The Estonian authorities had granted state aid to a company's purchase and installation of a production system. The state aid was granted in accordance with the general block exemption regulation according to which state aid may be exempted from the state aid rules under certain circumstances. At least, that was the opinion of the Estonian authorities when granting the state aid.
STATE AID DID NOT FULFIL THE REQUIREMENTS
In connection with a subsequent control, the Estonian authorities were made aware that an agreement concerning purchase of the production system had been concluded prior to the company’s application for state aid. Consequently, the authorities assessed that the state aid did not fulfil the requirements of the general block exemption regulation as an application for state aid must be submitted prior to the commencement of a project or activity. The authorities therefore chose to recover the state aid, including interest.
The decision to recover the state aid was subject to a complaint and was then brought before the courts where it is pending. The company claimed that the authorities knew of the agreement before the company applied for state aid, and that the company was advised by the authority to conclude the agreement first.
SHOULD AUTHORITIES RECOVER STATE AID?
The Court of Appeal in Tallinn chose to present a number of prejudicial questions to the European Court of Justice:
- Is a Member State’s authorities obligated to recover illegal state aid when the European Commission has not yet made a decision concerning repayment?
- Does the recipient of the state aid have a justified expectation that the state aid was legal if the authorities were aware of the circumstances making the state aid illegal?
- If a Member State's authorities recover illegal state aid, are they then obligated to recover interest?
THE ADVOCATE GENERAL: NO LEGITIMATE EXPECTATIONS - THE STATE AID MUST BE REPAID
In the draft judgment, the Advocate General states that Article 108 (3) of the Treaty concerning the obligation to report state aid has a direct effect and therefore applies directly nationally. The Member States’ authorities are thus obligated to recover illegal state aid granted contrary to the general block exemption regulation.
A legitimate expectation cannot be created in relation to the recipients of state aid that the authorities’ decision to grant state aid was based on incorrect assumptions, or that the authorities provided the recipient with bad advice. The recipient should have investigated the rules.
It appears from the efficiency principle under EU law that interest on state aid must be calculated to ensure full repayment in the same way as if the European Commission had considered the state aid to be illegal claiming repayment.
CLEAR STATEMENT IN ALIGNEMENT WITH THE DANISH RULES
The Advocate General’s opinion is very clear and lays down an obligation under EU law for the authorities to claim repayment of illegal state aid even though the European Commission has not considered the case. This is in good harmony with the Danish rules. Under Danish rules, there are no explicit requirement for recovering illegal state aid, but the public authorities are obligated to make their practice legal if they become aware that a practice is contrary to applicable law. In the Sønderborg case from 2016, the Western High Court ruled that a municipality was entitled to charge commission on existing guarantees thereby changing the practice so that the municipality would not grant illegal state aid to two district heating companies in the future.
The date of the European Court of Justice’s judgment has not yet been scheduled, but we will follow the matter, and it will be interesting to see whether the European Court of Justice will choose to follow the Advocate General's draft judgment.