Private enforcement against state aid awards in Portugal

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 act on the basis of which the aid is granted, administrative courts (eg, if the aid is awarded based on an administrative act) or civil courts (eg, if the aid is awarded based on a contract governed by civil law) may be competent to hear private complaints against the award of state aid. It is recognised in the jurisprudence of Portuguese courts that competitors of recipients of illegal aid have standing to bring an action for, as the case may be, its suspension, annulment or recovery (for example, the judgment of the Supreme Administrative Court of 5 March 2007, Case 01050/03).

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

Given the direct applicability of article 108(3) TFEU in the Portuguese legal system, as also recognised by article 8(3) of the Portuguese Constitution, it is usually sufficient for a competitor to invoke a violation of this provision if the aid was granted by means of an administrative act.

Although there is, to our knowledge, no relevant case law regarding this question in a scenario where the aid was granted on the basis of an act of private law (eg, a contract), it seems possible - given that the conclusion of such contract violates a legal prohibition forming part of the Portuguese legal system and the violation is liable to affect the interests of competitors of the aid beneficiary - that competitors could bring a claim based on tort law.

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

In an action challenging the legality of state aid, the defendant is typically the granting authority, namely, the state or other public entity that has granted the aid. The aid beneficiary is an interested party and as such entitled to participate in the proceedings and to submit counter-allegations. The public prosecution service, a constitutional body with powers to represent the state, may also pronounce itself on the action.

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?

Portuguese courts have been petitioned to enforce compliance with EU state aid rules. However, there have not been many cases so far. Moreover, only a few of those cases concerned typical private enforcement cases (ie, cases where article 108(3) TFEU was invoked for the purpose of challenging the granting of illegal aid to competitors of the claimant). The most prominent example of a typical private enforcement case is the legal action by ANTROP, an association of urban passenger transport providers, against compensation payments by the Portuguese state to STCP, the exclusive concessionaire for the Oporto area, for the performance of public transport services. ANTROP complained that STCP did not keep separate accounts for the provision of these services, in violation of the then applicable Regulation (EEC) No 1191/69, and that it could not, as a consequence, be verified whether the compensation was indeed limited to the extra costs incurred in the discharge of these services or, as suspected by ANTROP, used by STCP to cross-subsidise its activities outside the concession area, where it competed with associates of ANTROP. Upon confirmation by the Court of Justice of the European Union (CJEU), following a reference for a preliminary ruling (judgment of 7 May 2009, Case C-504/07), the Portuguese Supreme Administrative Court allowed the action, concluded that the compensation payments violated Regulation (EEC) No. 1191/69 and annulled the legal act awarding those payments, a resolution of the Council of Ministers (judgment of the Supreme Administrative Court of 12 January 2012, Case 01050/03).

The majority of cases concern atypical private enforcement cases, including legal actions against taxes, and parafiscal charges and actions by customers of the alleged aid beneficiary. State aid rules were invoked to challenge parafiscal charges imposed on the claimants by the state, based on the argument that the proceeds from those charges were used to finance illegal state aid, or that an exemption from the charge constituted illegal state aid. For example, there have been numerous legal actions lodged by undertakings active in the wine sector against their obligation to pay a parafiscal charge for the promotion of wine (a system that had been conditionally approved under state aid rules by European Commission Decision No. 2011/6/EU). Another (current) example is a series of legal proceedings instigated by large food retail operators challenging their obligation to pay the food safety tax. The revenues from that tax accrue to a state fund, which uses them to finance measures dedicated to the maintenance of food security and quality (eg, the removal and destruction of fallen livestock). Small food retailers are exempt from the tax. In one of the proceedings, a claimant invoked a violation of article 108(3) TFEU related to the exemption of small retailers. The Coimbra Administrative and Tax Court stayed proceedings and referred this question to the CJEU, which reiterated the established principle that a tax cannot be challenged on the basis of a violation of article 108(3) TFEU related to aid involved in an exemption from that tax and concluded on this basis that the question raised by the national court was not relevant to the dispute in the national proceedings (judgment of 26 July 2017, Case C-519/16, Superfoz - Supermercados Lda v Fazenda Pública). State aid rules have also been invoked by customers of (alleged) aid beneficiaries to challenge actions taken by the latter against the former based on the alleged aid measure. For example, state-owned savings bank CGD and bank Banco de Fomento e Exterior SA were in the past entitled to claim and enforce the collection of debts based on the same rules as the state itself in fiscal matters. A number of debtors challenged the forced execution of their debts, claiming, inter alia, that the special enforcement rights afforded to the respective bank violated state aid rules (in the case of Banco de Fomento e Exterior SA, the challenges led to two references for a preliminary ruling, both declared manifestly inadmissible by the CJEU, see orders of 13 March 1996 (Case C-326/95) and 30 June 1997 (C-66/97)). However, the national courts rejected these arguments as being unfounded and dismissed the actions (judgment of the Supreme Administrative Court of 13 November 2002, Case 026724).

While the so far limited track record of Portuguese courts may give the impression of a mixed picture in terms of success rate of private enforcement actions, it should be noted that the courts have hitherto largely followed the case law of the EU courts and that most of those enforcement actions that were not successful appear to have been unfounded.

