Non-Commercial Public Infrastructure: Another Judgment, More Questions

Public infrastructure which is not exploited for commercial purposes does not result in an advantage for its users. Undertakings which are subject to different regulatory requirements can be treated differently. Cross-border trade can be affected even when there is no direct provision of cross-border services.

 

Introduction

The Leipzig-Halle judgment of 2011 was a shock to public funding of infrastructure projects.[1] After the dust settled, it was increasingly recognised that what the General Court said made sense. If there is infrastructure [i.e. a runway] which is inseparably linked to an economic activity [i.e. an airport terminal], then the infrastructure becomes economic and the public funding of it becomes State aid, if all criteria of Article 107(1) are satisfied.

The Court of Justice in its own judgment on the appeal brought by Flughafen Leipzig-Halle added that it was also irrelevant that the market did not normally provide runways or that private operators did not fund runways.[2]

Now consider the following situation. Instead of runways, the state constructs bus lanes. Instead of placing bus lanes at the disposal of airlines, it makes them available exclusively for the use of buses and taxis. Transportation of passengers by bus or taxi is an economic activity. You would have thought from the principles of Leipzig-Halle that the public funding of the construction and maintenance of bus lanes would constitute State aid. Yet, you would be wrong.

On 14 January 2015, the Court of Justice in a reply to a request for a preliminary ruling in case C‑518/13, Eventech v The Parking Adjudicator, concluded that public funding of bus lanes used by British taxis (black cabs) was not State aid.[3] At first glance, the ruling seems reasonable. But I will suggest that it raises more questions than it settles.

Background

The majority of boroughs in London and the authority responsible for transportation, Transport for London, permit London taxis (or black cabs) to use bus lanes without any change during the hours when the bus lanes are reserved exclusively for buses. Private hire vehicles (or minicabs) are prohibited from using bus lanes during those hours, except for the purpose of picking up and setting down passengers who have pre-booked them.

Both black cabs and minicabs carry passengers on payment. Both require licences issued by Transport for London. The licences, however, impose different requirements and confer different rights.

Only black cabs are allowed to “ply for hire” which means soliciting or waiting for passengers without any pre-booking. About 8% of the journeys made by black cabs are subject to pre-booking, 52% are due to a passenger hailing the taxi in the street and the majority of other journeys result from a passenger being picked up at a taxi rank.

By contrast, minicabs are not permitted to “ply for hire” and can pick up only people who pre-book their services. Therefore, in relation to pre-booking customers, minicabs are in competition with black cabs.

Black cabs are also subject to the rule of “compellability”. The taxi must take the passenger where he wishes to go, within a prescribed distance or up to a prescribed journey time. No such obligation is imposed on minicabs.

Black cabs must have a certain shape and colour and must comply with conditions of fitness. Minicabs can be of any colour and any design. Black Cabs must be adapted for wheelchair access. There are no accessibility requirements for minicabs.

Black cabs must have a meter and their fares are strictly regulated. Minicabs are free to set their own fares and minicabs do not have a meter.

Black cab drivers must undertake an examination which may require two to four years of preparation. Minicab drivers must undertake a test which generally takes a day.

The relevant authorities in London impose penalties for unauthorised use of bus lanes. Because only black cabs are allowed to use bus lanes when restrictions apply, they are not subject to penalties. Eventech, an operator of a fleet of minicabs in London, suffered several such penalties. Eventech disputed the legality of the penalties on the grounds that the use of bus lanes, a state asset, and the exception from penalties constituted non-notified, and therefore illegal, State aid to operators of black cabs.

The judgment

The referring British court put a number of questions to the Court of Justice concerning possible transfer of state resources, conferment of advantage, selectivity and affectation of trade. The Court of Justice dealt first with the question of whether the exception from penalties involved an implicit transfer of state resources because of forgone income.

The Court first recalled that “36 […] it must be stated at the outset that it is inherent in any legal system that conduct previously defined as being lawful and permitted does not expose individuals to penalties.” Indeed it was undisputed that black cabs could use bus lanes without being subject to fines. But this was because they were authorised, as a matter of policy rather than tolerance or non-enforcement, to do so. Nor, did authorities decide to deviate from established policy by not collecting fines. It was only unauthorised use that was punishable by fine. Therefore, “41 […] their use of bus lanes does not involve additional burdens on the public authorities which might entail a commitment of State resources.”


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Eventech also argued that black cabs enjoyed preferential and free access to state-funded transport infrastructure. The Court responded that “43 […] roads and bus lanes are not operated commercially by the public authorities.” “44 […] It follows that the public authorities are not, under the bus lanes policy, forgoing revenue which they would have received in the absence of that policy.”

