The following blog post is another contributory piece by Emanuela Matei, Associate Researcher at the Centre of European Legal Studies, Bucharest. Matei holds a Juris Master in European Business Law (Lund University, June 2012), a Magister legum (Lund University, June 2010) and a BSc in Economics & Business Administration (Lund University, June 2009). We are very glad to welcome her on the blog today.
The preliminary ruling of the CJEU in the present case may pass by without special notice. At first sight a conflict between German law rule of res judicata and the obligation imposed on national courts by Article 108(3) TFEU could be projected. A deeper examination can reveal nonetheless that the actual conflict arose within the national legal system between the German jurisprudence on the implementation of Article 108(3) TFEU that has established the nullity of contracts that entail State aid and the provisions of German code of civil procedure that prohibit the review of a judicial decision upholding the validity of those contracts.
The Klausner Group and the Land of Nordrhein-Westfalen concluded an agreement concerning the selling of fixed quantities of wood during 2007 to 2014 and afterwards, they also signed a ‘framework sales contract’. In 2008 the Land annulled the contracts and ceased to deliver wood to Klausner Holz. The buyer brought an action against the annulment of the wood sales contract and the German court ruled in favour of the plaintiff, thus upholding the validity of the contract. The validity of the contracts was later endorsed by a judgment issued on 3 December 2012 by the Court of Appeal. This judgment has attained value of res judicata.
Subsequently, Klausner Holz brought an action against the buyer seeking the following remedies:
- Payment of damages in respect of the failure to supply wood in 2009 amounting EUR 54 million,
- Supply of approximately 1.5 million cubic metres of pine wood in performance of the contracts at issue for the period between 2010 and February 2013
- Access to information concerning the financial conditions offered to the five largest purchasers of resinous wood of cut pine wood from the Land between 2010 and 2013.
Against these claims the Land construed a defence contending that the EU law prevents the execution of the contracts at issue, since they constitute unlawful ‘State aid’ within the meaning of Article 107(1) TFEU read in conjunction with Article 108(3) TFEU.
In 2013 the Commission received a number of complaints against the non-notified allegedly incompatible aid granted by the Land via these wood sales contracts. Germany reported as well the presence of an unlawful aid. Relying on the Commission Notice on the enforcement of State aid law by national courts, the court seized with the action for damages and sent a letter to the Commission requesting a clarification.
The referring court agrees basically with the Land that the contracts constitute State aid within the meaning of Article 107(1) TFEU, especially because of the advantage given to Klausner Holz using State resources and the failure to comply with the market economy seller test. Moreover, according to the German jurisprudence, a private law contract that grants State aid in breach of the standstill clause must be regarded as null and void. However, the value of res judicata of the judgment of 3 December 2012 prevents the referring court to draw such consequences from the breach of the standstill clause in Article 108(3) TFEU.
Paragraph 322(1) of the Code of civil procedure entitled ‘Substantive legal finality of the judgment’ decrees as follows: ‘Judgments are able to become res judicata only in so far as a ruling has been given on the claims supporting the plaintiff’s application or on the counterclaims supporting the defendant’s rejoinder’.
Confronted with two apparently conflicting obligations, the court requested a prejudicial ruling for the following question:
‘In civil proceedings concerning the performance of a civil-law contract granting aid, does EU law, in particular Articles 107 TFEU and 108 TFEU and the principle of effectiveness, require that a final declaratory judgment under civil law which has been delivered in the same case and which confirms that the civil-law contract remains in force, without any consideration of the law on aid, be disregarded if under national law the performance of the contract cannot otherwise be prevented?’
3. CJEU judgement of 11 November 2015
The CJEU initiated its reasoning by underscoring the function and the role of the Article 108 (3) TFEU and the shared competence of national courts and the Commission within the framework of State aid control. The assessment of compatibility is an exercise falling within the exclusive competence of the Commission, while the national courts shall ensure the safeguarding of the rights of individuals faced with a possible breach by State authorities of the prohibition laid down by Article 108(3) TFEU. In order to determine whether a breach of the standstill clause has occurred, the national court must interpret and apply the concept of aid contained in Article 107(1) TFEU.
The immediate enforceability of the prohibition in Article 108(3) TFEU extends to all aid which has been implemented without being notified. The validity of the measures giving effect to the aid, the recovery of unlawful aid and the adoption of interim measures must be examined by the national court in order to provide the appropriate remedies for the unlawful implementation of the aid. The national court is authorised to suspend the implementation, order recovery of payments made before the notification of aid or before the adoption of a final decision on its compatibility or take any other provisional measures that aim to safeguard the interests of the parties and the effectiveness of the Commission’s final decision.