A legal action against the granting of alleged illegal aid to a competitor (eg, an application to prohibit the granting authority from implementing an administrative act awarding the aid, ie, from disbursing the aid awarded therein), does not, as such, have suspensory effect (ie, it does not automatically suspend the legal effects of the award act). However, this result can be achieved through an application for interim measures (as, for example, specifically foreseen for cases of an alleged breach of EU law in article 112(2)(i) of the Administrative Court Procedure Code), which the national court is in principle obliged to allow in case of a violation of article 108(3) TFEU, in accordance with the CELF case law of the CJEU.

The cost risks associated with judicial enforcement action are normally moderate. For example, in case of a dispute value of €1 million, the statutory court fee for a first-instance administrative court procedure that does not feature particular complexity would be, at present, around €10,000. While the court fee is owed by each party (which, in this example, would result in an aggregate fee of €20,000), its statutory amount can be significantly reduced by the court at the end of the procedure in light of, in particular, the complexity of the case and the procedural conduct of the parties.

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 are no specific rules governing the referral of questions on state aid law to the Commission pursuant to article 29(1) of the Procedural Regulation. However, there are general procedural rules allowing both administrative and civil courts to stay proceedings, including, in principle, for that purpose. We are not aware of any case where a Portuguese court has asked the Commission for information or its opinion or where the Commission has submitted, on its own initiative, amicus curiae observations (which is consistent with the information provided on the DG COMP website). There have been several referrals by Portuguese courts to the CJEU for a preliminary ruling under article 267 TFEU related to the interpretation of the state aid rules (see the cases referred to in questions 23 and 37). There is, to our knowledge, no such referral currently pending.

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

In proceedings before civil courts, the party invoking the presence of illegal state aid bears the burden of proof. Although administrative courts are competent to investigate on their own and to conduct an extensive review of the legality of administrative acts not limited by the specific allegations presented by claimants, it is nevertheless usually required of the claimant to sufficiently substantiate the claim. Although it should typically be possible to prove that the aid was granted illegally (ie, that the aid should have been but was not notified to and approved by the Commission), it will at times be very difficult for a competitor to establish that what was granted to the beneficiary constitutes state aid.

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?

To our knowledge, there has not, so far, been a private enforcement action before a Portuguese court in the scenario underlying the Deutsche Lufthansa judgment of the CJEU (Case C-284/12), namely, regarding an alleged aid measure in relation to which the Commission had, at the time of the national court proceedings, already decided to opened the formal investigation procedure (opening decision). In cases where the granting authority, despite the Commission’s opening decision, does not (at least provisionally, pending the outcome of the Commission’s investigation) suspend the granting of the alleged aid or recover amounts already paid out, the added value of such a second track for a competitor of the beneficiary is the possibility to enforce these obligations of the granting authority before a national court that, as appears to follow from Deutsche Lufthansa, is bound by the Commission’s opening decision insofar as it cannot dismiss the action on the grounds that the contested measure does not constitute illegal state aid.

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

Economic evidence already plays an important role in proceedings before Portuguese courts in other areas of competition law, in particular in actions for damages resulting from infringements of the cartel or abuse-of-dominance prohibition. In actions challenging the legality of state aid, economic evidence has not yet gained significance, as the questions at stake in the proceedings so far have been of a purely legal nature. However, if, for example, a competitor had to show, in order to establish the presence of aid, that the contested measure (eg, a capital injection by the state into a public undertaking) did not meet the private market investor test, this might require the submission of economic evidence.

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

The time frame for court proceedings very much depends on the complexity and specific circumstances of each case, including, for example, the location of the court (eg, courts in the main metropolitan areas tend to have a greater case load than those in smaller municipalities) and the reporting judge. The possible duration may well range from (usually not less than) one year to several years, both at first instance and on appeal.

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

The rules on administrative court procedure foresee the possibility to apply for interim relief, which, as in most jurisdictions, will only be granted if the applicant demonstrates that:

• there is a prima facie case;
• there is urgency to prevent harm to the applicant that could not be easily undone; and
• the requested relief would not undermine a public interest of greater importance than the private interest of the applicant.

However, the second and third requirements will likely have to be interpreted in an applicant-friendly way in an action against illegal state aid, in light of the case law of the EU courts (see also question 23).

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

If the national court establishes the presence of illegal aid and if the aid was awarded on the basis of an administrative act, the national (administrative) court will annul the administrative act and order the granting authority to recover aid amounts already disbursed. If the aid is also being investigated by the Commission, the national court may, alternatively, suspend the effects of the award act, order the granting authority to provisionally recover aid amounts already paid out and stay proceedings until the conclusion of the Commission investigation (and possible subsequent annulment proceedings before the EU courts). The legal consequences of an infringement of article 108(3) TFEU in cases where the aid was granted on the basis of a contract or other act of private law - including whether such a violation inevitably and always renders the contract null and void; and whether the granting authority can only be ordered to recover the aid by means available under private law or whether it can be ordered to do so based on public law (eg, by way of administrative act) - have not yet been clarified in the case law of the Portuguese courts. The same is true for the legal consequences in cases where the unlawful aid takes the form of a state guarantee, ie, for the question of whether and in which circumstances the bank’s recourse to the state guarantor, where the undertaking that took out the loan becomes insolvent, remains possible or is (also) invalidated by the unlawfulness of the aid.

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 EU courts, member states may be liable to pay compensation to parties that have suffered as a consequence of a breach of article 108(3) TFEU, if the party establishes that the member state violated that provision in a qualified way and that the violation caused it financial harm. The Portuguese regime on the non-contractual liability of the state and other public entities (Law No. 67/2007) foresees similar requirements.