Parties Grounds Operative part

In Case C‑334/07 P,

APPEAL under Article 56 of the Statute of the Court of Justice, brought on 17 July 2007,

Commission of the European Communities, represented by K. Gross, acting as Agent, with an address for service in Luxembourg,

appellant,

the other party to the proceedings being:

Freistaat Sachsen, represented by Th. Lübbig, Rechtsanwalt,

applicant at first instance,

THE COURT (Second Chamber),

composed of C.W.A. Timmermans, President of the Chamber, J.‑C. Bonichot (Rapporteur), J. Makarczyk, P. Kūris and L. Bay Larsen, Judges,

Advocate General: D. Ruiz-Jarabo Colomer,

Registrar: R. Grass,

having regard to the written procedure,

having decided, after hearing the Advocate General, to proceed to judgment without an Opinion,

gives the following

Judgment

Legal framework

2. Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article [88] of the EC Treaty (OJ 1999 L 83, p. 1) sets out the procedures applicable to the exercise, by the Commission, of the power conferred on it by Article 88 EC to decide whether State aid is compatible with the common market.

3. The present appeal involves, more specifically, the following provisions of that regulation:

– Article 1(f), which defines: ‘unlawful aid’ as ‘new aid, put into effect in contravention of Article [88](3) of the Treaty’;

– Article 1(h), which contains the following definition:

‘“interested party” shall mean any Member State and any person, undertaking or association of undertakings whose interests might be affected by the granting of aid, in particular the beneficiary of the aid, competing undertakings and trade associations’.

– Article 2(2), which provides:

‘In a notification, the Member State concerned shall provide all necessary information in order to enable the Commission to take a decision pursuant to Articles 4 and 7 (hereinafter referred to as “complete notification”).’

– Article 4(1), which provides:

‘The Commission shall examine the notification as soon as it is received. Without prejudice to Article 8, the Commission shall take a decision pursuant to paragraphs 2 [decision that the notified measure does not constitute aid], 3 [decision not to raise objections] or 4 [decision to initiate the formal investigation procedure].’

– Article 4(5), which provides:

‘The decisions referred to in paragraphs 2, 3 and 4 shall be taken within two months. That period shall begin on the day following the receipt of a complete notification. The notification will be considered as complete if, within two months from its receipt, or from the receipt of any additional information requested, the Commission does not request any further information. …’

– Article 4(6), which reads as follows:

‘Where the Commission has not taken a decision in accordance with paragraphs 2, 3 or 4 within the period laid down in paragraph 5, the aid shall be deemed to have been authorised by the Commission. The Member State concerned may thereupon implement the measures in question after giving the Commission prior notice thereof, unless the Commission takes a decision pursuant to this Article within a period of 15 working days following receipt of the notice.’

4. In the field of aid to small and medium-sized enterprises, Article 1(1)(a)(i) of Council Regulation (EC) No 994/98 of 7 May 1998 on the application of Articles [87] and [88] of the Treaty establishing the European Community to certain categories of horizontal State aid (OJ 1998 L 142, p. 1) confers on the Commission the power to declare, pursuant to Article 87 EC, that, in certain circumstances, aid to small and medium-sized enterprises is compatible with the common market and is not to be subject to the notification requirements of Article 88(3) EC.

5. Commission Regulation (EC) No 70/2001 of 12 January 2001 on the application of Articles 87 and 88 of the EC Treaty to State aid to small and medium-sized enterprises (OJ 2001 L 10, p. 33) lays down the criteria which individual aid and aid schemes for small and medium-sized enterprises must fulfil in order to be compatible with the common market within the meaning of Article 87(3) EC, and exempts those which fulfil them from the notification requirement of Article 88(3) EC.

6. Pursuant to Article 10 thereof, that regulation entered into force on 2 February 2001, that is, the 20th day following that of its publication in the Official Journal of the European Communities .

7. The last sentence of recital 4 in the preamble to that regulation states that ‘[t]he guidelines on State aid for small and medium-sized enterprises [adopted by the Commission (OJ 1996 C 213, p. 4)] should be abolished from the date of entry into force of this Regulation, since their contents are replaced by [it]’.

