Compensation for Damage and De Minimis Aid

Compensation for Damage and De Minimis Aid - Social Media posts 4

Compensation for damage caused by protected animals is State aid.

Member States may categorise compensatory payments as de minimis aid and refuse to make payments in excess of the de minimis threshold.

Introduction

Advantage in the meaning of Article 107(1) TFEU is any benefit granted by the state that is not available under normal market conditions. Normal market conditions are those that prevail before state intervention, not those that prevail when markets function smoothly or in conditions of perfect competition.

This understanding of what is “normal” means that when the state offsets losses or compensates for damage it still confers an advantage even though the intervention merely aims to restore the recipient undertaking to its condition before the loss or the damage.

When undertakings suffer losses or incur extra costs as a result of restrictions on the use of their assets imposed by environmental protection or nature conservation rules, Member States may provide compensation. But undertakings do not have an automatic right to compensation and Member States must comply with State aid rules when they offer compensation. This is because the costs of compliance with prevailing laws and regulations are part of the “normal” costs of carrying out economic activities.

27 January 2022, in case C238/20, Sātiņi-S SIA, the Court of Justice examined a case concerning compensation and concluded that it conferred an advantage in the meaning of Article 107(1). What makes this case doubly interesting is that the aid granting authority categorised the aid as de minimis. The Court held that compensatory payments may be granted as de minimis aid and, consequently, must comply with the requirements of the relevant de minimis regulation.

The case arose from a request for preliminary ruling. A Latvian court asked the Court of Justice to interpret the concept of de minimis aid as laid down in Commission Regulation 717/2014 on de minimis aid in the fishery and aquaculture sector.


The full text of the judgment can be accessed at:

CURIA – Documents (europa.eu)


Sātiņi-S, a Latvian company active in aquaculture, applied for compensation for damage that it had suffered from wild birds on a Natura 2000 site. The competent Latvian authority, which had categorised the compensation measure as de minimis aid, rejected the application on the grounds that Satini-S has already received the maximum allowable amount of de minimis aid in fisheries and aquaculture [i.e. EUR 30,000]. Satini-S argued that the compensation for damage should not have been categorised as State aid or de minimis aid. It also claimed violation of its property rights under Article 17 of the Charter of Fundamental Rights.

Article 17 of the Charter provides that “everyone has the right to own, use, dispose of and bequeath his or her lawfully acquired possessions. No one may be deprived of his or her possessions, except in the public interest and in the cases and under the conditions provided for by law, subject to fair compensation being paid in good time for their loss. The use of property may be regulated by law in so far as is necessary for the general interest.”

Article 17 of the Charter on Fundamental Rights

The Court of Justice, first, explained the conditions under which a person or undertaking may claim compensation for loss of property.

“(30) It should be noted at the outset that it is apparent from the wording of Article 17 of the Charter that that article expressly confers a right to compensation only in the event of deprivation of the right to property, such as expropriation, which is clearly not the situation in the present case.”

Then the Court made an important distinction between the deprivation of the right to property and the limitation of the use of property.

“(31) In the present case, the regulatory obligations restricting the freedom of owners of property coming within the Natura 2000 network as to the choice and implementation of protective measures for aquaculture in respect of protected wild birds do not constitute a deprivation of the right to property of that immovable property, but a restriction on its use, which may be regulated by law to the extent necessary in the public interest, in accordance with the provisions in the third sentence of Article 17(1) of the Charter.”

“(32) As regards the restrictions that may thus be placed on the use of the right to property, it should be borne in mind, moreover, that, the right to property guaranteed by Article 17 of the Charter is not absolute and that its exercise may be subject to restrictions justified by objectives of general interest pursued by the European Union”.

“(33) It is therefore apparent from Article 52(1) of the Charter that restrictions may be imposed on the use of the right to property, provided that the restrictions genuinely meet the objectives of general interest pursued and do not constitute, in relation to the aim pursued, a disproportionate and intolerable interference, impairing the very substance of the right guaranteed”.

“(34) First, it follows from settled case-law of the Court that protection of the environment is one of those objectives of general interest […] Protection of the environment is therefore capable of justifying a restriction on the use of the right to property”.

Then the Court explained that Member States may provide compensation, under certain conditions.

“(36) Although, admittedly, the Member States may consider, where appropriate, provided that they do so in compliance with EU law, that full or partial compensation is appropriate for owners of plots affected by conservation measures taken under the ‘Birds’ Directive and the ‘Habitats’ Directive, the existence of an obligation under EU law to grant such compensation cannot however be inferred from that finding”.

Compensation as State aid?

Next, the Court of Justice turned its attention to the question whether compensation granted for the losses suffered by an economic operator as a result of the protective measures applicable in a Natura 2000 site would constitute State aid.

First, the Court recalled that “(39) Article 107(1) TFEU does not distinguish between measures of State intervention by reference to their causes or their aims but defines them in relation to their effects” and whether they satisfy all of the criteria of Article 107(1).

“(41) Measures which, whatever their form, are likely directly or indirectly to benefit undertakings or are to be regarded as an economic advantage which the recipient undertaking would not have obtained under normal market conditions are regarded as State aid”.

“(42) Furthermore, the agreed benefits may include not only positive benefits such as subsidies, loans or direct investment in the capital of undertakings, but also interventions which, in various forms, mitigate the charges which are normally included in the budget of an undertaking and which therefore, without being subsidies in the strict sense of the word, are of the same character and have the same effect […]”.

