Recovery of State Aid

1
Recovery of State Aid

• The role of the national judge
• in State Aid Cases

2
Structure

• Legal basis
• Art. 88 para 3 EC-Treaty
• Council Regulation (EC) No 659/1999
• Procedure
• Involvement of national judges
• Case study
• Steel plant case
• Overview of actions

3
Legal basis

• Primary community law, Article 88 (3)
  EC-Treaty
• The Commission shall be informed, in sufficient
  time to enable it to submit its comments, of any
  plans to grant or alter aid.
• If it considers that any such plan is not
  compatible with the common market having regard
  to Article 87, it shall without delay initiate
  the procedure provided for in paragraph 2.
• The Member State concerned shall not put its
  proposed measures into effect until this
  procedure has resulted in a final decision.

4
Legal basis II

• Secondary community law,
  Council Regulation (EC) No 659/1999
• Art. 14 (1) Recovery of aid
• Art. 11 (2) Injunction to suspend or
  provisionally recover aid

5
Article 14 (1) Procedural Regulation

• Where
• negative decisions are taken
• in cases of unlawful aid,
• the Commission shall decide
• that the Member State concerned
• shall take all necessary measures
• to recover the aid from the beneficiary.

6
Article 11 (2) Procedural Regulation

• The Commission may,
• after giving the Member State concerned the
  opportunity to submit its comments,
• adopt a decision
• requiring the Member State provisionally to
  recover any unlawful aid
• until the Commission has taken a decision on the
  compatibility of the aid with the common market
  (hereinafter referred to as a 'recovery
  injunction), if the following criteria are
  fulfilled

7

• according to an established practice there are no
  doubts about the aid character of the measure
  concerned and
• there is an urgency to act and
• there is a serious risk of substantial and
  irreparable damage to a competitor.

8
Procedure Preliminary Examination

• Information to the European Commission according
  to Art. 88 para 3 ECT combined with Art. 2 para 1
  Procedural Regulation before introduction or
  alteration of a new aid (Notification),
• provisional analysis of notified (new) aids and
  decision about their compatibility with the
  common market, according to Art. 88 para 3 ECT,
  combined with Art. 4 Procedural Regulation
• Obligation to give information, on demand, during
  the analysis, according to Art. 10 ECT combined
  with Art. 5 para 1 Procedural Regulation

9
Procedure II Formal Investigation Procedure

• Consequence of the Preliminary Examination
• a) Authorization of the aid or
• b) Opening the Formal Investigation Procedure
  based on Art. 88 para 2 ECT combined with Art. 4
  para 4 Procedural Regulation
• Legal consequences of the Formal Investigation
  Procedure, according to Art. 7 Procedural
  Regulation
• a) Decision No aid!
• b) Positive Decision (approval),
• c) Conditional Decision (approval under
  conditions),
• d) Negative Decision (no approval).

10
Procedure III Standstill Clause

• According to Art. 88 para 3 sentence 3 ECT
  combined with Art. 3 Procedural Regulation
• Aid shall not be put into effect,
• before
• the Commission has taken,
• or is deemed to have taken,
• a decision authorizing such aid.

11
Procedure IVUnlawful aid

• If aid has been granted without prior
  notification and without approval
• (European Commission is (partly) informed by a
  competitor or newspaper)
• Member State authorities are requested for
  further information to the Commission.
• Analysis in Preliminary Examination by the
  Commission ( DG Competition)
  gt justification of that aid?
• Opening of the Formal Investigation Procedure
  (related to unlawful aid).
• Legal consequences of the Formal Investigation
  Procedure gt negative decision incl. order of
  recovering that aid!
• Execution of that recovery
• by Member State authorities
• based on Member State rules, but
• take all necessary measures .

