Private enforcement of State aid law by national courts: an overview of recent case law on (unlawfully) granted State aid
Not only at European level have there been significant developments in State aid law in recent years (see also our earlier blog), it has also become more relevant at national level. Since the COVID-19 crisis, State aid seems to be almost omnipresent. For instance, the Dutch government’s proposed buyout of Dutch farmers in the context of the nitrogen crisis may potentially constitute unlawful State aid, and the Dutch government is currently setting up a support package for small and medium-sized companies struggling with the high energy prices.
Dutch civil courts have also assessed this area of law on numerous occasions. They play an important role in the private enforcement of State aid law. Although the European Commission has exclusive competence to assess whether the notified State aid concerns (illegal) State aid, national courts can and should intervene to prevent or to cease the granting of unlawful State aid, for example when an aid measure has not been notified (in advance) to the European Commission. The national court is obliged to restore the (competitive) situation to the situation which would exist without the granting of illegal aid. This obligation applies to both civil and administrative national courts. Additionally, as of 1 January 2021, national courts and public authorities must comply with the State Aid Recovery Act. Based on this act, the administrative body that granted the unlawful aid is obliged to adopt a payment decision against the beneficiary when the European Commission has established the unlawfulness of that aid.
In case of the (unlawful) granting of aid by an administrative body through private actions – for instance through the sale of land – the civil courts have jurisdiction. A claimant can then bring a case under Articles 107 and 108 of the Treaty on the Functioning of the European Union (“TFEU”) in conjunction with Dutch national law, such as unjust enrichment (Article 6:212 of the Dutch Civil Code) or nullity of the aid measure (Article 3:40 of the Dutch Civil Code).
This blog covers the most important hurdles in State aid proceedings before Dutch civil courts.
The Court of Justice (“ECJ”) has repeatedly held that “parties concerned”, in particular competing undertakings, might have an interest in relying on the standstill obligation of Article 108(3) TFEU before national courts when they are affected by the distortion of competition resulting from the (unlawfully granted) aid measure (Commission v Sytraval & Brink’s). This is similar to the relativity requirement used in administrative law, according to which a party can only rely on a provision if it aims to protect the party invoking it.
In civil proceedings, too, the claimant’s interest in the illegality of the aid measure is crucial for the assessment of admissibility. For instance, in the case Karmedia Foundation v. Rotterdam Municipality (Stichting Karmedia v Gemeente Rotterdam), the Dutch Supreme Court ruled that a foundation (as referred to in Section 3:305a of the Civil Code) is not automatically admissible in a national civil law lawsuit concerning unlawful State aid. The Dutch Supreme Court considers it particularly important that, according to its articles of association, Karmedia Foundation acts as a promoter of the public interest, consisting of, amongst other things, promoting fair competition between companies, monitoring compliance with the prohibition of State aid and investigating unlawful government acts. In addition, the Dutch Supreme Court notes that Karmedia Foundation is neither a competitor of the recipient of the alleged State aid nor a trade association of such parties.
Therefore, Karmedia Foundation is not a concerned party that can invoke Article 108(3) TFEU since it does not bundle the interests of (legal) persons protected under that article according to the case law of the ECJ.
Selectivity and partial nullity
Most civil law judgments on State aid in the Netherlands concern land transactions between the (local) government and a private party. With these transactions, the State aid issue lies mainly in the question whether the land was sold under market conditions. Indeed, this determines whether the transaction confers a selective advantage to the buyer, which may constitute State aid. Where it is established that State aid has been unlawfully granted, the question arises whether the competitive situation can be restored best through partial nullity or whether total nullity of the land transaction is more appropriate.
On 9 October 2020, the Dutch Supreme Court ruled – in line with the opinion of Advocate General Drijber – that an agreement on the transfer of land may be void in its entirety if it was wrongly not notified to the European Commission as aid. This case concerned the sale of land worth €8,5 million by Spaansen Holding B.V. (“Spaansen”) to the municipality of Harlingen. The purchase price was paid in two instalments: €6,5 million was paid upon transfer and the remainder would be paid later. However, a valuation report commissioned by the municipality of Harlingen after the transfer of the land – and thus after the first payment – showed that the land in question actually had a value of €6,25 million instead of €8,5 million. The municipality of Harlingen subsequently refused payment of the second instalment on the grounds that this would constitute illegal State aid of €2,25 million. The municipality of Harlingen then claimed repayment of the amount it had already overpaid (€250,000).