Background to the dispute

8. Under the guidelines of the Ministry of the Economy and Labour of the Land of Saxony on assistance for small and medium-sized enterprises established in its territory relating to the improvement of business efficiency, the Land grants non-refundable subsidies for projects to promote the economy to persons exercising a profession there and to small and medium-sized enterprises with a registered office or place of business there. Those subsidies are provided for by an aid scheme which was notified for the first time to the Commission in 1992, authorised by the Commission and extended on several occasions following further authorisations. That aid is intended to improve the production capacity and competitiveness of small and medium-sized enterprises.

9. By letter of 29 December 2000, received at the Commission on 3 January 2001, the Federal Republic of Germany notified a new version of that aid scheme (‘the initial notification’).

10. On 12 January 2001, the Commission adopted Regulation No 70/2001, which entered into force on 2 February 2001.

11. In December 2001, the Commission initiated a formal investigation procedure with regard to some of the measures provided for by the notified aid scheme, namely the measures provided for by the subprogrammes ‘Coaching’, ‘Participation in fairs’, ‘Cooperation’ and ‘Design promotion’ (together ‘the four subprogrammes at issue’). On the other hand, the Commission decided that the other measures notified did not raise any objections.

12. At the end of its investigation, the Commission adopted the contested decision, by which it found, first of all, that the measures provided for by the four subprogrammes in question constituted State aid. It stated, secondly, that, in order to be considered compatible with the common market, that aid must come within the scope of Regulation No 70/2001 and not exceed the intensity thresholds laid down therein, with the exception of the operating aid provided for by the subprogramme ‘Cooperation’, which it found to be incompatible with the common market.

The procedure before the Court of First Instance and the judgment under appeal

13. By the judgment under appeal, the Court of First Instance allowed the application of the Freistaat Sachsen for annulment of a number of provisions of the contested decision, namely:

– the second paragraph of Article 2 thereof, to the effect that aid exceeding the scope and the aid intensities of Regulation No 70/2001 is incompatible with the common market;

– Article 3 thereof, to the effect that operating aid provided for by the subprogramme ‘Cooperation’ is incompatible with the common market, and

– Article 4 thereof, to the effect that the Federal Republic of Germany may implement the four subprogrammes at issue only if they have been brought into line with that decision.

14. The Court of First Instance considered that, in examining the compatibility of the aid in question in the light of Regulation No 70/2001, when that regulation was not in force at the time notification of the aid was received by the Commission, the Commission had applied retroactively the new rules concerning small and medium-sized enterprises laid down in that regulation.

15. The Court of First Instance based itself essentially on the legal effects of the notification in the context of the procedure for investigating proposed State aid. It noted in particular that Article 4(1) of Regulation No 659/1999 provides that the Commission is to examine the notification as soon as it is received, and Article 4(5) provides that the two-month period prescribed for it to conduct the preliminary examination of that notification is to begin on the day following receipt thereof.

16. The Court of First Instance thus inferred that, as a rule, the examination of the compatibility of planned aid with the common market must be done on the basis only of the rules in force at the date of receipt of the notification of that aid by the Commission. It stated that that approach is justified by the requirements of transparency and predictability in that it avoids giving the Commission the opportunity to decide unilaterally the legal rules which are applicable to the aid it must examine.

17. The Court of First Instance also found that this line of reasoning is supported by the case-law. It referred in that regard to Joined Cases C‑74/00 P and C-75/00 P Falck and Acciaierie di Bolzano v Commission [2002] ECR I‑7869 concerning the temporal application of successive decisions adopted by the Commission on the grant of State aid to the steel industry in certain specific cases, commonly termed ‘Steel Aid Codes’. In that judgment, the Court held that the application of the rules of the Steel Aid Codes in force at the date on which the Commission takes a decision on aid paid under an earlier code constitutes retroactive application of the later code.

18. Next, the Court of First Instance found that it is apparent from the terms as well as the objective of Regulation No 70/2001 and also from the requirements arising from compliance with the principles of the protection of legitimate expectations and legal certainty that the regulation is not intended to apply retroactively.

