Enforcement of State Aid Rules by National Courts

Enforcement of State Aid Rules by National Courts - m 2

Private enforcement has increased, but damages for illegal granting of State aid have been successfully claimed in just one case.

Introduction
 
According to the annual competition report that was published in July, Member States use the GBER to implement 96% of their new aid measures.[1] This impressive outcome should be seen in conjunction with the recent rulings of the Court of Justice in the Eesti Pagar and BMW cases that any measure not fully in conformity with the GBER is automatically illegal. Given that the GBER is used by many public authorities at different levels of government, whose competence and understanding of the GBER are likely to vary, the probability of administrative error is not negligible. Indeed, unofficial data from DG Competition’s ex post monitoring indicate that “irregularities” do crop up in a significant proportion of aid measures.The explanatory paper that accompanied the 2018 State aid Scoreboard of DG Competition reported [p. 9] that there were about 3330 active aid measures in the EU.[2] Given the large number of aid measures that are not subject to prior approval by the Commission, the role of national courts as guardians of the integrity of the system of State aid control has de facto become more important. Competitors can petition national courts to stop illegal aid.DG Competition has recently published a “Study on the enforcement of State aid rules and decisions by national courts.”[3] The Study was prepared by a consortium of academic and consultancy organisations.National courts are involved in the enforcement of State aid rules in largely two instances: recovery of incompatible State aid and preventing aid from being granted illegally, i.e. without prior notification to and authorisation by the Commission. In practice, illegal aid is granted either intentionally outside the scope of the GBER or unintentionally on terms that, mistakenly, fall short of full compliance with all of the requirements of the GBER. Recent case law has made it abundantly clear that national courts are empowered to examine whether national authorities implement correctly block exemption regulations.The Study divides the role of national courts into two parts: public enforcement and private enforcement.Public enforcement here means implementation of Commission recovery decisions. In this connection, the Study identifies the following functions of national courts:

  • Quantification of the amount of State aid to be recovered.
  • Identification of the aid beneficiary.
  • Suspension of the recovery procedure [When, in exceptional cases, a national court has doubt as to the legality of a Commission decision ordering recovery, it may stall the proceedings and refer questions for preliminary ruling to the Court of Justice of the EU.]
  • Indirect challenges to Commission decisions [by competitors of aid beneficiaries in rare cases when they can prove that they are directly and individually concerned].
  • Aid recovery in the context of insolvency proceedings.
  • Assessing the impossibility to recover incompatible aid.
  • Assessing the recovery time limit of 10 years.

 

By contrast, private enforcement covers mostly actions by competitors of aid recipients. The Study lists the following functions for national courts:

  • Establishing the existence of State aid [i.e. whether a public measure contains State aid].
  • Checking conformity with the requirements of a block exemption regulation [otherwise the aid is unlawful].
  • Checking conformity with the requirements of de minimis regulations [otherwise the aid is unlawful].
  • Verifying whether aid is existing [otherwise it is unlawful].

Following the Eesti Pagar judgment, I would add a third category: public enforcement on the initiative of a Member State, i.e. without a prior Commission decision ordering recovery. The Court of Justice ruled, in the Eesti Pagar case, that public authorities must correct their mistakes. This may require recovery of aid granted without being in full compliance with the GBER. This instance of recovery is subject to the national limitation period [that need not be the same as the 10-year period that applies to Commission’s actions] and to a different rate of interest [not the rate used by the Commission, which is equal to the base rate plus 1%]. [To be fair, the Study does cite the Eesti Pagar judgment but includes this third category of cases in the overall category of public enforcement, despite the fact that the origin of the recovery order is national and some of the criteria also differ from those used at EU level].


Do you know we also publish a journal on State aid?

EStAL banner

The European State Aid Law Quarterly is available online and in print, and our subscribers benefit from a reduced price for our events.


 

Main findings

Between 2007 and 2018, there were 766 rulings by national courts dealing with State aid in the 28 Member States of the EU. In that period, there were 172 cases of public enforcement or about 14 cases per year. Italy, France and Spain accounted for close to 60% of all cases. The most frequently challenged types of aid were tax exemptions [33%] and grants [28%].

