In a significant recent judgment, which will be of interest to both local authorities and their rate-payers, the High Court has held that the Circuit Court has jurisdiction to determine whether local authority rates can in certain circumstances amount to State aid.

Article 107(1) TFEU contains the general principle prohibiting State aid. It reads:

Save as otherwise provided in the Treaties, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.”

In the recent case of Dun Laoghaire Rathdown County Council v West Wood Club Ltd1 the council had brought proceedings in the Circuit Court claiming arrears of commercial rates in respect of a leisure premises operated by the defendant. The defendant had pleaded that the council was operating leisure facilities in competition with it; that the funding received by the council from commercial rates and from other State sources constituted an unlawful form of State aid, contrary to EU law, and that the rates were therefore unenforceable.

Further, the exemption granted by the council to its own leisure centres for rates, when these were in competition with the defendant’s leisure centres, amounted to a breach of the competition rules of the Treaties taken in conjunction with the obligation on the State and State entities under Article 4(3) TFEU not to enact any measure which could jeopardise the achievement of the objectives of the Treaties, including the non-distortion of competition.

The defendant also counterclaimed for damages on the basis that the court considering the claim for rates might feel obliged to give a decree in favour of the council, but should ameliorate the effect of the council’s unlawful actions by awarding damages against it in the same amount as the rates claimed.

At first instance, the Circuit Court had held that it did not have jurisdiction to entertain the arguments on State aid. The defendant appealed.

Decision of the High Court

O’Malley J allowed the appeal holding that, subject to certain limitations, in principle, any party defending a claim in civil proceedings was entitled to put in issue the lawfulness of a plaintiff ’s claim. A defendant who said that the specific claim brought against them amounted to a breach of their rights must be entitled to make that case. If that was correct, this entitlement could not depend upon the forum in which the plaintiff had brought the claim.

A defendant would be entitled to rely upon constitutional principles or national legislation, if applicable, to defeat a claim of any nature made against it in any forum. The right to invoke the protection of EU law could not be made subject to more restrictive rules, and the defendant could not be compelled to institute separate proceedings to vindicate any applicable rights.

Authorities in the area establish the following principles, which O’ Malley J held would apply here:

  • The Circuit Court had jurisdiction to determine whether the rates amounted to State aid;
  • It did not, however, have jurisdiction to determine the compatibility of the State aid (if found to be such) with the internal market;
  • If it was State aid, it had not been notified to the European Commission and to that extent a finding of a breach of Article 108(3) of the Treaty would follow;
  • However, where the issue concerned the payment of a tax, this obligation to notify the European Commission could only be relied upon by a taxpayer if their own tax payment formed an integral part of the unlawful aid;
  • If an exemption of the council’s own enterprises was established, and was unlawful, it was not a remedy to grant a similar exemption to the defendant – that would only compound the breach;
  • The defendant’s counterclaim for damages exceeded the monetary jurisdiction of the Circuit Court. EU law did not require that damages be available against the recipient of unlawful State aid. Therefore the question of damages was governed by national law, including national rules as to the monetary jurisdiction of different courts. It was possible that the counterclaim could, to some extent, be described as being against the council in its capacity as collector of the rates rather than as recipient, but the defendant had not particularised its general claim here. The obligation on national courts to provide a remedy for a breach of EU law would not extend to breaching national procedural rules on jurisdiction where that was not necessary under the principles of equivalence and effectiveness. While an argument might be open that under national rules the monetary limit would not apply to a counterclaim, this argument had not been made and the court would proceed on the basis that the limit did apply. Therefore, the Circuit Court did not have jurisdiction to entertain the counterclaim.

However, O’Malley J went on to say that given that this matter was a Circuit appeal, with no further appeal open, and that it might be undesirable for the High Court to make a final determination of legal issues of such significance she was prepared, if any party wished, to state a case. It remains to be seen if this option will be pursued