By Andrea Rigamonti
In this post I will analyse a particular aspect of State aid law: the temporal scope of secondary instruments applied to assess the aid’s compatibility. The case at hand deals in particular with Regulation (EEC) 1191/69, which originally came into force on 1 July 1969, and Regulation (EC) 1370/2007, which repealed the former instrument and came into force on 3 December 2009.
The dispute began in February 2010, when the Commission issued a decision addressed to the Kingdom of Denmark, declaring that the public transport service contracts granted to Danske Statsbaner SV (DSB) constituted (non-notified) State aid under Article 107(1) TFEU, but that such aid was compatible with the internal market on the basis of Regulation (EC) 1370/2007.
Mr. Andersen, a competitor of DSB on the route between Compenhagen and Ystad, challenged the decision in front of the General Court (GC), and the Commission subsequently appealed against the latter’s decision in front of the EU Court of Justice (CJEU).
This post will analyse the steps leading up to the CJEU’s final decision, which was rendered on 6 October 2015.
The Facts of the Case & the Commission’s Decision
Until 1 January 2000, DSB was a wholly state-owned enterprise which held a monopoly on railway transport and connected services in Denmark. With the abolition of the monopoly, the Danish legislator divided transport services into ‘free traffic’ (operated on a commercial basis without any compensation from the government) and ‘public traffic’ (operated under public service contracts with compensation from the government).
DSB was first awarded a public service transport contract between 2000 and 2004, including from 2002 the service between Copenhagen and Ystad where it competed with Andersen. It then received a second contract, in the period from 2005 to 2014, where it operated on long-distance and regional lines, international routes with Germany, and again the route between Copenhagen and Ystad.
In its decision, the Commission first indicated that State aid had been granted to DSB: it was found that the compensation payments paid by the Danish government constituted an economic advantage granted in a selective manner which was liable to distort competition and to affect intra-Community trade.
The second part of the Commission’s decision concerned the compatibility of the said aid with the internal market. The Commission indicated that the aid’s compatibility was to be assessed according to Article 93 TFEU, and consequently according to Regulation (EC) 1370/2007, which is considered by the Court as an implementation of Article 93 TFEU. Seven reasons were given for the choice of this Regulation by the Commission instead of its predecessor, Regulation (EEC) 1191/69 (see paras 307-313 of the Commission’s decision). The Commission seems to rely in particular on the fact that at the time it had to make the decision (February 2010), the old instrument was no longer in force. Next to that, it pointed out that it is settled case law that ‘new rule applies immediately to the future effects of a situation which arose under the old rule’.
Interestingly, the Commission however also added that ‘the application of Regulation (EEC) No 1191/69 would not have led to a different conclusion’ (see para. 298 of the Commission’s decision).
The Commission concluded by assessing the contracts awarded to DSB, and found them to be compatible with the internal market as they satisfied the conditions laid down in Regulation 1370/2007.
The GC’s Judgment
Mr. Andersen sought to have the GC rule that the Danish aid given to DSB was, in fact, not compatible with the internal market.
The applicant argued that the Commission had committed several errors in its assessment, in particular (i) by considering that the contract awarded to DSB entailed the provision of a public service, and consequently not ordering the Kingdom of Denmark to recover the (alleged) overcompensation paid to DSB, and (ii) by assessing the compatibility of the aid on the basis of Regulation (EC) 1370/2007 instead of Regulation (EEC) 1191/69. The second ground is the one which we are mostly concerned with in this post, and which the GC also found appropriate to begin its assessment from.
The main finding of the GC is in essence that, since the aid had not been notified to the Commission, the compatibility rules applicable had to be the ones in force at the time the aid was paid out, ‘since the advantages and disadvantages created by such aid arose during the period in which that aid was paid’ (para. 40). This reasoning was only based on the GC’s own judgments in SIDE and Italy v Commission (the latter making the said point solely based on SIDE).
According to the GC, from the above-mentioned case law it had to follow that the aid had to be assessed under Regulation 1191/69, both with regards to the period 2000-2004 and the period 2005-2014, as both contracts were awarded at the time the old Regulation was in force.
The GC did not accept the argument put forward by the Commission that an a contrario interpretation of Article 8(3) of Regulation 1370/2007 would lead to the retroactive application of that instrument, and held that such an argumentation could in any case not fulfil the requirements for retroactive application of substantive rules of Community law as established in the case law, namely ‘only in so far as it clearly follows from their terms, objectives or general scheme that such effect must be given to them’ (to this end, the GC refers to the judgments in Gesamthochschule Duisburg, para 20; GruSa Fleisch, para. 22; and Falck and Acciaierie di Bolzano v Commission para.119).
Taking into account the above-mentioned factors, the GC was able to conclude that – as Regulation 1370/2007 was not applicable and did not fulfil the requirements for retroactive application – the Commission had erred in law by assessing the aid’s compatibility according to the provisions of Regulation 1370/2007.