In the present case, the national court examined the measure in question and came to the conclusion that it constitutes unlawful aid, though it considered that its obligation to ensure the effectiveness of EU law and the protection of individual interests could not be fulfilled. The value of res judicata of the declaratory judgment of Oberlandesgericht Hamm prevented the national court to comply with its obligations derived from the Treaties.
The CJEU observed that the res judicata had treated a different matter and it did not involve a State aid examination. Furthermore, the sole aim of the dispute that gave rise to the declaratory judgment of the Oberlandesgericht Hamm was to obtain a ruling that the wood sales contracts remained in force, despite the fact that the seller had rescinded them. The purpose of the dispute before the referring court was to obtain remedies for the premature cancellation of this sales contract.
Do you know we also publish a journal on State aid?
The European State Aid Law Quarterly is available online and in print, and our subscribers benefit from a reduced price for our events.
According to the national court, the value of res judicata prevented not only the re-examination of the issues decided by the judgment in question, but also the raising of questions, which could have been raised in an earlier action and which were not so raised. In relation to the same type of national provisions, the CJEU decided that it was for the national court to interpret the provisions of national law in a manner that ensured the implementation of Union law. The CJEU cites from its ruling in Impact in order to remind that the principle of interpreting national law in conformity with EU law has certain limitations.
The obligation on a national court to refer to the content of a directive when interpreting and applying the relevant rules of domestic law is limited by general principles of law, particularly those of legal certainty and non-retroactivity, and that obligation cannot serve as the basis for an interpretation of national law contra legem.
The referring court believed that it had to deal with such a limitation, pointing out that national law grants no discretion to depart from the pronouncement imposed by res judicata. However, the principle of conform interpretation ‘requires national courts to do whatever lies within their jurisdiction, taking the whole body of domestic law into consideration and applying the interpretative methods recognised by domestic law, with a view to ensuring that the directive in question is fully effective and achieving an outcome consistent with the objective pursued by it’.
The CJEU states that the national court is responsible for conceiving a conform interpretation that would satisfy the requirements of effective application of the Article 108(3) TFEU. It is not necessary to rule on the validity of the wood sales contracts, but it would be enough to order a measure such as the temporary suspension of the contracts at issue until the adoption of the Commission final decision.
The CJEU pointed out that the formulation used by Paragraph 322(1) of the Code of civil procedure seems to limit the value of res judicata to the scope of claims and counterclaims that have been presented and examined during the proceedings that generated that final ruling.
In order to ensure stability of the law and legal relations, as well as the sound administration of justice, it is important that judicial decisions which have become definitive after all rights of appeal have been exhausted or after expiry of the time-limits provided for in that regard can no longer be called into question.
The Union law does not necessarily require a judicial body to review a judgment having the value of res judicata in order to take into account the interpretation of a relevant provision of EU law adopted by the Court after delivery of that judgment. (Author’s emphasis) The national procedural rules shall be equivalent with those governing similar domestic situations (principle of equivalence) and be framed in such a way as enabling the exercise of rights conferred by EU law (principle of effectiveness). A declaration that the contracts forming the aid are in force, despite the fact that the Commission may find them to be incompatible with the internal market would distort the division of powers between the national courts and the Commission within the framework of State aid control. Such a result would not be consistent with the principle of effectiveness.
‘A significant obstacle to the effective application of EU law and, in particular, a principle as fundamental as that of the control of State aid cannot be justified either by the principle of res judicata or by the principle of legal certainty’.
In circumstances such as those at issue in the main proceedings, the application of a rule of national law, which enshrines the principle of res judicata, in a manner that prevents the national court to draw all the consequences from the breach of the standstill clause in Article 108(3) TFEU is precluded by EU law. The circumstances of the case refer to a situation, where the referring court acknowledges the presence of unlawful aid embedded in contracts forming the subject-matter of the dispute before it, but its possibilities to adopt preventive measures are limited by a national judicial decision that has held that the contracts shall remain in force.
a) The standstill prohibition constitutes an integral part of the legal system of the Member States
In contrast to ordinary international treaties, the treaties of the EU established a new legal order for the benefit of which the sovereign rights of the Member States have been narrowed in a large range of fields, and the subjects of which comprise not only those States, but also their nationals. The primacy of EU law over the laws of the Member States is directly derived from the character of EU law as independent source of law. Within the exercise of its jurisdiction, a national court, which is entitled to apply provisions of EU law must give full effect to those provisions, if necessary refusing of its own motion to apply any conflicting provision of national legislation.
