Private enforcement against state aid awards in Germany

Private enforcement in national courts

Which courts will hear private complaints against the award of state aid? Who has standing to bring an action?

Depending on the nature of the measure (see question 4), competitors (only competitors, ie, not any other parties) can bring complaints before the civil courts (in case of private law disputes) or before the administrative courts (in case of public law disputes). Both the highest German administrative court and the highest German civil court have made it clear that competitors affected by the (allegedly illegal) aid have locus standi to bring such an action.

What are the available grounds for bringing a private enforcement action?

The appropriate legal basis depends on the nature of the measure (see question 4). Under private law, a competitor can bring an action under the provisions on torts, sections 823 and 1004 of the German Civil Code, in conjunction with article 108(3) TFEU. Under public law these are the general provisions concerning judicial review, namely sections 40, 42 and 113 of the Rules of the Administrative Courts. These options are, in terms of practical application, not fundamentally different. In both cases, the plaintiff has to show that illegal state aid has been granted and that it has a distortive effect.

Who defends an action challenging the legality of state aid? How may defendants defeat a challenge?

It is beyond doubt that actions can be brought directly against the state or the body that has granted state aid. The courts have confirmed this possibility on a number of occasions.

However, it is less clear whether it is also possible to bring a claim directly against the aid recipient based on the rules on unfair competition, as has been suggested by some legal scholars. In such a scenario (which has not yet been tested before the courts), the plaintiff (ie, the competitor) must show not only that the defendant (ie, the aid recipient) received illegal aid, but also that it actively used state aid to undercut its competitors, thereby causing damage to them (losses, etc). It therefore seems that the bar is significantly higher in a ‘horizontal’ setup (action against aid recipient) than in the case of an action against the state.

Have the national courts been petitioned to enforce compliance with EU state aid rules or the standstill obligation under article 108(3) TFEU? Does an action by a competitor have suspensory effect? What is the national courts’ track record for enforcement?

Although the number of court appeals against illegal state aid is increasing, the overall number is still relatively low in Germany. Given the very different circumstances of the few individual cases, it is also difficult to give a general idea of the success rate. German courts have generally become more open to the idea of competitor complaints. However, some courts, in particular administrative courts, still show some tendency to ignore the EU case law.

An action by a competitor does not always have suspensory effect, but the competitor can apply for interim relief measures to be adopted. In this regard, the German courts are more generous compared to the EU courts.

In any case, the comparably small number of court cases can probably be explained by the fact that until recently some lower courts have been extremely reluctant to apply state aid at all and have, in clear breach of the case law of the European courts, denied the locus standi of competitors. This situation has improved since 2011-2012, when the highest German administrative and civil courts confirmed that competitors can base their right of standing on the EU state aid rules. These recent judgments have created legal certainty, which will probably encourage plaintiffs as well as German judges to apply the full practical effectiveness of EU state aid law.

Another reason for the hitherto existing reluctance of competitors is probably the burden of proof. In the case of non liquet (if the plaintiff cannot prove the existence of aid), the court will reject the appeal and the plaintiff has to bear the costs of the other party.

Is there a mechanism under your jurisdiction’s rules of procedure that allows national courts to refer a question on state aid to the Commission and to stay proceedings?

If a competitor has challenged an (alleged) state measure, it is not uncommon for national courts to refer a question on state aid to the Commission to obtain some guidance. In the case of parallel procedures (if a state aid procedure is also pending at the Commission), according to recent case law of the Federal Court of Justice, the national judge must not stay the national proceedings in order to await the Commission’s formal decision, but instead must render a decision without delay because of the practical effectiveness of the standstill obligation.

The highest German courts have traditionally been reluctant to refer questions to the Court of Justice of the European Union (CJEU) under article 267 TFEU. However, the number referred recently, especially from the lower courts, seems to have increased.

Which party bears the burden of proof? How easy is it to discharge?

In terms of the burden of proof, it is necessary to distinguish in principle between the different courts. Broadly speaking, the administrative courts are based on the ‘inquisitorial system’, which means that it is not only up to the parties to present evidence, but it is also the obligation of the court to investigate the case. The civil courts, on the other hand, are based on the ‘adversarial system’, where the court renders its judgment on the basis of the evidence presented by the parties.

