State Aid: Some Issues with Regard to Execution of Commission’s Recovery Decisions

Paris Anestis and Eleftheria Psaraki*

Howrey LLP

The Treaty of Rome has explicitly and unambiguously entrusted the European Commission with the task of enforcing the Community state aid rules. The Commission is thus empowered to order a member state to recover unlawfully granted aid, namely aid granted in violation of the notification or of the standstill obligation, or aid declared incompatible with the common market by means of a negative Commission decision.¹ This article explores some controversial issues arising in the context of the implementation of negative Commission decisions ordering recovery of illegally granted aid (recovery decisions), as illustrated by the jurisprudence of the European Court of Justice (ECJ) and the Court of First Instance of the European Communities (CFI).

Recovery of unlawful aid

The ECJ has consistently held that, in principle, illegal state aid should be repaid.² Article 14 of Regulation 659/99 confirmed previous case law by stipulating that when the Commission adopts negative decisions, it shall decide that the member state concerned shall take all necessary measures to recover the aid from the beneficiary.³ However, the Commission exceptionally shall not require recovery of the aid in cases where such recovery would be contrary to a general principle of Community law.⁴

General principles of Community law

In this context, the ECJ has acknowledged that the principles of the protection of legitimate expectations and assurance of legal certainty are part of the legal order of the Community. The court has gone further, and recognises that national legislation providing for these principles to be observed in the recovery of illegally paid Community aid is in accordance with the Community legal order.⁵
The ECJ explicitly recognised the existence of legitimate expectations on the side of the beneficiary in the RSV judgment.⁶ The case concerned aid granted by the government of the Netherlands and intended to meet the additional costs of an operation previously the subject of authorised aid. Although the examination of the aid in question did not call for deep research, the Commission did not take a decision declaring it to be incompatible with the common market and ordering its cancellation until 26 months after its notification. In the court’s view, the Commission’s delay in adopting its decision could establish on the part of the beneficiary of the aid a legitimate expectation of such a nature as to prevent the Commission from requiring the national authorities to order the recovery of the aid. Using similar reasoning, the European courts have held that the fundamental requirement of legal certainty has the effect of preventing the Commission from indefinitely delaying the exercise of its powers.⁷
In a recent decision concerning France Télécom,⁸ the Commission applied the principle of protection of legitimate expectations in a pragmatic way. The Commission had to examine for the first time whether the verbal support from the French government with regard to a shareholder loan proposal (which France had notified to the Commission) restored confidence to the market vis-à-vis France Télécom and turned the shareholder loan proposal into state aid. No recovery was deemed necessary, as the Commission accepted that the beneficiary could entertain the legitimate expectation that France’s conduct did not constitute state aid.
Although recipient undertakings have often relied on the principles of the protection of legitimate expectations and of legal certainty in accepting state aid, the interpretation of these principles by the ECJ to date has been extremely narrow. For example, the ECJ has ruled that, due to the mandatory nature of the supervision of state aid by the Commission under article 88 of the EC Treaty, undertakings to which aid has been granted may not, in principle, entertain a legitimate expectation that the aid is lawful if the procedure laid down in article 88 of the EC Treaty has not been respected.⁹ Beneficiary undertakings are thus required to be able to determine whether the procedure of article 88 of the EC Treaty has been followed. Moreover, they cannot rely on the principle of legitimate expectation even in cases where the state granting the aid is responsible for the illegality of the decision to grant aid to such a degree that its revocation appears to be a breach of good faith.
In the court’s view, the principle that national legislation must be applied without discrimination compared to purely national procedures of the same kind requires the interests of the Community to be taken fully into consideration in the application of a provision which requires the various interests in question, namely on the one hand the public interest in the revocation of the measure and on the other hand the protection of the legitimate expectations of the person to whom it is addressed, to be weighed up against one another before the decision is revoked.¹⁰
The case law of the ECJ seems to indicate that, generally speaking, in order for a party to be able to rely on the principle of the protection of legitimate expectations the following conditions must be fulfilled:¹¹
• the party must be able to invoke an established right capable of protection;
• the interference with that right must have been unforeseeable and it must have occurred without warning and without any transitional measure of such a nature as to enable the prudent party to avoid loss; and
• there should be no overriding public interest precluding the reliance upon legitimate expectation.

The existence of Regulation 659/99, Regulation 794/2004¹² and the recent Recovery Notice of the Commission¹³ makes it indeed very difficult for most state aid payments to meet the second condition and thus benefit from the principle of the protection of legitimate expectations.

