Case C-372/97

Italian Republic

v

Commission of the European Communities

(State aid – Transport of goods by road – Effect on trade between Member States and distortion of competition – Conditions for a derogation from the prohibition laid down in Article 92(1) of the EC Treaty (now, after amendment, Article 87(1) EC) – Existing aid or new aid – Principles of proportionality and the protection of legitimate expectations – Statement of reasons)

Summary of the Judgment

1. State aid – Commission decision finding aid which has not been notified incompatible with the common market – Obligation to state reasons – Scope

(EC Treaty, Arts 93(3) and 190 (now Arts 88(3) EC and 253 EC))

2. State aid – Effect on trade between Member States – Adverse effect on competition – Criteria of assessment – Aid the individual amounts of which are relatively small but awarded in a sector characterised by strong competition and a large number of small companies

(EC Treaty, Art. 92 (now, after amendment, Art. 87 EC))

3. State aid – Effect on trade between Member States – Transport sector – Recipients operating exclusively at a local level – Not relevant

(EC Treaty, Art. 92(1) (now, after amendment, Art. 87(1) EC))

4. State aid – Adverse effect on competition – State measures aimed at approximating the conditions of competition in a particular sector of the economy to those prevailing in other Member States

(EC Treaty, Art. 92(1) (now, after amendment, Art. 87(1) EC))

5. Acts of the institutions – Statement of reasons – Obligation – Scope – Commission decision finding aid incompatible with the common market – Necessary indications

(EC Treaty, Art. 92(1) (now, after amendment, Art. 87(1) EC) and Art. 190 (now Art. 253 EC))

6. State aid – Prohibiton – Derogations – Member State seeking derogation under a duty to cooperate

(EC Treaty, Art. 92(2) (now, after amendment, Art. 87(2) EC))

7. State aid – Prohibition – Derogations – Commission’s discretion – Judicial review – Limits

(EC Treaty, Art. 92(3) (now, after amendment, Art. 87(3) EC))

8. State aid – Recovery of unlawful aid – Breach of the principle of proportionality – None – Discretionary power of the Commission

(EC Treaty, Art. 93(2), first para. (now Art. 88(2), first para., EC))

9. State aid – Recovery of unlawful aid – Protection of legitimate expectations – Permissible with regard to the recipient – Excluded with regard to a Member State which has granted aid contrary to the procedural rules in Article 93 of the EC Treaty (now Article 88 EC)

(EC Treaty, Arts 92 (now, after amendment, Art. 87 EC) and 93 (now Art. 88 EC))

1. Where aid has been granted by a Member State without having been notified to the Commission at the planning stage, the decision finding that aid incompatible with the common market is not required to be based on a demonstration of the real effect of that aid on competition or trade between Member States. To decide otherwise would ultimately favour those Member States which grant aid in breach of the duty to notify in Article 93(3) of the EC Treaty (now Article 88(3) EC), to the detriment of those which do notify aid at the planning stage.

(see para. 45)

2. When financial aid granted by a Member State strengthens the position of an undertaking compared with other undertakings competing in intra-Community trade the latter must be regarded as affected by that aid.

The relatively small amount of aid or the relatively small size of the undertaking which receives it do not as such exclude the possibility that intra-Community trade might be affected.

Aid of a relatively small amount is liable to affect competition and trade between Member States where there is strong competition in the sector in which the undertakings which receive it operate. Furthermore, where a sector has a large number of small companies, aid potentially available to all or a very large number of undertakings in that sector can, even if individual amounts are small, have an impact on competition and trade between Member States.

(see paras 52-54, 57, 114)

3. The condition for the application of Article 92(1) of the Treaty (now, after amendment, Article 87(1) EC), namely that the aid must be capable of affecting trade between Member States, does not depend on the local or regional character of the transport services supplied or on the scale of the field of activity concerned.

(see para. 60)

4. The fact that a Member State seeks to approximate, by unilateral measures, the conditions of competition in a particular sector of the economy to those prevailing in other Member States cannot deprive the measures in question of their character as State aid.

(see para. 67)

5. The statement of reasons required by Article 190 of the Treaty (now Article 253 EC) must be appropriate to the nature of the measure in question and must show clearly and unequivocally the reasoning of the institution which adopted the measure so as to inform the persons concerned of the justification for the measure adopted and to enable the Court to exercise its powers of review. The requirements to be satisfied by the statement of reasons depend on the circumstances of each case, in particular the content of the measure in question, the nature of the reasons given and the interest which the addressees of the measure, or other parties to whom it is of direct and individual concern, may have in obtaining explanations. It is not necessary for the reasoning to go into all the relevant facts and points of law, since the question whether the statement of reasons for a measure meets the requirements of Article 190 of the Treaty must be assessed with regard not only to its wording but also to its context and to all the legal rules governing the matter in question.

Even, if, in certain cases, the very circumstances in which State aid is granted show that the aid is capable of affecting trade between Member States and of distorting or threatening to distort competition, the Commission must at least set out those circumstances in the statement of reasons for its decision

(see paras 69-71)

6. A Member State which seeks to be allowed to grant aid by way of derogation from the Treaty rules has a duty to collaborate with the Commission, in pursuance of which it must in particular provide all the information to enable the Commission to verify that the conditions for the derogation sought are fulfilled

(see para. 81)

7. In the application of Article 92(3) of the Treaty (now, after amendment, Article 87(3) EC), the Commission has a wide discretion the exercise of which involves economic and social assessments which must be made in a Community context. When it examines the impact of aid on competition and intra-Community trade, the Commission must weigh the beneficial effects of the aid against its adverse effects on trading conditions and on the maintenance of undistorted competition. Judicial review of the manner in which that discretion is exercised is confined to establishing that the rules of procedure and the rules relating to the duty to give reasons have been complied with and to verifying the accuracy of the facts relied on and that there has been no error of law, manifest error of assessment in regard to the facts or misuse of powers.

