A new fast-track way of challenging a recovery order? Case C-667/13 Estado Português v Banco Privado Português, judgment of 5 March 2015

It has long been Commission orthodoxy that, when a Member State is ordered by the Commission to recover unlawful aid, the role of the national court in those recovery proceedings is little more than that of a rubber stamp.

That orthodoxy seems now to have acquired a small but significant crack after the Court of Justice’s judgment last week in the BPP case.

A significant pillar of the orthodox approach is Case C-232/05 Commission v France [2006] ECR I-10071 (one of the various branches of the Scott litigation, in which the present blogger acted for Scott, and so conveniently referred to as “Scott“). In that case, the French courts were told by the Court of Justice to disapply a principle of French administrative law that automatically suspended a statutory demand when a challenge was made to the demand in the administrative courts. That was so even though Scott, the beneficiary, had brought an admissible challenge to the decision, in time, before the General Court (the substance of which had not at that stage been heard). The Court’s reasoning was as follows:

58 It is apparent from the case‑law that the recipient of aid which has been declared incompatible has the right to bring an action for annulment under the second paragraph of Article 230 EC even if the decision is addressed to a Member State (see, to that effect, Case 730/79 Philip Morris v Commission [1980] ECR 2671 and Case C‑188/92 TWD Textilwerke Deggendorf [1994] ECR I‑833, paragraph 14).

59 On the other hand, it is not possible for a recipient of aid which has been declared incompatible, who could have challenged the Commission’s decision, to call in question the decision before the national courts in an action brought against the measures taken by the national authorities for implementing that decision. To accept that in such circumstances the person concerned could challenge the implementation of the Community decision in proceedings before the national court on the ground that the decision was unlawful would in effect enable the person concerned to overcome the definitive nature which the decision assumes as against that person once the time-limit for bringing an action laid down in the fifth paragraph of Article 230 EC has expired (see, to that effect, TWD Textilwerke Deggendorf, paragraphs 17 and 18, and Case C‑239/99 Nachi Europe [2001] ECR I‑1197, paragraph 37).

60 It follows that the Commission’s decision concerning the recovery of sums owed cannot be called in question before a national court. That question is reserved for the [General Court], which will resolve it in an action for annulment brought before it. It is apparent from Article 242 EC that, in the absence of a decision of the [General Court] to the contrary, such an action does not have suspensory effect.

It should be noted at this point that there was a significant difference between the position in Scott and the position in TWD (on which the Court of Justice relied). In TWD, the beneficiary had had the right to challenge the Commission recovery order in the General Court but had decided not to do so and to reserve its challenge for the national court.  But in Scott, the beneficiary (and the granting authority) had brought such a challenge, in time. Since, at paragraph 20 of TWD, the Court had expressly distinguished the case before it (no appeal to the General Court though an appeal was possible) from the case where the beneficiary had brought an appeal, Scott seemed to represent a significant tightening of approach. Moreover, the language of paragraphs 59 to 60 of Scott, which stated that the beneficiary could not, in recovery proceedings, “call in question” the recovery order or the decision on which it was based, appeared to indicate that a national court had no option but to slam the door in the face of any beneficiary that tried to raise the issue of validity of the underlying Commission decision, except in a case where the beneficiary could not, for standing reasons, have challenged the decision in the General Court (see paragraph 67 of the Commission Notice on enforcement of State aid law in national courts and the cases there referred to).

The Court in Scott also made it clear that the national court had no business suspending the implementation of a recovery order just because the order was challenged in the General Court: suspensory relief was a matter for the General Court alone.

In BPP, the beneficiary challenged the Commission State aid decision ordering recovery against it in the General Court. Faced with recovery proceedings in the Portuguese courts, it raised questions about the validity of the decision. Understandably, given Scott, the Portuguese government objected to its doing so. However, the beneficiary managed both (it appears) to stave off any implementation of the recovery decision and to get the question of the validity of the decision referred to the Court of Justice.

Based on Scott, one might have expected the reference to have been sent straight back as inadmissible: what was the national court doing looking at the question of validity at all? Further, one might have expected the national court’s failure to implement the recovery decision to have attracted adverse comment in Luxembourg. An additional factor was that, by the time of the Court’s judgment, the General Court had dismissed the beneficiary’s challenge: that would have appeared to make even more likely that the Court would have sent the reference back with a flea in its ear.

However, the Court decided to entertain the reference and answer the questions posed. It did so because it considered that the reason behind the principle in TWD was no more than that, once a Commission decision had become definitive (i.e. once the time for challenge in the General Court had expired), national courts should not be able to call the legality of that decision into question. But, contrary to the approach in Scott, it did not consider that, in a case where there was an ongoing challenge and hence no definitive decision, there was any reason why a national court should not be able to refer the question of validity to the Court of Justice.

Though it is probably dangerous to attach any weight to the point, it is also interesting that the Court did not in any way criticise the national court for what appears to have been a lengthy failure to implement the recovery order: nothing in the recital of facts suggests that the Portuguese court paid much heed to paragraph 68 of the Commission notice, which states that even where a national court in recovery proceedings makes a reference, it should suspend recovery only “subject to very strict legal requirements” (such as urgency and irreparable harm).

BPP therefore seems to open up an interesting possibility for a beneficiary seeking to challenge a State aid decision ordering recovery, particularly given the serious delays in the General Court. As long as the beneficiary gets a challenge to the decision into the General Court in time, it seems that it can then seek to mount a parallel challenge to that decision in the national court, and then ask the national court to make a reference to the Court of Justice under the Fotofrost principle (which requires a national court to make a reference to the Court of Justice if a challenge to an EU measure is made before it that cannot be dismissed as unfounded).

Such an approach would have the particular attraction of getting the challenge up to the Court of Justice in relatively short order (a reference taking about 18 months to 2 years as opposed to the typical 5-year delay before the General Court followed by a further 2 year appeal to the Court of Justice). For a beneficiary seeking to reverse a recovery order already implemented, the advantage of speedy resolution is obvious: but even a beneficiary that has managed to stave off implementation will have in mind the high interest rates that apply to recovery, and may well also be interested in speedy resolution.

Disappointingly for BPP, once the Court of Justice had decided that it could hear the reference, it went though BPP’s grounds of challenge and rejected them all. But though BPP failed to win its pot of gold, its success in clearing a fast track to the Court of Justice may well assist other beneficiaries in future cases.

George Peretz QC

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