The Court of Appeal of Arnhem-Leeuwarden held that the transaction indeed constituted State aid. Contrary to the European Commission’s Communication on the sales of land (now the Commission Notice on the notion of State aid), the municipality of Harlingen did not carry out an independent valuation prior to the transaction. Given the actual value of the land according to the valuation report carried out afterwards, the Court of Appeal considered it unlikely that a private party would have been willing to pay €8,5 million for the land under the same conditions. The court therefore ruled that there was a selective advantage to Spaansen. The other conditions for State aid were also met, according to the Court of Appeal. Moreover, the municipality had not notified the aid to the European Commission, thereby breaching the standstill obligation of Article 108(3) TFEU.
Under EU law, the national court is obliged to prevent, terminate or undo the implementation of the unlawful aid measure. In this case, the entire purchase agreement was declared void. According to the Court of Appeal, the partial nullity as applied before by the District Court would in fact reward the municipality of Harlingen for violating its notification obligation, which reduces its incentive to comply with this obligation. The Dutch Supreme Court upheld this reasoning. The excess amount must therefore be repaid to the municipality of Harlingen.
Total nullity of sales of land is not prescribed, but it can be the most effective way of restoring an unlawful State aid situation to the competitive situation that would exist without the granting of the aid in question. In June 2021, the Court of Appeal of ‘s-Hertogenbosch also declared the complete agreement to purchase apartment rights by the municipality of Heerlen to be void, as the municipality failed to comply with the notification and standstill obligation.
Possibility of providing ‘contrary evidence’
It is, however, always possible for undertakings to show that market conditions did apply, which means that the selectivity requirement is not met and therefore the sale of land does not constitute State aid, as was the case between the municipality of Deurne and the construction company BEM. The District Court of The Hague ruled in that case that there was a presumption of selectivity because the municipality of Deurne neither held an open bidding procedure nor carried out a valuation of the land prior to the transaction in question. The municipality also failed to notify the aid to the European Commission. The District Court held that it was not enough for BEM to (merely) rebut this presumption. The undertaking must provide so-called ‘evidence to the contrary’: evidence on the basis of which it can be considered certain that no unlawful State aid is involved. According to the District Court, the valuation report submitted by BEM sufficed in providing such evidence.
These judgments confirm the importance of market conditions in agreements with public authorities, especially in sales of land. Uncertainties and possible proceedings can be avoided by carrying out (or having carried out) an independent valuation prior to the transaction, or by organising an open bidding procedure. This was also confirmed by the Dutch Supreme Court in its Didam judgment, in which it ruled that governments can no longer offer immovable property for sale exclusively to one party. Only where it can be reasonably assumed that solely one serious party can be considered for the purchase of the land, an exception to the obligatory open bidding procedure is allowed.
Attribution of aid to government
Besides the selectivity of an aid measure, the attribution of aid to the distributing authority can also be a complex question. In the case of Commerz Nederland/Port Authority of Rotterdam, the Supreme Court – after referring preliminary questions to the ECJ – provided more clarity on the issue of attributability by confirming the judgment of the Amsterdam Court of Appeal. In November 2003, the Rotterdam Municipal Port Authority granted a guarantee for a €25 million loan to RDM Vehicles for the production of an armoured vehicle. The loan was granted to RDM Vehicles by Commerzbank Nederland. On 1 January 2004, the Rotterdam Municipal Port Authority was privatised and continued under the name Port Authority of Rotterdam. The Port Authority of Rotterdam, at least its director, guaranteed the same loan in June of that year. During this period, the municipality of Rotterdam was the sole shareholder of the Port Authority of Rotterdam. On 20 August 2004, Commerz Nederland terminated the credit to RDM Vehicles and demanded repayment from the Port Authority of Rotterdam of the outstanding amount of approximately €19 million. The latter, however, refused to pay claiming that the guarantee amounted to unlawful State aid.
The question arose whether the June 2004 guarantee by the Port Authority of Rotterdam could be imputed to the municipality of Rotterdam. The Amsterdam Court of Appeal clarified in its judgment that it must be examined whether the municipality was involved in the granting of the guarantee or not. Positive evidence is not required in that context: it suffices to show that it is unlikely that the government was not involved in the adoption of the aid measure. In this case, however, the supervisory board of the Port Authority of Rotterdam – whose members had been appointed by the municipality of Rotterdam – had approved the guarantee. It follows that the municipality of Rotterdam was indeed involved in the granting of the guarantee and it could therefore be attributed to it.
At national level, State aid plays an increasingly important role for both governments and courts: from crisis situations to sales of land and the (indirect) provision of guarantees. Despite assigning the assessment of the legality of a notified aid measure to the European Commission, national judges are playing a more and more influential role in shaping the private enforcement of State aid law, as exemplified by the aforementioned cases.
With the European Commission as well as national civil and administrative courts adjudicating on State aid law, competitors of State aid recipients have many options to enforce proper compliance of State aid law.