(see paras 82-83)

8. Abolishing unlawful aid by means of recovery is the logical consequence of a finding that it is unlawful. Consequently, the recovery of State aid unlawfully granted, for the purpose of restoring the previously existing situation, cannot in principle be regarded as disproportionate to the objectives of the Treaty in regard to State aid.

By repaying the aid, the recipient forfeits the advantage which it had enjoyed over its competitors on the market, and the situation prior to payment of the aid is restored. It also follows from that function of repayment of aid that, as a general rule, save in exceptional circumstances, the Commission will not exceed the bounds of its discretion if it asks the Member State to recover the sums granted by way of unlawful aid since it is only restoring the previous situation

(see paras 103-104)

9. A recipient of unlawfully granted aid cannot be precluded from relying on exceptional circumstances on the basis of which it had legitimately assumed the aid to be lawful and thus declining to refund that aid.

However, a Member State whose authorities have granted aid contrary to the procedural rules laid down in Article 93 of the EC Treaty (now Article 88 EC) may not plead the legitimate expectations of recipients in order to justify a failure to comply with the obligation to take the steps necessary to implement a Commission decision instructing it to recover the aid. If it could do so, Article 92 of the Treaty (now, after amendment, Article 87 EC) and Article 93 of the Treaty would be deprived of all practical force, since national authorities would thus be able to rely on their own unlawful conduct in order to render decisions taken by the Commission under those provisions of the Treaty ineffectual.

(see paras 111-112)

JUDGMENT OF THE COURT (Sixth Chamber) 29 April 2004 (1)

(State aid – Transport of goods by road – Effect on trade between Member States and distortion of competition – Conditions for a derogation from the prohibition laid down in Article 92(1) of the EC Treaty (now, after amendment, Article 87(1) EC) – Existing aid or new aid – Principles of proportionality and the protection of legitimate expectations – Statement of reasons)

In Case C-372/97,

applicant,

v

defendant,

APPLICATION for the partial annulment of Commission Decision 98/182/EC of 30 July 1997 concerning aid granted by the Friuli-Venezia Giulia Region (Italy) to road haulage companies in the Region (OJ 1998 L 66, p. 18),

THE COURT (Sixth Chamber),,

composed of: V. Skouris, acting for the President of the Sixth Chamber, J.N. Cunha Rodrigues, J.‑P. Puissochet, R. Schintgen and F. Macken (Rapporteur), Judges,

Advocate General: S. Alber,

after hearing oral argument from the parties at the hearing on 20 March 2003, during which the Italian Republic was represented by G. Aiello, avvocato dello Stato, and the Commission by V. Di Bucci, acting as Agent,

after hearing the Opinion of the Advocate General at the sitting on 15 May 2003,

gives the following

‘Article 1

Subsidies granted under Laws No 28/1981 and No 4/1985 of the Friuli-Venezia Giulia Region (hereinafter referred to as “the subsidies”) up to 1 July 1990 to companies exclusively engaged in transport operations at local, regional or national level do not constitute State aid within the meaning of Article 92(1) of the Treaty.

Article 2

The subsidies not covered by Article 1 of this Decision constitute aid within the meaning of Article 92(1) of the Treaty and are illegal since they were introduced in breach of Article 93(3).

Article 3

The subsidies for financing equipment specifically adapted for, and used solely for, combined transport constitute aid within the meaning of Article 92(1) of the Treaty but are compatible with the common market by virtue of Article 3(1)(e) of Regulation (EEC) No 1107/70.

Article 4

The subsidies granted from 1 July 1990 onwards to companies engaged in transport operations at a local, regional or national level and to companies engaged in transport operations at an international level are incompatible with the common market since they do not fulfil any of the conditions for derogation provided for in Article 92(2) and (3) of the Treaty, or the conditions provided for in Regulation (EEC) No 1107/70.

Article 5

Italy shall abolish and recover the aid referred to in Article 4. The aid shall be reimbursed in accordance with the provisions of domestic law, together with interest, calculated by applying the reference rates used for assessment of regional aid, as from the date on which the aid was granted and ending on the date on which it is actually repaid.

…

Article 7

This Decision is addressed to the Italian Republic.’

‘The Court may at any time of its own motion consider whether there exists any absolute bar to proceeding with a case, and shall give its decision in accordance with Article 91(3) and (4) of these Rules.’

Error in law concerning the interpretation of Article 92(1) of the Treaty

– Arguments of the parties

– Findings of the Court

Effect of the aid in dispute on intra‑Community trade and competition

– Arguments of the parties

– Findings of the Court

The obligation to state reasons

Article 3(1)(d) of Regulation No 1107/70

– Arguments of the parties

– Findings of the Court

Article 92(3)(c) of the Treaty

– Arguments of the parties

– Findings of the Court

Failure to state reasons for the contested decision

Arguments of the parties

Findings of the Court

Breach of the principle of proportionality

– Arguments of the parties

– Findings of the Court

Breach of the principle of the protection of legitimate expectations

– Arguments of the parties

– Findings of the Court

Extent of the obligation to recover the aid in dispute

– Arguments of the parties

– Findings of the Court

The obligation to state reasons

On those grounds,

THE COURT (Sixth Chamber)

hereby:

Skouris

Cunha Rodrigues

Puissochet

Schintgen

Macken

Delivered in open court in Luxembourg on 29 April 2004.

R. Grass

V. Skouris

Registrar

President of the Sixth Chamber