State aid (unlawful aid)

 

Author Definition

 

Definition

Pursuant to article 1(f) of Regulation (EU) 2015/1589 of 13 July 2015 laying down detailed rules for the application of Article 108 of the TFEU, an unlawful State aid can be defined as “new aid put into effect in contravention of Article 108(3) TFEU”. In other words, an aid is unlawful when it is put into effect in violation of the notification obligation or of the standstill clause. An unlawful aid is examined by the Commission following a procedure distinct from the procedure regarding notified aid, and must be recovered when it is found that the aid in question is not compatible with the internal market.

 

Commentary

Article 108(3) TFEU provides that Member States must notify to the Commission any plans to grant or alter aid – the notification obligation –, and must refrain from putting the proposed aid into effect pending a final decision of the Commission on its compatibility with the internal market – the standstill clause. Any aid put into effect in violation of these obligations must be considered unlawful. The definition of an unlawful aid is stated in article 1(f) of Regulation 2015/1589, which is itself a codification of an established Court case law, since the case Saumon (C‑354/90, 1991, paragraph 11). The unlawfulness of an aid has several consequences.

First, the examination procedure conducted by the Commission has special characteristics, in comparison with the procedure regarding aids that have been notified. Articles 12 to 16 of Regulation 2015/1589 lay out the essential features of this procedure.

It starts on the Commission initiative. The Commission can act upon any information at its disposal, although the procedure usually starts following a complaint filed by a competitor of the beneficiary of the aid. In order to conduct its assessment, article 12 of Regulation 2015/1589 provides that the Commission can request information from the Member State concerned, and from any other Member State, from an undertaking, or association of undertakings, once the formal investigation procedure is initiated. In that regard, the procedure regarding unlawful aids is similar to the procedure to the procedure regarding notified aid.

However, they differ on a number of other aspects. Indeed, in relation to unlawful aids, the Commission has more extended powers, and can adopt interim measures. According to article 12 of Regulation 2015/1589, when a Member States does not respond to the request for information, or only provides insufficient information, the Commission can issue an “information injunction”, by which the Member State concerned is required to provide specific information in an appropriate period of time.

Moreover, given the potential negative effects of an aid put into effect on competition within the internal market, the Commission also has the power to order the suspension of the aid, pursuant to article 13 of Regulation 2015/1589 (see, for instance, Commission decision on the 26th May 2014, C(2014) 3192, in the Micula case). Both the information injunction and the suspension injunction have been codified in Regulation 2015/1589. Finally, in specific cases, the Commission can adopt a decision requiring the Member State provisionally to recover any unlawful aid.

Considering the severe implications of such a decision – especially on the undertaking that already benefited from the measure at stake –, and the fact that it is an exception to the general rule according to which the Commission cannot order State aid to be repaid solely on the ground that it is unlawful, such provisional recovery injunction can only be issued if three criteria are fulfilled. There must be no doubt that the measure at stake is an aid, there must be an urgency to act, and there is a serious risk of substantial and irreparable damage to a competitor. Suspension injunctions and provisional recovery injunctions stay into force until the Commission adopted a final decision on the compatibility of the measure. Non-compliance with such injunctions entitles the Commission to refer the matter to the Court directly, and to obtain a declaration that the failure to comply constitutes an infringement of the TFEU. Another distinction with the procedure regarding notified aids lies in the time limits imposed on the Commission to conduct its assessment. It is clear from both the case law (HGA e.a. v. Commission (C‑630/11 P to C‑633/11 P, 2013), paragraphs 74 and 75) and article 15(2) of Regulation 2015/1589 that when a Member State has not respected the notification obligation or the standstill clause, the Commission should not be bound by time limits. However, this must not be understood as exempting the Commission from any time limits. Indeed, article 12 of Regulation 2015/89 states that the Commission must examine any complaint “without any delay”, and it is established in the case law of the General Court that the Commission cannot prolong indefinitely the preliminary investigation of State measures (see, recently, Navieras Armas v. Commission (T-108/16, 2018), paragraph 60).

The procedure ends with a final decision of the Commission, either considering that the measure at stake is not an aid, that it is compatible with the internal market, or that it is incompatible with the internal market. In the latter case, the aid cannot be upheld, and must be recovered from its beneficiary. It should be noted that the Commission is under an obligation to order the recovery of aid which it declares to be incompatible with the common market, unless such recovery would be contrary to a general principle of EU law (Mediaset v. Commission (2011), paragraph 124). The purpose of the obligation to recover incompatible aid is to re-establish the previously existing situation. The Court has specified that that objective is attained once the recipient has repaid the aid in question, where appropriate with default interest, and thus forfeited the advantage which it had enjoyed over its competitors on the market (Commission v. Italy (C-348/93, 1995), paragraphs 26 and 27).

Secondly, the notion of unlawful State aid also has a relevance outside the scope of the Commission examination of the measure. In the Lorenz case (120/73, 1973, paragraph 8), the Court has established that article 108(3) TFEU has a direct effect and gives rise to rights in favour of individuals, which national courts are bound to safeguard. National courts therefore have a role to play in relation to unlawful aids. Faced with an unlawful aid, they are in charge of pronouncing measures appropriate to remedy the unlawfulness of the implementation of the aid, in order that the aid does not remain at the free disposal of the recipient during the period remaining until the Commission makes its decision (CELF (2010), paragraph 30). To that end, they must ensure that the measures, which they take with regard to the validity of the contested acts make it possible for the objective of restoring the competitive situation existing prior to the payment of the aid in question to be achieved (Residex Capital IV (2011), paragraph 45).

 

Bibliography

Articles 12 to 16 of Regulation 2015/1589 of 13 July 2015 laying down detailed rules for the application of Article 108 of the TFEU

Commission decision on the 26th May 2014, C(2014) 3192, in the Micula case

F. Picod, « Aides d’Etat – régime procedural », Fascicule 1532, JCl Europe traité, 2014

J.-I., Signes de Mesa, J.-I., A., de Moncuit, Droit procédural des aides d’État, Bruxelles, Bruylant, 2019

L. Vogel, European State aid law, Bruxelles, Bruylant, 2020

J.-L. Buendia Sierra, State intervention and EU competition law, Oxford, Owford University Press, 2020

Authors

Quotation

Maciej Szpunar, Léa Berthiau-Jezequel, State aid (unlawful aid), Global Dictionary of Competition Law, Art. N° 88911

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Institution Definition

Unlawful aid is aid granted without prior Commission authorisation. The Commission must examine all information it receives concerning alleged unlawful aid immediately. If indeed there is unlawful aid, as for cases of notified aid, the Commission first opens a preliminary investigation and, if doubts as to the compatibility of the measure persist, subsequently carries out an in-depth investigation. The Commission may use injunctions to obtain information from Member States, suspend the further granting of aid or impose provisional recovery obligation on the Member State. In case of a final negative decision, recovery of the aid already paid out, with interests, will take place (see "Recovery of aid" below). European Commission

 
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