This was established on 25 January 2016 when the Western High Court ruled on a dispute between the Municipality of Sønderborg and two local district heating companies. Horten assisted the Municipality of Sønderborg in the case. The ruling means that the municipality is obligated to charge a guarantee commission. The commission is more than DKK 70 million in the guarantee period.

The ruling means that municipalities providing guarantees are generally to charge a market-related guarantee commission. A guarantee commission is thus not sufficient, and a one-off commission or a very low commission will generally not be sufficient.

Municipalities should generally consider the legality of existing guarantees. Illegal state subsidies are generally to be repaid to the state treasury. The state subsidy will thus not benefit either the municipality or the company. The amount one risks having to pay to the state treasury will increase the longer the subsidy scheme continues.

THE MUNICIPALITY OF SØNDERBORG'S CASE ON GUARANTEE COMMISSION

In the specific case, the Municipality of Sønderborg had provided cost-free loan guarantees in 2010 for the district heating companies' investments in order to realise the municipality's heating plan. The investments included the establishment of a geothermal system with chipwood system and transmission line. In 2012, the Municipality of Sønderborg became aware that the cost-free loan guarantees could be problematic. On 10 October 2012, the municipality decided to charge current commission on existing and new guarantees starting from 2013 and to charge commitment commission for all new guarantees.

The two district heating companies issued a writ of summons against the Municipality of Sønderborg, claiming that the municipality was to acknowledge that the municipality was not entitled to charge commission on loan guarantees provided to the district heating companies before 10 October 2012. The Court of Sønderborg found in favour of the two district heating companies. The Municipality of Sønderborg then brought the matter before the High Court and repeated its claim for dismissal.

The High Court has now found in favour of the Municipality of Sønderborg. The High Court found that the Municipality of Sønderborg's decisions to provide cost-free guarantees were invalid as they constituted illegal state subsidies. On this basis, the High Court concluded that the Municipality of Sønderborg was entitled to later decide to charge commission on the guarantees provided.

COMPETITIVE MARKET AND THUS COVERED BY THE STATE SUBSIDY RULES

The High Court justifies the decision by the fact that the district heating companies carry on business on a competitive market. The companies deliver heat to customers, who can choose the heat supply source themselves. This includes both customers who are obligated to connect and those who are  not obligated to connect. Both types of customers may choose whether they will use district heating or receive heat from alternative sources such as heat pumps, solar heat or furnaces for biofuels.  

On this basis, the High Court found that the two district heating companies carry on business covered by Article 107 (1) of the Treaty on the Functioning of the European Union and are competing against other producers of installations and materials for room heating. The Municipality of Sønderborg's cost-free guarantees therefore provided the two companies with an advantage in the competition with other heat producers contrary to Article 107 (1) of the Treaty.

contacts

Andreas Christensen

Partner

Marie Løvbjerg

Attorney