12
Procedure VUnlawful aid (Overview)

• Information to Commission

Approval of aid
Violation of Notification Obligation
Justifi- cation of aid
Justifi- cation of aid
Preliminary Procedure By the Commission
Formal Investigation Procedure
No justification
No Justification
Principle of Effectiveness
Legal Action by enterprise
Execution by the respective authority in MS
Negative Decision Order of Recovery
Order to MS
Approval of Recovery by Civil and Administrative
Courts
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Involvement of national judges

• Civil Jurisdiction
• Situation Enterprise claims for damages related
  to (potential) incorrectness of national
  authorities
• Compensation of damage caused by breach of trust
  (if the legal action is justified).
• No compensation of damage on the level of
  positive interest!
• To grant the State aid again, which has been
  recovered before, in the form of damages has to
  be avoided entirely! If not
• gtViolation of European Principle of
  Effectiveness!

• Administrative Jurisdiction
• Situation Enterprise is defending the aid in
  order to keep it.
• European Principle of effectiveness orders to
  implement all procedural measures in order to
  execute the recovery decision of the European
  Commission
• No discretion related to
• renouncement of recovery,
• reduction of recovery,
• delay of recovery.

14
Case Study, Steel-Plant I.1. Administrative
Procedure

• Steel-plant I. applies for regional aid (for an
  investment) on 30/09/1994
• 5.850.000 DM grant
• 950.000 DM tax reduction
• Deadline for notification to the Commission
  30/06/1994
• Deadline for payment, which may be approved
  31/12/1994
• Administrative act granting the state aid
  20/10/1994 (under the condition of notification
  to and approval by European Commission)
• 04/11/1994 Ministry of Economy (Saxony-Anhalt)
  sends the draft of notification to Federal
  Ministry of Economy.

15

• 24/11/1994 Federal Ministry of Economics notifies
  the state aid to European Commission.
• 01/12/1994 Commission advises Germany to withdraw
  the notification because of the failure to
  observe the deadline for payment before 1995
• 13/12/1994 Germany refuses to withdraw that
  notification.
• 21/12/1994 Letter from Commissioner Bangemann to
  the enterprise (received 27/12/1994)
• Content
• The Aid has been approved by the Commission.
• He has got this information by the Commissioner
  van Miert, who is responsible for DG Competition
  (State aid control).
• Form
• Official Letter!
• Letter to the enterprise!

16

• 14/02/1995 Commission (DG Competition)
• gives the information
• No approval in this case!
• requests for additional information.
• 23/02/1995 Rectification of the error from the
  letter by Commissioner Bangemann (from December
  1994)
• 14/03/1995 Commission
• gives detailed information about preliminary
  procedure,
• requests for additional information
• 19/04/1995 Additional information by the Federal
  Government for DG Competition
• 31/10/1995 Commission opens Formal Investigation
  Procedure
• 4 negative opinions by interested parties

17

• 30/05/1996 Closing of Formal Investigation
  Procedure
• Negative decision (no approval),
• Order of recovery
• Reason
• Payment , based on Steel Codex, has been limited
  until 31.12.1994
• Notification came to late to enable DG
  Competition to ask for opinions (only 17 working
  days!).

18
Case Study, Steel-Plant I.2. Legal Action before
European Courts

• Enterprise attacks the negative and recovery
  decision of the European Commission (from
  30.05.1996) before
• the European Court of First Instance on
  15.08.1996 (and then)
• the European Court of Justice 04.06.1998 .

19

• 15/08/1996 Steel Plant I. goes to European Court
  of First Instance against the decision of the
  European Commission from 30.05.1996
• Nullity suit (Art. 230 EC-Treaty)
• Reason
• Equality Notification by other parties in the
  same period have been accepted.
• No reason for additional analysis Argument of
  the lack of time is without justification.
• Aid could be approved also after 31.12.1994.
• Violation of obligation to give reasons.

20

• 08/11/1996 Statement of Defense by the European
  Commission.
• 12/11/1996 Federal Governments becomes joint
  litigant on the side of the enterprise.
• 03/02/1997 Reply to the Statement of Defense by
  the enterprise.
• 12/03/1997 Paper of the joint litigant on the
  side of the enterprise (the Federal Government)
  has been sent to court.

