Errors in State aid Procedures Need not Result in Annulment of a Commission Decision

Interested parties have a right to know how the compatibility of aid with the internal market is assessed.

Temporary Framework developments

As of 13 April 2020, the European Commission had authorised 51 measures adopted by 23 Member States.

According to the statement of the Eurozone finance ministers of 9 April 2020, Member States had provided liquidity in the form of guarantees and deferred tax payments amounting to 16% of their GDP.

https://www.consilium.europa.eu/en/press/press-releases/2020/04/09/report-on-the-comprehensive-economic-policy-response-to-the-covid-19-pandemic/

Introduction

On 11 March 2020, the Court of Justice ruled in case C‑56/18 P, European Commission v Gmina Miasto Gdynia and Port Lotniczy Gdynia Kosakowo.[1] The Commission had appealed against the judgment of the General Court in case T-263/15, Gmina Miasto Gdynia and Port Lotniczy Gdynia Kosakowo v European Commission, which partly annulled Commission decision 2015/1586. The judgment of the General Court was reviewed here on 30 November 2017 [http://stateaidhub.eu/blogs/stateaiduncovered/post/9086].

Background

In decision 2015/1586, the Commission had found that State aid granted to Gdynia-Kosakowo airport was incompatible with the internal market. What made the Commission decision noteworthy was that it was one of only a handful of instances in the past decade or so where the Commission concluded that aid was not in the common interest. It is rare for Member States to design a State aid measure that is not in the common interest. The concept of common interest is rather broad and on many occasions has been interpreted fairly creatively. In this case, the aid was found not to be in the interest of Poland because Gdynia airport was only 20 km away from Gdansk airport which had not reached its capacity limit. In other words, the aid was a waste of public money because it financed unnecessary duplication of infrastructure.

The General Court annulled the Commission decision on the grounds that the Commission had switched the legal basis of assessment between the opening and closing of the formal investigation procedure. When the Commission opened the procedure it thought that the aid was not compliant with the regional aid guidelines. However, it closed that procedure with the finding of non-compliance with the aviation guidelines. This change in the basis of assessment was considered by the General Court to violate the right of the applicants to submit relevant comments and to deprive them of the possibility to defend and properly explain the project in question.

The Commission argued that the General Court misapplied the right conferred on interested parties by Article 108(2) TFEU to submit comments.

What are the rights of interested parties and of the aid recipient?

“(70) Undertakings which may be beneficiaries of State aid are regarded as being interested parties and that the Commission has the duty, at the examination phase referred to in Article 108(2) TFEU, to invite those parties to submit their comments”.

“(71) Although those interested parties cannot rely on the rights of defence, they have, by contrast, the right to be involved in the administrative procedure followed by the Commission, to an extent appropriate to the circumstances of the case”.

“(72) The Court has ruled, in proceedings concerning the application of Article 108(2) TFEU, that publication of a notice in the Official Journal of the European Union is an appropriate means of informing all the parties concerned that a procedure has been initiated. That communication is intended to obtain from persons concerned all information required for the guidance of the Commission with regard to its future action. Such a procedure also guarantees to the other Member States and the sectors concerned an opportunity to make their views known”.

“(73) The procedure for reviewing State aid is, however, in view of its general scheme, a procedure initiated in respect of the Member State responsible, in the light of its obligations under EU law, for granting the aid. Thus, in order to observe the rights of the defence, where the Member State concerned was not afforded an opportunity to comment on certain information, the Commission may not use it in its decision with regard to that Member State”.

“(74) In the procedure for reviewing State aid, interested parties other than the Member State concerned have only the role mentioned in paragraph 72 above and, in that regard, they cannot themselves seek to engage in an adversarial debate with the Commission in the same way as is offered to the abovementioned Member State”.

“(75) No special role is reserved to the recipient of aid, among all the interested parties, by any provision of the procedure for reviewing State aid. In that regard, it must be made clear that the procedure for reviewing State aid is not a procedure initiated against the recipient or recipients of aid entailing rights on which it or they could rely which are as extensive as the rights of the defence as such”.

In other words, the Court of Justice says that while Member States can contest a Commission decision that relies on information over which they did not comment, undertakings [aid recipients or competitors] do not have the same right. However, the Court of Justice went on to explain that undertakings still have the right to know the benchmark against which the Commission assesses the compatibility of the aid.

“(77) Interested parties in the present case were not invited to submit comments effectively on the applicability and possible effect of the 2014 [Aviation] Guidelines, before the decision at issue was adopted”.

 “(79) The Commission cannot, without infringing the procedural rights of the interested parties, base its decision on new principles introduced by a new legal regime, without inviting those interested parties to submit their comments in that regard”.

Even though the Commission committed an error, it does not follow that that error was sufficiently grave as to require the annulment of its decision. This is because the outcome of applying either the regional guidelines or the aviation guidelines could have been the same. For example, if the aid is granted after a project has started, it is incompatible regardless of which guidelines are applied. So the next stage in the Court’s analysis was to evaluate the gravity of the Commission’s error.

