EU National Courts May Have to Order Recovery of State Aid Before European Commission Makes Final Decision

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The European Court of Justice decided on 21 November 2013 that EU national courts must assume that a measure qualifies as State aid, if the European Commission has opened an in-depth investigation into that measure.

This judgment is relevant to all cases in which the disputed measure was already granted, or is planned to be granted, and the European Commission has opened an in-depth investigation but not yet made a final decision on whether or not the measures qualify as State aid.

The European Court of Justice (ECJ) decided on 21 November 2013 in Deutsche Lufthansa AG v Flughafen Frankfurt-Hahn GmbH (C-284/12) on the obligations placed on national courts in EU Member States that have been asked by a third party to order the recovery of State aid that was granted to a beneficiary without approval by the European Commission.

The ECJ stated that, even though the assessment carried out by the European Commission in its decision to open an in-depth investigation is preliminary in nature, the decision to open an investigation has legal effect and is therefore binding for national courts in that they must find that the measure qualifies as State aid. If the aid was granted without approval by the European Commission, the national court will have to order its recovery.

Background

EU Member States cannot implement measures that qualify as State aid within the meaning of Article 107(1) of the Treaty on the Functioning of the European Union (TFEU) until those measures have been approved by the European Commission (“the standstill obligation”, established in Article 107(3)(3) TFEU). The European Commission has exclusive competence to approve State aid.

National courts may, however, find an infringement of the standstill obligation and order the recovery of State aid that was granted without European Commission approval. Although national courts may not authorise State aid, they are permitted to decide whether or not a measure qualifies as State aid.

State aid investigations by the European Commission begin with a first phase, in which the European Commission requests information from the relevant EU Member State and gives the State the opportunity to give its views on the qualification of the relevant measures as State aid and grounds for their authorisation.

In complex cases, the European Commission generally opens an in-depth investigation. When making its decision to initiate an in-depth investigation, the European Commission has to provide an initial assessment of the measure and explain why it has come to the preliminary conclusion that the measure qualifies as State aid.

In the case at hand, the competitor of an alleged aid beneficiary approached a German court seeking recovery of alleged aid given to the beneficiary and suspension of its implementation. According to the appellant, the measure qualified as State aid, was granted without approval by the European Commission and was therefore in violation of the standstill obligation. The European Commission opened an in-depth State aid investigation into the relevant measures in 2006, but the final decision is still outstanding.

Question Referred by The National Court

The German court essentially asked the ECJ whether a national court is bound by the European Commission’s preliminary conclusion that a measure qualifies as unlawful State aid (by taking the decision to initiate an in-depth investigation), when the national court is considering a legal action concerning the reimbursement of payments made and an order to refrain from making future payments.

The ECJ’s Response

Before answering this question, the ECJ recalled that, where the European Commission has not yet initiated the formal investigation procedure, it is incumbent upon the national courts to assess whether or not the measure qualifies as State aid. The national court has to be able to decide if there has been an infringement of the standstill obligation.

The ECJ further assessed which measures need to be taken by the national court in a situation where the European Commission has already initiated an in-depth investigation procedure.

The ECJ found that the national court has an obligation under Article 108(3)(3) TFEU to ensure that State aid is only granted after the European Commission has given its approval. Following the European Commission’s decision to open an in-depth investigation, the national court has to assume that the measure under investigation qualifies as State aid. The national court is therefore required “to adopt all the necessary measures with a view to drawing the appropriate conclusions” of an infringement of the standstill obligation. The national court may be required to order the recovery of illegal State aid and the suspension of its implementation. Alternatively, the national court may decide on provisional measures.

Practical Implications

With this judgment, the ECJ has put an end to the debate over whether or not national courts are bound to find that a measure qualifies as State aid when the European Commission has decided to open an in-depth investigation. In the future, national courts will find it difficult to determine that measures do not qualify as State aid if the European Commission has opened an in-depth investigation. This is despite the explicitly preliminary nature of the assessment that is even emphasised in European Commission press releases announcing the opening of in-depth investigations.

Situations in which a national court denies the existence of State aid in these circumstances, such as the German Federal Administrative Court’s decision in 2010 with respect to measures in favour of an association for the disposal of dead animal bodies, would therefore not be compatible with European law.

While the conclusion drawn by the ECJ was, from our point of view, not strictly necessary, aid beneficiaries will have to prepare themselves for the possible consequences of this judgment. In practice, aid beneficiaries may have to systematically reimburse the benefits received if—following a decision by the European Commission to open an in-depth investigation—competitors approach a national court. Being bound by the European Commission’s preliminary assessment in its decision to open an in-depth investigation, the national court will have to find an infringement of the standstill obligation and order the immediate recovery of the advantage. This might lead to very unsatisfactory consequences, particularly as the recovery of State aid may constitute a fatal threat to the (alleged) aid beneficiary, even if the European Commission later concludes in its final decision that the measures does not, after all, constitute State aid or that it can be authorised.

Katharina Dietz, a paralegal at McDermott Will & Emery’s Brussels office, also contributed to the article.

 

Published In: Civil Procedure Updates, General Business Updates, Finance & Banking Updates, International Trade Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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