Leiden Law Blog

Private enforcement of State aid law? Don’t bother.

Private enforcement of State aid law? Don’t bother.

A blogpost should be just a little provocative. So let’s provoke: the idea that breaches of State aid law can be solved by national courts is nice, but wrong. Enforcement by national judges, rather than the European Commission, is costly and cumbersome, and it doesn’t work. 

The theory

In theory, it makes a lot of sense. The European Commission must be notified of State aid before it is granted (barring certain exceptions). If the Commission is not notified, the aid is considered illegal. In cases of illegal State aid, the Commission can and must order the recovery of the aid granted, but only if it is also incompatible with the internal market.

This, of course, presents the Commission with quite a problem. Before it can order the recovery of the aid, it must determine whether the aid, if it had been notified, would have been allowed. Luckily for the Commission, national judges can order the recovery of aid based solely on the decision that it constitutes State aid that should have, but has not been, notified.

It truly seems like a good solution: competitors of aid recipients can simply turn to their national courts to claim protection against the consequences of non-notified aid. The courts can order the recovery of the aid, suspend its payment, and even award damages to the disadvantaged competitor. He may address the Commission, but it’s really not necessary.

The practice

In practice, this doesn’t work out as expected. National courts do get involved – in the past year, in the Netherlands, 51 judgments have been published in which the words ‘State aid’ appear. However, there are hardly any cases where a complaint actually leads to the decision that illegal State aid has been granted. Where it does, it is rarer still for even part of the aid to be recovered. I have yet to see a case in the Netherlands where payments are suspended or where damages are granted.

This might mean that the cases that make it to court generally do not involve State aid. That would be good news, although it does suggest that competitors either do not fully understand the State aid rules or that they invoke them on the off-chance that the courts will take their side.

The real problem, I would say, lies elsewhere. Before the Dutch courts, it is generally the applicant who must prove that a measure qualifies as State aid. This is nearly impossible. Cases have been rejected where a competitor argued that other market operators offer their services at lower prices than the alleged aid recipients, but failed to make sufficiently detailed economic comparisons between the services actually conducted. Unlike the Commission, Dutch courts cannot independently assess whether an advantage has been granted. This fits squarely in the principle of national procedural autonomy, but it makes private enforcement through national courts that much less effective.

Are there counterarguments? Of course, but let me instead direct your attention to an excellent article in the Common Market Law Review (2012, pp. 1675-1702), where Tobias Lock questions the assumption “that the remedy of Member State liability is a useful and welcome additional tool to enhance Member State compliance with their obligations under EU law”. Private enforcement may just be overrated.

7 Comments

Alke Metselaar
Posted on March 14, 2013 at 15:36 by Alke Metselaar

That is an interesting question indeed. I would assume that they could, even though it might be practically difficult. The competitors would have to sue the authority that granted the aid (to my knowledge, the municipality of Eindhoven). Whether they could also sue PSV depends on Dutch law and is as yet unclear. Also, the damages would have to stem from the distortion of competition caused by the aid. After all, the damages may not themselves amount to State aid to the competitors. Finally, much has been written on the problems of proving a causal link between the distortion of competition caused by the illegal State aid and the alleged damages. This may be a real problem for a competitor wishing to bring a successful damages claim. But it should be possible if he has a solid case.

@nonymous
Posted on March 14, 2013 at 15:24 by @nonymous

If the Dutch football teams (including PSV Eindhoven) are found to have received illegal aid, one assumes that the other football teams in the division could sue for damages?

Alke Metselaar
Posted on February 1, 2013 at 16:37 by Alke Metselaar

Thank you for your comments, they make for some interesting thinking. The article on private enforcement of State and Public aids sounds very promising. Unfortunately, I have not yet found a copy in the Netherlands.

As to the ‘solid economic analysis as to the likely effects of a state aid measure’, I do agree with that but one way or another it seems that competitors are unable to convincingly supply that analysis - especially in cases where the aid element is not obvious and the matter comes down to applying the market economy investor principle.

Tregan
Posted on January 7, 2013 at 22:18 by Tregan

The tougher the Commission make the rules on Locus Standi, the less Member States need to comply with State Aid law.

@nonymous
Posted on December 3, 2012 at 14:48 by @nonymous

Tomorrow the European Commission publishes its latest documentation on the modernisation of State Aid law.

Wouldn’t it be great if they brought in changes that meant citizens / businesses could go to court to enforce State Aid law in their local courts?

Of course, they won’t make those changes. They will allow State Aid law to continue to be percieved as a joke.

Whenever a law is not enforced it becomes irrelevant. For example, when Dutch Police in the 1970s chose not to enforce seizing cannabis at Coffee Houses in Amsterdam. State Aid is in a similar position - it is so rarely enforced that people no longer feel any meaningful obligation to acknowledge it. The businesses feel it is a risk they can take. The surveyors, law firms and accountants feel they can sign off on very risky ventures because it is so unlikely that non-compliance will be investigated.

What needs to happen is that State Aid regains its legal integrity. To achieve this, there needs to be more cases of enforcement against genuinely distortive aid. This will encourage people to take an interest in their rights under State Aid law. There will then be more cases and to meet this need, domestic judges need to be trained and the courts need to apply simple rules which achieve the aims of the State Aid measures.

Valentin Mircea
Posted on November 30, 2012 at 11:14 by Valentin Mircea

Proving the existence of a state aid measure could be difficult but it is far from being ”nearly impossible”. It all depends on how straight-forward or subtle the aid has been granted.  If a company receives a payment from the Government, without strong and proper justification, the court may interprete such a situation as amounting to state aid.  In many jurisdictions, courts may rely on their own presumption of illegality - for instance, a court may decide that there is a presumption of illegality if there is a strong prohibition in the law and, prima facie, a certain behaviour goes counter to this prohibition. 
The wording in article 107 TFEU is helpful in this respect, insofar as it defines state aid as ” [...] any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods [...]”.  The situation where an advantage is produced from public funds is easy to identify.  The second condition - effects on competition - is not very difficult to asses, also, as long as it can be only a risk of such effects - “threatens to distort”.  The state aid prohibition in the TFEU constitutes a kind of per se prohibition.  This does not mean, however, that courts should not ask plaintiffs to bring solid economic analysis as to the likely effects of a state aid measure.

Dr. José Antonio Rodríguez Miguez
Posted on November 30, 2012 at 09:48 by Dr. José Antonio Rodríguez Miguez

It is true what you say about National Courts and State Aids. In Spain, it is just the same. Only in Administrative Courts, sometime you can see an example of Private Enforcement on State Aids, where is analysed if a State measure is an unlawful State Aid. But in civil courts is really strange, even for damages.

I believe that, unfortunately, neither State Aid rules are well known, nor, of course, the private enforcement on State Aids, even in this last case (private enforcement) the ignorance is bigger. What can we do? What Commission must do?...It’s a hard task.

I am very interesting in this important question and I prepared an article about Private Enforcement on State Aid that was published in a book about Private Enforcement on Competition Law (unfortunately the only reference in a Congress about Private Enforcement of Competition Law): RODRÍGUEZ MIGUEZ, J. A.: “Private Enforcement with regard of State or Public Aids”, en VELASCO DE PEDRO, L. A. et al. Dirs, Private enforcement of Competition Law, Lex Nova, Valladolid, 2011, pp. 485 a 497.  ISBN. 9788498983333.


Dr. José ANtonio Rodríguez Miguez

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