Thanks to Emily Neill of Blackstone Chambers (writing from Luxembourg) for this comment on the AG opinion in Case C-284/12 Deutsche Lufthansa v Flughafen Frankfurt-Hahn
With the summer holiday season looming, the prospect of suspended flights and being stuck in a low cost operator airport is the last thing this UKSALA blogger wants to contemplate.
It’s in the context of the low cost flight business that an interesting State aid opinion was handed down last Thursday by Advocate General (“AG”) Mengozzi, which contemplates suspension and hold-ups not at the airport, but in national courts – and banks – whilst the Commission concludes an investigation under Article 108(2) TFEU into measures which are simultaneously the subject of national private enforcement proceedings.
The Opinion in Deutsche Lufthansa is not available in English, but can be found in French here. In light of the absence of an English translation, this blog contains more detail of the AG’s reasoning than would ordinarily be the case. References to paragraphs in the below are references to the paragraphs of the Opinion.
The context of the Opinion is a preliminary reference made by a German court in proceedings brought by Deutsche Lufthansa (“DL”) against the airport operator FFH (in which the State has a majority share). In the national proceedings, DL seeks the recovery of alleged aid said to have been granted to Ryanair in the form of preferential contract terms and airport fees. DL argues that the measures constitute aid which was not notified and is therefore unlawful under Article 108(3) TFEU.
The action was commenced in November 2006 but (by reason of various appeals) the national court was yet to finally determine whether there had been a breach of Article 108(3) as at July 2008, when the Commission decided to open a formal investigation into the same measures under Article 108(2) TFEU.
The German national court asked the Commission for an opinion, under the procedure in section 3.2 of the Commission Notice on the enforcement of State aid law by national courts. In its response, the Commission raised as a preliminary point that the German court was not required in the case at hand to assess whether or not the measure constituted “aid” within the meaning of Article 107(1) TFEU since it could base itself on the Commission’s decision to open the formal investigation procedure under Article 108(2) and could simply proceed to examining the consequences of a violation of Article 108(3) TFEU.
The German court did not agree with the Commission and considered that it had grounds for examining itself whether or not the measures in issue did constitute State aid within the meaning of Article 107(1).
In that context, the national court referred a number of questions to the ECJ, including whether a Commission decision to open the formal investigation procedure has the result that a national court seized of an action for the recovery of aid is bound by the Commission’s opinion in that decision as to the classification of a measure as State aid.
The reference raises questions about the scope of the duty on Member States not to bring State measures into effect during a Commission investigation (“the obligation of non-implementation”). That duty is expressly contained in the last sentence of Article 108(3) TFEU. But what of the position where the Commission has commenced an investigation into “aid” which has already been granted under Article 108(2) TFEU? And what does the obligation require of a national court seized of a private enforcement action? The Opinion addresses these issues.
The AG recognised throughout his Opinion that the classification by the Commission of measures as “aid” in a decision to open the formal investigation procedure under Article 108(2) is merely a provisional assessment which might be departed from in the Commission’s final assessment of the measure (see §§11, 29).
The AG set out what he considered to be the purpose and the extent of the obligation of non-implementation contained in Article 108(3) TFEU. As to the purpose of the obligation, he considered it amounted to a preventative control, prohibiting Member States from putting into effect measures before the end of the Commission’s procedure (§18).
As to the extent of the obligation, the AG considered the duty of non-execution stems from the very fact of notification and binds Member States during the entire period of investigation, whatever the nature of the measures notified even if they are not, objectively judged, State aid in the sense of Article 107(1) (§23).
The AG considered that in the absence of a notification of a measure to the Commission the triggering of the obligation of non-execution is linked to the objective existence of a State aid in the sense of Article 107(1); it is only if a measure is (objectively) classified as a State aid that a State will breach Article 108(3) by putting it into effect without notification (§25).
Linked to his view that the duty stems from the very fact of notification, the AG considered that a Member State is required to suspend the execution of a measure where the Commission, following a preliminary examination or a complaint, decides to open the formal investigation procedure under Article 108(2), irrespective of the nature of the measure in issue; i.e. whether or not it is “aid” (§25). Although the Commission’s classification of a measure as “aid” is simply a provisional one and the Commission could conclude during the investigation that the measure is in fact not aid, the AG considered the mere fact that the Commission has opened the formal procedure leads to serious doubts about the legality of a measure and its compatibility with the internal market. The AG considered those doubts were sufficient to trigger the safeguard mechanism contained in the duty of non-execution (§29).
In light of the above, the AG concluded that the decision to open a formal investigation can entail, for the relevant Member State, the duty to suspend measures which would not be subject to the control procedure set down in Article 108(3) because they are not “aid” or are existing aid (§32).
The AG went on to consider the consequence of his assessment of the obligation on the competence and duties of national courts (§§35 – 46).
He concluded that once a measure has been notified national judges are required to uphold all of the consequences of the potential breach of the duty of non-execution without themselves engaging in an autonomous assessment of the measures under Article 107(1) (§§35, 42).
By contrast, where the measure has not been notified, it is up to the national court before which Article 108(3) is invoked to assess whether the measure in question amounts to a State aid, and if it does, to order the suspension and recovery of the unlawful aid (§§36, 43).
As to the position where the Commission opens the investigation procedure under Article 108(2) into certain measures, the Commission’s decision affects national judges asked to rule on those measures. Since the measures will be the subject of a subsequent Commission decision, the national court is required to avoid taking definitive steps which would be susceptible of turning out to be inconsistent with the Commission’s decision (§37-40). Even though the opening of the Article 108(2) procedure by the Commission is simply the adoption of prima facie position on the existence of an aid, according to the AG this taking of a position by the Commission should be considered sufficient as a “presumption of legal basis” (a fumus boni iuris) which would enable an interim measure to be adopted (§44).
Even where the national court considers, contrary to the preliminary conclusions of the Commission, that the measure at issue does not amount to an aid within the meaning of Article 107(1), the AG considers that court is not able to reject a demand for recovery of aid granted during the period running from the opening of the investigation procedure, without making a preliminary reference to the CJEU on the validity of the Commission’s decision to start the investigation. In so far as national law permits, the national court could decide not to issue a definitive order for recovery of the aid until the Commission adopts a final decision and, in the interim, order that the funds be paid into a frozen account until the national court rules definitively on the action (§44).
Were it to be adopted by the Court, this approach could have an important impact on the relationship between private enforcement and Commission investigations into non-notified aid. For a national court seized with a private enforcement action relating to non-notified measures alleged to be aid, the opening of an investigation by the Commission is, on the AG’s approach, sufficient basis for interim measures to be granted in favour of the party claiming recovery of unlawful aid. If the national court disagrees with the Commission’s assessment and wants to rule to the contrary, then it comes under a duty to make a preliminary reference. Aside from a trip to Luxembourg, the other option is to order the recovery of aid in the interim, but with measures to protect the funds.
The Deutsche Lufthansa proceedings are among a number of similar actions which have been commenced in Germany by competitors of low cost airlines targeted at alleged subsidies to low cost operators. Questions raising similar issues to those discussed by AG Mengozzi have been referred to the CJEU in Case C-27/13. When the Court rules in Deutsche Lufthansa (and the other cases raising the same point), we will know whether the AG’s approach is considered by the Court to be correct. If it is then the Court may well see an increase in preliminary references in the State aid context, particularly from Member States whose national procedural law does not permit the interim payment mechanism suggested by the AG. A win for Luxembourg airline operators, if no-one else…