Private enforcement against state aid awards in United Kingdom

Private enforcement in national courts

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

Private claims for damages or injunctive relief may be brought:

• in England and Wales, at the High Court or the County Court;
• in Scotland, at the Court of Session; and
• in Northern Ireland, at the High Court of Northern Ireland.

In most cases, the appropriate remedy is not to seek damages or injunctive relief but rather a judicial review of the governmental decision that gave rise to the alleged aid. In England and Wales, such a claim is launched in the Administrative Court, a branch of the High Court. The usual appeal routes for each of those courts will then apply.

To bring judicial review proceedings, an applicant must show that it has ‘sufficient interest’ to have standing to bring the review. Competitors of the recipient of alleged unlawful state aid have been regarded as having sufficient standing to challenge state aid decisions. (see, for example, R v Attorney-General ex parte ICI (1987) 1 CMLR 72 (CA)).

Applications for judicial review must be brought promptly and in any event no later than three months from the date of the decision awarding the alleged aid (CPR Part 54).

As mentioned in response to question 19, the provisions of the State aid SI will also allow interested parties to submit complaints to the CMA regarding unlawful aid or misuse of aid. Under the State aid SI, an interested party means any person, undertaking or association of undertakings whose interests might be affected by the granting of aid, and may in particular include beneficiaries, competing undertakings and trade associations. If the State aid SI is passed, it remains to be seen how this will operate in practice but the reference to ‘whose interest might be affected’ (emphasis added) suggests a relatively low threshold.

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

Damages are available in principle for a claimant that has been injured by an award of unlawful state aid - the English courts applied Francovich v Italy C-6/90 and C-9/90 in Secretary of State for Employment v Mann (1997) ICR 209. However, although available in principle, Francovich damages have never been awarded by the English courts to a party injured by a decision to grant unlawful state aid.

A decision may be set aside by judicial review where the court concludes that it was illegal, irrational or procedurally unfair. See Council of Civil Service Unions v Minister for the Civil Service (1985) AC 374.

The application for judicial review is made to the court, with the defendant being the UK public authority that made the contested decision. The following remedies may be sought:

• a declaration that the decision made was unlawful;
• an order quashing the decision; and
• an order prohibiting or compelling an action.

In practice, the public authority is likely to remake the decision prior to trial if the applicant’s case is strong and the decision easily amended to correct the behaviour that is the subject of the complaint.

State aid arguments have also been used as a defence in private actions. In Eventech v Parking Adjudicator [2012] EWHC 1903, the appellant used state aid arguments in order to suggest that the fines imposed were unlawful, as the enforcement of traffic restrictions against one group (private hire taxis) and not another (black cabs) amounted to a grant of state aid to the latter.

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

As with the Commission’s state aid enforcement, claims for both damages and judicial review are directed at the public authority awarding the aid and not the recipient of the aid itself, which is an interested third party.

With regard to damages, the English courts applied SFEI v La Poste C-39/94 in Betws Anthracite Limited v DSK Anthrazit Ibbenburen GmbH [2003] EWHC 2403 and held that a competitor cannot claim damages from a recipient of unlawful aid. Betws Anthracite does, however, suggest that a competitor of an unlawful state aid recipient may have a claim against the member state that is the addressee of the Commission decision finding the aid unlawful. This claim would be for damages suffered as a result of the unlawful aid (ie, Frankovich damages), for a mandatory injunction compelling the member state to recover the aid, or for both.

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?

Judicial review cases based on state aid are rare. At the time of writing, there have been four reported judicial review cases in the English courts since 2010 advancing arguments that the decision under review amounted to a grant of unlawful state aid. None of these arguments were successful. It appears that state aid arguments in judicial review cases in the English courts have only been successful in two cases. Both of these relate to discriminatory tax treatment (R v Attorney-General, ex parte ICI (1985) 1 CMLR 588 (Div Ct); (1987) 1 CMLR 72 (CA) and R v Commissioner for Customs and Excise, ex parte Lunn Poly (1998) EuLR 438 (Div Ct); (1999) EuLR 653 (CA)).

As noted above, there is no record of the English courts awarding damages for breach of the state aid rules.