How grave was the error?

“(80) In principle, a procedural irregularity will entail the annulment of a decision in whole or in part only if it is shown that in the absence of such irregularity the decision being challenged might have been substantively different”.

“(81) Even though the legal regimes at issue have changed, the question arises as to whether, in the light of the provisions of those regimes which are relevant to the case, that change was capable of altering the meaning of the decision in question”.

“(82) The General Court therefore erred in law, …, when it held that the interested parties’ right to submit comments in circumstances such as those at issue in the present case is an essential procedural requirement within the meaning of Article 263 TFEU the infringement of which leads to the annulment of the decision at issue, without it being necessary to establish that the infringement of that right could have affected the meaning of that decision.”

“(83) It follows that the General Court also erred in law, …, when it rejected the Commission’s argument by which it sought to demonstrate that the decision at issue would have been the same if the interested parties in the present case had been given the opportunity to submit comments on the 2014 [Aviation] Guidelines, since the operating aid was in any event incompatible with the internal market on account of the investment aid’s being incompatible with that market.” [Poland had granted both operating and investment aid.]

“(95) However, as follows from paragraph 82 above, the errors found … can lead to the judgment under appeal being set aside, …, only if the provisions of the 2014 [Aviation] Guidelines on which the Commission relied in that decision were not actually capable of changing the meaning of that decision.”

“(134) As the Commission rightly submits, the General Court essentially limited itself, first, to setting out, …, the extent to which the legal regime applied in the decision at issue differed from that applied in the opening decision and in Decision 2014/883 and, secondly, …, to pointing out that the Commission did indeed apply the 2014 [Aviation] Guidelines in the decision at issue and therefore applied new provisions compared to those on which the interested parties had had the opportunity to express their views.”

“(135) However, as the Commission argues, … the finding that the operating aid was incompatible with the internal market was also based on the fact that the investment aid itself was incompatible with the internal market. In particular, … ‘granting operating aid in order to ensure the operation of an investment project that benefits [from] incompatible investment aid is inherently incompatible with the internal market’. The Commission also stated … that, ‘without the incompatible investment aid Gdynia airport would not exist, as it is entirely financed by that aid, and operating aid cannot be granted for non-existent airport infrastructure’.”

“(136) The Commission added that ‘that conclusion under the 2005 Aviation Guidelines is equally valid under the 2014 Aviation Guidelines and sufficient to find that the operating aid granted to the airport operator is incompatible with the internal market’.”

“(137) It thus follows … from the wording ‘inherently’ in that first recital and the word ‘sufficient’ in that second recital, that the incompatibility of the investment aid with the internal market was in itself the basis for finding that the operating aid was incompatible with the internal market.”

“(140) Furthermore, … the Commission relied on two legal bases in order to find that the operating aid was incompatible with the internal market, namely, first, the incompatibility of the investment aid with the internal market and, secondly, the fact that the operating aid merely leads to a duplication of infrastructure, thus failing to meet a clearly defined legitimate objective of general interest as required by the first condition of compatibility in the 2014 Guidelines.”

“(142) It is inherent in the logic of the Treaty’s provisions relating to State aid that Member States cannot fund projects that would exist only as a result of aid incompatible with the internal market. It necessarily follows that, as the Commission submits, in essence, the conclusion which it reached in the decision at issue cannot be called into question by any application of the 2014 Guidelines to the operating aid, since the assessment of the compatibility of that aid with the internal market cannot disregard the project for which the aid is intended.”

“(153) In the light of the foregoing, it must be noted that, even if the interested parties in the present case had been given the opportunity to submit comments on the 2014 Guidelines before the decision at issue was adopted and had succeeded in showing that the operating aid met the relevant criteria laid down in those guidelines, the Commission would, in any event, …, having [sic] been fully entitled to conclude that that aid is incompatible with the internal market. By rejecting the Commission’s arguments that the decision at issue would have been identical if the interested parties in the present case had been invited to express their views on the relevance of the 2014 Guidelines, the General Court therefore disregarded the case-law set out in paragraph 81 above and misinterpreted the decision at issue.”

More broadly, this outcome follows the well-established principle that when the Commission exercises its discretion in assessing the compatibility of aid, an interested party cannot successfully challenge the Commission’s findings by simply showing that a different outcome is possible. It is necessary to prove that the Commission could not reach its conclusion on the basis of the available information. In other words, one has to demonstrate either a procedural error or a logical error in the Commission’s analysis.

The Court of Justice referred the case back to the General Court to deal with the issues it did not examine in its judgment.

———————————————–

[1] The full text of the judgment can be accessed at:

http://curia.europa.eu/juris/document/document.jsf?text=&docid=224338&pageIndex=0&doclang=en&mode=lst&dir=&occ=first&part=1&cid=2100031

[Photo by Ken Yam on Unsplash]

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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 presently holds positions at the College of Europe and the University of Maastricht. 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.

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