The formal investigation procedure need not be re-opened when the fault lies in the legal assessment of the measure in question.
Incompatible State aid has to be recovered quickly and effectively, even from insolvent undertakings.
Introduction
This article examines two recent judgments concerning Greece. The first judgment explains when the Commission does not have to re-open the formal investigation procedure after a previous decision is annulled. The second judgment imposes fines as a consequence of failure to recover State aid that was declared to be incompatible with the internal market.
I. Formal investigation
On 19 January 2022, the General Court ruled in case T757/18, Loutraki Kazino v European Commission, that the Commission was not obliged to open the formal investigation procedure in order to correct a previous decision that was annulled by the General Court.
Loutraki Kazino, a Greek casino, sought annulment of Commission decision 2018/1575 which found that system of fees on admissions to casinos in Greece that existed until November 2012 did not constitute aid
Before 1994, only three casinos were licensed in Greece. They operated at three locations: Mont Parnès (close to Athens), Corfu and Rhodes. Admission required a ticket and the price of the ticket was fixed by the state.
After 1994, six additional licences were issued and the entry price was raised from EUR 6 to EUR 15. However, three casinos were permitted to keep charging the old price. Those were the “old” casinos at Mont Parnès and Corfu and one of the new ones at Thessaloniki. All casinos could keep 20% of the ticket revenue. The rest, i.e. 80%, had to be paid to the state.
The full text of the judgment can be accessed at:
In July 2009, Loutraki casino complained to the Commission that the lower admission fees constituted State aid for those casinos that were permitted to keep the old rates.
In May 2011, after a formal investigation, the Commission adopted decision 2011/716 which found that those three casinos benefitted from incompatible State aid and ordered Greece to recover it.
Greece lodged an appeal against that decision [T-425/11, Greece v European Commission]. In September 2014, the General Court annulled the decision on the grounds that the Commission had failed to establish the existence of State aid.
Then it was the turn of the Commission to appeal. However, in October 2015, the Court of Justice dismissed the appeal and upheld the judgment of the General Court [case, C-530/14 P, European Commission v Greece].
In April 2017, Loutraki casino submitted new a complaint to the Commission. In August 2018, the Commission adopted decision 2018/1575 which found that the system of admission charges that existed until November 2012 did not constitute State aid. In this respect, it followed the order of the Court of Justice according to which no advantage had been conferred to the three casinos.
What is interesting is that the Commission adopted decision 2018/1575 without opening the formal investigation procedure. Normally a formal decision is preceded by a formal investigation whereby interested parties have the opportunity to submit their comments. But, as will be seen below, the General Court concluded that the Commission was perfectly justified not open the formal procedure.
What are the consequences of annulment of a Commission decision?
After finding the action to be admissible, the General Court examined the argument of the applicants that the Commission should have initiated the formal investigation procedure to ascertain the existence of an “attractiveness advantage”.
The General Court, first, recalled the consequences of the annulment of the 2011 Commission decision.
“(66) Pursuant to Article 266 TFEU, the institution whose measure has been declared void is required to take the necessary measures to comply with the annulling judgment.”
“(67) In order to comply with a judgment annulling a measure and to implement it fully, the institution is required to have regard not only to the operative part of the judgment but also to the grounds which led to the judgment and constitute its essential basis, in so far as they are necessary to determine the exact meaning of what is stated in the operative part. It is those grounds which, on the one hand, identify the precise provision held to be illegal and, on the other, indicate the specific reasons which underlie the finding of illegality contained in the operative part and which the institution concerned must take into account when replacing the annulled measure”.
“(68) The procedure for replacing such a measure may thus be resumed at the very point at which the illegality occurred”.
“(69) The annulment of an EU measure does not necessarily affect the preparatory acts which preceded it. The annulment of a measure concluding an administrative proceeding which comprises several stages does not necessarily entail the annulment of the entire procedure regardless of the grounds, procedural or substantive, of the annulling judgment”.
“(70) In the case at hand, it should be noted that the Commission was in no way required to initiate a new formal investigation procedure after the annulment of the 2011 final decision, given that a formal investigation procedure relating to all the questions at issue had already been initiated in 2010 and that that procedure was not covered by the grounds of the judgment of 11 September 2014, Greece v Commission (T425/11, EU:T:2014:768).”
