EUrrest State aid

State aid rules prevailing over national law

December 2015

1. Introduction

A final declaratory judgment by the national court may be overruled if the European state aid rules apply. In the event this judgment prevents the application of the ‘stand-still’ principle enshrined in Article 108 TFEU, measures must be taken to still make the execution of the European state aid regulations possible. In this case, the European Court of Justice deals with the effectiveness of the principle of res judicata.

2. Judgment of the Court of 11 November 2015, Klausner Holz Niedersachsen GmbH versus Land Nordrhein-Westfalen

Case C-505/14

3. Policy files and topic

State aid
Stand-still principle
Principle of effectiveness

4. Executive Summary

Klausner Holz has closed various contracts with the Forestry Commission of the German Federal State of North Rhine-Westphalia. These contracts concern price agreements and agreements on the supply of a fixed amount of wood. In 2009, the federal state terminated one of these contracts and the supply of wood was ended. However, both Landgericht Münster and Oberlandesgericht Hamm judged that these contracts are still effective. These judgments are subject to the principle of res judicata. In other words, these judgments are final.

Klausner Holz has lodged an appeal at the referring court and claims damages as well as the subsequent supply of the promised amount of wood. However, the federal state has raised the argument before the referring court – and this is done for the first time – that the execution of the contracts is contradictory to Community law. The execution of the contracts at issue is precluded by Community law, since the deal constitutes a form of state aid within the meaning of Article 107(1) TFEU, implemented in breach of the third sentence of Article 108(3) TFEU.

In 2013, the Federal Republic of Germany informed the European Commission of the existence of non-notified aid (the contracts at issue). Furthermore, the Commission received several complaints. In response to this, the Commission has been sent a request for clarification; still, the Commission has not yet reached a definitive position.

Article 108(3), third sentence, TFEU, provides as follows: “The Member State concerned shall not put its proposed measures into effect until this procedure has resulted in a final decision.” The referring court considers that the state aid measures were implemented in contradiction with Article 108(3), third sentence, TFEU. Nonetheless, the contract cannot be terminated because of the declaratory judgment of the Oberlandesgericht Hamm. According to the court, the contracts are still in effect. Because of this lack of clarity, the Landgericht Münster has submitted a request for a preliminary ruling to the Court of Justice.

5. Legal question

The Landgericht Münster asks a question to the Court of Justice about the overruling of a final declaratory judgment by the national court. Does EU law, in particular Articles 107 TFEU and 108 TFEU and the principle of effectiveness, require that a final declaratory judgment delivered by an earlier national court without any assessment of the state aid rules, be disregarded if under national law the performance of the contract cannot otherwise be prevented?

6. Summary of the judgement

Interpretation in conformity with EU law
In this judgment, the Court repeats earlier case-law on the interpretation in conformity with EU law. It is for the national court “to interpret, as far as it is possible, the provisions of national law in such a way that they can be applied in a manner which contributes to the implementation of EU law.” It is also for the national court to make all endeavours to pursue EU law and to reach a solution.

The principle of res judicata

The court recognises the importance of the principle of res judicata. This principle provides that it is of importance that judicial decisions that have become final, after all possibilities of appeal have been exhausted or after all periods for lodging an appeal have expired, cannot be brought up for discussion anymore. This is to safeguard the stability of the law and the legal relationships, as well as a proper dispensation of justice.

Procedural autonomy

It is up to the member states themselves to determine which types of procedures apply and how these procedures are set up. However, such procedural rules must not be less favourable than those governing similar domestic situations (principle of equivalence). The execution of EU law must not be framed in such a way as to make it in practice impossible or excessively difficult (principle of effectiveness).

Principle of effectiveness

The court holds that the position of the national rule in the entire procedure as well as the conduct and the special features of that procedure before the national bodies must be taken into account. The decision of the Oberlandesgericht Hamm would result in non-application of EU law. The referring court cannot safeguard the observance of Article 108(3), third sentence, TFEU. This way, state aid provisions may be circumvented: by obtaining a declaratory judgment, the state aid could indeed be provided for many years.

Conclusion:

The Court of Justice holds that a national rule which prevents the national court from drawing all the consequences of a breach of the third sentence of Article 108(3) TFEU because of a decision of a national court, which is res judicata, must be regarded as being incompatible with the principle of effectiveness.

8. Local and regional relevance

This judgment makes clear that national procedural rules, such as the principle of res judicata, which is also applicable in the Netherlands, can be overruled in certain circumstances by the state aid rules. This may also be of significance to local and regional authorities. In the event a final declaratory judgment is given by a court, it is still possible to invoke the state aid rules.

By: 

Femke Salverda, Europa decentraal

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