The spectre of having to return state aid
Failure to comply with the rules for award and use of state aid may result in the recipient being required to pay back the money. But the law provides beneficiaries of aid opportunities to defend their position on several fronts.
Enforcement of state aid regulations often raises questions at the stage of seeking an award of state aid. One particularly sensitive issue concerns the possible need to return the aid if it is later found that the aid was improperly awarded or used. In the past this problem affected a fairly small number of beneficiaries, but increasingly frequent audits and greater awareness among institutions, beneficiaries and competitors may lead to an increase in cases seeking the return of state aid from beneficiaries.
The issue of the refund of state aid by Polish beneficiaries has been covered extensively in the media in recent months in connection with the award of assistance to LOT Polish Airlines for restructuring and the recent decision by the European Commission requiring the Gdynia airport operator, Port Lotniczy Gdynia-Kosakowo sp. z o.o., to refund the lion’s share of its assets. Elsewhere in Europe, great interest in this issue has been stirred by the review of the propriety of awarding state aid to Spanish football clubs, including the famed Real Madrid.
Under Art. 107 of the Treaty on the Functioning of the European Union, aid granted by a member state or through state resources which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods is regarded as incompatible with the EU internal market insofar as it affects trade between member states. The reason for this rule is that the EU is required to ensure compliance with principles of fair competition not only by the member states, but also by businesses operating on the EU internal market. The treaty and the regulations issued under the treaty provide for many exceptions to this principle, permitting state aid to be awarded when certain conditions are met—for example, for the general welfare of society or for development of certain economic activities.
If the rules for state aid are violated through improper use of state aid by the beneficiary or improper awarding of the aid, for example due to an erroneous finding that the conditions for award of the aid have been met, the European Commission may commence review proceedings at its own initiative or at the request of a private entity (e.g. a competitor of the beneficiary). If the suspicion that impermissible aid was awarded is upheld, the Commission will issue a decision ordering the aid to be returned.
The Commission forwards the decision to the Polish competition regulator, the Office of Competition and Consumer Protection, which then serves a copy on the entity which provided the aid and on the beneficiary.
A beneficiary unsatisfied with the decision of the Commission has the right to file an appeal with the General Court, which has jurisdiction to review the legality of acts by the Commission. The appeal must be filed within 2 months after service or publication of the decision, if any, or within 2 months after the beneficiary learns of the decision. Filing of an appeal stays the enforcement of the decision. If the ruling by the court at the first instance is in favour of the beneficiary, the decision by the Commission ceases to be in force. A ruling either for or against the beneficiary may be appealed to the European Court of Justice, but only on legal grounds (and thus not based on a claim of erroneous factual findings).
If judicial review does not bring a favourable result, the beneficiary of the aid—on the basis of the decision by the Commission—is required to refund the amount of the aid plus interest.
If the beneficiary refuses to repay the aid, European law imposes on the member state a general obligation to take measures to enforce the Commission’s decision. The specific regulations for such enforcement measures are a matter of national law.
Under Polish regulations, the authority that issued the decision under which the state aid was awarded is generally competent to overturn or unilaterally amend its own act. If the aid was awarded under a contract, the party awarding the aid may apply to the court for dissolution of the contract or an order to refund the aid. It should be pointed out that failure to act on the part of the entity granting the aid would violate the duty to cooperate loyally imposed by EU law. Depending on the procedure for seeking the refund—civil or administrative—the relevant provisions concerning execution in civil or administrative proceedings would apply.
There are also cases in which the Commission’s decision only finds in principle that state aid was inconsistent with the internal market, without identifying the entity required to refund it or the amount which will be subject to execution. In such circumstances, determination of these two elements will be left to the national courts or administrative authorities. A ruling recently issued by the ECJ may prove helpful in countering the effects of a decision. In Mediaset SpA v Ministero dello Sviluppo Economico (Case C-69/13, judgment of 13 February 2014), the ECJ held that when determining the value of state aid subject to refund, the national court may—without disputing the validity of the Commission’s decision—determine that the amount of aid to be refunded is zero, if that indeed follows from the calculations made on the basis of all the information before the court.
Each stage of proceedings in state aid cases provides the interested parties the opportunity to address the case directly as well as through the court or administrative authority. As the Mediaset case shows, even if it seems that the case is over, sometimes it is still possible to defend against the obligation to refund state aid. But to conduct the matter effectively and reach a favourable and timely conclusion requires excellent familiarity with state aid issues and framing of the appropriate arguments—primarily legal rather than economic arguments.
Joanna Prokurat and Wojciech Marszałkowski, Public Procurement Practice, Wardyński & Partners