Therefore, from a plaintiff’s perspective, the administrative courts seem slightly more advantageous. However, the difference should not be overstated, given that before both the administrative and the civil courts the plaintiff ultimately bears the risk of a non liquet situation in the end. In other words, if it cannot be established that illegal aid has been granted, the court will reject the appeal and the plaintiff has to bear the costs of the other party.

In some cases, in particular if the plaintiff is not in a position to present clear evidence for the existence of illegal aid, the rules on the burden of proof can have a deterrent effect on the plaintiff. Given the lack of transparency regarding state aid measures (see questions 16, 17 and 18), competitors often find it very difficult to present compelling evidence to the court that proves that state aid has actually been granted. This is particularly difficult in complex transactions; for example, regarding capital injections, where the ‘private investor test’ has to be applied, which by its very nature requires a lot of information (financial data, etc). In addition, German courts do not have a system of discovery or similar disclosure obligations comparable to the common law system. The German courts have not yet developed any principles that would alleviate this burden of proof to make the system more ‘plaintiff-friendly’.

Should a competitor bring state aid proceedings to a national court when the Commission is already investigating the case? Do the national courts fully comply with the Deutsche Lufthansa case law? What is the added value of such a ‘second track’, namely an additional court procedure next to the complaint at the Commission?

If the Commission is already examining a case in the context of a formal investigation, it should be carefully considered whether there is any added value in bringing the case to a national court. Under normal circumstances the national judge will stay proceedings and await the outcome of the Commission investigation anyway. If the Commission then adopts a negative decision, the (costly) national proceedings will become obsolete; if the Commission adopts a positive decision, the national court will usually comply with it.

However, bringing a case before the national courts can help to enforce the standstill obligation during the interim period (ie, before the Commission adopts a final decision). In such a scenario, the German courts will usually comply with the Deutsche Lufthansa case law, which states that a national court is bound by the qualification of a measure as state aid in an opening decision by the Commission.

What is the role of economic evidence in the decision-making process?

The ‘new economic approach’ promoted by Competition Commissioner Neelie Kroes around 12 years ago has not left a significant footprint in the German courts. Until now, national courts have shown little willingness to accept economic evidence and will retain independent outside experts only in a very specific and limited context (eg, the evaluation of a piece of land).

What is the usual time frame for court proceedings at first instance and on appeal?

The duration depends very much on the specific circumstances of the individual case. Court proceedings at first instance before the civil or administrative courts usually last about one to three years. There is usually the possibility of a first appeal and a second appeal solely on points of law, which last one to three years each.

What are the conditions and procedures for grant of interim relief against unlawfully granted aid?

As in most jurisdictions, to obtain interim relief or an injunction, the applicant must, as a principle, demonstrate that a prima facie case exists as well as urgency. Appeals by competitors before the administrative courts can also have automatic suspensory effect in some situations.

Applications for grant of interim relief against unlawfully granted aid can involve some risks. If the court has granted an injunction against the aid and if this decision is annulled at a later stage, the applicant may have to pay damages.

What are the legal consequences if a national court establishes the presence of illegal aid? What happens in case of (illegal) state guarantees?

Under German law, if a measure contains illegal aid, it is usually null and void (section 134 of the Civil Code). This has been confirmed by the Federal Civil Court on a number of occasions.

In case of (illegal) state guarantees, the situation is more complicated. The prevailing view seems to be that, in line with the Residex case law, a bank can still invoke the guarantee, provided that it cannot be considered as an aid recipient (this applies in the majority of cases). However, in the rather exceptional situation where the bank has to be qualified as an aid recipient, it cannot rely on the illegal guarantee.

What are the conditions for competitors to obtain damages for award of unlawful state aid or a breach of the standstill obligation in article 108(3) TFEU? Can competitors claim damages from the state or the beneficiary? How do national courts calculate damages?

According to the Francovich case law of the European Courts, public authorities can be liable to pay compensation to individuals that have suffered as a consequence of a breach of EU law. It is generally recognised that the principle of state liability in EU law also applies, in principle, if a member state has violated the standstill obligation under article 108(3) TFEU. The plaintiff must prove a ‘qualified’ breach of the state aid rules and that this has led to damage to the competitor. There has to be a causal link between the infringement and the damage; in other words, the applicant has to show that the alleged financial losses have only been caused by the granting of aid and not by any other factors (general market trends, etc). Since this bar is relatively high, to date there has not been a single case before a national court where such damages have been awarded.

To date there have been no cases in which competitors have successfully claimed damages from competitors.