The main difficulties encountered by national courts in enforcing recovery decisions were found to be the following:

  • Calculation of the recovery interest.
  • Complications when the aid recipient became insolvent.
  • Identification of the beneficiary after insolvency.
  • Alleged lack of clarity in the Commission’s recovery decision [e.g. amount of aid to be recovered, starting date of recovery period, etc].

In the same period, there were 594 private enforcement cases, or about 50 cases per year. That is, on average, private enforcement outnumbered public enforcement by 3 to 1. France, the Netherlands and Germany were the countries with the highest number of cases, accounting for 43% of the total.

The Study found a significant increase in private enforcement between 2007 and 2018, although the number of State aid cases brought before national courts varied significantly across Member States. Unlike public enforcement, cases involving grants and tax breaks accounted only for 24% and 18%, respectively. The most challenged type of aid was “other” [42%] which, unfortunately, does not really reveal anything.

Most private action was initiated by competitors of aid recipients [36%]. However, the Study found that aid recipients also accounted for about 14% of all cases. Their main motive was to seek compensation for damages caused by mistakes of public authorities. Overall, public authorities were the defendants in 60% of all cases. That is, either competitors were trying to stop public measures allegedly containing State aid or both competitors and aid beneficiaries were demanding compensation for the mistakes of granting authorities. In this connection, the Study makes an interesting comment. “In view of the recent CJEU ruling in Eesti Pagar, it is doubtful that damages claims started by the aid beneficiary due to the breach of the principle of legitimate expectations will be successful in the future.”

With respect to the remedies decided by national courts in instances of private enforcement, the Study found that claims were rejected in 66% of all cases. “Other” remedies were decided in 15% of cases, recovery of unlawful aid was ordered in 7% of cases, suspension of unlawful aid was ordered in 2% of cases, recovery of interest was decided in 1% of cases, while damages were awarded in 1% of cases.

The successful cases involving award of compensation for damages were very few [just 6 and only in France] and concerned compensation sought by competitors for breach of the standstill obligation. The Study found that competitors encountered a significant difficulty in proving that the aid actually harmed them and in quantifying the extent of the harm.

The Study identified the following problems encountered by national courts in private enforcement cases:

  • Determination whether the aid recipient was an undertaking.
  • Interpretation of the GBER or de minimis
  • Application of the market economy investor principle [MEIP].
  • Application of the SGEI concept and the Altmark

 

Best practices

The Study sought to identify “best practices” which were defined as “those practices that ensure an effective resolution of the issue at hand and which get closest achieving the aims of public enforcement of State aid rules”. In legal proceedings, best practices were those that resulted in speedy resolution and full restoration of the status quo ante. But the Study went beyond the confines of legal proceedings and also examined institutional aspects of compliance with and enforcement of State aid rules.

An interesting finding is that only a few Member States have specific legislation in place dealing with recovery decisions. They are Belgium, Croatia, Finland, Italy, the Netherlands, Slovakia, and Spain, with Estonia being in the process of adopting such legislation.

The Study also noted that in some Member States [e.g. Belgium, UK], the granting authorities included recovery clauses in the aid agreements in order to facilitate any subsequent action for recovery of that aid.

Overall, the Study classified best practices in three categories:

  • “Practices related to recovery: specific legislation, recovery instructions in State aid instruments and national penalties for delays of recovery.”
  • “Practices concerning national screening mechanisms: ex-ante mechanisms (i.e. non-binding compatibility assessment with State aid rules) and ex-post mechanisms (i.e. State aid assessment as part of the decision-making process of the administrative authority).”
  • “Institutional practices: rules clarifying the jurisdiction of the courts in State aid disputes and the principle of investigation.”

 

Conclusions

At least three conclusions may be drawn from the Study. First, private enforcement has become more prevalent. This strengthens the system of State aid control.