Arguments based on state aid have also been advanced in cases other than judicial review or damages actions. For example, in Brown v Carlisle City Council [2014] EWHC 707, the grant of planning permission to an airport was challenged on (among others) state aid grounds. In Eventech v Parking Adjudicator [2012] EWHC 1903, the fining of private hire taxis but not black cabs for driving in London bus lanes was challenged on the grounds that the decision amounted to unlawful state aid for black cabs. In both cases, the state aid arguments were ultimately unsuccessful.

In Micula, the High Court and Court of Appeal both held that the appropriate remedy in cases where there is a risk that the court might come to a different finding from the Commission is to stay the claim pending the conclusion of the appeal against the Commission’s decision holding that unlawful state aid has been awarded.

In Advocate General For Scotland v John Gunn & Sons Limited and John Gunn & Sons Holding Limited [2018] CSOH 39, the Scottish Court found that enforcement of a recovery order (in this case, the payment of the Aggregates Levy where the would-be payer had been exempted by virtue of unlawful state aid) would only take place against the entity that had been the beneficiary of the unlawful state aid. Notably, the court did not conclude that the application of state aid law to the undertaking required it to grant enforcement orders against the top company in the recipient’s corporate group.

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?

There is no mechanism for the English courts to refer a question to the Commission (as opposed to the European courts). The Commission is, however, able to intervene in proceedings or to provide an amicus curiae. Where a Commission decision is pending on a matter that might affect the outcome of a case, the courts will stay proceedings (in whole or in part) as part of their duty of sincere cooperation (see, for example, Micula v Romania [2018] EWCA Civ 1801).

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

A party raising an argument usually bears the burden of proof.

This means that an applicant in a judicial review case or a claimant in a damages case must prove any state aid arguments advanced on the balance of probabilities. A damages claimant must also prove the quantum of damages claimed on the balance of probabilities. Conversely, where a defendant wishes to advance state aid arguments in its defence (as in Eventech v Parking Adjudicator [2012] EWHC 1903), these must be proved on the balance of probabilities.

In relation to access to documents or evidence, orders for disclosure (which is a statement that a document exists or has existed) are typically made at the first case management conference. The case management conference is essentially an early hearing allowing the court to identify the real issues in dispute and direct how the dispute will be conducted. There are different approaches to disclosure under UK law, and the applicable approach will depend on, for example, whether there are electronic documents to be disclosed and what track the dispute has been allocated to. In fast- and multi-track claims involving personal injury claims, the default order is for standard disclosure which, broadly, requires disclosure of documents that assist or harm the case of any of the parties to the dispute. In multi-track claims not involving personal injury claims, the default position is that the judge will decide the particular order for disclosure (the Civil Procedure Rules provide a number of available options) in light of the overriding objective and the need to limit disclosure to what is necessary to justly deal with the case. Separate disclosure rules apply to small-track claims.

Distinct from disclosure, which as mentioned above merely confirms that a document exists or has existed, is the actual inspection of the disclosed documents. Inspection usually takes place by the parties exchanging copies of the relevant documents. Some documents, such as those covered by privilege, can be withheld from inspection.

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?

Deutsche Lufthansa AG v Flughafen Frankfurt-Hahn GmbH C-284/12 was cited in Micula as preventing the court from enforcing an arbitration award made against Romania, mandating the payment of sums regarded by the Commission as constituting unlawful state aid (see question 5).

Deutsche Lufthansa AG was interpreted narrowly in the Scottish case Cloburn Quarry Company Limited [2013] CSOH in relation to a case concerning the Aggregates Levy, exemptions to which were being reviewed by the Commission in order to assess their legality under the state aid rules. In this case, the judge concluded that the Commission’s investigation into the exemptions did not preclude the court from determining that the Aggregates Levy itself constituted unlawful state aid. Further, Micula notes that although the enforcement of an arbitral award containing unlawful state aid will breach the principle of sincere cooperation, the payment of security with respect to the award does not.

The value of a second track can therefore be seen (i) in cases where the decision being sought does not align precisely with the subject matter under investigation by the Commission; and (ii) potentially, to take preparatory steps enforcing the payment of sums that may be owing to a beneficiary pending the outcome of a Commission investigation or appeal to the European courts with respect to the state aid status of those sums.

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

Depending on the facts of the case, expert economic evidence can play a role in state aid cases. The court may order that a single expert witness be used, or alternatively that each party have its own expert(s). Evidence may be heard from the parties’ experts simultaneously, in a procedure known as ‘hot tubbing’.

