Legitimate expectations claims and EU State aid rules after SAM: some thoughts

One of the points I raised in my paper "Digging Itself Out of the Hole? A Critical Assessment of the European Commission's Attempt to Revitalise State Aid Enforcement after the Crisis" concerned the treatment of legitimate expectations claims in EU State aid enforcement proceedings in the scenario created by the State Aid Modernisation (SAM). In probably not very clear terms, I submitted that
... the Commission will most likely not have the upper hand in withdrawal procedures where Member States (and beneficiaries) will raise important issues related to due process guarantees and good administration duties that limit the Commission’s leeway—unless the old mantra that ‘there is no legitimate expectation to be protected in the field of State aid so as to trump the application of Article 107(1) TFEU’ is extended and applied in an absolute manner—which I do not think possible after the Treaty of Lisbon granted binding force to the EU Charter of Fundamental Rights[68] and, in particular, to the rights to good administration (Art 41)[69] and to an effective remedy and to a fair trial (Art 47).[70]
[68] Charter of Fundamental Rights of the European Union [2010] OJ C 83/389. The specific reasons for this assessment exceed the scope of this paper. For discussion, see R Luja, “Does the Modernisation of State Aid Control Put Legal Certainty and Simplicity at Risk” (2012) EStAL 765-66.
[69] P Craig, “Article 41 – Right to Good Administration”, in S Peers, T Hervey, J Kenner and A Ward (eds), The EU Charter of Fundamental Rights: A Commentary (Oxford, Hart, 2014) 1069-98.
[70] P Aalto et al, “Article 47 – Right to an Effective Remedy and to a Fair Trial”, in S Peers, T Hervey, J Kenner and A Ward (eds), The EU Charter of Fundamental Rights: A Commentary (Oxford, Hart, 2014) 1197-275.
I was rightly challenged on this point by an anonymous reviewer, to whom I am grateful for the opportunity to rethink and expand my arguments on the treatment of legitimate expectations claims for the purposes of State aid enforcement after SAM. I have now addressed the comments and, in the final version of the paper (hopefully soon to be published in the Journal of Antitrust Enforcement), I now explain in more detail what I meant. I hope the argument is now easier to share or, at least, more strongly supported.
... the Commission will most likely not have the upper hand in withdrawal procedures where Member States (and beneficiaries) are likely to raise important issues related to due process guarantees and good administration duties that can limit the Commission’s leeway.[78] It is generally accepted that the principle of legal certainty is one of the general principles recognised in the EU legal order,[79] and that this principle and the corollary protection of legitimate expectations are binding on the Member States and the EU Institutions when they implement EU rules.[80] Nonetheless, the traditional position in this area has been to consider that ‘there is no legitimate expectation to be protected in the field of State aid so as to trump the application of Article 107(1) TFEU’.[81] This has been repeatedly criticised as an inconsistency in the development of the principle of legal certainty and its corollary, the protection of legitimate expectations, in the area of EU State aid law as compared to general EU law.[82] Furthermore, this old mantra may well have been significantly eroded by the entry into effect of the Treaty of Lisbon,[83] which granted binding force to the EU Charter of Fundamental Rights[84] and, in particular, to the rights to good administration (Art 41)[85] and to an effective remedy and to a fair trial (Art 47).[86] Any attempt to transfer the pre-Lisbon ‘no protection of legitimate expectations in State aid law’ paradigm to the post-Lisbon, post GBER paradigm is problematic. The Commission may be tempted to insist that nothing has changed and that, consequently, arguments of legal certainty cannot restrict its ability to dis-apply BER coverage ex post. That would push the old mantra to its extremes and, in my view, would break it. Relatively recent clarifications by the CJEU have tried to establish a balance, whereby recipients of State aid cannot claim legitimate expectations protection if, being diligent, they should have been capable of determining whether or not the EU procedure leading to the award of the aid was complied with or not.[87] Thus, the argument ultimately rests on the observability of the Commission’s ex ante intervention or the absence of such mandatory intervention, where prescribed by EU law (ie Arts 107 and 108 TFEU). In the case of BER protection, this is highly problematic because the restriction of any substantive analysis by the Commission to an ex post phase by necessity requires the recipient to rely on the Member States’ assessment of the BER. As the CJEU has also clarified, ‘a person may not plead breach of the principle of the protection of legitimate expectations unless he has been given precise assurances by the competent authority’.[88] A contrario, such assurances by the Member State as a co-enforcer of EU State aid law in the new post 2014 GBER paradigm may well trigger significant levels of protection of those legitimate expectations.[89] It is submitted, this is likely to increase the weight given to arguments based on legitimate expectations and legal certainty, particularly in the case of attempts to withdraw BER coverage based on a Commission’s ex post assessment that runs contrary to arguments of reasonable reliance (by recipients) on Member State-supported interpretations of the applicable BER,[90] particularly if it derives from a stricter interpretation of the EU State aid rules.[91] This arguments, or at least litigation based on these arguments, can add more layers of ineffectiveness to the post 2014 GBER paradigm based on more withdrawal procedures.
[78] Indeed, this argument is frequently raised in State aid litigation before the EU Courts. For a recent example, see Opinion of AG Whatelet in A2A SpA v Agenzia delle Entrate, C-89/14, U:C:2015:211, paras 44 to 53. However, the AG Whatelet rejected the arguments on the basis of reasons similar to those criticised in the main text.
[79] ISD Polska and Others v Commission, C-369/09 P, EU:C:2011:175, para 122.
[80] Gerekens and Procola, C-459/02, EU:C:2004:454, paras 21 to 24.
[81] However, this is not warranted upon closer examination of the case law, as demonstrated by A Giraud, “A study of the notion of legitimate expectations in State aid recovery proceedings: ‘Abandon all hope, ye who enter here’?” (2008) 45(5) CMLRev 1399-1431.
[82] See T Tridimas, The General Principles of EU Law, 2nd edn (Oxford, OUP, 2006, repr. 2009) 296; W Weiβ and M Haberkamm, “Legitimate expectations in state aid and the CFI” (2010) 9(2) EStAL 537; A Winckler and FC Laprévote, “Reconciling legal certainty, legitimate expectations, equal treatment and the prohibition of state aids” (2011) 10(2) EStAL 321-326.
[83] Similarly, see E Fink, “The Possibility of Protection of Legitimate Expectations in Recovery of Unlawful State Aid” (2013) 1 Juridica International 133-141.
[84] Charter of Fundamental Rights of the European Union [2010] OJ C 83/389. The specific reasons for this assessment exceed the scope of this paper. For discussion, see R Luja, “Does the Modernisation of State Aid Control Put Legal Certainty and Simplicity at Risk” (2012) EStAL 765-66.
[85] P Craig, “Article 41 – Right to Good Administration”, in S Peers, T Hervey, J Kenner and A Ward (eds), The EU Charter of Fundamental Rights: A Commentary (Oxford, Hart, 2014) 1069-98.
[86] P Aalto et al, “Article 47 – Right to an Effective Remedy and to a Fair Trial”, in S Peers, T Hervey, J Kenner and A Ward (eds), The EU Charter of Fundamental Rights: A Commentary (Oxford, Hart, 2014) 1197-275.
[87] Fink (n 83) 136, with reference to France Télécom v Commission, C-81/10 P, EU:C:2011:811, para 59.
[88] AJD Tuna, C-221/09, EU:C:2011:153, para 72; Agrargenossenschaft Neuzelle, C-545/11, EU:C:2013:169, para 25.
[89] At least, where the interpretation by the Member State was reasonable, in line with the original case law in the area of State liability as per The Queen v H.M. Treasury, ex parte British Telecommunications, C-392/93, EU:C:1996:131, para 43 in particular.
[90] The situation is not completely different to that of reliance on legal advisors’ advice, which could erode the argument by reference to Schenker & Co. and Others, C-681/11, EU:C:2013:404. However, this is clearly a controversial area of EU procedural law that requires future developments. In my view, a new wave of protection of legitimate expectations can be expected, particularly where domestic constitutional principles of protection of legitimate expectations as part of the right to good administration are engaged. For discussion, see R Bousta, 'Who Said There is a ‘Right to Good Administration’? A Critical Analysis of Article 41 of the Charter of Fundamental Rights of the European Union' (2013) 19(3) European Public Law 481-488.
[91] Fink (n 83) 139, with reference to Alcoa Trasformazioni v Commission, C-194/09 P, EU:C:2011:497.