Then in the same paragraph, the Court of Justice explained an important issue. Normal costs are not only the costs generated by the operations of an undertaking but all costs of compliance with the prevailing laws and regulations.

“(42) […] In that regard, the concept of ‘charges which are normally borne by the budget of an undertaking’ include, in particular, the additional costs which undertakings must bear by virtue of obligations imposed by law, regulation or agreement which apply to an economic activity”.

“(43) The existence of an agreed advantage by means of a State measure is not called into question by the compensatory nature of such a measure, on the ground that it seeks to remedy the losses incurred by an economic operator following the application of an obligation deriving from EU legislation or, as is the case in the main proceedings, to compensate such an operator for the damage caused to its undertaking by the occurrence of natural events linked with the normal conditions of the exercise of the economic activity.”

“(44) The costs of complying with regulatory obligations for the protection of the environment, in particular that of wild fauna, and responsibility for the damage, which the latter may cause to an undertaking in the aquaculture sector, such as that at issue in the main proceedings, are part of the normal operating costs of such an undertaking. Therefore, the grant of compensation for damage caused to its undertaking by protected animals constitutes an economic advantage to which the undertaking concerned cannot in principle be entitled under normal market conditions.”

“(45) Nevertheless, the referring court also asks whether classification as State aid should be excluded as regards the compensation at issue in the main proceedings on the ground that the objective of that compensation is to compensate for damage incurred by the operators concerned because those operators must fulfil public interest obligations laid down by their Member State in the context of the implementation of EU environmental protection rules, in this case, the ‘Birds’ Directive.”

The Court of Justice continued its analysis by equating “public interest obligations” with “public service obligations”. This does not seem to be a correct analogy. An undertaking may fulfil a public interest obligation by refraining from acting, while an undertaking that fulfils a public service obligation must necessarily act to provide a service to consumers and in order to achieve its mission it may need a public subsidy.

“(46) In that regard, it should be borne in mind that, in order to rule out the possibility that an advantage of an undertaking in charge of public service obligations may constitute ‘State aid’ for the purposes of Article 107(1) TFEU, it is necessary to ascertain whether, in fact, four conditions, identified by the Court in the judgment of 24 July 2003, Altmark Trans and Regierungspräsidium Magdeburg (C280/00, EU:C:2003:415), are all satisfied.”

I think the reference to Altmark was unnecessary as the Altmark conditions apply to public service obligations. The Court should have simply differentiated between prohibiting certain activities in the name of public interest and imposing an obligation on an undertaking to provide certain services.

Naturally, the Court concluded that “(48) the mere fact that an economic operator, such as Sātiņi-S, is required to comply with national regulatory obligations arising from the implementation of EU law and, more specifically, obligations established under the Natura 2000 network, is not such as to establish that such an operator has been tasked with public service obligations to discharge”.

State liability?

Then the Court also examined the possibility of compensation for damage caused by an act of the state and for which the state bears liability.

“(49) Furthermore, relying on the judgment of 27 September 1988, Asteris and Others (106/87 to 120/87, EU:C:1988:457), Ireland argues that compensation such as that claimed by Sātiņi-S cannot be regarded as conferring an advantage on it.”

“(50) In that regard, it should, however, be noted that the case in the main proceedings must be distinguished from that which gave rise to that judgment, in so far as it relates not to sums due or paid on the basis of the non-contractual liability of the Member State concerned, but to the compensation of costs – arising from regulatory obligations or natural events – normally borne by the undertakings concerned in the context of their economic activity. In the present case, there is thus no question of compensation for damage caused by the national authorities.”

“(51) Lastly, […], compensation such as that sought by Sātiņi-S in the context of the case in the main proceedings cannot be equated with the repayment of charges levied unlawfully, as was the case in the cases which gave rise to the judgments of 27 March 1980, Denkavit italiana (61/79, EU:C:1980:100), and of 10 July 1980, Ariete (811/79, EU:C:1980:195), nor to the payment of compensation for expropriation, as in the case which gave rise to the judgment of 1 July 2010, Nuova Terni Industrie Chimiche v Commission (T64/08, not published, EU:T:2010:270). In those two situations, where it has been concluded that the Member State concerned had not granted ‘State aid’ within the meaning of Article 107(1) TFEU, that State had been required to repay sums unduly received by it or to pay the counter-value for an asset of which the owner had been divested.”

“(52) Consequently, the compensation granted by a Member State for the losses suffered by an economic operator as a result of the protective measures applicable in a Natura 2000 network area under the ‘Birds’ Directive confers on the person concerned an ‘advantage’ capable of constituting ‘State aid’ for the purposes of Article 107(1) TFEU, provided that the other conditions relating to such a classification recalled in paragraph 39 above are satisfied, which is a matter for the referring court to determine.”

Was the compensation de minimis aid?

The referring court asked whether, in case the compensation was State aid, it could be classified as de minimis aid.

First, the Court of Justice observed that none of the exclusions listed in Article 1(1) of the fisheries de minimis Regulation 717/2014 was applicable in the present case.

“(58) To the extent that Regulation No 717/2014 is applicable, the Member State concerned may, if it decides, as in the present case, to limit the aid at issue to EUR 30,000, classify that aid as ‘de minimis aid’ and, consequently, refrain from notifying that aid to the Commission.”

That meant that Satini-S could not receive compensation since it had already been granted de minimis aid up to the threshold of EUR 30,000.

It also meant that Member States are free to classify as de minimis aid any subsidy for whatever purpose, as long as that purpose is not prohibited by the relevant de minimis regulation.

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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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