Ukraine, COVID-19 and rights of third parties: some of the latest developments in European state aid law

Bas Braeken & Jade Versteeg & Timo Hieselaar / 13 May 2022

State aid law has become increasingly relevant in recent years, not the least because of the COVID-19 crisis and the war in Ukraine. Since aid measures, as a rule, inherently distort competition in a member state or even in the European Union, state aid is in principle illegal. By way of exception, however, there are justifications that make aid granted to undertakings by a government permissible. It is up to the European Commission (“Commission”) in that regard to verify whether a (notified) aid measure is justified and therefore does not distort competition to an unreasonable extent.

 

The entire state aid procedure is essentially conducted between the member state notifying the aid and the Commission. The member state is also the addressee of the Commission’s decision on the aid measure in question. As a result, private companies – such as the beneficiaries of a measure or their competitors – qualify as third parties with usually fewer (effective) rights to challenge a Commission state aid decision.

 

Preliminary questions on admissibility and the Commission’s discretion in investigations

Foremost, the question arises whether third parties are able to appeal against a Commission decision at all. After all, the member state is the addressee of the decision, not the beneficiary or competitors. Pursuant to Article 263 of the Treaty on the Functioning of the European Union (“TFEU”), any natural or legal person may institute proceedings against a decision of an institution of the European Union, as long as the decision is of direct and individual concern to that person. Only under those conditions does a third party qualify as an interested party. In order to be directly and individually concerned, a third party must be in a special position that distinguishes it from other undertakings, so that the decision ‘individualises them in a similar way’ as the addressee. Demonstrating the existence of such a special position can be difficult for competitors of a beneficiary of state aid. The Court of Justice of the European Union (“ECJ”) addressed this issue in Lufthansa v Commission (20 January 2022). In that case, Lufthansa brought an action against three state aid measures granted by Germany to the Frankfurt airport. The ECJ emphasises that the fact that Lufthansa was entitled to express its views in the context of a formal investigation procedure into the aid in question is not sufficient for it to be admissible in the context of an appeal against the resulting decision. A third party still has to demonstrate that it is directly and individually concerned.

 

Even when a third party does qualify as an interested party, it often finds itself in a difficult position nevertheless. In its Tempus judgment, the ECJ clarified the scope and intensity of the Commission’s preliminary investigation in state aid cases. This judgment shows that the bar is set relatively low for the Commission. In the Tempus case, the Commission decided not to raise objections to an aid measure of the United Kingdom which granted rewards to electricity suppliers if they could guarantee a higher level of security of electricity supply. However, Tempus argued that the Commission could not reach this conclusion solely on the basis of a preliminary investigation. In Tempus’ opinion, the aid measure was discriminatory and disproportionate, and the Commission should have at least opened a formal investigation procedure.

 

The ECJ concludes that the Commission is not required to identify or investigate all of the relevant information in its examination for it to eliminate all doubts regarding the compatibility of the notified aid measure with the internal market. Although it follows from settled case-law that the Commission must in some cases also assess elements other than those provided to it by a member state (e.g. Commission/Sytraval), there is no obligation for the Commission to gather, on its own initiative, all information that may be relevant for its assessment. The ECJ furthermore holds that the fact that an aid measure is complex or of great value, or that the pre-notification procedure is (relatively) long, is irrelevant for determining whether about the compatibility of the measure with the internal market.

 

Therefore, it is not sufficient for a third party wishing to appeal the approval decision of an aid measure to argue that the Commission could have had relevant information at its disposal to prove the existence of doubts as to the compatibility of the aid with the internal market. Tempus should have demonstrated that the Commission was aware of the relevant information in question and did not take it duly into account in its assessment, or that other information existed which would entail the Commission to initiate a further investigation.

 

This approach can certainly be criticised, especially from the point of view of third parties. Firstly, in practice, the Commission now rarely has to look beyond the information supplied by the member state notifying the aid. This makes it more difficult for third parties – who already have limited rights under state aid law – to successfully challenge (the approval of) an aid measure. Secondly, the completeness and accuracy of the information provided by the member state can be questioned. Member states seeking approval of measures may have an incentive to project the financial situation of their economy or of a particular company more favourable than it actually is. It follows from Tempus that the provision of information by a member state to the Commission is subject to little control. Thus, for example in the context of the Dutch state aid to KLM – in particular with regard to the importance of KLM for the Dutch economy – the Commission in essence solely had to rely on the information provided by the Dutch government itself in that respect.