“(71) Moreover, there is nothing in the 2017 complaint to suggest that the attractiveness advantage referred to is different from that mentioned in the 2009 complaint, which was the subject of the 2010 opening decision, and in relation to which the applicant had submitted its comments even before the 2011 final decision.”
Investigation of the “attractiveness advantage”?
Then the applicant argued that the Commission had to reopen the formal investigation procedure because the 2014 judgment did not examine the existence of an “attractiveness advantage”.
In response, the General Court, first, noted that “(79) no provision of Council Regulation (EU) 2015/1589 of 13 July 2015 laying down detailed rules for the application of Article 108 [TFEU] (OJ 2015 L 248, p.9) specifies the cases in which the Commission is obliged to reopen the formal investigation procedure.”
“(80) According to the case-law, in order to comply with its obligations under Article 266 TFEU and conduct the new analysis required by the Court in a judgment annulling a measure, the Commission may, depending on the circumstances of the case, be compelled to reopen the formal investigation procedure, first, in order to gather the information necessary for that new analysis and, second, to give interested third parties the opportunity to put forward their arguments on that new analysis”.
“(82) In that regard, it must be recalled that it is in no way apparent from the case-law that annulment on the grounds of errors of law or manifest errors of assessment, and not on the ground of a failure to state reasons, necessarily entails reopening the formal investigation procedure. The case-law does not make the possibility of not resuming the entire procedure preceding the adoption of a measure adopted to replace another conditional on the latter having been annulled for procedural defects”.
“(84) In the case at hand, the Commission was right to consider that it was not obliged to reopen the formal investigation procedure.”
II. Recovery of incompatible State aid
On 20 January 2022, the Court of Justice, in case C51/20, European Commission v Greece, ordered Greece to pay a fine for failing to recover incompatible State aid.
The European Commission asked the Court of Justice, first, to find that Greece failed to recover incompatible State aid in accordance with the judgment of the Court of Justice of November 2017, C-481/16, Commission v Greece. Second, the Commission asked the Court to impose a fine on Greece consisting of a daily penalty of EUR 26,698 per day’s delay in complying with the 2017 [starting on the day of the delivery of the present judgment], and a lump sum of EUR 3,709 multiplied by the number of days between the 2017 judgment and full recovery of the incompatible aid.
In March 2012, the Hellenic Republic Asset Development Fund [HRADF], a company set up to manage the sale of state assets, informed the Commission of the planned privatisation of Larco, a state-owned mining company.
After a formal investigation, the Commission found, in decision 2014/539, that Larco had benefitted from several measures of incompatible State aid [state guarantees, capital injection, debt forgivance]. However, there was no State aid in the sale of Larco to new owners and no economic continuity between Larco and the new owners.
After the Commission sent several reminders to the Greek authorities requesting compliance with its 2014 decision to recover the incompatible aid, it requested the Court of Justice to declare that Greece had failed to fulfil its obligations. The Court did so in November 2017 in case C-481/16, Commission v Greece. Because Greece continued to fail to recover the full amount of the aid, the Commission initiated the present action requesting the imposition of the penalty and lump sum.
Appeals do not suspend recovery
Since Larco had also appealed against the Commission decision, the Court of Justice, first clarified the implications of that process. “(53) It should be noted that the action brought by Larco for annulment of Decision 2014/539, which gave rise to the judgment of 26 March 2020, Larko v Commission (C244/18 P, EU:C:2020:238), has no bearing on the enforceability of that decision and, consequently, on the present dispute. According to the case-law of the Court of Justice, as is clear from Article 278 TFEU, in the absence of a decision of the General Court to the contrary, an action for annulment does not have suspensory effect. Thus, in principle, the bringing of an action for annulment does not alter the enforceability of the decision the annulment of which is sought”.
The full text of the judgment can be accessed at:
Effective recovery
The Court of Justice recalled that “(55) the Member State to which a decision requiring recovery of unlawful aid declared incompatible with the internal market is addressed is obliged, under the fourth paragraph of Article 288 TFEU, to take all measures necessary to ensure implementation of that decision. It must succeed in actually recovering the sums owed in order to eliminate the distortion of competition caused by the anticompetitive advantage procured by that aid”.
“(56) The recovery of unlawful aid declared incompatible with the internal market must be effected without delay and in accordance with the procedures under the national law of the Member State concerned, provided that they allow the immediate and effective execution of the Commission’s decision. To this effect, the Member States concerned are required to take all necessary steps which are available in their respective legal systems, including provisional measures, without prejudice to EU law”.
