Introduction
It is now well-established that if a State aid measure is inherently or indissolubly linked to a an infringement of EU law outside the field of State aid it cannot be found to be compatible with the internal market.
As a result of the judgment of the General Court on 24 May 2023, in case T-268/21, Ryanair v European Commission,1 it now also clear that the Commission must conduct a thorough investigation of possible infringement of any provision of EU law that is identified by a complainant who can demonstrate that the claimed infringement is caused by a requirement that is inherent in the contested aid measure.
The judgment arose from an appeal lodged by Ryanair against Commission decision SA.59029 on a compensation scheme for Italian airlines. The scheme aimed to offset losses suffered by airlines as a result of travel restrictions to prevent the spread of the covid-19 pandemic. Eligible airlines had to satisfy four conditions, namely that i) they had to licensed in Italy, that ii) they had not received compensatory aid by another measure, that iii) they did not operate very small aircraft and that iv) they paid their employees in Italy above a certain minimum level of remuneration.
Ryanair submitted four pleas against the Commission decision: i) breach of the principles of non-discrimination, freedom to provide services and freedom of establishment; ii) infringement of Article 107(2)(b) TFEU and a manifest error of assessment of the proportionality of the aid in view of the damage caused by the covid-19 crisis; iii) infringement of its procedural rights; and iv) infringement of the obligation to state reasons.
The General Court examined only the fourth plea and explained that “(17) infringement of the obligation to state reasons goes to an issue of infringement of essential procedural requirements and does not relate to the substantive legality of the contested decision”.
Insufficient explanation
With respect to the fourth plea, Ryanair claimed that the Commission decision did not enable it to understand the reasons why the Commission examined the compatibility with EU law of the fourth condition for eligibility of the aid, namely the requirement of a minimum remuneration, solely in the light of Regulation 593/2008 on the law applicable to contractual obligations [also known as “the Rome I Regulation”], and not in the light of the principles of non-discrimination and freedom to provide services as enshrined in Article 56 TFEU.
The General Court, first, recalled the principles applying to a decision of the Commission to authorise the aid without opening the formal investigation procedure.
“(21) The decision not to initiate the formal investigation procedure provided for by Article 108(2) TFEU must simply set out the reasons for which the Commission takes the view that it is not faced with serious difficulties in assessing the compatibility of the aid at issue with the internal market, and even a succinct statement of reasons for that decision must be regarded as sufficient for the purpose of satisfying the requirement to state adequate reasons laid down in Article 296 TFEU if it discloses in a clear and unequivocal fashion the reasons for which the Commission considered that it was not faced with serious difficulties, the question of whether the reasoning is well founded being a separate matter”.
“(22) In the present case, with regard to the compatibility of the measure at issue with the internal market, it is apparent, first of all, from the contested decision that the Commission referred to the judgments of 22 March 1977, Iannelli & Volpi (74/76, EU:C:1977:51, paragraph 14), and of 15 June 1993, Matr v Commission (C225/91, EU:C:1993:239, paragraph 41), according to which aspects of aid which contravene specific provisions of the FEU Treaty, other than Articles 107 and 108 TFEU, could be so indissolubly linked to the object of the aid that it is impossible to evaluate them separately, with the result that their effect on the compatibility or incompatibility of the aid as a whole would then of necessity have to be determined in the context of the procedure prescribed in Article 108 TFEU (recital 92 of the contested decision). In that regard, the contested decision states that the Italian Republic established four eligibility conditions for selecting the potential beneficiaries of the measure at issue and that the Commission considered that those four conditions were indissolubly linked to the measure at issue (recital 93 of the contested decision).”
“(23) Next, in recital 95 of the contested decision, the Commission noted that there was a particular reason for examining the fourth eligibility condition requiring beneficiaries to pay a minimum remuneration to their employees whose home base was in Italy. The Commission took the view that that requirement was not inherent in the objective of the measure at issue, given that its aim was to ensure that the beneficiaries guarantee a minimum salary protection to their employees whose home base was in Italy, as required by Italian law. Consequently, in its view, the compatibility of that requirement had to be assessed in the light of ‘other relevant provisions of Union law’.”
Indeed, it seems that paragraph 93 of the Commission decision contradicts paragraph 95. “Indissolubly linked” must mean “inherent”, unless the Commission understands those two terms to mean something else. If that were the case, the decision should have explained the difference.
Not surprisingly, the Court went on to stress that “(24) the contested decision does not disclose in a clear and unequivocal manner the reasoning which led the Commission to state both that the minimum remuneration requirement was indissolubly linked to the measure at issue, in recital 93 of that decision, and that that requirement was not inherent in the objective of that measure, in recital 95 of that decision.”
“(25) In addition, in recitals 96 to 98 of the contested decision, the Commission stated that the minimum remuneration requirement applied only to employees whose home base was in Italy. It went on to examine that requirement in the light of Article 8 of the Rome I Regulation, which lays down special conflict-of-law rules relating to individual contracts of employment. It found that, in accordance with that provision, all carriers with employees based in Italy were required to respect the minimum protection afforded by Italian law, irrespective of the nationality of the carrier or the law applicable to the individual contract of employment. On that basis, it concluded, in recital 99 of the contested decision, that the minimum remuneration requirement prima facie complied with the protection granted to employees under the Rome I Regulation and did not constitute an infringement of ‘other provisions of Union law’.”
