Joined Cases T-425/04 RENV and T-444/04 RENV France and Orange v Commission EU:T:2015:450
On 2 July, the General Court issued its second judgment finding no State aid in the France Télécom case, its earlier holding that there was no State aid having been set aside by the Court of Justice in Joined Cases C-399/10P and C-401/10P Bouygues and Commission v France EU:C:2013:175.
This is the case that involved statements in July 2002 by the responsible French Minister in a newspaper interview that his Government would do whatever it took to resolve the financing problems of France Télécom (“FT” – now part of Orange), which was then going through what might fairly be described as a rocky period, with a collapsing share price, large losses and falling credit ratings. At that time FT was majority-owned by the French State. That statement was followed in September 2002 by a French Government press release to the same effect. Those statements had the effect of stabilising FT’s share price and improving its credit rating. In December 2002 the French State then announced its support for an Action Plan agreed by FT’s board, stating that it would participate to the extent of €9 billion in the strengthening of FT’s capital base. In order to support FT during the period during the implementation of the plan, the French State offered it a temporary loan, going so far as to send FT a draft contract: but in the event that contract was not signed by FT. In March the Action Plan was implemented. However, ratings agencies made the point at the time that the French State’s declarations of support, including the loan offer, strengthened the credit rating of FT.
In 2004, the Commission (responding to a complaint by Bouygues, a competitor of FT) decided that the December announcement by the French Government, including the December loan offer, amounted to State aid. (The Action Plan itself was not held to be State aid, owing to the market investor economy principle.)
The core of the Commission’s case was that the French State’s earlier declarations of support had stabilised FT’s precarious credit position and its share price, and enabled it to negotiate a satisfactory Action Plan. That was an advantage conferred by the French State. The Commission held back from finding that the July 2002 statement (the interview) amounted to State aid: it commented that it did not have enough information to judge whether that interview amounted to a commitment of State resources. But it was clear that the December 2002 loan offer (though not accepted) did commit State resources. Taken together, the December announcement and loan offer amounted to State aid. It did not, however, order recovery: one suspects that the problem was knowing quite where to start in terms of quantifying the advantage – but the Commission referred to legitimate expectations and the rights of the defence.
The first round of the litigation in the European Courts concerned the question of State resources.
- The General Court accepted that the loan offer in December 2002 involved the commitment of State resources. But it held that it was impossible to show that the offer conferred any advantage over and above the simultaneous announcement – which it held did not involve State resources. So the “State resources” element of the State aid test was not satisfied.
- But on appeal by the Commission and Bouygues, the Court of Justice overturned the General Court. It held that in examining the question of State resources, the Commission was entitled to take the December announcement and the loan offer together. It was therefore not necessary to show that the loan offer (which clearly did involve a commitment of State resources) conferred an extra advantage over and above the December announcement. Nor was it necessary – as the General Court had also held – to show that the extent of the advantage conferred had to correspond to the extent of the commitment of State resources (although the advantage and the commitment State resources did have to be causally linked).
The matter was therefore sent back to the General Court of look at the other issues raised.
The General Court (judgment currently available only in French, Bulgarian and Estonian) has now found that the Commission’s reasoning fell down at the next stage of analysing whether the market economy investor principle (“MEIP”) applied. (For those wanting a signpost through the French text, the critical part of the Court’s reasoning starts at paragraph 185 of the judgment.)
The Commission had reasoned along the following lines. The announcement of support and the loan offer in December 2002 might well have satisfied the MEIP test looked through the spectacles of market conditions at that time (when FT’s share price had recovered and its credit rating improved). But, reasoned the Commission, those were not the right spectacles: the only reason why FT’s share price and credit rating had improved was the July interview and the September press release. So those earlier announcements had “contaminated” the market, so that the MEIP had to be considered on the basis of the pre-July share price and credit rating. And on that basis the MEIP was not satisfied: no prudent investor would have made the loan offer to a company with that, pre-July, share price and credit rating.
The General Court tore into that legal analysis (though it accepted on the facts, contrary to FT’s submissions, that the earlier announcements had caused and continued by December to cause an improvement in FT’s share price and credit rating). The key problem with the Commission’s analysis, according to the Court, was that the Commission had carefully not held that the July announcement or September press release were State aid. So it had no basis to rely on the “contamination” of the market by something that, on its own account, could not be shown to be a State aid. That meant that the MEIP test had to be examined through the spectacles of a prudent investor faced with the (improved) December share price and credit rating.
Further, the Commission could not rely on an argument that no prudent private investor would ever have made the earlier announcements. That analysis was premised on the Commission’s finding that the earlier statements were sufficiently clear, precise and unconditional to amount to an engagement of State resources. But, held the Court, they were not: the announcements were vague and imprecise and made it clear that the State would behave as a prudent investor. It was irrelevant that the market may have misread the degree of commitment: what mattered was both that the State was not legally committed and that (as of December) it was not in a position where it was practically obliged to “honour” those commitments. According the Court, the French State remained free in December to walk away had the prudent investor test not been met and would not have suffered loss of credibility had it done so (since it had not actually committed to anything precise).
It will be interesting to see if the General Court’s analysis survives the likely appeal to the Court of Justice. The General Court’s refusal to lump the various announcements and the loan offer together and look at them in the round does bear some resemblance to its approach to the State resources issue, which the Court of Justice rejected. And one can see that there is something unattractive in the idea that a Member State can use the weight attached (perhaps wrongly) to its utterances by the market (a weight derived from its bottomless pockets and ability to draw on tax revenue) to improve its subsidiary’s position on the market and then – in that improved position – to rely on the MEIP to justify further support, all without running into the State aid rules.
More practically, for civil servants and lawyers advising Ministers, it would not be safe to draw the conclusion from this case (even if it survives appeal) that Ministers can give whatever assurances of support to a troubled business that they like provided that they avoid legally binding commitments. The Commission’s difficulties before the Court were largely caused by its reluctance to find that the July statement was in itself State aid (a point repeatedly made by the Court): the Commission might be less inclined now to hold back in an equivalent case. Moreover, the General Court’s judgment appears to leave open the possibility that an assurance that is not legally binding but in practice is very difficult to resile from (e.g. without losing credibility) could be regarded as a sufficient commitment to entail State resources and amount to State aid. The moral remains that careless talk by Ministers can cost in State aid, that statements they may want to make about supporting companies in difficulty need to be carefully drafted, and that they be made aware of the risks of going “off piste”.
GEORGE PERETZ QC
31 July 2015