‘A Member State’s obligation under the [Treaty], which is neither subject to any conditions nor, as regards its execution or effect, to the adoption of any measure either by the States or by the Commission, is legally complete and consequently capable of producing direct effects on the relations between Member States and individuals. Such an obligation becomes an integral part of the legal system of the Member States, and thus forms part of their own law, and directly concerns their nationals in whose favour it has created individual rights which national courts must protect’.
The obligation of non-implementation laid down in Article 108(3) TFEU and the consequent protection of individuals must be observed for the entire period during which the prohibition remains in force. The competence of national courts to examine a measure that may constitute unlawful State aid before the Commission has decided on the compatibility of that aid is an immediate implication of the direct effect of the Article 108(3) TFEU.
b) An internal conflict of norms solved by applying the principle of conform interpretation
The limitation of the duty of conform interpretation that excludes an interpretation contra legem of the national law has been defined in relation to cases, where the implementation of provisions of EU law that lacked direct effect had to be tuned with apparently contradictory rules of national law. The key case is Adeneler, decision which brought a clarification to the Mangold ruling expounding that during the period prescribed for transposition of a directive, the Member States to which it is addressed must refrain from taking any measures liable to seriously compromise the attainment of the result prescribed by it. The obligation to refrain from taking such measures applies to the national courts as much as to any other State authority.
In Klausner Holz, the CJEU finds that during the period of time comprised between the allegedly unlawful implementation of State aid and the issue of the Commission final decision, the national courts must refrain from taking any measures liable to seriously compromise the attainment of the result prescribed by that final decision. In relation to State aid enforcement the obligation to refrain from potentially harmful actions is derived from the Article 108(3) TFEU, which must be given full effect by the national court, if necessary refusing of its own motion to apply any conflicting provision of national legislation.
The role and the objectives of the Article 108(3) TFEU are construed to deal specifically with the situations that may occur in the anticipation of a final decision issued by the Commission. The Article 108(3) TFEU makes integral part of the national legal systems and it is anchored in the principle of legal certainty, exactly as the principle of res judicata. In this light, the interpretation given to the obligation to refer to the content of EU law, when interpreting and applying the relevant rules of domestic law cannot be seen as equivalent with the obligation to refuse to apply them established by the constant case law flowing from the Simmenthal decision.
Accordingly any provision of a national legal system and any legislative, administrative or judicial practice which might impair the effectiveness of [Union] law by withholding from the national court having jurisdiction to apply such law the power to do everything necessary at the moment of its application to set aside national legislative provisions which might prevent [Union] rules from having full force and effect are incompatible with those requirements which are the very essence of [Union] law.
Even if such an impediment to the full effectiveness of Union law were only temporary, the conflicting national provisions shall be set aside. The Oberlandesgericht Hamm did not identify the presence of State aid and ruled only on the civil matter of validity of contracts. The court of first instance, Landgericht Münster seized with the action for damages brought by Klausner Holz against the Land has now to adjudicate the dispute, while being confronted with a situation, where the duty to give full effect to Article 108(3) TFEU as settled by the German relevant jurisprudence ordered that the contracts shall be regarded as null and void, while in the same time a final judgement required it to recognise the validity of those contracts.
The CJEU points out in its preliminary ruling in the present case that a temporary suspension of the contracts until the adoption of the Commission decision would enable the referring court to satisfy its obligations under the third sentence of Article 108(3) TFEU without actually ruling on the validity of the contracts at issue. At this stage, there is no direct and unavoidable confrontation between the duty to give full effect to the standstill obligation under EU law and the national law provisions embodying the principle of res judicata.
If the decision of the Commission finds eventually that the contracts entail unlawful State aid that must be recovered, the new circumstances would be analogous with those in Lucchini and the court will have to declare the nullity of those contractual clauses that grant State aid. In accordance with the principle of primacy, the provisions of the founding Treaties have the effect of rendering automatically inapplicable any conflicting provision of national law, no matter if the latter is prior or subsequent to the rule of law of the Union. However, the contracts at issue may remain valid, even if certain clauses such as the onus not to make other sales at prices lower than those set in the agreement may entail State aid and the validity of such clauses would run contrary to the obligation to give full effect to EU law.