CJEU: vertical effect of Directives goes both ways (C-425/12)


The Judgment of the CJEU of 12 December 2013 in case C-425/12 Portgás may appear to be of interest only for public procurement aficionados (and, even then, only for hardcore ones), as it deals with the potential applicability of the old 1993 utilities procurement Directive (no longer current) to a company entrusted with a gas distribution concession in Portugal. Hardly a topic bound to spur heated debates. Hence, it seems a case doomed to receive very little attention amongst EU lawyers...
 
However, it contains one of the very few potential (r)evolutions in the theory of Directives' direct effect since Mangold and Kücükdeveci by holding that their vertical direct effect goes both ways (i.e. both up and down). In my view, Portgás should become the new Foster and claim a main spot in general EU law (text)books.
 
I think that the Portgás Judgment indeed develops the existing law on Directives' vertical effect. Implicitly, that theory was always concerned with upwards vertical effect, in the sense of allowing particulars to claim EU law protection against the infringing Member State. The theory has clearly been conceptualised on the basis of an (implicit) bottom up claim.
 
However, it is not at all clear whether a downwards application of the theory is at all possible. In general terms, however, the canon (as an extension of the no-horizontal direct effect declared in Marshall) would dictate that such a vertical direct effect cannot go down because the infringing Member State cannot rely on the (non-transposed or deffectively transposed) Directive to affect the legal position of particulars (just as one particular cannot do it against another one).
 