19. The Court of First Instance also decided that any awareness on the part of the Federal Republic of Germany, at the time of the initial notification, of impending changes to the criteria for examining the aid thus notified does not justify application of Regulation No 70/2001.

20. Lastly, the Court of First Instance referred to the Commission notice on the determination of the applicable rules for the assessment of unlawful State aid (OJ 2002 C 119, p. 22), by which the Commission decided to assess the compatibility with the common market of such aid under the rules in force at the time when the aid was granted. The Court of First Instance held that, if notified proposed aid were, by contrast, to be assessed in the light of the rules in force at the date of adoption of the Commission’s decision on that aid, that would provide an incentive for Member States not to comply with their procedural obligations when planning to grant aid for which the applicable rules are likely to become stricter.

Forms of order sought

21. By its appeal, the Commission asks the Court to set aside the judgment under appeal, to give final judgment on the substance of the case by dismissing the application for annulment brought by the Freistaat Sachsen and to order the latter to pay the costs of the two sets of proceedings.

22. The Freistaat Sachsen contends that the Commission’s appeal should be dismissed and that the Commission should be ordered to pay the costs of the appeal proceedings.

The appeal

23. The Commission puts forward two pleas in support of its appeal. It submits that the Court of First Instance erred in law, principally, in finding that the Commission was incorrect in having examined the proposed aid scheme notified by the Federal Republic of Germany in the light of Regulation No 70/2001, since that regulation was not in force at the date of receipt of the initial notification and, in the alternative, in holding that that notification had to be regarded as being complete.

The first plea

Arguments of the parties

24. By its first plea, the Commission claims that the Court of First Instance infringed Article 88(2) and (3) EC, Article 249(2) EC, the second sentence of Article 254(2) EC, Article 3 et seq. of Regulation No 659/1999 and Article 10(1) of Reg ulation No 70/2001, in holding that the application of the latter regulation to a proposed aid scheme notified prior to the entry into force of that regulation is contrary to the principle of non‑retroactivity and thus renders the contested decision unlawful.

25. The Commission considers that the application of Regulation No 70/2001 to the aid scheme in question is in no way retroactive in nature, but is consistent with the principle of immediate application, under which a provision of Community law applies as from the time it enters into force to current and ongoing situations.

26. The Commission submits that, in holding that the notification of proposed State aid gives rise to a legal situation from which it is apparent that the rules in force at the date on which that notification was made must be applied, the Court of First Instance adopted a legally flawed position.

27. The Commission submits that such a notification has only procedural effects. It adds that the examination it must carry out does not concern that notification as such, but rather the notified aid, and that it must be conducted not in the light only of the information provided in the context of that notification, but also in the light of the relevant facts and the legal rules in force at the time it adopts its decision. It refers in that regard to Articles 3, 4(2) to (4) and (6), 5(1), 6 and 7(2) to (4) of Regulation No 659/1999.

28. The Commission adds that the notification of proposed State aid is an obligation imposed by the Treaty on the Member States and does not create any rights.

29. It states that the immediate examination of the notification provided for in Article 4(1) of Regulation No 659/1999 does not preclude the Commission from requiring additional information from the Member State concerned under Article 5 of that regulation.

30. The Commission asserts that the two-month period which, under Article 4(5) of Regulation No 659/1999, starts to run as from receipt of the notification, and upon expiry of which, under Article 4(6) thereof, the aid will automatically be deemed to have been authorised, is merely a procedural period. It states that, under the second sentence of Article 4(6) of that regulation, it is in any event empowered to take a decision upon expiry of that period and, if necessary, initiate a formal investigation procedure.

31. The Commission adds that the Federal Republic of Germany was fully aware of the draft which led to the adoption of Regulation No 70/2001, inter alia because it took part in the work on that draft.

32. It submits that Falck and Acciaierie di Bolzano v Commission is not relevant to the present case because it concerned unlawful aid and the approach adopted by the Court in that judgment was justified, furthermore, by the particular nature of the Steel Aid Codes.

34. The Commission further submits that the statement in the second sentence of recital 4 in the preamble to Regulation No 70/2001, to the effect that notified schemes will be examined by the Commission ‘in particular’ in the light of the criteria set out in that regulation, cannot be interpreted as allowing the application of the Community guidelines on State aid for small and medium-sized enterprises adopted in 1996, as they were repealed by that regulation, as specifically noted in that recital.