Second, however, action before national courts does not appear to be effective. National courts are supposed to be the “friends” of competitors who are harmed by the failure of Member States to comply with the obligation imposed on them by Article 108(3) TFEU. Yet, in practice two thirds of cases were unsuccessful. Of course, we do not know how serious those cases were or whether they were based on frivolous claims which were lodged for the mere purpose of harassing aid recipients or intimidating granting authorities [I have been told that sometimes companies threaten or initiate legal action when they are not happy with the objectives or terms of State aid measures, despite the fact that these measures are fully compliant with the GBER.] National courts order recovery or suspension of aid and award damages in only 10% of all cases.

Third, the Treaty assigns to national courts an important role in the system of State aid control and the Commission has put much faith in their ability to prevent the granting of illegal aid. But the reality is that national courts become involved only after an administrative mistake or intentional non-compliance has occurred. It is probably better to prevent mistakes and non-compliance. The Study has revealed that only a minority of Member States have adopted what may be thought as good practices. Perhaps the Commission should focus more in strengthening the national institutions and procedures that assess the need for State aid and dispense it. This is a win-win approach.

————————————————————–

[1] The annual competition report can be accessed at:

https://ec.europa.eu/competition/publications/annual_report/2018/part1_en.pdf.

[2] The paper can be accessed at:

https://ec.europa.eu/competition/state_aid/scoreboard/state_aid_scoreboard_2018.pdf.

[3] The full text of the Study can be accessed at:

https://ec.europa.eu/competition/publications/reports/kd0219428enn.pdf.

Tags

About

Phedon Nicolaides

Dr. Nicolaides was educated in the United States, the Netherlands and the United Kingdom. He has a PhD in Economics and a PhD in Law. He is professor at the University of Maastricht and the University of Nicosia. He has published extensively on European integration, competition policy and State aid. He is also on the editorial boards of several journals. Dr. Nicolaides has organised seminars and workshops in many different Member States, and has acted as consultant to several public authorities.

Comments

  1. by DR. José Antonio Rodríguez Miguez

    In this new Nicolaides’ post analyses the essential , but very unknown, role pf national Courts both, in Public and Private Enforcement, front ne conclusions of a Study on the enforcement rules and decisions of State aid by national courts, prepared by a consortium of academic and consultancy organisations. In a few minutes, we all can discover on database, the importance and potentially on this particularly necessary role. Congratulations and, once more again, thanks very much for your new contribution to the knowledge of the application of EU State Aid Rules Professor Nicolaides.

  2. Many thanks for signalling this and the quick recap. One thing that I missed in the report is the (increasing?) tendency of public authorities to rely on private enforcement or at least be involved in private enforcement to be freed from the state aid. In the Netherlands, this has happened several times now (with Residex being the case that made it to the ECJ). It seems like the authorities are also using state aid supervision to escape from aid where they have second thoughts.

  3. by Phedon Nicolaides

    Thank you for your comments! As more competitors or aid recipients resort to national courts, I expect that granting authorities will “discover” that state aid rules do not just constrain them, but can also save them from their mistakes.

Leave a Reply

Related Posts

09. Jan 2024
State Aid Uncovered by Phedon Nicolaides
National Court May Order Recovery of Illegal Aid that Is Considered Existing Aid - State Aid Uncovered photos

National Court May Order Recovery of Illegal Aid that Is Considered Existing Aid

Introduction The European Commission is required by Regulation 2015/1589 to order recover of State aid that it finds to be incompatible with the internal market. However, it may not order recovery of illegal aid – i.e. non-notified aid – until it assesses its compatibility with the internal market. By contrast, national courts have no competence to assess the compatibility of […]
24. Jan 2023
State Aid Uncovered by Phedon Nicolaides
State Resources Include all the Resources that Can be Directed by the State for its own Purposes - State Aid Uncovered SM posts 40

State Resources Include all the Resources that Can be Directed by the State for its own Purposes