The Foster line of extension of the "standard" upwards vertical direct effect of Directives started to tackle what we may now call 'mezzanine' situations, where a particular did not want to claim protection against the State itself, but against one of its 'emanations' (as a way to circumvent the harshness of the no-horizontal direct effect dogma). In that case, the CJEU was clear to stress that the upwards dimension of Directives' direct effect reaches such a mezzanine situation and declared, as is well known, that particulars can rely on EU law protection under certain circumstances.
 
In Portgás the situation is the opposite. The CJEU was asked to determine whether in a comparable 'mezzanine' situation, the State could claim downwards direct effect of a non-transposed Directive against one of its Foster-emanations. The first bet may be that the principle of legitimate expectations may prevent such an extension of the doctrine. However, such a position has now been rejected by the CJEU.
 
In the passages that deserve more attention in the Portgás Judgment, the CJEU analyses the possibility for the Portuguese government to claim financial recovery of amounts paid to Portgás to finance the acquisition of equipment (gas meters) due to the fact that the undertaking did not tender the contract in accordance with the requirements of the 1993 utilities procurement Directive. However, at the time of the purchase of the equipment, Portugal had not implemented the Directive. Consequently, Portgás raised the defence that Portugal cannot require compliance with a set of rules it had not itself transposed. The CJEU, however, takes a different approach based on the effet utile of EU law and argues that:
33 [...] although the Court has held that unconditional and sufficiently precise provisions of a directive may be relied on by individuals against a body which has been given responsibility, under the control of the State, for a public-interest service and which has, for that purpose, special powers (see, to that effect, Foster and Others, paragraphs 18 and 20, and Dominguez, paragraphs 38 and 39 and the case-law cited), the case in the main proceedings has arisen in a context different from the context of that case-law.
34 In the context of the present case, it should be recalled that, according to the case-law of the Court, the obligation on a Member State to take all the measures necessary to achieve the result prescribed by a directive is a binding obligation imposed by the third paragraph of Article 288 TFEU and by the directive itself. That duty to take all appropriate measures, whether general or particular, is binding on all the authorities of the Member States (see Case C‑129/96 Inter-Environnement Wallonie [1997] ECR I‑7411, paragraph 40 and the case-law cited) as well as on bodies which, under the control of those authorities, have been given responsibility for a public-interest service and which have, for that purpose, special powers. It follows that the authorities of the Member States must be in a position to ensure that such bodies comply with the provisions of Directive 93/38.
35 It would be contradictory to rule that State authorities and bodies satisfying the conditions set out in paragraph 24 of the present judgment [Foster conditions] are required to apply Directive 93/38, while denying those authorities the possibility to ensure compliance, if necessary before national courts, with the provisions of that directive by a body satisfying those conditions when that body must itself also comply with Directive 93/38.
36 Furthermore, the Member States would be able to take advantage of their own failure to comply with European Union law in failing correctly to transpose a directive into national law if compliance with the provisions of Directive 93/38 by such bodies could not be ensured on the initiative of a State authority.
37 Lastly, that approach would make it possible for a private competitor to rely on the provisions of Directive 93/38 against a contracting entity which satisfies the criteria set out in paragraph 24 of the present judgment [Foster conditions], whereas State authorities could not rely on the obligations flowing from that directive against such an entity. Consequently, whether or not such a contracting entity would be required to comply with the provisions of Directive 93/38 would depend on the nature of the persons or bodies relying on Directive 93/38. In those circumstances, Directive 93/38 would no longer be applied in a uniform manner in the domestic legal system of the Member State concerned.
38 It follows that a private undertaking, which has been given responsibility, pursuant to a measure adopted by the State, for providing, under the control of the State, a public-interest service and which has, for that purpose, special powers going beyond those which result from the normal rules applicable in relations between individuals, is obliged to comply with the provisions of Directive 93/38 and the authorities of a Member State may therefore rely on those provisions against it (C-425/12 at paras 33-38, emphasis added).
I think that it is plain to see that Portgás is somehow the mirror image of Foster. Its practical implications may seem small in that the number of Foster-emanations that Member States hold is probably relatively small. However, in the area of public procurement and, more generally, of EU economic law, it is not hard to imagine a relatively important number of potential 'Portgás' entities that can see their rights and (financial) interests compromised as a result of the 'sandwich' situation that this latest CJEU Judgment creates. And this may be a situation that triggers litigation on the basis of the protection of legitimate expectations, rights to property or other fundamental rights by those companies (which stresses the relevance of rethinking the current trends of granting of 'corporate human rights'--see some discussion here).
 
What may be more controversial is to claim, as I would, that this is the last frontier before the full recognition of Directives' direct effect. All in all, as the law currently stands, there is a very limited field where Directives are not directly effective (after their period of transposition) and that, by itself, may justify a simplification (repeal?) of the no-horizontal direct effect dogma. It remains to be seen if the CJEU will ever be willing to cross that bridge.