Recovery from insolvent undertakings
Sometimes the undertaking that has to pay back the aid is in difficulty or insolvent. The Court of Justice stressed that the condition of the undertaking is irrelevant.
“(57) In cases in which the unlawful State aid paid and declared incompatible with the internal market must be recovered from recipient undertakings which are in financial difficulty or are insolvent, it should be recalled that such difficulties do not affect the obligation to recover. The Member State is therefore required, as the case may be, to bring about the liquidation of that company, to have its claim registered as one of that company’s liabilities or to take any other measure enabling the aid to be recovered”.
“(58) In particular, according to settled case-law, restoration of the previous situation and elimination of the distortion of competition resulting from that aid may, in principle, be achieved through registration of the debt relating to the repayment of the aid in question in the schedule of liabilities”.
“(59) However, it must be noted that such registration can satisfy the recovery obligation only if, where the State authorities are unable to recover the full amount of aid, the insolvency proceedings result in the liquidation of the undertaking, that is to say, in the definitive cessation of its activities, which the State authorities are able to bring about in their capacity as shareholders or creditors”.
“(60) It follows that the definitive cessation of the activities of the undertaking receiving aid is necessary only where the recovery of the entire amount of the aid remains impossible throughout the insolvency proceedings”.
“(63) It is clear that, […], the Greek authorities had not complied with the obligation to recover the aid in question.”
“(64) The Greek authorities did not adopt measures for the recovery of the aid in question until after 29 January 2020, the date on which the present action was brought.”
“(67) It must therefore be held that, by failing to take all the measures necessary to comply with the judgment establishing the failure to fulfil obligations, the Hellenic Republic has failed to fulfil its obligations under Article 260(1) TFEU.”
Fines
After the Court of Justice found that Greece failed repeatedly to recover the incompatible aid from Larco, it proceeded to consider the proposal of the Commission for imposition of fines. The purpose of such fines is to incentivise the Member State concerned to comply and to dissuade it from repeating the same behaviour in the future. The fines have two forms: periodic penalty and a lump sum.
Periodic penalty
“(86) It is for the Court to determine, in the light of the circumstances of the case before it and according to the degree of persuasion and deterrence which appears to it to be required, the financial penalties appropriate, in particular, for preventing the recurrence of similar infringements of EU law”.
“(90) The Hellenic Republic has failed to establish that, at the time of the Court’s examination of the facts of the case, it had taken all measures necessary to comply with the judgment establishing the failure to fulfil obligations.”
“(96) For the purposes of determining the amount of a penalty payment, the basic criteria which must be taken into consideration in order to ensure that that payment has coercive effect and that EU law is applied uniformly and effectively are, in principle, the seriousness of the infringement, its duration and the ability to pay of the Member State in question. In applying those criteria, regard must be had, in particular, to the effects on public and private interests of the failure to comply and to how urgent it is for the Member State concerned to be induced to fulfil its obligations”.
“(97) In the first place, as regards the seriousness of the infringement, the fundamental nature of the provisions of the FEU Treaty on State aid should be recalled”.
“(103) It must be held that there is a repetition of the conduct infringing the State aid rules by that Member State.” The Court went on to cite six previous cases over the past ten years.
“(122) It is appropriate to impose a six-monthly penalty payment to enable the Commission to assess the progress of the measures implementing the judgment establishing the failure to fulfil obligations, having regard to the situation prevailing at the end of the period concerned.”
“(123) In the light of the foregoing and of the Court’s discretion under Article 260(3) TFEU, the Hellenic Republic must be ordered to pay to the Commission a periodic penalty payment of EUR 4,368,000 for each six-month period of delay in implementing the measures necessary to comply with the judgment establishing the failure to fulfil obligations, from the date of delivery of the present judgment until full compliance with the judgment establishing the failure to fulfil obligations.”
The lump sum
“(130) In the present case, all the legal and factual circumstances culminating in the breach of obligations established indicate that, if the future repetition of similar infringements of EU law is to be effectively prevented, a dissuasive measure must be adopted, such as a lump sum payment.”
“(134) In the light of all the foregoing, the Court considers that proper account of the circumstances of the present case will be taken by setting the amount of the lump sum which the Hellenic Republic will have to pay at EUR 5,500,000.”