35. Lastly, the Commission considers that the parallel drawn by the Court of First Instance between the notified proposed aid scheme and unlawful aid is not relevant. It submits in that regard that the Commission notice on the determination of the applicable rules for the assessment of unlawful State aid referred to by the Court of First Instance would not in any event have been applicable if the aid notified by the Federal Republic of Germany had been unlawful. That notice concerns solely the application of directives or similar instruments, the fourth paragraph moreover stating that it ‘is without prejudice to the interpretation of Council and Commission regulations in the field of State aid’.

36. The Freistaat Sachsen contends that the Court of First Instance did not err in law in holding that the application of Regulation No 70/2001 to a proposed aid scheme notified before the entry into force of that regulation constituted retroactive application thereof such as to render the contested decision unlawful.

37. The Freistaat Sachsen considers that the notification of proposed aid is not only a mere obligation for the Member States, but that that measure also entails specific obligations for the Commission and starts a period the expiry of which gives rise to important legal consequences for the parties concerned.

38. The Freistaat Sachsen contends that, as a rule, legal certainty precludes retroactive application of Community legislation which does not contain any specific provision to that effect.

39. It considers that the approach adopted by the Court on unlawful aid in Falck and Acciaierie di Bolzano v Commission must apply to notified aid.

40. It asserts that the notification of proposed aid by a Member State provides a basis for a legitimate expectation on the part of that Member State that the examination criteria will be those in force at the time of that notification. It makes an exception, however, for the situation in which the rule which entered into force after the notification of proposed aid is more favourable for the Member State in question than that which was in force at the time of that notification.

41. Next, the Freistaat Sachsen submits that, since the Commission argues that unlawful aid falls to be assessed under the provisions in force at the time it is granted, it is also appropriate to apply the law in force at the time when duly notified aid ‘comes into being’, that is, when it is notified, in order not to put Member States which comply with their procedural obligations at a disadvantage.

42. In the alternative, the Freistaat Sachsen contends that, if the Commission’s first plea is upheld by the Court, the contested decision should in any event be annulled on the ground that the Commission did not actually exercise its power of assessment. It failed to take account of the particularities of the Land of Saxony and of the notified aid scheme when it applied Regulation No 70/2001.

Findings of the Court

Referral of the case back to the Court of First Instance

60. Under the first paragraph of Article 61 of the Statute of the Court of Justice, if the appeal is well founded, the Court of Justice may itself give final judgment in the matter, where the state of the proceedings so permits, or refer the case back to the Court of First Instance for judgment.

61. In the present case, since the plea alleging that the application of Regulation No 70/2001 to the contested decision is retroactive in nature is unfounded, it is appropriate to rule on the fourth and fifth pleas put forward by the Freistaat Sachsen before the Court of First Instance, alleging, first, failure by the Commission to exercise its discretion during the investigation of the aid at issue and the infringement of the obligation to state reasons which stems from that and, secondly, that the Commission has not established that competition would actually or potentially be distorted by that aid and the infringement of the obligation to state reasons which stems from that.

62. The response to those pleas entails complex factual assessments on the basis of evidence which was not considered by the Court of First Instance. Before this Court, the Freistaat Sachsen merely stated, without further explanation, that the contested decision must be annulled because of the Commission’s failure to exercise its discretion, on the ground that it did not take account of either the particularities of the Land of Saxony or those of the notified proposed aid scheme when it applied Regulation No 70/2001.

63. It follows that the state of the proceedings does not permit the Court to give final judgment, with the result that the case must be referred back to the Court of First Instance for judgment on those two pleas.

Costs

64. Since the case is to be referred back to the Court of First Instance, the costs relating to the present appeal proceedings must be reserved.

On those grounds, the Court (Second Chamber) hereby:

1. Sets aside the judgment of the Court of First Instance of the European Communities of 3 May 2007 in Case T‑357/02 Freistaat Sachsen v Commission ;

2. Refers the case back to the Court of First Instance of the European Communities;

3. Reserves the costs.