An Unusual Case of a “Self Notification” of State Aid by an Aid Beneficiary

Aid beneficiaries may not “notify” State aid to the Commission. Only Member States may notify aid.

Beneficiaries of non-notified aid may ask national courts to penalise the granting authorities.

Introduction

What should an undertaking do when it finds out that a public measure from which it has been benefitting contains State aid that has not been notified to the European Commission? Non-notified aid is automatically illegal. National courts must order repayment of illegally granted aid and national authorities must recover such aid of their own motion, without any need for a prior decision by the Commission.

Solar Electric, a French solar power company, and several other related companies found themselves precisely in such a situation. They received State aid that, had it been notified to the Commission, could have been declared to be compatible with the internal market. But, the problem was that it had not been notified. What they did was very unusual. They informed the Commission themselves. Because the Treaty on the Functioning of the EU and the procedural Regulation 2015/1589 do not provide for the possibility of notification by undertakings, Solar Electric and the other companies submitted a complaint form. There seems to be no other case of attempted notification of aid to the Commission by beneficiary undertakings or of notification via the complaint procedure.

Background

About 20 years ago France adopted a law to encourage the generation of electricity from renewable energy sources [RES]. That law introduced a purchase obligation for electricity distributors to buy RES electricity. RES electricity was more expensive than electricity produced from fossil fuel. For this reason, the additional costs of the distributors were to be compensated by a levy on electricity consumers.

Sometime after the French law was adopted, a dispute arose between Solar Electric and an electricity distributor concerning the pricing of RES electricity. A French court ruled that French regulations on the pricing of RES electricity constituted illegal State aid. Subsequently, Solar Electric and the other related companies sent a request to the Commission asking it to declare the State aid contained in those pricing regulations compatible with the internal market even though the aid had not been notified to the Commission. The Commission rejected the request. Solar Electric and the other companies claimed infringement of two provisions of the procedural Regulation 2015/1589.

On 10 November 2021, the General Court, in its judgment in case T‑678/20, Solar Electric and others v European Commission, rejected the claims.[1]

Infringement of Article 24(2) of Regulation 2015/1589?

Article 24 of Regulation 2015/1589 lays down the rights of interested parties. In particular, Article 24(2) defines the right of submission of complaints. The applicants claimed that Article 24(2) of Regulation 2015/1589 conferred on the beneficiary of unlawfully granted aid an individual right to submit a complaint to the Commission in order to obtain from it a decision declaring aid which had not been notified by the Member State concerned to be compatible with the internal market.

The General Court, first, outlined the content of Article 24. “(23) ‘Any interested party may submit a complaint to inform the Commission of any alleged unlawful aid or any alleged misuse of aid’. At the same time, the definition of ‘interested party’ in Article 1(h) of Regulation 2015/1589 refers to ‘any Member State and any person, undertaking or association of undertakings whose interests might be affected by the granting of aid, in particular the beneficiary of the aid, competing undertakings and trade associations’.”

“(24) Although it could be concluded from the wording of the provisions cited above that the beneficiaries of unlawfully granted aid may submit a complaint to the Commission, such a conclusion must nevertheless be rejected on grounds relating to the structure of State aid control and the scheme of the complaints mechanism.”

“(25) As regards, first of all, the structure of State aid control, it must be recalled that the notification requirement is one of the fundamental features of the system of State aid control put in place by the FEU Treaty, which establishes a prior control of plans to grant new aid established by Article 108(3) TFEU and aims at ensuring that only aid compatible with the internal market is implemented, and only after doubts as to its compatibility have been resolved by a final decision of the Commission […] That system of prior control precludes Member States which pay aid in breach of Article 108(3) TFEU from being favoured to the detriment of those which, in accordance with that provision, notify the aid at the planning stage and refrain from implementing it pending the final decision adopted by the Commission […] In that regard, it must also be recalled that the assessment of the compatibility of aid measures with the internal market, under Article 107(3) TFEU, falls within the exclusive competence of the Commission, subject to review by the Courts of the European Union”.

“(26) It is apparent from the actual structure of Article 108(3) TFEU, which establishes a bilateral relationship between the Commission and the Member States, that only the Member States are under the obligation to notify. That obligation can thus not be regarded as satisfied by notification by the undertaking receiving the aid. As has already been held by the Court of Justice, the machinery for reviewing and examining State aid established by Article 108 TFEU does not impose any specific obligation on the recipient of aid. First, the notification requirement and the prior prohibition on implementing planned aid are directed only to the Member State concerned, as is also apparent from Article 10 of Regulation 2015/1589, which provides that the Member State concerned may withdraw the notification before the Commission has taken a decision on the compatibility of the aid with the internal market. Second, the Member State is also the sole addressee of the decision by which the Commission finds that aid is incompatible and requests the Member State to abolish the aid within the period determined by the Commission”.