Introduction On 12 January 2023, the Court of Justice delivered its judgment in joined cases C-702/20, DOBELES HES and C-17/21, Sabiedrisko pakalpojumu regulēšanas komisija.[1] A Latvian court requested the Court of Justice to provide a preliminary ruling on the interpretation of Article 107(1) TFEU, Article 108(3) TFEU, Regulation 1407/2013 on de minimis aid and of the procedural Regulation 2015/1589. The […]
26. Apr 2022
State Aid Uncovered by Phedon Nicolaides
Member States Must Recover of their Own Initiative Illegally Granted Aid - State Aid Uncovered SM posts 3

Member States Must Recover of their Own Initiative Illegally Granted Aid

Aid granted illegal must be recovered by the granting authority without any need for a prior Commission decision ordering recovery. The amount of recovered aid may be limited to that which is in excess of what is allowed by the GBER. Introduction It is a well-established principle in the case law that a “prudent market operator” is responsible to check […]
06. Oct 2020
State Aid Uncovered by Phedon Nicolaides
Member States Beware: Compliance with the GBER and the SME Criteria has just Become more Difficult - doors 1767564 1920

Member States Beware: Compliance with the GBER and the SME Criteria has just Become more Difficult

I am grateful to Péter Staviczky for comments on an earlier draft of this article. I am solely responsible for its contents. The European Commission retains its sole right to assess the compatibility of aid granted on the basis of the GBER. Criteria defined in national law need not be taken into account by the Commission. The SME status has […]
14. Jul 2020
State Aid Uncovered by Phedon Nicolaides
report

2019 Competition Report

The Annual Competition Report is a useful document, but it should provide more information on the results of the ex post evaluations and ex post monitoring. Update on Temporary Framework: Number of approved and published COVID-19 measures, as of 10 July 2020: 202* Legal basis: Article 107(2)(b): 20; Article 107(3)(b): 171; Article 107(3)(c): 17 Six Member States have implemented 11 […]
11. Jun 2020
Guest State Aid Blog by Erika Szyszczak
When State Aid Gets Political - brexit 3870554 1920

When State Aid Gets Political

We are happy to receive a guest comment on the EU – UK post-Brexit trade negotiations from Professor Emerita, Erika Szyszczak, who is a Fellow of UKTPO at the University of Sussex. This is a longer version of an earlier Blog published on the UKTPO website. Control over State aid is a stumbling block for the future of an EU […]
02. Jun 2020
State Aid Uncovered by Phedon Nicolaides
Euromünzen

i) Investor-State Arbitration ii) Recovery of Incompatible State Aid iii) State Aid Scoreboard 2019

Member States abolish bilateral investment treaties between themselves. When the Commission orders recovery of incompatible State aid, interest has to be added to the recoverable amount for the whole period of illegality regardless of any national limitation rules. In 2018, Member States granted EUR 121 billion to industry and services, EUR 6.3 billion to agriculture and EUR 50 billion to […]
27. Apr 2020
State Aid Uncovered by Phedon Nicolaides
corona virus poster

Identification of Undertakings in Difficulty

A company is in difficulty if, in practice, its accumulated net losses exceed 50% of its subscribed capital, regardless of whether the subscribed capital is formally written down. The classification of a company as being in difficulty is independent of the sector in which it operates and of whether a private investor would be willing to invest in it. Temporary […]
17. Mar 2020
State Aid Uncovered by Phedon Nicolaides
Has an Economic Myth Become a Legal Fact? The Case of Turnover Taxes - Turnover

Has an Economic Myth Become a Legal Fact? The Case of Turnover Taxes

Progressive turnover taxes are not contrary to the freedom of establishment or the right of equal treatment. Introduction Recent cases involving “turnover” taxes have sparked a debate in the literature and on the conference circuit not only because they raise novel issues but also because of their implications for other taxes which are being mooted by European governments. As Advocate-General […]
21. Feb 2020
State Aid Uncovered by Phedon Nicolaides
From Waste to Energy - StateAidHub blogpost7 waste to energy

From Waste to Energy

State aid to incentivise the use of waste to produce energy must be individually notified. Introduction Waste management is an increasingly important aspect of policies aiming to prevent environmental degradation and slow down climate change. As the market for recycling expands and waste management becomes more profitable, there is also a higher risk of harm to competition by State aid. […]