 

Temporary Framework Arrangements: COVID-19 and Ukraine

If the appeal a third party (as an interested party) is admissible, it can challenge the content of the measure. The merits of such a challenge depend on the basis on which the measure was approved. Over the past two years, the majority of the challenged state aid measures were adopted on the basis of the Temporary Framework established by the Commission in the context of the COVID-19 crisis. Although it has already been extended and expanded six times, the Temporary Framework is – as its name suggests – only temporary in nature. Nevertheless, this framework and the case law that results from it are of great importance for state aid law and the rights of third parties in particular.

 

Firstly, the use of Article 107(3)(b) TFEU as a basis for aid measures has increased during the COVID-19 crisis. This article is an exception to the idea that state aid (by definition) distorts the internal market. According to Article 107(3)(b) TFEU, aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a member state may be considered to be compatible with the internal market. As a result of the COVID-19 crisis, almost all member states experienced a serious disturbance in their economy and consequently based their COVID-related aid measures on this provision.

 

Case law of the European courts over the last two years has shown that the Commission, when assessing an aid measure, is not obliged to balance the positive effects of the aid measure against its negative effects. For example, in Ryanair v Commission, the General Court ruled that the Commission is only required to assess whether a measure is necessary, appropriate and proportionate. If that is the case, the outcome of the measure is presumed to be positive. This, thus, gives the Commission even greater discretion when assessing aid measures based on Article 107(3)(b) TFEU – which covers almost all aid measures over the past two years. This is all the more the case since the Commission has drafted the Temporary Framework in such a way that (in its view) a measure is compatible with the internal market as soon as the conditions set out in the Temporary Framework are met.

 

In the same vein as the COVID-19 framework, the Commission launched another Temporary Framework on 23 March 2022, this time in response to the Russian invasion of Ukraine. This broad policy document allows member states to establish aid measures on the basis of, inter alia, Article 107(3)(b) TFEU. In this Temporary Framework, the Commission again imposes conditions a measure must fulfil in order to be automatically compatible with the internal market. France has been the first member state to make use of the Ukraine Temporary Framework: the Commission has approved an aid measure (of €155 billion) pursuant to which France can provide a (partial) guarantee to companies taking out new loans. The Commission also approved aid measures from, among others, Poland (€836 million), Spain (€169 million) and Germany (€20 billion).

 

Despite the Commission’s broad discretion in assessing aid measures, it is nevertheless obliged under Article 296 TFEU to duly substantiate and reason its decisions. Although the Commission is not required to address all relevant legal and factual issues, its reasoning must be clear and unambiguous in order to allow interested parties to ascertain the justification of the measure taken and to allow the competent court to exercise its power of review.

 

Although this ground for annulment has been invoked rarely in the past, the General Court recently ruled in three cases – all brought by Ryanair – that the Commission decisions to authorise the aid were inadequately reasoned. Those cases concerned Ryanair’s actions against aid granted by Germany to Condor, by Portugal to TAP and by the Netherlands to KLM.

 

As of now, these cases are merely procedural victories for Ryanair. In all three cases, the General Court limited the consequences of the annulment, ruling that the immediate recovery of the aid would have particularly damaging consequences for the economy of the member states concerned, which had already been seriously disrupted by the COVID-19 pandemic. In addition, it was ‘only’ an inadequate statement of reasoning and the Commission was granted the opportunity to remedy this procedural shortcoming. The aid granted has thus not (yet) been recovered from the beneficiary airlines and the Commission has in the meantime taken new decisions on the German, Portuguese and Dutch aid measures. Ryanair has already lodged an appeal against the re-adopted decision of the Commission regarding the Portuguese aid to TAP.

 

Conclusion

The state aid procedure is primarily conducted between the Commission and the member state notifying an aid measure. Still, third parties such as beneficiaries or their competitors are usually affected by aid measures. Although it can be an ‘uphill battle’ for these parties, it is not impossible to successfully challenge an aid measure. Even when the Commission and the member state have a wide margin of manoeuvre, as is the case with aid measures based on the temporary frameworks, they are bound by the proportionality, appropriateness and necessity of a measure as well as the obligation to state reasons. This grants third parties the opportunity to nevertheless successfully challenge an aid measure.

 

Bas Braeken, Jade Versteeg, Timo Hieselaar

Related articles

Competition Flashback Q3 2021

Bas Braeken & Jade Versteeg & Lara Elzas & Timo Hieselaar & Demi van den Berg / 07 Oct 2021

This is the Competition Flashback by bureau Brandeis, featuring a selection of some of the key competition law developments of the past quarter (see the original version here). If you would like to receive the…

Internet of Things: risks to fair competition lurk

Bas Braeken & Lara Elzas & Jade Versteeg / 17 Aug 2021

Internet of Things: risks to fair competition lurk Internet or Things (hereinafter ‘IoT‘ or ‘smart devices‘) is revolutionising in many sectors worldwide. IoT devices are characterised by the fact that they are connected to a…