National procedural autonomy versus principle of effectiveness

The aim of the Commission recovery decisions is to re-establish the existing situation on the market prior to the granting of the aid. For that reason, the ECJ does not consider the recovery of illegal aid as a penalty, but as the logical consequence of the finding that it is unlawful.¹⁴
Article 14(3) of Regulation 659/1999 stipulates that recovery shall be effected without delay and according to the existing procedures under the national law of the member state concerned, provided that they allow the immediate and effective implementation of the Commission’s recovery decision.¹⁵ This provision reflects previous ECJ case law, according to which, in general terms, under the principle of cooperation laid down in article 10 of the EC Treaty and in the absence of Community rules on a particular matter, it is for the domestic legal system of each member state to designate the courts and tribunals having jurisdiction and to lay down the detailed procedural conditions governing actions at law intended to ensure the protection of the rights which individuals derive from the direct effect of Community law.¹⁶ Such conditions may not be less favourable than those governing similar domestic actions (principle of equivalence) nor render virtually impossible or excessively difficult the exercise of the rights conferred by Community law which the national courts are bound to protect (principle of effectiveness).¹⁷ It has been held by the ECJ that where the rules and procedures applied by the national authorities in the recovery of Community aid are the same as those applied in comparable cases concerning purely national benefits, there is in principle no reason to assume that those rules and procedures are contrary to the national authorities’ duty to recover sums irregularly granted and that consequently they reduce the effectiveness of Community law.¹⁸
The fact that the Commission and the European Courts take recourse to member states’ domestic law for the enforcement of substantive Community law is a consequence of the principle of national procedural autonomy. This is not an unproblematic solution. National enforcement is characterised by two main difficulties. First, the need to find a basis for enforcement in national law ‘gives rise to ambiguities in the precise delineation of each type of claim in each member state for each different case’ and, second, ‘within the broad margins of correction afforded by the principle of effectiveness, the standards of enforcement necessarily differ between member states’.¹⁹ The divergences among national procedures used for recovery at Community level inevitably result in lack of uniformity of the Community state aid control.
The wording of article 14(3) of Regulation 659/1999 makes it clear that not only must the application of national law for recovery purposes not render the recovery impossible, as was required by earlier ECJ jurisprudence,²⁰ but it must ‘allow the immediate and effective execution of the Commission’s decision’. The Scott judgment²¹ illustrates the ECJ’s stance in case of possible tensions between the national law used as a vehicle to implement the recovery decision and the recovery obligation itself arising from that decision. In the case at issue the Court found that a French law providing for the suspensory effect of actions brought against demands for payment issued for the recovery of aid granted did not allow the ‘immediate and effective’ execution of a Commission’s recovery decision; on the contrary, such suspensory effect could considerably delay the procedure for the recovery of the aid. As a result, the ECJ explicitly held that the application of national procedures should not impede the restoration of effective competition by preventing the immediate and effective execution of the Commission’s decision.²² To achieve this result, member states should take all necessary measures available in their domestic legal system ensuring the effectiveness of that decision.
It is clear that, in the event of a procedure before national courts, the member state concerned must take all necessary steps. The case law of the European Courts has consistently held that article 249 of the EC Treaty is applicable to Commission’s recovery decisions.²³ Therefore, recovery decisions are binding for the member states to which they are addressed, requiring them to take all necessary measures to ensure execution of the decision. The only defense that may be invoked by a member state in the event that it fails to recover is the absolute impossibility of implementing the recovery decision properly.²⁴
According to the view that the national procedural autonomy has an auxiliary function in respect of the effectiveness of Community law, that is, it serves the purpose of guaranteeing the effective implementation of the Commission’s recovery decisions, member states are under a certain obligation to facilitate – not only not to render impossible – the effective and immediate execution of the Commission’s recovery decisions. In addition to the non-application of conflicting provisions of national law, which was required by earlier case law,²⁵ this should also be achieved through the appropriate tailoring of the applicable national law to ensure state aid discipline.²⁶ In the Scott case, for instance, the absence of any interim measures designed to offset the effect of the stay was criticised by the Commission.²⁷ As a result, it is suggested that member states are not allowed to adopt new provisions or to adjust the application of existing national provisions to serve their own interests when the latter are in conflict with provisions of Community law.
Courts in certain member states have gone substantially further. In its order in the Aker Warnow Werft GmbH v BvS case,²⁸ the Oberverwaltungsgericht Berlin-Brandenburg held that, in view of article 14(3) of Regulation 659/99, the national court may abstain from the normally absolute requirement under German law of a national legal basis for the pecuniary order which implements the recovery. Therefore, according to the German court, the need for an effective execution of recovery decisions supersedes even the essential requirement for a national legal basis for recovery generated by an administrative act.²⁹

