belgium.
a) Authorities that must recover
A principle common to all countries reviewed is that recovery must be effected by the authority that granted the aid. This leads to the involvement of a variety of central, regional, and local bodies, as well as public entities in the recovery process. Certain Member States, such as France and Germany, have a central body that controls and oversees the recovery process: in France, the Ministère de l'Économie et des Finances ("Trésor") and, in Germany, the Federal Ministry of Finance. Other Member States, such as Belgium, Italy and Spain, have no such central body controlling the recovery process. A particular problem arises in Member States with a federal structure where the aid was granted by a region. Here, it is the central government that must respond to the Commission. Sometimes, the central government may lack the legal power to order recovery of aid granted by a region (this appears to be a problem in Spain).
b) Commission decision as domestic legal basis?
There are Member States where it is sometimes not clear on which domestic legal rules a recovery action must be based. This is particularly true of Member States which distinguish between administrative law and civil law courts. The applicable substantive law isPage 52 determined by reference to the measure underlying the grant of the aid. If the aid was granted by means of an act of public law, it must be recovered under administrative law. If the aid is part of a civil law transaction (granted by means of a loan, a capital injection or other civil law transaction), it must be recovered pursuant to civil law. The applicable law is thus predetermined by the nature of the act on the basis of which the aid was granted. The authorities have no discretion in determining whether administrative or civil law rules should apply. In France, Germany, Italy and Spain, most recovery cases examined were based on administrative law. In Belgium, the basic recovery decision is based on administrative law (adopted by administrative bodies). However, if the beneficiary does not challenge this decision before the Council of State, then the actual recovery process is conducted under civil law (i.e. the administrative bodies sue the beneficiary before the civil courts).
There are different views in the Member States as to whether a Commission decision as such can constitute a sufficient legal basis under domestic law for the government to recover aid from a private aid recipient. While French courts are already in the position, since
Boussac40, that aid can be reclaimed under French law based on a negative decision only, the view of the German courts has long been that recovery of aid requires a specific legal basis under German administrative or civil law. In a recent case, however, the German government changed its view and issued a decision to reclaim illegal aid based on a negative Commission decision only41. It remains to be seen how the national courts will react (the German lower court rejected this approach but its decision was annulled by the competent court of appeal; a further appeal is pending). In Belgium, the administrative act ordering recovery (which may simply be a letter to the beneficiary) can also be based directly on the Commission's negative decision. In Spain, a specific law (No. 38/2003) provides the basis for recovery of illegal subsidies (i.e. payments) under administrative acts, although the procedure for recovery must take place pursuant to general administrative legal rules. Spanish authorities have issued individual recovery orders based on general principles of administrative law. While civil law recovery based on the nullity of the underlying transaction violating EC State aid law is an option in certain cases, we have not found (within the scope of our review) any cases on this point.
c) Prompt recovery
Under Article 14 of Regulation No. 659/99, a Member State must enforce a negative decision ordering recovery "without delay". This means that the Member State cannot await the outcome of court proceedings either at Community or national level. To comply fully with this obligation, authorities must, wherever possible, seek immediate enforcement of recovery claims under national law. Article 14 provides that national procedures should "allow the immediate and effective execution of the Commission's decision". At the same time, it mustPage 53 be ensured that aid beneficiaries cannot unduly delay repayment of the aid through the misuse of national proceedings.
d) Legitimate expectations
Legitimate expectations as a means of preventing recovery have been an issue in Germany in particular. The German Administrative Law Act specifically provides that an act by which a sum of money is granted cannot be revoked, even where the aid is illegal, if the recipient of the money has relied on the validity of the act. This provision served as the basis for part of the argument raised by the beneficiary in the Alcan case42. The ECJ ruled that domestic law must be applied in such a manner as to preserve the effet utile of the Commission's recovery decision. Domestic follow-up litigation in the Alcan case in Germany resulted in a final decision by the Federal Constitutional Court in February 200043 in which it rejected the constitutional claim of the aid recipient and paved the way for recovery of the aid. Since 2000, there have been no further cases in which the principle of the protection of the legitimate expectations of the beneficiary has been relied on successfully. The application of this principle will always require the beneficiary of State aid to ascertain that the aid has been properly notified to and approved by the Commission. The situation in other Member States is similar.
e) Insolvency
A number of issues have been raised at Member State level as to the relationship between the recovery of State aid and national insolvency laws. Typically, the issues arising in insolvency proceedings are (i) preferential treatment of recovery claims; and (ii) participation in a restructuring plan. In Italy and Spain, payment claims by the government are usually treated as preferential claims in insolvency proceedings. In those countries, where the claim is based on administrative law, it would appear that preferential treatment is also available for State aid recovery claims. In Germany, the distinction between preferential and non-preferential claims has been abolished. The law distinguishes only between ordinary and subordinate claims. Some court decisions have clarified that State aid recovery claims are not subordinate even in situations where a claim by a private party would have been subordinate (capital injection or grant of a loan by a shareholder).