21

• 30/04/1997 Reply of the Commission to that paper
  of the Federal Government
• 31/03/1998 Rejection of that legal action by
  European Court of First Instance

26/02/1999 Legal action of the enterprise at the
administrative court
30/07/1997 Administrative act of the respective
authority in Saxony-Anhalt in order to recover
that aid.
22

• Reasons for Rejection
• Notification has been to late.
• Failures of the European Commission have not been
  proved.
• The Letter of Commissioner Bangemann could not
  create legitimate expectation.
• It was only the answer to a letter of the
  enterprise, asking for support. This cannot
  create legitimate expectation.

23

• 04/06/1998 Enterprise sent
• appeal
• against that decision
• to the European Court of Justice.
• 11/08/1998 Statement of Defense by the European
  Commission
• 13/11/1998 Reply to the Statement of Defense by
  the enterprise
• 02/02/1999 Reply of the European Commisson
• 11/11/1999 Court hearing at European Court of
  Justice

24

• 13/06/2000 European Court of Justice
• confirms
• the decision of European Court of First Instance,
  
• confirming
• the decision of the European Commission
• incl. the order of recovery!!!

25
Case Study, Steel-Plant I.3. Legal Action before
Administrative Courts

• 30/07/1997 Administrative act in order
• to execute the decision of the European
  Commission and
• to recover the money.
• 29/08/1997 Objection of the enterprise against
  that administrative act. Reasons
• Decision of the European Commission is not yet
  final, because legal action is going on before
  European Court of Justice.
• Legitimate expectation of the enterprise related
  to administrative act granting the aid.

26

• 20/01/1999 Objection of the enterprise is
  rejected by respective authority
• Decision of the European Commission is binding
  the authority executing the order of recovery.
• Objection is not founded, because legal action
  against the decision of the European Commission
  has no suspensive effect.
• No legitimate expectation of the enterprise,
  because State aid has been granted without
  finalizing the normal notification procedure.

27

• 26/02/1999 Legal action before the administrative
  court against the administrative act, which
  recovers the aid.
• If European Court of Justice will make the
  declaration of nullity, the recovery has been
  executed to early.
• 13/12/1999 Decision on immediate execution of the
  recovery by the respective authority
• European law has a higher rank than national law.
• European Principle of effectiveness is ordering
  immediate execution of the order of recovery.

28

• 19/01/2000 Application of the enterprise to the
  administrative court in order to establish the
  suspensive effect
• 28/01/2000 Administrative Court orders to
  establish the suspensive effect.
• 08/02/2000 Appeal to the Higher Administrative
  Court by the respective authority.
• Termination by Decision of the European Court of
  Justice on 13/06/2000.

29
Case Study, Steel-Plant I.4. Execution of
Recovery

• 15/01/2001 enterprise is paying back 5.265.000 DM
• 26/04/2001 enterprise is also paying the
  interest 1.630.774,26 DM

30
Case Study, Steel-Plant I.5. Legal Action before
Civil Courts

• 04/03/2002 Legal action at regional court (LG)
  of Magdeburg for damages against the state
  Saxony-Anhalt.
• Legal action related to public liability.
• To slow activity of public officers in the
  Ministry of Economy.
• Notification arrived at the European Commission
  to late.
• 27/09/2002 Rejection of that legal action by the
  regional court of Magdeburg
• One (important) reason
• No State aid may be granted in the form of
  damages related to public liability
• in order to avoid that the ban on State aid may
  be evaded. (European principle on effectiveness!)

31

• 18/11/2002 Appeal of the enterprise to the higher
  regional court (OLG) of Naumburg.
• 14/05/2003 Rejection of that appeal by the higher
  regional court (OLG) of Naumburg incl. exclusion
  of appeal on points of law.
• 06/10/2003 Complaint against exclusion of appeal
  on points of law to the Federal High Court of
  Justice
• 18/12/2003 Rejection of that complaint by the
  Federal High Court of Justice.

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Case Study, Steel-Plant I.6. Overview of actions

• Different judges have been involved
• on European level and
• regional/national level
• after the European Commission had decided on
  recovery

Decision of European Commission/ Order of
Recovery
Appeal to European Court of Justice
Legal action at European Court
Higher Administrative Court
Implementation/ execution by MS- authorities
Objection
Legal actions Administrative court
Recovery
Legal Action
Damages
Civil Courts
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