Then the Court elaborated further that “45 […] it must be noted that the measure at issue in the main proceedings concerns not the financing as such of the construction of bus lanes, but preferential access to them. It must be added that it is unequivocally stated in the file before the Court that the bus lanes were not constructed for the benefit of any specific undertaking or any particular category of undertakings, such as Black Cabs, or the suppliers of bus services, and were not allocated to them after their construction, but that they were constructed as part of the London road network and, primarily, with a view to facilitating public transportation by bus, irrespective of whether the organisation of that public service fell to either the public sector or the private sector.”

Here the Court makes a distinction between construction and access to bus lanes and attributes significance to the policy reasons of why bus lanes are constructed in the first place. One wonders whether such considerations are relevant for the purpose of determining the applicability of Article 107(1). We have been told in numerous cases that the objectives of public authorities and the form of a public measure and of the advantage conferred by that measure are irrelevant. Yet, here the Court of Justice refers to the aim of the bus lane policy.

Then Eventech contended that the state ought to charge for the infrastructure it placed at the disposal of buses and taxis. By not charging a fee, it conferred to them an advantage. The response of the Court was that “48 […] it must be held that where the State, in order to pursue the realisation of an objective laid down by that State’s legislation, grants a right of privileged access to public infrastructure which is not operated commercially by the public authorities to users of that infrastructure, the State does not necessarily confer an economic advantage for the purposes of Article 107(1) TFEU.”

This is a surprising statement. Of course, the state can determine as a matter of policy what it provides for free. But it is very puzzling how the Court could reach the conclusion that use of a free asset does not confer an advantage to the users. Perhaps the advantage does not distort competition, perhaps it does not affect trade or perhaps it is not selective. But it is still an advantage.

The Court went on that “49[…] the identification of the objective pursued is, in principle, a matter within the prerogative of the competent national public authorities alone and they must have a degree of discretion both as regards whether it is necessary, in order to achieve the regulatory objective pursued, to forgo possible revenue and also as regards how the appropriate criteria for the granting of the right, which must be determined in advance in a transparent and non-discriminatory manner, are to be identified.”

Again, we see the policy aim intruding into the concept of State aid which is considered to be objective; i.e. it disregards policy aims and intentions.

The Court also took into account the alleged link between the policy aim of efficient transportation and the exclusive use of bus lanes by black cabs. “52 […] Further, having regard to the characteristics of Black Cabs, […], the competent national authorities could reasonably take the view that the access of those taxis to bus lanes is liable to enhance the efficiency of the London road transport system and that, consequently, the criterion for the granting of the right at issue, namely the provision of taxi services in London, is liable to achieve the realisation of the objective concerned.”

But if black cabs contribute to de-congestion on the roads by using bus lanes, why are minicabs thought not to make a similar contribution too? Not only does the Court fail to explain the link between black cab “characteristics” and transport efficiency, it arbitrarily ignores at this point that minicabs can have the same effect on transport efficiency, if they are allowed to use bus lanes. Yet, a few paragraphs later, the Court itself makes the following statement: “59 […] It cannot seriously be doubted that all the journeys made by Black Cabs and minicabs are liable to affect the safety and efficiency of the transport system on all the road traffic routes in London.” The Court of Justice has stated in several rulings that the scope of application of a policy must match the extent of its objectives, otherwise a narrower application makes it selective [see, for example, C‑487/06 P, British Aggregates v Commission]. Here, the UK authorities claim that use of bus lanes by black cabs contributes to transport efficiency, but they do not extent the same treatment to minicabs which have the same impact on transport in London.

The Court then turned its attention to whether the criterion adopted by the competent authorities for the granting of the right of access was applied to the economic operators concerned in a non-discriminatory manner. Any discriminatory treatment of minicabs would result in a selective advantage for black cabs.

The Court observed that “60 […] by virtue of their legal status, only Black Cabs can ply for hire; they are subject to the rule of ‘compellability’; they must be recognisable and capable of conveying persons in wheelchairs, and their drivers must set the fares for their services by means of a taxi meter and have a particularly thorough knowledge of the city of London.” “61 It follows that Black Cabs and minicabs are in factual and legal situations which are sufficiently distinct to permit the view that they are not comparable and that the bus lanes policy therefore does not confer a selective economic advantage on Black Cabs.”

Here we have another surprising conclusion. On the basis of physical and licensing differences, the Court declares black cabs to be different from minicabs. Two observations are in order. First, it is trivially easy to identify physical and even licensing differences between different groups of competitors. For example, incumbent telecom operators are larger, must maintain a nation-wide network and must provide universal services. Their competitors are mostly smaller, offering fewer services in fewer places and are not subject to public service obligations. Does anyone doubt, however, that any preferential treatment of incumbent operators that results in a transfer of state resources, including non-Altmark compensation of extra costs of public service obligations, is not State aid? Therefore, the second and more important observation is that not all physical differences are relevant. In case C-171/78, Commission v Denmark, the Court of Justice established the principle that similarity has to be assessed “on the basis not of the criterion of the strictly identical nature of products but on that of their similar and comparable use” [paragraph 5]. Back cabs and minicabs offer interchangeable services. The fact that the licensing terms of black cabs may result in better services is an irrelevant issue. It is up to consumers to make the choice between the various categories of taxis. The market allows different operators to provide different quality of services. This does not mean that they are not competing against each other.