The obligation to sell fixed quantities of wood during 2007 to 2014 at a price that would be paid by a market economy seller could nonetheless be maintained. The recovery of aid can only refer to the difference between the market price and the lower price paid by an aid beneficiary. The duty to give full effect to Article 108(3) TFEU does not imply an obligation to regard a private law contract that grants State aid in breach of the standstill responsibility to be null and void, but only calls for suspensory measures in the anticipation of a final Commission decision.
Moreover, in the aftermath of an eventual negative State aid decision, the matter whether or not the contract must be regarded as null and void in its entirety must be adjudicated under the German law applicable on contractual obligations. The State aid rules stipulate only the obligation to recover the unlawful advantage and a prohibition to allow such advantages to be granted in the future in order to avoid an irreparable damage of the competitive position of Klausner Holz’s competitors.
At first sight, the conflict appears to occur between a general principle of German law and an obligation derived from EU law. The CJEU seems to show courtesy to the national legal principles by adding an extra level of examination making use of the principle of interpreting national law in conformity with EU law, which previously has only been applicable for the implementation of EU law provisions that lacked direct effect. The standstill duty has nonetheless direct effect and Klausner Holz’s competitors may bring an action for damages against the Land for the unlawful grant of aid, if the Commission decision establishes the presence of such illegal and incompatible State aid.
However, as found already in Costa v ENEL, the standstill duty has become ‘an integral part of the legal system of the Member States, and thus forms part of their own law’. The referring court is seized to find a solution to a conflict of norms of national law. The first norm has been developed by the German jurisprudence implementing the Article 108(3) TFEU and the second norm is derived from the body of general principles of German law. The conflict takes place between the requirement to regard the contracts as null and void and the rule embodied by Paragraph 322(1) of the Code of civil procedure that prohibits the review of the judicial final decision that upheld the validity of those contracts. The additional level of examination relying on the principle of interpreting national law in conformity with EU law lays down an obligation to take into consideration the whole body of domestic law and apply the interpretative methods recognised by it, with a view to ensuring that EU law is fully effective and to achieving an outcome consistent with the objective pursued by it, which is the preservation of the individual rights created by Article 108(3) TFEU.
 Case C‑284/12 Deutsche Lufthansa EU:C:2013:755 [25-27].
 Deutsche Lufthansa, n (1), .
 See, to that effect, Case C‑354/90 Fédération nationale du commerce extérieur des produits alimentaires and Syndicat national des négociants et transformateurs de saumon EU:C:1991:440  and .
 Deutsche Lufthansa, n (1), .
 Deutsche Lufthansa, n (1), .
 See, by analogy, Deutsche Lufthansa, n (1),  and C‑27/13 Flughafen Lübeck EU:C:2014:240 .
 C‑119/05 Lucchini EU:C:2007:434 .
 C‑268/06 Impact EU:C:2008:223 .
 C‑282/10 Dominguez EU:C:2012:33 .
 Dominguez, (n 9), .
 Case C‑2/08 Fallimento Olimpiclub EU:C:2009:506  and Case C‑69/14 Târșia EU:C:2015:662 .
 Târșia, (n 11), .
 Fallimento Olimpiclub (n 11)  and C‑213/13 Impresa Pizzarotti EU:C:2014:2067 .
 Case C-505/14 Klausner Holz ECLI:EU:C:2015:742 .
 Klausner Holz, (n 14), .
 Opinion 2/13, ECLI:EU:C:2014:2454  and Case 6/64 Costa EU:C:1964:66, p. 593.
 Costa, (n 17), p. 594.
 Lucchini, (n 7), .
 Costa, (n 17), p. 593.
 Case 120/73 Lorenz ECLI:EU:C:1973:152 .
 Klausner Holz, (n 14), .
 Case C-212/04 Adeneler ECLI:EU:C:2006:443 .
 Adeneler, (n 23), .
 Adeneler, (n 23), . It must be observed nonetheless that this obligation was derived from the Article 288(3) TFEU read in conjunction with Article 4(3) TEU.
 Case 106/77 Simmenthal ECLI:EU:C:1978:49 . See also, Joined Cases C‑188/10 and C‑189/10 Melki and Abdeli ECLI:EU:C:2010:363 , Case C‑409/06 Winner Wetten ECLI:EU:C:2010:503  and Case C‑617/10 Åkerberg ECLI:EU:C:2013:105 .
 Simmenthal (n 26), .
 Klausner Holz, (n 14), .
 Simmenthal, (n 26),  and Case C‑213/89 Factortame and Others ECLI:EU:C:1990:257 .
 Costa, (n 20).
[Photo by Gordon from flickr.com]