European Union: ‘Competitors' Challenges To The Merits Of A State Aid Decision Is A Tough Nut To Crack, The Scor (Court) Case Reminds Us'

Last Updated: October 7 2019
Article by Marie-Laure Combet and Lena Boucon

1. Background:

Back in 2013, Scor SE ("Scor"), whose subsidiary is engaged on the French market for the reinsurance of risks relating to natural disasters, lodged a complaint with the European Commission alleging unlawful and incompatible State aid in favor of Caisse Centrale de Réassurance ("CCR"). CCR is a public undertaking of reinsurance whose core activity concerns the reinsurance of risks relating to natural disasters in France and benefits from an unlimited State guarantee to the extent certain of its activities are concerned.

Unlimited public guarantees granted to undertakings are generally incompatible with EU State aid law. As the European Commission pointed out in its Guarantee Notice,1 "guarantees must be linked to a specific financial transaction, for a fixed maximum amount and limited in time. In this connection the Commission considers in principle that unlimited guarantees are incompatible with Article [107] of the Treaty."

Departing from the aforementioned Notice and its decisional practice, the Commission, after having reviewed the measure in Phase I, dismissed Scor's complaint and declared compatible, in decision C(2016) 5995 final of September 26, 2016 (the "Decision"), the unlimited guarantee in favor of CCR. The Commission considered that this guarantee was essential for the French regime for indemnification of natural disasters and pursued an objective of national solidarity in the face of risks related to natural disasters, and that it was necessary and proportionate in light of this objective and of limited disturbance on competition and interstate trade.

On May 6, 2019 the General Court of the European Union ("General Court") dismissed the action in annulment that Scor introduced against the Decision (case T135/17 or the "Scor Court case").

2. Interesting features of the Scor Court case:

It is not really its contribution on State aid substantive issues that makes this case interesting; it is rather that it reminds us of the difficulties facing companies willing to challenge the merits of a State aid decision that benefits a competitor (in this case, a compatibility decision to the benefit of CCR).

  • Legal standing to challenge a State aid compatibility decision on the merits

Referring to the landmark Plaumann case (Case 25-62), the General Court recalled that for Scor (as a non-beneficiary third party) to have standing to challenge the Decision on the merits, it had to demonstrate that it was "individually concerned," i.e. affected by the disputed decision by reason of certain attributes peculiar to it or by reason of circumstances that differentiate it from all other persons and, by virtue of these factors, distinguish it individually just as in the case of the addressee.

To pass this test, the General Court traditionally considers that it is not enough for the applicant to be a competitor. The applicant must demonstrate that the disputed decision substantially affected its position on the market.

Hence the difficulty lies in what "substantially affected" shall mean.

We know from precedents, and this is emphasized once again by the Scor Court case, that the mere fact that a measure may exercise an influence on the competitive relationships existing on the relevant market and that the undertaking concerned was in a competitive relationship with the recipient does not suffice.

Rather, the criterion of substantial affectation of the applicant's market position requires to be demonstrated by specific circumstances, such as: significant decline in turnover, appreciable financial losses or a significant reduction in market share following the grant of the aid in question, loss of an opportunity to make a profit or a less favorable development than would have been the case without such aid.

Hence it is easy to understand why this criterion can constitute a serious obstacle for competitors willing to challenge a State aid decision on the merits. It is even more true when one considers that, in the finding of State aid, the Commission generally does not devote too much effort to the demonstration of the affectation of competition resulting from the aid. One may regret this, as it would be very helpful (let alone for the concept of State aid) to find more developments in that regard.

In the case at hand, the General Court, following a two-step analysis, first identified the market concerned by the dispute (i.e. the French market for the reassurance of risks caused by natural disasters). It then went on to examine the circumstances put forward by Scor to demonstrate legal standing, namely: its subsidiary's modest size on the market concerned (i.e. 0.08-0.11% – figures criticized by the Court for not being contemporaneous to Scor's application) compared with its position on other French reinsurance markets (around 8-13%), as well as its complainant status and active role in the course of the proceedings. Regarding the first circumstance, the General Court took the view that Scor had failed to provide evidence of a potential link between the State guarantee to CCR and the particularly low level of Scor's subsidiary's market share on the French market for the reassurance of risks caused by natural disasters. As for the second circumstance, the complainant status and the active role played in the proceedings was recognized as a circumstance to account for, but it was said to be insufficient in itself to prove legal standing. The General Court consequently rejected, as inadmissible, Scor's pleas challenging the merits of the Decision.

However, it declared admissible Scor's pleas pertaining to the protection of its procedural rights, applying here again a well-established case-law according to which any "interested party" may claim protection of its procedural rights before the EU judge in relation to a decision not to raise objections or a non-aid decision.

  • Types of arguments left for competitors to challenge a State aid compatibility decision as illustrated by the Scor Court case

Competitors are easily deemed to be "interested parties," i.e. "any person, undertaking or association of undertakings whose interests might be affected by the granting of aid ..." (Article 1 of Regulation 2015/1589). But, then, as recalled by the General Court, the scope of their pleas is much more limited than if they were Plaumann-applicants, as they can only claim violation of procedural rights.

Applying this principle in the Scor Court case, the Court hence accepted to examine Scor's pleas only on the failure to state reasons (an issue of public policy that EU courts must raise on their own motion), and on the violation of its procedural rights.

In that regard, Scor alleged that there were serious doubts as to the compatibility of the Decision, which should have led the Commission to open formal proceedings (phase II), i.e. long duration of the administrative proceedings; Commission's hesitation on the legal basis for the Decision; the fact that a potential alternative system was envisaged; indications in the content of the Decision demonstrating serious doubts: failure to state reasons, insufficient and incomplete investigation, greater focus on the compatibility than on the existence of aid, no review of Scor's proposal for alternative systems, misunderstanding by the Commission of the functioning of the guarantee, various circumstances raising doubts about the proportionality of the aid).

But, after addressing each of them in turn, the General Court eventually rejected all these arguments.

If, to some extent, procedural arguments may have a connection with the merits (in particular, the Court may examine substantive arguments to the extent they tend to support a procedural plea), it goes without saying that they are rather weak weapons and cannot compensate for the inadmissibility of substantive pleas. This can understandably leave the competitor-applicants frustrated when they do not manage to successfully pass the Plaumann test.

Furthermore, even in cases where pleas on the violation of procedural rights succeed, this does not necessarily mean that the measure at stake would ultimately be declared incompatible aid, as the Commission may comply with the requirements set out in a judgment without having to declare the measure incompatible.

At a time of increasing calls for enhanced private enforcement in the State aid space and when it is duly acknowledged that "State aid (...) directly harm[s] the interests of other players in the markets concerned, who do not benefit from the same type of support" (emphasis added) (see the 2019 Recovery notice), one may wonder whether it should not be necessary to revisit traditional principles about legal standing of competitors when it comes to challenging the merits of compatibility or non-aid decisions.

Footnote

1 Commission Notice on the application of Articles 87 and 88 of the EC Treaty to State aid in the form of guarantees (2008/C 155/02).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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