In fact, when one considers that minicabs are allowed to use bus lanes when they pick up or set down passengers who have pre-booked the taxi, one may even consider that they are in a comparable situation, they are treated equally with black cabs and that the UK authorities do not discriminate against them they pick up or set down pre-booked passengers.

Lastly, the Court of Justice examined whether the measure in question affected cross-border trade. Since there was no doubt that London taxis did not carry passengers across an international frontier, the Court recalled that “69 […] the condition that the aid must be capable of affecting trade between Member States does not depend on the local or regional character of the transport services supplied or on the scale of the field of activity concerned”.

However, “70 […] the view must be taken, in particular, that it is conceivable that the effect of the bus lanes policy is to render less attractive the provision of minicab services in London, with the result that the opportunities for undertakings established in other Member States to penetrate that market are thereby reduced, which it is for the referring court to determine.”

“71 It follows that […] it is conceivable that the practice of permitting Black Cabs to use bus lanes on public roads during the hours when the traffic restrictions relating to those lanes are operational, while prohibiting minicabs from using those lanes, except in order to pick up or set down passengers who have pre-booked such vehicles, may be such as to affect trade between Member States within the meaning of Article 107(1) TFEU, which it is for the referring court to determine.”

Conclusions

Although this is not a clear judgment, it is still important. It has expounded the principles that i) public infrastructure which is not constructed for commercial purposes does not confer an advantage to its users and that ii) differential treatment of undertakings which are subject to different regulatory/licensing requirements is not discriminatory. It has also confirmed that trade can be affected even when there are no direct cross-border transactions. This is also a judgment that will be tested again and again by public authorities determined to grant State aid.

——————————————————————

[1] The text of the judgment in T-455/08, Flughafen Leipzig-Halle v Commission, can be accessed here:

http://curia.europa.eu/juris/document/document.jsf?text=&docid=81849&pageIndex=0&doclang=en&mode=lst&dir=&occ=first&part=1&cid=416701

[2] The ruling of the General Court was confirmed by the Court of Justice in C-288/11 P, Flughafen Leipzig-Halle v Commission, in December 2012. The text of this judgment can be accessed here:

http://curia.europa.eu/juris/document/document.jsf?text=&docid=131967&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=415335

[3] The text of the judgment can be accessed here:

http://curia.europa.eu/juris/document/document.jsf?text=&docid=161376&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=415792

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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.

Comments

  1. by MELVYN WAUMSLEY

    I ageree that this is not a clear judgement in some aspects. I am not sure I agree with Professor Nicolaides’ first conclusion that the principle that infrassadstructure that is not constructed for commercial purposes does not confer an advantage to its users, rather I thought the CJ ruling had concluded that there was no transfer of State resources by the use of regulation without accompanying charges (the case being made that the charges were fines for unregulated use and there would be no forgone income if everyone obeyed the regulations). I thought the references to the intention of the regulation was not made to justify a claim of no economic advantage, but rather in connection with examining whether the regulation was compliant with non-State aid aspects of the Treaty (such as discrimination). The preliminary ruling seemed to make quite convincing arguments that economic advantage was actually provided to selected commercial undertakings which affected competition and Trade, so the only barrier to the conclusion of State aid was the issue of State resources. What I found surprising was that the CJ drew a distinction beteween the access to the infrastructure and the construction of the infrastructure, and therefore only considered the potential of state respurces being forgone as a result of the regulation of access. It does not seem justified to seperate the access to the infrasrtructure from its construction, as surely access is an integral part to the whole exercise of constructiong infrastructure. After all, infrastrucrture cannot be used without some access arrangements. In the case of the London Bus lanes, there seems likely to have been some investment costs in the project, even if the road itself already existed. Apart from the possible need to modify the road itself at junctions etc, there would innevitably be other costs such as lane markings, signage and public information campaign costs. It could trherefore be argued that the economic advantage was provided through the use of state resources used for the adaptation of the infrastructure and promotion of the access arrangements.

  2. by Phedon Nicolaides

    We agree that the judgment is confusing at several points. With respect to conferment of advantage, please see paragraphs 48 & 63. With respect to intentions, it is a fundamental principle that intentions do not matter. The way the Court refers to them contributes to the rather convoluted reasoning in this judgment. But I fully agree with your point concerning construction and access to infrastructure.

  3. London has a strict policy on transportation services, including that of cabs. There are two kinds of licensed cab drivers in London: The Cabs and The Minicabs. Cabs are basically taxis they are also sometimes referred to as London black cabs although they now come in many different colours, most of them are still black. The minicabs on the other hand belong to the Licensed Private Hire which includes limousines, airport transfer services and chauffeurs. Heathrow Transfer Reservation offers Heathrow minicabs and cab transfers.

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