“(27) To accept that the recipient of unlawfully granted aid may submit a complaint to the Commission in order for it to establish that the aid is compatible with the internal market would have no effect other than to allow that recipient to take the place of the Member State concerned, which alone is competent to notify an aid measure to the Commission.”

“(28) Moreover, such an option for the beneficiary of unlawfully granted aid to submit a complaint to the Commission with a view to having the aid found compatible with the internal market would call into question the fundamental and imperative nature of the obligation to notify aid measures and the prohibition on their implementation under Article 108(3) TFEU, as recalled by the case-law […], as well as the penalty in principle associated with the failure of the Member State to fulfil, inter alia, that obligation to give prior notification, namely the repayment of that aid”.

Indeed, it appears that this is the outcome that the applicants were attempting to prevent. Since a French court had already found the aid to have been granted illegally, the inevitable consequence was recovery [unless exceptional circumstances would dictate otherwise].

The General Court stressed that no provision in the Treaty or Regulation 2015/1589 “(29) offers the recipient of unlawfully granted aid the opportunity to remedy, for its own benefit, failures by the Member State concerned to fulfil an obligation, by seeking a Commission decision […] under which the national court is not bound to order the recovery of aid implemented contrary to the last sentence of Article 108(3) TFEU, where the Commission has adopted a final decision declaring that aid to be compatible with the internal market, which the applicants themselves admit to seeking.”

“(30) Furthermore, it should be borne in mind, again from the perspective of the structure of the system of State aid control, that the national courts must offer to individuals the certain prospect that all the necessary inferences will be drawn from a breach of the obligations arising from Article 108(3) TFEU, in accordance with their national law, as regards the validity of measures giving effect to the aid, the recovery of financial support granted in disregard of that provision and possible interim measures […] If those courts reach the conclusion that the measure concerned should in fact have been previously notified to the Commission, they must declare it to be unlawful”.

Then the General Court stated something that appears strange. “(31) It follows that the recipients of unlawful aid may bring proceedings before their national courts in order to have a penalty imposed on the State providing that aid on account of an express or implied refusal to comply with its obligation to notify.”

But what would an aid recipient, like Solar Electric, gain by asking for the imposition of a penalty on the authority that granted it the aid? Imposition of a penalty is not the same as seeking damages. And, more importantly, would such an action before a national court be successful? After all, it is a well-established principle in the case law that the recipients of aid must ensure that it is granted to them legally, either on the basis of a block exemption regulation or an authorising Commission decision. How would Solar Electric argue that the granting authority ought to be penalised when itself was negligent in accepting illegal aid?

Then the General Court reiterated that “(32) as the Commission correctly points out, there is no individual right to the grant of State aid under EU law. Accordingly, the recipient cannot substitute itself for the competences of the Member State and, on its own initiative, effect notification on behalf of the Member State with the aim of obtaining by such notification a decision authorising the implementation of non-notified aid”.

The purpose of the complaints procedure

The General Court went on to explain that “(33) as regards the scheme of the complaints mechanism and the right to lodge a complaint with the Commission, it should be noted that, according to the first sentence of Article 24(2) of Regulation 2015/1589, the purpose of that mechanism is to inform the Commission of any alleged unlawful aid, which, in accordance with the first sentence of Article 15(1) of that regulation, triggers the initiation of the preliminary examination stage provided for in Article 108(3) TFEU”.

“(35) The fact that the complaint mechanism was designed to identify aid that is incompatible with the internal market is also borne out by point 8 of the complaint form […] which requires that the complainant indicate ‘the reasons why [in its view] the alleged aid is not compatible with the internal market’.”

“(36) In addition, it is apparent from point 3 of that form that the beneficiaries of aid are not among the parties who may lodge a complaint. Also, […] the complaint mechanism is intended to protect, inter alia, the rights of those whose interests may be affected by the grant of aid to certain beneficiaries.”

“(37) Therefore, although beneficiaries are regarded as ‘interested parties’ in Article 1(h) of Regulation 2015/1589, the scheme of the complaint mechanism precludes that mechanism being used by parties which, as is the case, inter alia, of the beneficiaries of the aid complained of, have an interest in the Commission’s finding that the aid is compatible.”

