EU State aid rules and the national courts: an opportunity for German litigators

These days more and more use is being made of the Treaty rules on State aid. The European Commission is using the State aid rules in an innovative way to take over competence from the Member States in tax regulation by challenging the selectivity of national measures or rulings, which give preferable treatment to certain taxpayers. Companies, too, are making more use of the rules to attack the unfair competitive advantages of competitors, who receive subsidies, by complaining to the Commission leading to investigation and possible repayment with interest by the subsidised party.

The historical reluctance of German courts to apply State aid rules has changed

A complaint to the Commission is not the only option open to an aggrieved competitor. The national courts have competence in State aid matters and unlike the Commission, whose role is to enforce competition, they have a duty to uphold the rights and obligations of individuals, making them potentially a more attractive forum for redress. In the past however, German courts have consistently misapplied EU law by ruling that there is no legal basis in German law for a competitor to bring actions. Recent developments in a series of cases before German Courts and rulings by the ECJ have thankfully changed this trend and should encourage more use of the national courts by German litigators in State aid matters.

The Commission’s 2009 Notice on Enforcement of State aid law by the national courts provides that the court is obliged to order recovery of aid which has not been notified

National Courts have an important role in the enforcement of the State aid rules because of the standstill obligation of Article 108 para. 3 TFEU, which provides that aid must be notified to the Commission and cannot be put into effect until the latter has taken a decision regarding its compatibility with the common market. Article 108 para. 3 TFEU has direct effect and the courts have a duty to apply it and to ensure that EU law takes primacy over national law. They can interpret whether a subsidy amounts to State aid within the meaning of the Treaty rules or whether an aid is block exempted or falls within a pre-approved scheme; can declare aid to be unlawful and order its recovery with interest; issue an injunction preventing payment of aid; impose interim measures and award damages for breach of the standstill rule. What they cannot do is to declare State aid to be compatible with the common market because this is an exclusive competence of the Commission. In this way the national court, as a forum for the challenging party, has a certain attraction. While the Commission is obliged to make an assessment whether an aid, even if it has not been notified and has already been put into effect, is nevertheless compatible with the common market (exempted), the national court is obliged to declare such aid unlawful and may also decide to order its recovery.

In 2009, the Commission adopted a Notice on Enforcement of State aid law by the national courts, which summarises the jurisprudence and practice and set out its view on co-operation with the national courts. Some commentators have accused the Commission of interpreting the courts’ role too generously, probably because the Commission would like to promote private enforcement and conserve its resources for the bigger and more important cases. For example, the Commission considers that the court is obliged to order recovery of aid, which it has declared unlawful (it has not been notified), while the Commission itself does not have this power but must first make an assessment of the aid. While the national court can take its own decision and may not stay proceedings even where the matter in question is being dealt with in parallel by the Commission, it can also ask the Commission for information or for a (non-legally binding) opinion or ask the ECJ for a preliminary ruling under Article 267 TFEU.

A study in 2006, updated in 2009, showed that private enforcement is growing and although most cases are appeals against tax measures and no court has yet ordered damages, there has been an increase in the successful actions for suspension or recovery of unlawful aid.

The German courts now recognise that the TFEU establishes individual rights that have to be upheld and that the German courts are obliged to provide legal protection for competitors

The study showed that in Germany, the lower courts were reluctant to apply EU law correctly and in several cases denied the rights of competitors, holding incorrectly that the aim of the standstill obligation was not the protection of the individuals, that there had to be a corresponding legal basis to Article 108 para. 3 TFEU in national law and that any claim by a competitor could only be brought after the Commission has taken a negative decision.

This situation has now changed. In 2011, the German Bundesgerichtshof clarified that Article 108 para. 3 TFEU establishes individual rights that have to be upheld by the German courts, which are obliged to provide legal protection for competitors, who are disadvantaged by unlawful State aid measures. It also identified Section 823 para. 2 of the German civil code as the appropriate legal basis for such action. In 2012 and 2014 the ECJ also confirmed its earlier ruling in the CELF case and ruled in two separate preliminary rulings referred by German Courts (Flughafen Lübeck/Air Berlin and Deutsche Lufthansa) that the national court may not stay proceedings where the Commission has opened a formal procedure to examine the aid in question but must either suspend the aid or impose interim measures. In 2017, the Bundesgerichtshof followed the ECJ position in a line of judgments.

We expect to see many more State aid cases come before the German courts in the future

We think that these recent developments have made it clearer and easier for German litigants to use the State aid rules in seeking redress against unfair competitive advantage in the market caused by illegal subsidies and expect to see many more cases come before the German courts in the future.