Existing v New Aid and Role of National Courts

Modification of an existing aid measure turns it into a new aid measure if it affects its compatibility with the internal market. National courts must also notify to the Commission any new aid measure they detect.

 

Introduction

On 26 October 2016, the Court of Justice ruled in case C‑590/14 P, DEI v Commission.[1] DEI, the incumbent electricity producer in Greece appealed against the judgment of the General Court in case T‑542/11, Alouminion v Commission. The General Court annulled Commission decision 2012/339 concerning State aid that Greece had granted to Alouminion, a producer of aluminium. The judgment of the General Court was reviewed here on 18 November 2014 (View http://stateaidhub.eu/blogs/stateaiduncovered/post/429).

In 1960, DEI and Alouminion entered into a contract whereby DEI agreed to sell to Alouminion electricity at a preferential tariff. The agreement was valid until 2006. In February 2004, in accordance with the provisions of the contract, DEI informed Alouminion of its intention to terminate the 1960 contract. Alouminion challenged the termination before a Greek court. The court ordered that the contract be extended until the dispute was resolved.

The Commission considered that the extension of the contract resulted in the granting of unlawful and incompatible aid and requested Greece to recover it. Alouminion appealed against the Commission decision and the General Court ruled that the order of the Greek court extending the contract temporarily did not amount to the granting of new aid.

 

Existing v new aid

The Court of Justice first noted that “45 […] in the context of the State aid control system, […], the procedure differs according to whether the aid is existing or new. Whereas existing aid may, in accordance with Article 108(1) TFEU, be lawfully implemented so long as the Commission has made no finding of incompatibility, Article 108(3) TFEU provides that plans to grant or alter existing aid must be notified, in due time, to the Commission and may not be implemented until the procedure has led to a final decision”.

Article 1(c) of the then procedural regulation, Regulation 659/1999, defined new aid as “all aid, that is to say, aid schemes and individual aid, which is not existing aid, including alterations to existing aid”. Article 4(1) of the then implementing regulation, Regulation 794/2004, defined an alteration to existing aid as “any change, other than modifications of a purely formal or administrative nature which cannot affect the evaluation of the compatibility of the aid measure with the [internal] market”.

Then the Court reiterated that “49 […] the evaluation, by the Commission, of the compatibility of aid with the internal market is based on the assessment of the economic data and of the circumstances on the market at issue at the date on which the Commission makes its decision and takes into account, in particular, the period over which the grant of that aid is provided for. Consequently, the period of validity of existing aid is a factor likely to influence the evaluation, by the Commission, of the compatibility of that aid with the internal market.” It follows that “50 […] extension of the duration of existing aid must be considered to be an alteration of existing aid and therefore […] constitutes new aid.”

Having clarified these principles, the Court of Justice referred to paragraph 54 of the judgment of the General Court according to which “it is […] only where the alteration affects the actual substance of the original scheme that the latter is transformed into a new aid scheme”. The General Court was of the view that it was not the purpose of the order of the Greek court to amend the legal framework of the preferential tariff and that the legal basis of the aid was the 1960 contract which was merely interpreted by the Greek court. The Court of Justice found this view to be erroneous.

“59 Therefore, […] by reinstating the application of the preferential tariff during the period at issue, the [order of the Greek court] […] had the effect of altering the time limits of application of that tariff, as agreed in the 1960 contract, and therefore the time limits of the aid scheme, as authorised by the Commission […] and must, consequently, be regarded as constituting alteration of existing aid.”

The Court of Justice also observed that the extension of the aid measure was not provided in the 1960 agreement and it was not automatic, but resulted from the court order [paragraphs 77-78 of the judgment]. Therefore, “81 […] by extending the application of the preferential tariff during the period at issue, the [order of the Greek court] had the effect of altering the time limits of the 1960 contract, and accordingly the time limits of the preferential tariff, [consequently] the legal basis of the aid during the period at issue was the [order of the Greek court]”.

It is obvious now why the General Court got it wrong. It considered that alteration of existing aid resulted from a change in the substantive provisions of the aid measure in question. But the implementing regulation uses a different criterion. Alteration is caused by anything that has impact on the compatibility of aid. If extension of the duration of the aid measure affects its compatibility then it alters the aid and converts it from existing to new aid that has to be notified to the Commission.

This ruling raises the following question. Should we infer that a change to an aid measure that is purely cosmetic may become a change that turns it into new aid, if in the meantime the compatibility criteria have changed or should the compatibility criteria that are taken into account be those that were in force at the time that the Commission authorised the measure? And what happens when the aid pre-existed the entry of the granting Member State into the EU?

In addition, the implication of the ruling of the Court of Justice is that State aid may be granted not only by a public authority that provides a gratuitous favour but also by a national court that extends the period of application of an aid measure. The aid does not have to be paid by a court in order for the court to grant State aid.

Role of national courts

The Court of Justice also considered, in paragraphs 95-108 of the judgment, the role of national courts in the EU’s system of State aid control. The following are the principles that were reiterated, clarified or laid down by the Court.

  1. The implementation of the State aid control system falls within the competence of both the Commission and national courts.
  2. They fulfil complementary but separate roles.
  3. However, the assessment of the compatibility of State aid with the internal market falls within the exclusive competence of the Commission. Therefore, national courts have no role in this matter.
  4. National courts ensure the safeguarding, until a final decision of the Commission, of the rights of individuals when Member States infringe their obligation to notify aid to the Commission.
  5. National courts have to interpret and apply the concept of State aid in order to determine whether a measure falls within Article 107(1) TFEU and therefore ought to have been subject to prior notification, as requested by Article 108(3) TFEU.
  6. If a measure constitutes State aid and has not been notified to the Commission, national courts must declare that measure unlawful.
  7. National courts must then decide on the validity of the State aid measure and on the recovery of the aid.
  8. National courts may adopt interim measures to prevent distortion of competition until the issue is resolved.
  9. The application of the EU State aid rules is based on a duty of sincere cooperation between the national courts, on the one hand, and the Commission and the European Union courts, on the other.
  10. In the context of that cooperation, national courts must take all the measures necessary to ensure fulfilment of the obligations under EU law and must refrain from those that may jeopardise the attainment of the objectives of the Treaty.
  11. In particular, national courts must refrain from taking decisions that conflict with a decision of the Commission.
  12. National courts must verify whether the arrangements for the implementation of an aid measure have been amended. If the measure has been extended so that the aid is considered to be new, then the courts must notify the measure to the Commission.

In conclusion, this judgment which is on the surface about the definition of existing aid and procedures before national courts is in fact very important for two reasons. First, any adjustment of an aid measure that affects its compatibility with the internal market can “convert” the aid from existing into new.

Second, the obligation of public authorities to notify new aid to the Commission does not only apply to those authorities that grant aid directly but also to courts that may end up granting aid indirectly by ruling on the provisions and period of implementation of an aid measure.

————————————————————-

[1] The full text of the judgment ca be accessed at: http://curia.europa.eu/juris/document/document.jsf?text=&docid=184859&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=1597513.

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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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