Infringement of other provisions of EU law
The General Court went on to criticise the Commission for not examining anything else apart from the Rome I Regulation.
“(26) The Commission did not set out the reasons substantiating its view that the only relevant provision, other than Articles 107 and 108 TFEU, in the light of which it had to examine the compatibility of the minimum remuneration requirement with EU law, was Article 8 of the Rome I Regulation.”
“(27) It thus becomes clear that the Commission’s finding in recital 99 of the contested decision, to the effect that the minimum remuneration requirement was not contrary to ‘other provisions of Union law’, does not state the reasons on which it is based. Apart from Article 8 of the Rome I Regulation, the Commission did not refer to any other provision of EU law in the light of which it examined that requirement. Accordingly, the Commission failed to set out in a clear and transparent manner the reasons why it had found that that requirement did not constitute an infringement of ‘other provisions of Union law’.”
“(28) That failure to state reasons is, moreover, illustrated by the fact, set out in recitals 94 and 95 of the contested decision, that, when examining the minimum remuneration requirement, the Commission took account of the ‘context’, namely the complaint filed by the Italian Low Fares Airline Association (AICALF)”.
“(29) According to that complaint, the Italian legislation at issue was unlawful in so far as it provided that air carriers had to pay their employees whose home base was in Italy remuneration which could not be lower than the minimum remuneration established by the relevant national collective agreement for the air transport sector, concluded by the most representative trade unions and employers at national level. AICALF maintained that the national collective agreement referred to in that legislation had been negotiated by a trade association which was not representative, since its members accounted for only 11.3% of total Italian air traffic. According to AICALF, that legislation constituted an indirectly discriminatory restriction on the freedom to provide services within the meaning of Article 56 TFEU.”
At this point it should be noted that Commission decision SA.59029 does not provide details of the complaint of AICALF, nor does it mention Article 56 TFEU.
Nonetheless, the General Court considered that “(32) in view of that context, the Commission was a fortiori in a situation in which it had to rule on the relevance of Article 56 TFEU as ‘[another provision] of Union law’ in respect of which it potentially had to examine the compatibility of the measure at issue with the internal market.”
“(33) Thus, the applicant is correct in arguing that the contested decision does not enable it to understand the reasons why the Commission examined the compatibility of the minimum remuneration requirement with EU law solely in the light of Article 8 of the Rome I Regulation, and not in the light, in particular, of the principle of freedom to provide services, enshrined in Article 56 TFEU.”
“(35) That conclusion is not called into question by the fact, noted in recital 94 of the contested decision, that, on the date of adoption of the contested decision, no infringement proceedings under Article 258 TFEU had been initiated against the Italian Republic on account of the legislation referred to in the complaint. It follows from the overall scheme of Article 258 TFEU that the Commission is not required to initiate such proceedings. It has a discretion in that regard […] Accordingly, the fact that the Commission did not initiate infringement proceedings does not mean that the Italian legislation at issue is compatible with EU law. Hence that clarification has no bearing on the inadequacy of the statement of reasons for the contested decision.”
Indeed, the fact that no infringement action had been initiated against Italy was irrelevant for the purpose of determining the compatibility of the aid. It is a well-established principle in the case law that the Commission must exercise its powers under Articles 107 and 108 TFEU regardless of any other provisions in the Treaty.
“(36) As regards the statement in recital 99 of the contested decision that ‘it will be for the Italian competent authorities, and, as the case may be, the Italian courts, to ensure that [the minimum remuneration requirement] is implemented and enforced in a way which is compatible with Union law’, it must be borne in mind that the assessment of the compatibility of aid with the internal market falls within the exclusive competence of the Commission, subject to review by the EU judicature […] Accordingly, the fact that the Italian authorities or courts are able to ensure that that requirement is implemented and enforced in accordance with EU law does not relieve the Commission of its obligation to assess the compatibility of aid with the internal market, including, where appropriate, in the light of provisions of EU law other than Articles 107 and 108 TFEU. Therefore, the statement in recital 99 of the contested decision also has no bearing on the inadequacy of the statement of reasons given in the contested decision.”
Conclusion
Although it appeared that the Commission contradicted itself by claiming, without explanation, that the fourth eligibility criterion of the Italian measure was both inherent and not inherent in the measure, the fatal mistake was the omission of the Commission to extend its investigation of possible infringement of other provisions of EU law beyond the Rome I Regulation.
This raises the important question whether it is incumbent on the Commission to examine the vast body of EU law for possible infringement. Given its volume, such an obligation would create a Herculean task for the Commission. However, the General Court appeared to limit the extent of that obligation to the “context” of the case and in particular to the law cited by the complainant. But, in the absence of a complaint, it seems that the Commission must necessarily examine possible infringement of any other provision of EU law that appears to be relevant to any inherent component of an aid measure.
