Illegal Aid Cannot be Regularised a Posteriori

A Commission decision finding non-notified aid to be compatible with the internal market cannot remedy the illegality that existed before the Commission decision.

Introduction

In November 2021, the General Court rejected an appeal by the recipient of illegal aid who had asked the Commission to declare the aid compatible with the internal market even though the Member State concerned had failed to notify it to the Commission [case T‑678/20, Solar Electric and others v European Commission]. The General Court held that there is no procedure for “self notification”.

A month later, on 8 December 2021, the General Court ruled in case T-623/20, Sun West and others v European Commission, that there is no procedure for “quasi notification”. In addition, the General Court stressed that, even if the aid recipient itself informs the Commission that it received non-notified aid and even if the Commission finds the aid compatible with the internal market, the illegality of the aid before the assessment of the Commission cannot be remedied a posteriori.[1]

Both cases arose from efforts by the aid recipients to resolve the unresolvable problem of benefiting from non-notified aid, i.e. illegal aid. Although this problem cannot be resolved a posteriori, it can be simply avoided by not accepting to receive illegal aid.

After these two judgments it is now clear that:

  • An aid recipient cannot “notify” an aid measure to the Commission.
  • An aid recipient cannot ask the Commission to assess the compatibility of an aid measure.
  • Notification is an obligation and a procedure that is imposed on and reserved, respectively for Member States.
  • An interested party can inform the Commission of the presence of illegal and possibly incompatible aid.
  • The illegality before the Commission decides on the compatibility of the aid cannot be remedied by a Commission decision.

Sun West and the other applicants appealed against a Commission decision that rejected their complaint relating to State aid illegally paid by France to energy producers from photovoltaic parks.

A French law that was adopted in February 2000 obliged electricity distributors to purchase electricity produced from renewable energy sources [RES electricity] at a price higher than the market rate.

Sun West and the other applicants were companies which owned photovoltaic installations in France. Those installations, however, were not connected to the distribution network because their application for connection was not dealt promptly by the relevant distributor. During the period that their application was pending, the relevant national rules changed and could not benefit any more from a preferential feed-in tariff […]. The applicants then applied to national courts requesting compensation for the damage which they claimed to have suffered.

Their legal action eventually reached the French Court of Appeals. Unlike the findings of lower courts, the Court of Appeals held that a causal link had been established for the claimed damage. However, it also found that the obligation to purchase electricity of photovoltaic origin at a price higher than the market price constituted illegal State aid because it had not been notified in advance to the European Commission.

In March 2020, the applicants submitted a complaint to the Commission asking it to classify the aid as illegal but compatible with the internal market.

In July 2020, the Commission rejected the complaint for two reasons. First, it considered that the subject of that complaint did not fall within the scope of Article 12(1) and Article 24(2) of Regulation 2015/1589 on the grounds that the applicants asked it to rule on the compatibility of the measure in question with the internal market, as if they were representing France in a “quasi-notification” procedure. Second, in the Commission’s view the applicants could not be classified as “interested parties” within the meaning of Article 1(h) of that Regulation. Therefore, according to the Commission, the information contained in the complaint could not be treated as constituting a formal complaint, but only as general market information.

Application of Regulation 2015/1589

As preliminary remark, the General Court noted that the Commission had not ruled on the existence of aid or its compatibility with the internal market. Then it examined the first reason for the rejection of the complaint which concerned the application of Articles 12(1) & 24(2) of Regulation 2015/1589. [paragraph 24 of the judgment]

The General Court observed that the Commission had rejected the complaint lodged by the applicants on the grounds that it did not fall within the scope of Article 12(1) and Article 24(2) of Regulation 2015/1589. In particular, it considered that, in contrast to the procedure concerning notified aid, within the context of the procedure applicable to illegal aid, a complainant triggers the opening of the preliminary examination phase by the Commission by indicating why the Commission ought to have doubts as to the compatibility of the measure in question with the internal market. These doubts could lead it to initiate the formal investigation procedure. However, the complainant could not allege that the measure in question was compatible with the internal market, since it did not represent the Member State concerned in a “quasi-notification” procedure. [paragraph 25]

The General Court pointed out that the applicants themselves had acknowledged that a complaint against illegal but compatible aid was rare or even unique. [paragraph 26]

But then the General Court went on to observe that if an interested party could lodge a complaint with the Commission to inform it of the existence of aid unlawfully granted so that the Commission would proceed to establish its compatibility would be contrary to the architecture of State aid control. [paragraph 28]

The General Court recalled that the notification obligation constitutes one of the fundamental elements of the control system set up by the TFEU in the field of State aid. It follows from the very scheme of Article 108(3) TFEU, which establishes a bilateral relationship between the Commission and the Member State, that the obligation to notify lies solely with the Member States. The obligation to notify and the prohibition of the prior implementation of aid measures are addressed only to Member States. Member States are also the sole addressees of decisions by which the Commission finds the incompatibility of aid. [paragraphs 30-32]