Restructuring plans in insolvency proceedings are a relatively new phenomenon in Europe. The question whether the State can waive part of a claim for repayment of aid in such a restructuring plan in order to secure the continued existence of the insolvent business remains to be answered. The study (in particular on Germany) suggests that there are a number of legal issues that need to be clarified between the Commission and the Member States.
Page 54
This is the category of cases where State aid issues arise between administrative bodies, normally the central government and the regions, but in some cases also between the central government and other governmental entities. The number of cases has, again, more than doubled since 1999. France, Italy and Spain are the only three countries in which this kind of dispute has arisen.
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[3] Commission notice on cooperation between national courts and the Commission in the State aid field, OJ (1995) C 312/8.
[4] See the Cooperation Notice cited above.
[5] See, for instance, for a case where a national tax authority invoked a violation of the notification obligation in respect of the national legislation of its Member State: Case C-172/03, Heiser, not yet reported.
[6] This study will refer to "the ECJ" for the Court of Justice of the European Communities and to "the CFI" for the Court of First Instance of the European Communities.
[7] See also Regulation No. 659/1999, laying down detailed rules for the application of Article [88] of the EC Treaty, OJ (1999) L 83/1.
[8] Article 14 of Regulation No. 659/1999.
[9] Case C-74/89, Commission v Belgium [1990] ECR I-492.
[10] Case C-5/89, Germany v Commission [1990] ECR I-3453.
[11] Joined Cases T-244/93 and T-486/93, Deggendorf GmbH v Commission [1995] ECR II-2265.
[12] Article 11 of Regulation No. 659/1999.
[13] Case C-39/94, Syndicat Français de l'Express International (SFEI) a.o. v La Poste a.o. [1996] ECR I-3547.
[14] Case C-354/90, Fédération Nationale du Commerce Extérieur des Produits Alimentaires and Syndicat National des Négociants et Transformateurs de Saumon v France [1991] ECR I-5505.
[15] Case C-297/01, Sicilcassa and others [2003] ECR I-7849.
[16] Joined Cases C-261/01 and C-262/01, Belgischer Staat v Eugène van Calster and Felix Cleeren and Openbaar Slachthuis NV [2003] ECR I-12249. For further elaboration on the term "integral part", see Case C-175/02, Pape, not yet reported and Case C-174/02, Streekgewest Westelijk Noord-Brabant, not yet reported.
[17] Case C-39/94 cited above.
[18] Case C-77/72 Carmine Capolongo v Azienda Agricole Maya [1973] ECR 611.
[19] Case C-142/87, Belgium v Commission [1990] ECR I-959; Case C-480/98, Spain v Commission [2000] ECR I-8717. See also Article 14 (3) of Regulation No. 659/1999.
[20] Case T-330/94, Salt Union Ltd v Commission [1996] ECR II-1475.
[21] Indeed, a national court cannot declare a Community act invalid: Case C-314/85, Foto Frost [1987] ECR 4199.
[22] Case C-188/92, TWD v Germany [1994] ECR I-833.
[23] See case 3.2.25 in Italy section.
[24] See case 3.2.36 in Italy section.
[25] See case 3.4.8 in France section.
[26] Case C-174/02, Streekgewest Westelijk Noord-Brabant v Staatssecretaris van Financiën [2005] ECR I-85; Case C-175/02, F. J. Pape v Minister van Landbouw, Natuurbeheer en Visserij [2005] ECR I-127.
[27] See case 3.4.6 in France section.
[28] See case 3.5.2 in France section.
[29] See case 3.4.8 in France section.
[30] See case 3.6.2 in France section.
[31] See case 2.4 in United Kingdom section.
[32] See Case C-39/94 cited above.
[33] As illustrated in the Ashurst Report, p. 70 et seq..
[34] See case 3.2.36 in Italy section. In this specific case, the court rejected the claim because there was no State aid.
[35] See case 3.1.4 in Austria section.
[36] See case 3.1.42 in Germany section.
[37] As opposed to the nullity of the grant of the aid only.
[38] See cases 3.2.8 and 3.2.6 in Germany section respectively.
[39] OJ (2004) L 134/144.
[40] Administrative Court of Appeal of Paris, Boussac, 16 February 1994, Gaz. Pal. 1995, p. 813.
[41] See section 2.2 in Germany section.
[42] Case C-94/89, Commission v Germany [1989] ECR 175.
[43] See case 3.2.14 in Germany section.
* This case fals into two categories.