In R v Attorney-General, ex parte ICI, the economic evidence of an expert witness was discussed by both the High Court ((1985) 1 CMLR 588) and the Court of Appeal ((1987) 1 CMLR 72).

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

At the time of writing, the latest available statistics for civil proceedings cover the period January to December 2018. For cases that proceeded to a hearing during this period, the average length of a judicial review case from the time that the application was lodged with the court to the permission stage was 90 days. This excludes judicial review applications relating to immigration, asylum or criminal matters but includes state aid cases.

For the same period, the average length of time between the application being lodged and the final hearing was 290 days. There are no statistics available specifically for state aid damages claims.

The increased length of time taken to bring a judicial review claim to trial can, in part, be explained by the applicant’s need to receive permission from the court to bring a judicial review claim prior to bringing the review itself. No such permission is required in order to bring a civil claim for damages.

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

The English courts have a wide discretion to grant interim injunctive relief. The criteria for deciding whether to grant such relief are set out in American Cyanamid Co v Ethicon Ltd (1975) AC 396. They are:

• whether there is a serious question to be tried;
• whether damages awarded at trial would be an adequate remedy as an alternative to an interim injunction;
• whether on the balance of convenience of each party an injunction should be granted; and
• whether there are any additional relevant factors.

A party seeking an interim injunction will normally be required to give an undertaking to compensate the defendant against which the injunction is sought for any damages incurred as a result of the interim injunction in the event that the party’s case fails at trial. As discussed in question 32, the State aid SI makes provisions for the CMA to issue interim recovery orders in certain circumstances.

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

As the below cases show, the question of whether a measure is unauthorised (and therefore unlawful) state aid comes up mainly in the context of a judicial review, a successful application resulting in the government body being required to make the decision again.

The High Court of Northern Ireland has quoted with approval the principle set out in Dimosia Epicherisi v Olouminion Tis Ellados C-590/14 that the court of a member state is empowered to determine whether a measure amounts to state aid and can grant remedies to enforce the obligations of the member state not to put the state aid into effect without prior notification to the Commission and a positive decision (see In the matter of an application by the Renewable Heat Association Northern Ireland Limited and another for judicial review [2017] NIQB 122 (Renewable Heat Association NI).

Where the UK courts have ruled in favour of a claimant seeking to establish that the payment of a benefit amounts to unlawful state aid, the remedy granted has been a declaration that the measure is unlawful: see Attorney-General, ex parte ICI (1985) 1 CMLR 588 (Div Ct); (1987) 1 CMLR 72 (CA) and R v Commissioner for Customs and Excise, ex parte Lunn Poly (1998) EuLR 438 (Div Ct); (1999) EuLR 653 (CA)).

Where claimants have attempted to claim a benefit that is being withheld by the UK on the grounds that the benefit constitutes state aid in the absence of an explicit decision of the Commission to the contrary, the courts have taken the likely unlawful state aid nature of the benefit into account when denying the claim (Renewable Heat Association NI).

As indicated by the refusal of the court to enforce an arbitral award in Micula, the likely result of a guarantee being held to constitute unlawful state aid will be that the court will refuse to enforce it.

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?

While damages stemming from an award of unlawful state aid have not been awarded to a claimant in the English courts, such damages would likely take the form of damages for a breach of statutory duty. Damages for a breach of statutory duty are intended to put the injured party in the position it would have been in had the breach not occurred and, as such, can include a claim for lost profits.

Interest (dating from the time that the damage accrued) is also available. The English courts normally award costs on a ‘loser pays’ basis. However, a successful claimant is, in practice, highly unlikely to recover all the costs incurred in bringing the claim.

The criteria for awarding damages against the member state that paid the unlawful aid are those for Francovich damages, as set out in R v Secretary of State for Transport ex parte Factortame joined cases C-46 and 48/93, namely:

• the rule of law infringed was intended to confer rights on individuals (Lorenz v Germany C-120/70 confirms that the article 108(3) TFEU does so);
• the infringement is ‘sufficiently serious’; and
• there is a direct causal link between the breach and the loss suffered.

The cause of action is unlikely to be able to be brought against the beneficiary of aid, but the beneficiary can be added to the claim by the state, or the state can bring an action for contribution in relation to an award. As national courts have not awarded damages, it is hard to determine how they would be calculated, but the courts will usually take a compensatory rather than punitive approach in calculating damages.