***

It is clear that state aid control in the European Union is influenced by political dynamics. The tension between the principle of procedural autonomy of the member states and the effectiveness of Community law as regards the implementation of Commission decisions ordering the recovery of illegal state aid renders less effective the state aid control in general. The jurisprudence of the European courts tends to activate a responsibility for the member states to give adequate form and content to their national legal framework in order to facilitate the effet utile of the Commission’s recovery decisions. It is important, however, that the appropriate balance be applied. The same balance should be applied with regard to the application of the principles of the protection of legitimate expectations and assurance of legal certainty in the recovery of illegally paid Community aid.

Notes

* The authors have abstained from reporting experience drawn from the Olympic Airways / Olympic Airlines matters given Howrey LLP’s involvement in these ongoing cases.
1 According to article 7(5) of Council Regulation (EC) No 659/99 of 22 March 1999 laying down detailed rules for the application of article 93 of the EC Treaty, OJ L 83, 27.03.1999, p1, (‘Regulation 659/99’), as amended, a ‘negative decision’ is adopted in cases where the Commission finds that the notified aid is not compatible with the common market, and thus decides that the aid shall not be put into effect.
2 See, for example, ECJ judgment of 15 January 1986 in Case 52/84 Commission v Belgium [1986] ECR 89, paras 14-16.
3 Article 14(1) of Regulation 659/99.
4 Ibid.
5 ECJ judgment of 21 September 1983 in Joined Cases 205 to 215/82 Deutsche Milchkontor GmbH and Others v Federal Republic of Germany [1983] ECR 2633, para 30, and ECJ judgment of 20 September 1990 in Case C-5/89 Commission v Germany (BUG-Alutechnik) [1990] ECR I-3437, para 13.
6 ECJ judgment of 24 November 1987 in Case C-223/85, Rijn-Schelde-Verolme (RSV) Machinefabrieken en Scheepswerven NV v. Commission [1987] ECR 4617, para 17.
7 With regard to the principle of legal certainty, see CFI judgment of 22 January 1997 in Case T-115/94 Opel Austria GmbH v Council [1997] ECR II-39, paras 124-132; ECJ judgment of 29 April 2004 in Case C-372/97 Italy v Commission [2004] ECR I-3679, para 116; ECJ judgment of 14 July 1972 in Case 52/69 Geigy AG v Commission [1972] ECR 787, paras 20 and 21; ECJ judgment of 24 September 2002 in Joined Cases C-74/00 P and C-75/00, P Falck and Acciaierie di Bolzano v Commission [2002] ECR I-7869, para 140; and CFI judgment of 1 July 2004 in Case T-308/00 Saltzgitter AG v Commission [2004] ECR II-1933, paras 160-182.
8 Commission Decision 2006/621/EC of 2 August 2004 on the State Aid implemented by France for France Télécom, OJ [2006] L 257, 20.09.2006, p11, para 262.
9 ECJ judgment of 20 March 1997 in Case C-24/95 Land Rheinland-Pfalz v Alcan Deutschland GmbH [1997] ECR I-1591, para 25, and ECJ judgment in Case C-5/89 Commission v Germany (BUG-Alutechnik), supra note 5, para 14.
10 ECJ judgment in Joined Cases 205 to 215/82 Deutsche Milchkontor GmbH and Others v Federal Republic of Germany, supra note 5, para 32.
11 See Butterworths Competition Law, issue 74, VII: State Aids, chapter 7, para 468; ECJ judgment of 26 January 1978 in Joined cases 44 to 51/77 Groupement d’intérêt économique ‘Union Malt’ and others v Commission [1978] ECR 57, para 17.
12 Commission Regulation (EC) No 794/2004 of 21 April 2004 implementing Council Regulation (EC) No 659/1999 laying down detailed rules for the application of article 93 of the EC Treaty, OJ L 140, 30.04.2004, p1.
13 Notice from the Commission – Towards an effective implementation of Commission decisions ordering member states to recover unlawful and incompatible State aid, OJ C 272, 15.11.2007, p4.
