Enforcement of State Aid Rules by National Courts

• Quantification of the amount of State aid to be recovered.
• Identification of the aid beneficiary.
• Suspension of the recovery procedure [When, in exceptional cases, a national court has doubt as to the legality of a Commission decision ordering recovery, it may stall the proceedings and refer questions for preliminary ruling to the Court of Justice of the EU.]
• Indirect challenges to Commission decisions [by competitors of aid beneficiaries in rare cases when they can prove that they are directly and individually concerned].
• Aid recovery in the context of insolvency proceedings.
• Assessing the impossibility to recover incompatible aid.
• Assessing the recovery time limit of 10 years.

By contrast, private enforcement covers mostly actions by competitors of aid recipients. The Study lists the following functions for national courts:

• Establishing the existence of State aid [i.e. whether a public measure contains State aid].
• Checking conformity with the requirements of a block exemption regulation [otherwise the aid is unlawful].
• Checking conformity with the requirements of de minimis regulations [otherwise the aid is unlawful].
• Verifying whether aid is existing [otherwise it is unlawful].

Following the Eesti Pagar judgment, I would add a third category: public enforcement on the initiative of a Member State, i.e. without a prior Commission decision ordering recovery. The Court of Justice ruled, in the Eesti Pagar case, that public authorities must correct their mistakes. This may require recovery of aid granted without being in full compliance with the GBER. This instance of recovery is subject to the national limitation period [that need not be the same as the 10-year period that applies to Commission’s actions] and to a different rate of interest [not the rate used by the Commission, which is equal to the base rate plus 1%]. [To be fair, the Study does cite the Eesti Pagar judgment but includes this third category of cases in the overall category of public enforcement, despite the fact that the origin of the recovery order is national and some of the criteria also differ from those used at EU level].

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Main findings

Between 2007 and 2018, there were 766 rulings by national courts dealing with State aid in the 28 Member States of the EU. In that period, there were 172 cases of public enforcement or about 14 cases per year. Italy, France and Spain accounted for close to 60% of all cases. The most frequently challenged types of aid were tax exemptions [33%] and grants [28%].

The main difficulties encountered by national courts in enforcing recovery decisions were found to be the following:

• Calculation of the recovery interest.
• Complications when the aid recipient became insolvent.
• Identification of the beneficiary after insolvency.
• Alleged lack of clarity in the Commission’s recovery decision [e.g. amount of aid to be recovered, starting date of recovery period, etc].

In the same period, there were 594 private enforcement cases, or about 50 cases per year. That is, on average, private enforcement outnumbered public enforcement by 3 to 1. France, the Netherlands and Germany were the countries with the highest number of cases, accounting for 43% of the total.

The Study found a significant increase in private enforcement between 2007 and 2018, although the number of State aid cases brought before national courts varied significantly across Member States. Unlike public enforcement, cases involving grants and tax breaks accounted only for 24% and 18%, respectively. The most challenged type of aid was “other” [42%] which, unfortunately, does not really reveal anything.

Most private action was initiated by competitors of aid recipients [36%]. However, the Study found that aid recipients also accounted for about 14% of all cases. Their main motive was to seek compensation for damages caused by mistakes of public authorities. Overall, public authorities were the defendants in 60% of all cases. That is, either competitors were trying to stop public measures allegedly containing State aid or both competitors and aid beneficiaries were demanding compensation for the mistakes of granting authorities. In this connection, the Study makes an interesting comment. “In view of the recent CJEU ruling in Eesti Pagar, it is doubtful that damages claims started by the aid beneficiary due to the breach of the principle of legitimate expectations will be successful in the future.”

With respect to the remedies decided by national courts in instances of private enforcement, the Study found that claims were rejected in 66% of all cases. “Other” remedies were decided in 15% of cases, recovery of unlawful aid was ordered in 7% of cases, suspension of unlawful aid was ordered in 2% of cases, recovery of interest was decided in 1% of cases, while damages were awarded in 1% of cases.

The successful cases involving award of compensation for damages were very few [just 6 and only in France] and concerned compensation sought by competitors for breach of the standstill obligation. The Study found that competitors encountered a significant difficulty in proving that the aid actually harmed them and in quantifying the extent of the harm.

The Study identified the following problems encountered by national courts in private enforcement cases:

• Determination whether the aid recipient was an undertaking.
• Interpretation of the GBER or de minimis
• Application of the market economy investor principle [MEIP].
• Application of the SGEI concept and the Altmark

Best practices

The Study sought to identify “best practices” which were defined as “those practices that ensure an effective resolution of the issue at hand and which get closest achieving the aims of public enforcement of State aid rules”. In legal proceedings, best practices were those that resulted in speedy resolution and full restoration of the status quo ante. But the Study went beyond the confines of legal proceedings and also examined institutional aspects of compliance with and enforcement of State aid rules.

An interesting finding is that only a few Member States have specific legislation in place dealing with recovery decisions. They are Belgium, Croatia, Finland, Italy, the Netherlands, Slovakia, and Spain, with Estonia being in the process of adopting such legislation.

The Study also noted that in some Member States [e.g. Belgium, UK], the granting authorities included recovery clauses in the aid agreements in order to facilitate any subsequent action for recovery of that aid.

Overall, the Study classified best practices in three categories:

• “Practices related to recovery: specific legislation, recovery instructions in State aid instruments and national penalties for delays of recovery.”
• “Practices concerning national screening mechanisms: ex-ante mechanisms (i.e. non-binding compatibility assessment with State aid rules) and ex-post mechanisms (i.e. State aid assessment as part of the decision-making process of the administrative authority).”
• “Institutional practices: rules clarifying the jurisdiction of the courts in State aid disputes and the principle of investigation.”

Conclusions

At least three conclusions may be drawn from the Study. First, private enforcement has become more prevalent. This strengthens the system of State aid control.

Second, however, action before national courts does not appear to be effective. National courts are supposed to be the “friends” of competitors who are harmed by the failure of Member States to comply with the obligation imposed on them by Article 108(3) TFEU. Yet, in practice two thirds of cases were unsuccessful. Of course, we do not know how serious those cases were or whether they were based on frivolous claims which were lodged for the mere purpose of harassing aid recipients or intimidating granting authorities [I have been told that sometimes companies threaten or initiate legal action when they are not happy with the objectives or terms of State aid measures, despite the fact that these measures are fully compliant with the GBER.] National courts order recovery or suspension of aid and award damages in only 10% of all cases.

Third, the Treaty assigns to national courts an important role in the system of State aid control and the Commission has put much faith in their ability to prevent the granting of illegal aid. But the reality is that national courts become involved only after an administrative mistake or intentional non-compliance has occurred. It is probably better to prevent mistakes and non-compliance. The Study has revealed that only a minority of Member States have adopted what may be thought as good practices. Perhaps the Commission should focus more in strengthening the national institutions and procedures that assess the need for State aid and dispense it. This is a win-win approach.

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^[1] The annual competition report can be accessed at:

https://ec.europa.eu/competition/publications/annual_report/2018/part1_en.pdf.

^[2] The paper can be accessed at:

https://ec.europa.eu/competition/state_aid/scoreboard/state_aid_scoreboard_2018.pdf.

^[3] The full text of the Study can be accessed at:

https://ec.europa.eu/competition/publications/reports/kd0219428enn.pdf.