Introduction
The Commission, in its control of State aid, occasionally makes mistakes. EU courts may annul erroneous Commission decisions. This raises the question whether affected undertakings may ask for compensation. The answer is that in order to be eligible for compensation, an undertaking must have suffered damage as a result of an error that constitutes a “serious breach” of EU law.
It is rather rare in the field of State aid for the Commission to commit an error that can be considered to be a serious breach. This was confirmed by the General Court on 20 December 2023, when in, in case T-415/21, Banca Popolare di Bari v European Commission, dismissed the application of Banca Popolare di Bari [BPB] demanding compensation for damage it allegedly suffered as a result of Commission decision 2016/1208 which found that Italy had granted incompatible State aid to Banca Tercas.1
Decision 2016/1208 was annulled by the General Court, in case T-98/16, Italy v European Commission. The judgment of the General Court was endorsed by the Court of Justice in case C-425/19 P, European Commission v Italy.
Banca Tercas had been rescued by a private banking consortium – FITD. Both EU courts considered that the Commission had committed an error because it held that FITD acted on behalf of the state. However, both EU courts ruled that FITD had no obligation to rescue Banca Tercas and, therefore, its actions could not be imputed to the Italian state. At the time of the intervention of FITD, BPB also injected capital in Banca Tercas by acquiring newly issued shares.
The concept of non-contractual liability of EU institutions
The General Court, first, recalled the provisions of Article 340 TFEU according to which the EU is obliged to compensate damage caused by its institutions or by its officials in the exercise of their duties. [paragraph 70 of the judgment]
The EU incurs non-contractual liability if three conditions hold: The conduct of the institutions or officials is illegal, that conduct causes damage to a person by affecting its legal rights and there is a causal link between the conduct and the damage. [para 71]
Alleged illegal conduct
For illegality to be found to result in non-contractual liability, the act or conduct in question must infringe a rule of law whose purpose is to confer rights to individuals. BPB claimed that the Commission was wrong to consider that the rescue of Banca Tercas by FITD constituted illegal and incompatible State aid.
The General Court, first, noted that liability can be incurred not only when a rule of law that confers rights to individuals is infringed but also when the infringed law aims to protect the interests of individuals. [para 80]
Article 107(1) TFEU declares State aid to be in principle incompatible with the internal market in order to guarantee fair competition between undertakings and to protect the interests of individuals and businesses. [paras 82-83]
This is because, by analogy, the Court of Justice held that Article 101(1) TFEU, which seeks to prohibit agreements between undertakings, produces direct effects in the relations between individuals and generates rights for litigants. In particular, that provision confers rights to individuals. [para 84]
However, the General Court also observed that individuals cannot, on the sole basis of Article 107 TFEU, challenge the compatibility of aid with EU law before national courts, nor ask national courts to rule on its possible incompatibility. [para 86] Indeed individuals can challenge before national courts only aid that is illegal; i.e. aid that was granted without prior notification to and approval by the Commission.
That is why, the concept of State aid must be applied with a view to determining whether a state measure should have been subject to the notification procedure provided for in Article 108(3) TFEU. [para 87]
Consequently, the application of the concept of State aid referred to in Article 107(1) TFEU is linked to the application of Article 108(3) TFEU. The General Court recalled that the notification obligation constitutes one of the fundamental elements of the control system established by the FEU Treaty in the field of State aid. [para 88]
It follows from the direct effect of Article 108(3) TFEU that national courts must guarantee to indoviduals that all the consequences of a violation of that provision will be drawn, in accordance with their national law, as regards concerns both the validity of implementing acts
and the recovery of financial support granted in disregard of this provision or possible interim measures. [91]
Article 108(3) TFEU may therefore be invoked by individuals in order to assert their rights. [para 93]
Furthermore, the application of Article 107(1) TFEU by the Commission may be challenged before EU courts by the beneficiaries of the aid, their competitors as well as Member States. [para 94]
Then the General Court noted that in the present case the Commission adopted the Tercas decision in violation of Article 107(1) TFEU, given that the Commission wrongly found that the measure in question constituted State aid. It follows, that the application of Article 107(1) TFEU affected the rights of BPB as a beneficiary of the measures in question and because of the amount which had to be recovered. [para 95]
On the existence of a sufficiently serious breach
Then the General Court examined whether the error committed by the Commission could be considered to be a “serious breach” of EU law.
First, the General Court explained that only illegality of an institution resulting in a sufficiently serious violation is capable of incurring the liability of the Union. In this regard, it should be recalled that the decisive criterion for considering that a violation of Union law is sufficiently serious is that of the institution’s manifest and serious disregard of the limits imposed on its decision-making discretion. [para 103]
In other words, some mistakes do not constitute a serious breach of EU law, and cannot result in non-contractual liability, if another reasonable person in the same situation as the responsible EU institution would have done the same.
