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Recent Developments Shed Light on How State Aid Rules are Enforced in the Courts

AUTHORs: Kate McKenna DATE: 07/10/2019

While our understanding of EU Commission State aid powers has increased greatly in recent years following high-profile EU decisions and court appeals, we remain at an early stage in understanding the role of national courts, particularly in actions to ‘recover’ State aid following an EU decision. 

 This article discusses recent EU publications and Irish court rulings which shed light on the role of national courts, which role is likely to continue to grow in importance for Irish clients in the coming years.

1. Study on the enforcement of State aid rules and decisions by national courts

The EU Commission has published a study which identifies emerging trends and best practices in the enforcement of State aid law by national courts across the EU.

In relation to the recovery of State aid, the study identifies the following as ‘best practices’ by national courts – neither of which have been put into practice in Ireland:

  • Having specific national legislation governing State aid recovery (Member States with such legislation include Spain, the Netherlands, Slovakia, Belgium and Finland); an
  • National courts fining national authorities for delays in State aid recovery (This has been put in practice in France, including in the Vent de Colère case, where a French court ordered the granting authority to pay a daily penalty payment of EUR 10,000 until the date of effective recovery).

In terms of trends, what has emerged from this study is that the national courts rarely conclude that unlawful State aid has been granted (by their national authorities) and hence have rarely awarded remedies in favour of complainants who allege that State aid has been granted.   This trend is particularly evident in relation to damages claims – in less than 1% of the private enforcement cases identified in the study did the national court award compensation for a Member State’s breach of the State aid law standstill obligation.

2. Commission Notice on the recovery of unlawful and incompatible State aid

The EU Commission has published a new notice on the implementation of decisions by it ordering recovery of State aid (the “Recovery Notice”).  The Recovery Notice is far more detailed than the 2007 notice which it replaces.  It reflects recent developments in EU Commission practice, including by providing more detail on tax State aid cases.  For example, the Recovery Notice provides new detailed guidance on issues including:

(i) quantification of the State aid to be recovered;
(ii) identification of the State aid beneficiaries; and
(iii) the primacy of EU State aid law, in the context of potential allegations of conflict with national law, which mean in particular that (i) Member States must perform acts (eg, tax audits) which would be time-barred until national law in order to effect State aid recovery, and (ii) confidentiality is not a valid reason for withholding documents in the context of a State aid investigation or recovery case.

The draft Recovery Notice was subject to public consultation earlier this year. While the final Recovery Notice remained largely the same as the draft, the Irish Department of Finance contributed to the consultation, noting that Ireland had been involved in the largest ever State aid recovery and calling for the draft guidance to be more explicit and to improve on the measures available to the Commission in engaging with Member States as part of a recovery process. Ireland submitted comments on a number of more specific points also, including for example the principle of sincere cooperation, kick-off meetings, identification of the aid beneficiaries and quantification of the amount to be recovered.

3. Recent Irish Rulings Including Ireland & anor v Aer Arann

The Irish courts have recently delivered two notable rulings on State aid.

The first is Dun Laoghaire Rathdown County Council v West Wood Club Limited , wherein the Irish Supreme Court strongly affirmed the Circuit Court’s jurisdiction to hear State aid allegations, and we discussed it in further detail here.

The second and more recent ruling is the Irish High Court ruling on Ireland v Aer Arann .  The background to this case (discussed in more detail here) is the EU Commission’s State aid decision that Ireland’s 2009 air travel tax amounted to unlawful State aid in favour of airlines whose business was mainly in shorter flights. This EU decision ordered that the Irish Government recover the aid from the benefitting airlines, including Aer Arann. 

Now, 10 years later, the dispute in relation to recovery continues in the Irish courts.  In the High Court, Aer Arann argued unsuccessfully that the Court should not order the State aid to be paid / recovered because the effect of examinership was to wipe out and forgive all debts incurred before the examiner was appointed, including State aid debt.

Relying on the primacy of EU State aid law and the duty to recover unlawful State aid, Justice Barrett of the Irish High Court determined that examinership does not have the effect of trumping a State aid decision of the Commission ordering recovery. 

This High Court ruling could be seen as consistent the above EU Study’s finding of the low incidence of national courts taking a stand against the authorities in State aid matters.  It is also consistent with the 2006 ruling against Ryanair in ordering recovery of State aid in Kingdom of Belgium v Ryanair Limited and Minister for Finance & Anor v Ryanair Limited.