On 5 March 2019, the Court of Justice of the European Union (the "ECJ") delivered a judgment on a request for a preliminary ruling by the Court of Appeal of Tallinn, Estonia, concerning a dispute on certain State aid granted by the Estonian authorities to Eesti Pagar, an Estonian bakery founded in 1914.

The judgment sheds light on several important aspects: (i) the interpretation of Article 8(2) of Regulation 800/2008 (the "General Block Exemption Regulation")(the "incentive effect" requirement); (ii) the obligation to recover unlawful State aid; (iii) the general principle of legitimate expectations; (iv) the limitation period applicable to the recovery of unlawful State aid by a Member State; and (v) the obligation to claim interest when recovering unlawful aid.

First, with regard to Article 8(2) of the General Block Exemption Regulation, the ECJ noted that State aid is to be considered as having an "incentive effect", if, before the work on the project or activity has started, the beneficiary has submitted an application for the aid to the Member State concerned. To assess compliance with this requirement, national authorities must check whether the application is submitted before the start of work on the project or activity in question. In this respect, national authorities must consider that such work or activity has started when a first order of equipment – necessary for that project or activity – is made on the basis of an unconditional and legally binding commitment. Interestingly, they do not have to verify whether or not the aid has a "genuine incentive effect".

Second, the ECJ made clear that if aid is granted based on the General Block Exemption Regulation, and the conditions laid down to qualify for an exemption under that regulation were not satisfied, the granting of that aid is in breach of the notification requirement and must be considered to be unlawful. Therefore, where a national authority finds that aid which it has granted pursuant to the General Block Exemption Regulation does not satisfy the conditions to qualify for the exemption, that authority must inter alia order the recovery of the aid. This means that beneficiaries of aid themselves should carefully check that all conditions are satisfied, so as to avoid having to reimburse the aid (with interest) after the beneficiary has implemented the investment project or activity.

Third, the ECJ ruled that undertakings to which aid has been granted may not entertain a legitimate expectation that the aid is lawful, unless it has been granted in compliance with the procedure laid down in Article 108 of the Treaty on the Functioning of the European Union. An economic operator exercising due care should in fact be able to determine whether that procedure has been followed. By the same reasoning, the recipient of State aid which was not granted in compliance with the conditions for exemption set out in the General Block Exemption Regulation cannot hold a legitimate expectation that such aid was lawful.

Fourth, with regard to the time limit applicable to recovery orders, the ECJ noted that the 10 year limit provided in Article 15 of Regulation 659/1999 is not applicable to recovery orders by national authorities. Instead, the limitation period applicable to the recovery of unlawful aid from a structural fund – such as the one under examination in the context of the proceedings before the national court – is, if the conditions for the application of Regulation 2988/95 are satisfied, four years, in accordance with Article 3(1) of that regulation or, if not, the period laid down by the applicable national law.

Finally, the ECJ reaffirmed that insofar as national authorities are required to order the recovery of unlawful aid, they must also claim interest from the beneficiary. This is to be carried out in accordance with the applicable national rules, provided that they comply with the principles of equivalence and effectiveness.

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.