As this plea was accepted, the GC did not go on to further assess the other pleas submitted.
Opinion of AG Wathelet
The Commission contested the GC’s decision. Advocate General Wathelet rendered his opinion on the appeal on 21 May 2015, before the CJEU ruled on the matter.
According to the AG, the GC’s reliance on its own judgment in SIDE is especially deficient as that judgment’s reasoning was actually rejected by the CJEU in Diputación Foral de Vizcaya and Others v Commission, where the Court stated that ‘a Member State which has not notified an aid scheme to the Commission cannot reasonably expect that that scheme will be assessed in the light of the rules applicable at the time of its adoption.’
In light of the CJEU’s judgment in Unicredito Italiano, Wathelet concluded that the question ‘is not when the advantages arose, but when they may be regarded as legally established under EU law,’ and that the situation can only crystallize once the Commission has taken a decision on the case, subject to the review of the courts.
The AG, in his last point, also clarifies that in fact the GC would have also been wrong in its assessment had it been legally sound to classify the granting of aid as the moment in which the situation occurs. This is because, as previously pointed out by AG Alber, ‘the effect of unlawful aid persists until the aid is recovered’, and thus taking the moment of granting of aid because that is when the advantages and disadvantages arose still does not reflect the nature of such a distortion of competition.
We can at this point summarise that, according to the GC, the aid must be assessed according to the instrument applicable at the time the aid was granted, whereas the AG considers that the assessment must be carried out according to the one applicable at the time the advantages are definitively and legally established. The GC, thus, advocates for the application of Regulation (EEC) 1191/69, whereas the AG would opt for an assessment according to Regulation (EC) 1370/2007.
Judgment of the CJEU
The Court starts by spelling out a very simple idea: as previously stated in Commission v Freistaat Sachsen, ‘new rules apply […] immediately to the future effects of a situation which arose under the old rule’ (para. 36). Application of new rules before their entry into force can consequently be allowed ‘only in so far as it clearly follows from their terms, their objectives or their general scheme that such effect must be given to them’ (para. 36).
The case at stake thus also deserves a simple solution: according to Article 8(3) of Regulation (EC) 1370/2007, ‘public service contracts in existence on 3 December 2009 [could] continue until they expire[d]’, subject to the maximum periods laid down by that provision and subject to the requirement that those contracts had been ‘awarded in accordance with Community and national law’.
From this, the Court comes to the following conclusion:
- Aid paid before 3 December 2009, both under the first and under the second contract, had to be assessed in accordance to the provisions of Regulation (EEC) 1191/69, in order to determine its compatibility and in order to assess whether it can benefit from the provision contained in art. 8(3) of Regulation (EC) 1370/2007 (see para. 54).
- Aid paid after 3 December 2009 had to be assessed in accordance to the provisions of Regulation (EC) 1370/2007, subject to the transitional provision of art. 8(3) (see para. 55).
In sum, the CJEU holds that the General Court erred in law in finding that the aid’s compatibility should have been assessed under Regulation (EEC) 1191/69 for what concerned the payments made after 3 December 2009, and referred back the dispute for assessment of the two pleas which were not analysed at the time the judgment was delivered.
The Court’s judgment is to be welcomed as a balanced interpretation based on the instruments at stake, clarifying an important matter and strongly enhancing legal certainty for future cases.
It must be noted that the GC, instead of directly relying on the Regulation and its transitional provisions, rather ventures into an assessment of the dispute from a theoretical perspective and reflects upon the nature of State aid.
The General Court’s suggestion that the instrument used for the assessment of compatibility should be the one in force at the time the contract was originally granted indeed, as pointed out by AG Wathelet, does not fully reflect the nature of State aid. Such an interpretation does not take into account that the aid is in fact an advantage which is enjoyed by an undertaking throughout time and until it is removed with recovery, and that – from this perspective – the moment in which the contract was granted does not have particular relevance.
At the same time, the AG’s position that the GC was completely wrong (and thus that the Court should have set aside the whole judgment of the GC) is not fully coherent: even if the assessment will ultimately be based on the new instrument, in order to give effect to the transitional provision of art. 8(3)(d) it is still necessary to assess the case according to the older instrument, and thus the Court was indeed correct in upholding that part of the GC’s judgment.
The Court – even though not explicitly – relies on the principle of tempus regit actum, which implies that any action should be regulated by the law in force at the time it was adopted. From this point of view, the Court rightly comes to the conclusion that the aid granted until the moment in which the new Regulation came into force should be assessed according to the old instrument, and that the aid granted from that moment onwards should be assessed according to the new one. That being said, the assessment of the aid under the new instrument obviously has to take into account its transitional provisions.
It now remains to be seen how the GC will analyse the other pleas raised by the applicant in its original appeal, which concern matters of substantive nature and will undoubtedly bring fresh food for thought to the complicated field of State aid related to public service contracts.