On 16 September 2013, the GC gave judgment in Case T-226/09 and T-230/09, BT and the BT pension trustees’ appeal against the Commission’s determination that BT’s exemption from the PPF levy constitutes unlawful State aid contrary to Art. 107 TFEU.
The GC dismissed all of the Appellants’ grounds of appeal and upheld the Commission’s decision. The essential reasoning of the GC is that BT cannot rely on the fact that it assumed certain enhanced public sector pension liabilities on its privatisation to support a contention that the PPF levy exemption does not constitute an ‘advantage’ and/or a State aid. The Court held that BT’s assumption of public sector pension liabilities was not ‘indivisibly linked’ to the PPF levy exemption and reasoned that it must focus on the effects of the PPF levy exemption (as opposed to its object or purported justification).
In 1994, British Telecommunications was privatised. Under s.68 of the Telecommunications Act 1984 the UK government guaranteed that if BT became insolvent it would pay any pension liabilities that had transferred to BT on privatisation. Any guarantee payments would be made direct to the pension scheme trustees.
The Pensions Act 2004 establishes minimum funding requirements (MFR) for occupational pension schemes, whereby schemes are required to hold sufficient assets to cover their technical provisions. Regulations provide an exception from the MFR for schemes that are guaranteed by a public authority.
The 2004 Act and related Regulations also make provision for eligible pension schemes to pay an annual levy to help fund the Pension Protection Fund’s activities in compensating pension members whose employers become insolvent. Regulations provide that schemes are exempt from the PPF levy if they are the subject of a public guarantee.
Because of the guarantee provided under s.68 of the 1984 Act, BT is exempt from the MFR and the PPF levy.
In 2007, the EU Commission reviewed these arrangements. The Commission had no difficulty in concluding that the guarantee under s.68 was not itself State aid. This was because the guarantee only benefited pension scheme members (who are obviously not themselves ‘undertakings’). The Commission also considered the MFR exemption, but concluded that this did not confer an advantage on BT. However, the Commission held that the exemption from the PPF levy constituted an unlawful State aid.
BT and the Trustees appealed to the GC, alleging various errors of law in respect of the Commission’s approach.
(1) Selective advantage
The Appellants’ principal argument, which it also re-packaged in a number of different ways, was ultimately simple: BT’s PPF levy exemption should not be regarded as a selective advantage because on privatisation BT had assumed liability for various enhanced pension benefits that would not have arisen in the private sector. The Appellants said that those liabilities were inextricably linked to the guarantee, and thus also the PPF levy exemption. They argued that the arrangements must be viewed as an ‘indivisible whole’ and that the PPF levy exemption therefore did not confer an advantage on BT. The GC rejected this argument and concluded that BT’s assumption of the pension liabilities could not be regarded as inextricably linked to the PPF levy exemption.
(2) Abnormal charges/structural disadvantages
To similar effect, the Appellants submitted that the pension liabilities amounted to an abnormal charge or a structural disadvantage, and that this charge/disadvantage was effectively offset by the PPF levy exemption. This argument also failed on the grounds that pension liabilities could not be regarded as linked to the PPF levy exemption; and the PPF levy exemption did not ‘release’ BT from the pension liabilities (at least not in any meaningful sense).
(3) Equal treatment
The Appellants suggested that they should be treated as similarly situated to other bodies that benefited from Government guarantees, and so were exempted from the PPF levy. The Court was not impressed by this argument. It noted that unlike other bodies benefitting from Government guarantees, BT is a private, rather than public, body.
This was the Appellants’ most interesting ground of appeal. The Appellants attacked the Commission’s decision on the basis that it had failed to properly characterise the PPF levy exemption by reference to the analytical scheme typically adopted by the Court when assessing the State aid compatibility of fiscal measures, i.e. (1) identifying clearly the relevant reference scheme, (2) defining the derogation from the scheme that is in issue and (3) considering whether the derogation arises from the nature of the reference scheme. The GC’s reasoning on this ground of appeal merits reading in full. Put shortly, it did not accept that BT’s PPF levy exemption could be regarded as necessary to achieve the objects of the UK’s pension scheme, or intrinsic in the nature of that scheme. This ground of appeal therefore also failed.
While the challenge failed on the facts, the Court does appear to have accepted the proposition that the three-stage analysis summarised above can properly be deployed to determine whether the PPF levy exemption was selective. This is of some interest as, so far as the writer is aware, this is the first case in which this approach has been applied by the GC outside the fiscal context.
(5) Legitimate expectation/Equal treatment/Distortion of competition/Effect on inter-state trade and Transfer of State resources/Reasons
BT also took various points relying on a number of other EU law grounds. These too failed.
A final point of interest arises regarding the Commission’s approach to recovery of the unlawful aid. This concerned an arrangement entered into by BT whereby amounts that would have been payable by BT under the PPF levy, but for its exemption, were transferred to a specially established escrow account. The GC noted that at the time BT transferred the relevant sums to escrow it did not, and could not, know whether the payments accurately reflected the PPF liability that, but for the exemption, would have applied. The Court also considered that while the existence of the escrow account might be relevant to the manner in which an order for recovery was effected, i.e. the contents of the escrow account could be used to meet the repayment liability, it could not prevent the conclusion that BT had received an advantage from the PPF levy exemption. Consequently, the escrow arrangement could not prevent BT being subject to an order for recovery.
Joseph Barrett, 11KBW