The General Court also explained why only serious breaches incur non-contractual liability. This is because the requirement of a sufficiently serious breach of EU law aims to prevent the hindering of the ability of the institution concerned to fully exercise its powers in the general interest, both in the context of its normative activity or involving choices of economic policy and in the sphere of its administrative competence, without allowing individuals to bear the burden of the consequences of flagrant and inexcusable breaches. [para 104]
Thus, only the observation of an irregularity which would not have been committed, in similar circumstances, by a normally prudent and diligent administration makes it possible to incur non-contractual liability. [para 105]
To determine whether an EU institution has acted prudently and diligently, it is necessary to take into account in particular the complexity of the situation to be resolved, the difficulties of application or interpretation of the texts and, more particularly, the margin of discretion available to the institution in question. [para 106]
It follows that, when an institution has only a considerably reduced margin of discretion, or even none at all, the simple infringement of EU law may be sufficient to establish the existence of a serious infringement. On the other hand, it is different when this institution has broad discretion. In this case, the decisive criterion for considering that a violation is sufficiently serious consists of the manifest and serious lack of awareness by the institution of the limits imposed on its discretion. [para 107]
It should also be clarified that there is no automatic link between, on the one hand, the lack of discretion of the institution concerned and, on the other hand, the classification of the illegal act as a serious breach. [para 108]
The General Court also stressed that, in order to determine whether illegal conduct by an EU institution constitutes a sufficiently serious breach, the review by that Court is itself more demanding than that which is required in the context of an action for annulment. Therefore, simple errors of assessment and the failure to present adequate evidence cannot be sufficient as such to qualify as a manifest and serious violation of the limits imposed on the Commission’s discretion. [para 11]
The General Court also pointed out that the ability of the Commission to fully exercise its power entrusted to it by the Treaties would be compromised, if the notion of serious beach included errors or faults which were related by their nature or their extent to the normal behaviour of an institution responsible for ensuring the application of competition rules, which are complex and subject to significant room for interpretation. On the other hand, the right to compensation for damage resulting from the conduct of an institution should result from an act manifestly contrary to the rule of law, which is seriously prejudicial to the interests of third parties and cannot be justified or explained by the normal function of that institution. [para 112]
The complexity of imputing a measure to the state
In the present case, it is apparent that, in adopting the Tercas decision, the Commission did not correctly apply the concept of intervention of the state or by means of state resources. The Commission did not prove to the sufficient legal standard the involvement of the Italian public authorities in the adoption of the measure in question nor, therefore, the imputability of that measure to the state. [paras 114-115]
Then the General Court stated that although the General Court and the Court of Justice recognised that the Commission infringed Article 107(1) TFEU, that violation was not necessarily sufficiently serious for that reason alone. [para 116]
This was because the Commission, in order to determine the imputability of the measure to the Italian state, had to take into account a number of indicators and to assess the extent of the influence of the Italian authorities on FITD in a complex situation. [paras 117-121]
Then, the General Court added the important observation that the irregularity committed by the Commission in this case was not unrelated to the normal, prudent and diligent behaviour of an institution responsible for ensuring the application of competition rules. [para 122]
On the existence of a causal link between the Commission decision and the alleged damage
BPB claimed that it suffered financial damage as a result of the deterioration in the confidence of its customers and loss of deposits that were caused by the uncertainty over its ability to successfully complete the Tercas transaction and the extensive media coverage of the Commission decision.
First, the General Court pointed out that the alleged damage had to arise in a sufficiently direct manner from the illegal conduct, which excluded, in particular, damage which would only be a distant consequence of that conduct. [para 133]
Then, it noted that although, by the Tercas decision, the Commission erroneously required that the FITD intervention measures had to be recovered as incompatible State aid, the decisions of the BPB’s clients, which allegedly caused the claimed damage, were taken in the context of the assessments and valuations made by the latter with regard to their financial interests. [para 138]
However, the General Court appeared to disregard that the valuations of BPB’s clients naturally took into account the Commission decision and that the decision was an important event that could not be ignored by the clients of a bank.
Moreover, the applicant suffered a loss of deposits before the Commission decision because it was attempting to acquire Banca Tercas that was a failing bank. [para 146]
Again, the General Court did not attempt to separate the impact of the Commission decision from the impact of the failing status of Banca Tercas.
Conclusions
In the end, it was irrelevant whether BPB had suffered damage or not. This is because the three conditions for non-contractual liability are cumulative. Since the Commission’s error was not a serious breach of EU law, BPB was not eligible for compensation anyway.