“(38) It follows that the scope of Article 24(2) of Regulation 2015/1589 is limited to complaints made against unlawful aid which complainants consider to be incompatible with the internal market. By contrast, the scope of Article 24(2) of that regulation does not cover complaints by which complainants maintain that aid is compatible with the internal market and should, for that reason, be authorised by the Commission. Consequently, the recipients of unlawful aid, […], cannot rely on the first sentence of Article 24(2) of Regulation 2015/1589 in order to lodge a complaint concerning unlawful aid which they directly or indirectly receive, with the aim of having the Commission adopt a decision declaring that aid to be compatible.”

Infringement of Article 12(1) of Regulation 2015/1589?

The applicants claimed that the Commission acted contrary to its obligation to initiate the preliminary examination stage. Such an obligation is triggered under Article 12(1) of Regulation 2015/1589.

The General Court rejected that claim. “(43) According to the second subparagraph of Article 12(1) of Regulation 2015/1589, the Commission is to examine any complaint ‘submitted by an interested party in accordance with Article 24(2) [of that regulation]’. […] Since the complaint submitted by the applicants on 20 June 2020 does not allege infringement of Article 107(1) TFEU and therefore does not fall within the scope of Article 24(2) of that regulation, the Commission was not under an obligation to initiate the preliminary examination stage in accordance with Article 12(1) of that regulation.”

Obligation to apply Articles 107 & 108 TFEU?

The applicants argued that although the Commission was informed of the existence of non-notified State aid, the Commission remained inactive, which rendered the provisions of the FEU Treaty devoid of purpose.

The General Court, first, recalled that “(49) EU law does not impose an absolute obligation upon the Commission to carry out an assessment of the compatibility of aid which has not been notified as soon as it is informed of that aid.”

“(50) Regulation 2015/1589 provides for only two situations in which the Commission is in fact required to examine the compatibility of an aid measure with the internal market. First, such an obligation exists in the case of notification by the Member State providing the aid. Thus, the first subparagraph of Article 4(1) of that regulation provides that ‘the Commission shall examine the notification as soon as it is received’. Second, the Commission is under an obligation to examine, under the second subparagraph of Article 12(1) of that regulation, in the case of a complaint ‘submitted by any interested party in accordance with Article 24(2) [of that regulation]’.”

“(51) In the present case, [the aid measure in question] was not notified to the Commission by the French Republic. In addition, […] the complaint submitted by the applicants on 20 June 2020 does not fall within the scope of Article 24(2) of Regulation 2015/1589. In those circumstances, the Commission was not required to examine the abovementioned aid measures. Accordingly, the fact that there is no decision on its part in respect of those aid measures cannot constitute a denial of justice liable to create a legal vacuum.”

“(52) In that regard, it should be noted that the prohibition on implementation of planned aid laid down in the last sentence of Article 108(3) TFEU has direct effect. The immediate enforceability of the prohibition on implementation referred to in that provision extends to all aid which has been implemented without being notified […] Furthermore, it is for the national authorities to recover on their own initiative all aid that was unlawfully granted”.

The General Court concluded that “(53) in the light of that clear legal framework as regards the scheme of new State aid granted without prior notification and the fact that there is no individual right under EU law for existing and potential beneficiaries to be granted aid by a Member State where there is no notification by that Member State, the absence of a Commission decision on the compatibility of such unlawful aid cannot undermine the principle of legal certainty either.”

Concluding thoughts

The appeal by Solar Electric and the other companies has probably backfired. They have unwittingly succeeded to get the General Court to rule that they have no right to the aid they have already received. This surely undermines their defence before a national court that orders recovery of the aid.

More generally, this case demonstrates the risks facing companies that receive State aid without ensuring that that aid is legally granted. Their only hope lies with the willingness of the Member State concerned to notify the aid measure ex post. In this situation, if the Commission finds it to be compatible with the internal market, it will only say, as had done in many past cases, that it “regrets” that the measure was not notified before its implementation. But even in this eventuality, the aid recipients are not be protected from a national court order for the recovery of the interest on the amount of aid during the period of illegality; i.e. from the moment it is granted until the moment the Commission declares it to be compatible with the internal market.


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

https://curia.europa.eu/juris/document/document.jsf?text=&docid=249025&pageIndex=0&doclang=en&mode=req&dir=&occ=first&part=1&cid=4212111


 

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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.

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