However, recognition of the right of interested parties to lodge a complaint with the Commission to inform it of the existence of illegal aid so that it can find that such aid is compatible with the internal market would have no other effect than to allow them to take the place of the Member State concerned, which alone has the power to notify an aid measure to the Commission. [paragraph 33]

There is no right for undertakings to receive State aid in EU law. Therefore, an interested party cannot assume the competences of the Member State and proceed, on its own initiative, to a notification on behalf of the Member State with the aim of obtaining a decision authorising the implementation of non-notified aid. [paragraph 34]

The General Court continued that it had to be borne in mind that national courts must guarantee to undertakings that all the consequences can be drawn from a breach of the obligations arising from Article 108(3) TFEU, in accordance with their national law, both in terms of the validity of acts involving the implementation of aid measures and with regard to the recovery of aid granted in infringement of Article 108(3). For these purposes, national courts may interpret and apply the concept of aid in Article 107(1) TFEU, with a view to determining whether or not a public measure should have been subject to prior notification. If national courts find that the measure should in fact have been notified beforehand to the Commission, they must declare it unlawful. [paragraph 35]

It follows that interested parties may apply to national courts to sanction the granting Member State for failure to comply with its notification obligation. Therefore, there is no need to recognize their right to lodge, on the basis of Article 24(2) of Regulation 2015/1589, a complaint to inform the Commission of the existence of aid illegally paid in order to find that such aid is compatible with the internal market. [paragraph 36]

The General Court stressed that the lodging of a complaint within the meaning of Article 24(2) of Regulation 2015/1589 is subject to two conditions. First, the possibility of filing a complaint is for interested parties within the meaning of Article 108(2) TFEU and Article 1(h) of Regulation 2015/1589. Second, according to Article 24(2) of the Regulation, interested parties who wish to file a formal complaint must fill out a form, as specified in the relevant rules. [paragraph 39]

It follows that Article 24(2) of Regulation 2015/1589 cannot serve as a basis for lodging a complaint aimed at informing the Commission of the existence of aid unlawfully paid so that it can establish the compatibility of such aid with the internal market. [paragraph 41]

The applicants claimed that, although the Commission was aware of the existence of the aid in question, it failed to fulfil its obligations under Articles 107 to 109 TFEU and Regulation 2015/1589.

The General Court recalled that according to Article 12(1)(a) of Regulation 2015/1589 the Commission “may” examine information concerning alleged illegal aid. The use of the term “may” implies that the examination of the information concerning alleged illegal aid is left to the discretion of the Commission. [paragraph 47]

Then the General Court noted that, by contrast, Article 12(1)(b) of Regulation 2015/1589 requires the Commission to examine without delay any complaint lodged by an interested party, in accordance with Article 24(2) of that Regulation. In addition, the Commission is required, in the interest of the sound administration of the fundamental rules of the TFEU relating to State aid, to carry out a diligent and impartial examination of the complaint, including examination of elements which were not expressly mentioned by the complainant. [paragraph 48]

In the present case, however, the complaint lodged by the applicants did not fall within the scope of Article 24(2) of Regulation 2015/1589. In those circumstances, the Commission was not required to examine a complaint which did not meet the conditions required by that provision. Consequently, the General Court ruled, the applicants could not validly maintain that the absence of a decision by the Commission with regard to the measures in question amounted to a denial of justice. [paragraph 49]

Violation of the principle of legal certainty?

In response to the applicants’ claim that the absence of a Commission decision ruling on the compatibility of unlawful aid infringed the principle of legal certainty, the General Court ruled that aid granted in breach of Article 108(3) TFEU did not suffer from any uncertainty. Any new aid granted without Commission authorisation is automatically illegal. [paragraph 50]

Following the Eesti Pagar judgment, it is incumbent on national authorities to recover on their own initiative aid that has been granted unlawfully. [paragraph 51]

In addition, a Commission decision declaring non-notified aid as compatible with the internal market does not have the consequence of regularising, a posteriori, the infringement of the prohibition provided for in Article 108(3) TFEU and therefore does not neutralise the illegality of the aid before it is declared compatible with the internal market. [paragraph 52]

Therefore, the General Court concluded, even supposing that the Commission subsequently declares non-notified aid compatible with the internal market, such a decision could only have effects for the future, so that aid already granted cannot be regularised a posteriori. [paragraph 53]

In the end, the General Court rejected the appeal in its entirety.


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

https://curia.europa.eu/juris/fiche.jsf?id=T%3B623%3B20%3BRD%3B1%3BP%3B1%3BT2020%2F0623%2FP&oqp=&for=&mat=CONC.AIDE%252Cor&lgrec=en&jge=&td=%3BALL&jur=C%2CT%2CF&etat=clot&dates=%2524type%253Dpro%2524mode%253DfromTo%2524from%253D2021.10.12%2524to%253D2021.12.12&pcs=Oor&lg=&pro=&nat=or&cit=none%252CC%252CCJ%252CR%252C2008E%252C%252C%252C%252C%252C%252C%252C%252C%252C%252Ctrue%252Cfalse%252Cfalse&language=en&avg=&cid=7654920


 

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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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