14 See Recovery Notice, recital 13, ECJ judgment in Case C-75/97 Belgium v Commission [1999] ECR I-3671, para 65, and ECJ judgment in Case C-183/91, Commission v Greece [1993] ECR I-3131, para 16.
15 Article 14 of Regulation 659/99 not only provides for recovery of illegally granted aid, but also for interest thereon. See also Recovery Notice, recitals 22-24 and 51-53.
16 ECJ judgment of 16 December 1976 in Case 33/76 Rewe-Zentralfinanz eG and Rewe-Zentral AG v Landwirtschaftskammer für das Saarland [1976] ECR 1989, para 5; ECJ judgment of 16 December 1976 in Case 45/76 Comet BV v Produktschap voor Siergewassen [1976] ECR 2043, paras 12-15.
17 Supra note 16 and ECJ judgment of 27 February 1980 in Case 68/79 Hans Just I/S v Danish Ministry for Fiscal Affairs [1980] ECR 501, para 25; ECJ judgment of 7 July 1981 in Case 158/80 Rewe-Handelsgesellschaft Nord mbH et Rewe-Markt Steffen v Hauptzollamt Kiel [1981] ECR 1805; ECJ judgment of 19 November 1991 in Joined Cases C-6/90 and C-9/90 Andrea Francovich and Danila Bonifaci and others v Italian Republic [1991] ECR I-5357, paras 42-43; ECJ judgment of 9 June 1992 in Case C-96/91 Commission v Spain [1992] ECR I-3789, para 12; ECJ judgment of 14 December 1995 in Case C-312/93 Peterbroeck, Van Campenhout & Cie SCS v Belgian State [1995] ECR I-4599, para 12; ECJ judgment of 24 September 2002 in Case C-255/00 Grundig Italiana SpA v Ministero delle Finanze [2002] ECR I-8003, para 33; ECJ judgment of 21 February 2008 in Case C-426/05 Tele2 Telecommunication GmbH, formerly Tele2 UTA Telecommunication GmbH v Telekom-Control-Kommission, not yet reported, para 51.
18 ECJ judgment in Joined Cases 205 to 215/82, supra note 6, para 31.
19 See ‘The CELF-Judgment: A Precarious Conception of the Standstill Obligation’ by T Jaeger, EStAL 2/2008, p280.
20 ECJ judgment in Case C-142/87 Belgium v Commission [1990] ECR I-959, para 61, and ECJ judgment in Case C-5/89, supra note 6.
21 ECJ judgment of 5 October 2006 in Case C-232/05 Commission v. France [2006] ECR I-10071.
22 Id., para 50.
23 ECJ judgment in Case C-209/00 Commission v Germany [2002] ECR I-11695, para 31, and ECJ judgment in Case C-404/00 Commission v Spain [2003] ECR I-6695, para 21.
24 ECJ judgment in Case 52/83 Commission v France [1983] ECR 3707; ECJ judgment in Case C-5/89 supra note 6, para 12; ECJ judgment in Joined Cases C-485/03 to C-490/03 Commission v Spain [2006] ECR I-11887, para 74.
25 The ECJ has held that the member states’ courts are obliged to give full effect to the provisions of Community law, if necessary by refusing of their own accord to apply any conflicting provision of national legislation, even if adopted subsequently. The court has clarified that it is not necessary for national courts to request or await the prior setting aside of such conflicting provisions by legislative or other constitutional means (see ECJ judgment of 9 March 1978 in Case 106/77 Amministrazione delle Finanze dello Stato v Simmenthal SpA [1978] ECR 629, para 24). See also Recovery Notice, recital 53. Moreover, the ECJ has stated that the national courts have the obligation to consider, of their own accord, whether the Community measure would be deprived of its effectiveness if not immediately implemented due to an order with suspensory effect (see ECJ judgment of 21 February 1991 in Joined Cases C-143/88 and C-92/89 Zuckerfabrik Süderdithmarschen AG v Hauptzollamt Itzehoe and Zuckerfabrik Soest GmbH v Hauptzollamt Paderborn [1991] ECR I-415, paras 30-31).
26 See Commissioner Kroes speech on ‘State Aid enforcement in an enlarged Union – more partnership for increased efficiency’, 22 June 2006, available on www.era.int/web/fr/resources/5_1095_2821_file_en.3876.pdf, p3.
27 See Opinion of Advocate General Colomer delivered on 18 May 2006 in Case C-232/05 Commission v France [2006] ECR I-10071, para 41.
28 OVG Berlin-Brandenburg, Order of 7 November 2005, EStAL 2006, p191, with a critical annotation by C. Arhold, id., p9.
29 Id, p13.

An extract from The European Antitrust Review 2009