In a decision earlier today, the German Federal Court of Justice (Bundesgerichtshof, BGH) ruled that companies can bring court action the challenge state aid granted to their competitors. Companies doing business in Germany will in the future have to ensure that all their transactions with governmental entities and government-owned companies are fully in line with European Union State aid rules, to avoid court challenges by competitors.
Today’s case was brought by German air carrier Lufthansa, challenging the conditions the local airport of Frankfurt-Hahn granted to low-cost carrier Ryanair. The Frankfurt-Hahn airport is operated by a publicly-owned company. According to Lufthansa, the conditions for using that airport for Ryanair ran afoul of EU rules that allow state aid only in very limited circumstances. The question before the court was whether a private party has standing to bring a court action against the grant of a subsidy to a competitor.
Court action is clearly possible if state aid is granted through instruments of administrative law, such as tax benefits. In those cases, competitors that are directly affected may seek redress before the administrative courts. Today’s case before the BGH concerned potential benefits derived through civil-law transactions, a contract between the airport and Ryanair. Notably, the German courts of appeal have been divided on the issue. A number of courts of appeal have found that state aid law can never be a basis for companies to challenge private-law transactions of their competitors.
The BGH ruled today that private complainants are allowed to bring such actions against private-law transactions through which their competitors are granted an unfair advantage. They can base such action on a section of the German Civil Code that makes it a tort to violate a law that protects a particular party (Section 823(2) Civil Code). According to the BGH, Article 108(3) of the EU Treaty (TFEU), which prohibits the grant of illegal subsidies, is a law that protects competitors of the recipient of state aid.
This judgment of the German court is in line with efforts of the European Commission to enhance the enforcement of EU state aid rules by member state courts. In 2006, the European Commission published a study (co-coordinated by Jones Day) that summarized the private enforcement of EU state aid laws at member state level. Last year, the Commission adopted a communication on the enforcement of the state aid rules at Member State level that calls for an improved enforcement.