Summary
Parties
Grounds
Decision on costs
Operative part
Keywords

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1. State aid ° Prohibition ° Derogations ° Commission decision making authorization to pay aid dependent on prior repayment by the undertaking concerned of unlawful aid previously received ° Condition laid down in order to avoid an accumulation of aid altering trading conditions in a way contrary to the general interest ° Decision within the power of the Commission

(EEC Treaty, Arts 92(3)(c), 93(2) and 169)

2. State aid ° Respective powers of the Community and of the Member States ° Commission' s power to adopt a decision making the payment of aid dependent on prior repayment of unlawful aid, despite the fact that the undertaking concerned disputes the existence of an obligation to repay on the ground of the protection of legitimate expectations by national law and of national rules of administrative procedure

(EEC Treaty, Art. 92(3)(c) and 93(2))

3. State aid ° Prohibition ° Derogations ° Aid which may be regarded as compatible with the common market ° Discretion of the Commission ° Review by the Court ° Limits

(EEC Treaty, Art. 92(3))

4. Plea of illegality ° Raised in relation to an act against which the applicant has not brought an action for annulment within the period prescribed ° Not admissible

(EEC Treaty, Arts 173 and 184)

Summary

1. The Commission does not exceed its powers where, having examined planned aid which a Member State is proposing to grant to an undertaking, it adopts a decision authorizing that aid pursuant to Article 92(3)(c) of the Treaty, but prohibits payment thereof until the undertaking has repaid aid previously received which has been found to be unlawful, by a decision of the Commission which has become final, on the grounds of both failure to give prior notification and incompatibility with the common market.

First, the power vested in the Commission under Article 93(2) of the Treaty to decide that an aid must be altered necessarily implies that a decision authorizing aid under Article 92(3)(c) of the Treaty may be made subject to conditions for ensuring that authorized aid does not alter trading conditions in a way contrary to the general interest. Secondly, the risk of such alteration must be assessed in the light of all the relevant factors, including the possible cumulative effect of the previous aid and the new aid, and the non-repayment of the previous unlawful aid. Lastly, in laying down such a condition, the Commission cannot be regarded as having followed a procedure not provided for by the Treaty in order to obtain actual repayment of the unlawful aid, when the remedies for infringement under Article 93(2) and Article 169 of the Treaty were available to it, since, as the reasons given in the decision make clear, having to rule on planned aid its intention was not to find that a previous decision had been infringed but to ensure, as it was required to do, that the planned aid did not have consequences rendering it incompatible with the common market.

2. In adopting a decision which, in order that trading conditions are not altered in a way contrary to the general interest, makes payment of aid to an undertaking subject to the prior repayment by that undertaking of aid which the Commission, in a decision which has become final, has found to be unlawful on the grounds of failure to give prior notification and of incompatibility with the common market, the Commission did not act in disregard of the division of powers between the Community and the Member States, despite the existence in national law governing repayment in the case in point of a principle of protection of legitimate expectations relied upon by the undertaking before the national court and of a national rule of administrative procedure laying down, in respect of the revocation of administrative acts, a time-limit which was exceeded in the case.

First, the Commission' s exercise of its powers cannot be paralysed by the existence of national proceedings, the effect of which cannot be to constrain the Commission to authorize payment of aid which, added to unlawful aid which has not been repaid, would be incompatible with the common market. Secondly, the provisions of national law, both those protecting legitimate expectations and those laying down a time-limit within which an administrative act creating rights may be revoked, cannot be applied so as to render practically impossible the recovery of sums required by Community law; only in exceptional circumstances within the meaning of Community law may a recipient of aid which is unlawful on the ground that no prior notification was given rely on the protection of legitimate expectations.

3. Article 92(3) of the Treaty confers on the Commission, for the purpose of deciding whether aid may be regarded as compatible with the common market, a discretion the exercise of which entails complex assessments of an economic and social nature which must be made in a Community context. The Court must therefore limit its review of such an assessment to ascertaining that the rules of procedure have been complied with, that the reasoning is sufficient, the facts are correct, and that there is no manifest error of assessment or misuse of power.

4. The objection of illegality provided for by Article 184 of the Treaty cannot be raised by a natural or legal person in relation to a measure against which the person could have brought proceedings under the second paragraph of Article 173 of the Treaty but did not do so within the period prescribed therein.

Parties

In Joined Cases T-244/93 and T-486/93,

TWD Textilwerke Deggendorf GmbH, a company incorporated under German law, established in Deggendorf (Germany), represented by Walter Forstner, Lutz Radtke and Karl-Heinz Schupp, Rechtsanwaelte, Deggendorf, assisted by Michael Schweitzer, Professor at the University of Passau, with an address for service in Luxembourg at the office of M. Stein, Bayerische Landesbank International SA, 7-9 Boulevard Royal,

applicant,

supported by

Federal Republic of Germany, represented by Ernst Roeder, Ministerialrat, and Bernd Kloke, Regierungsrat, both of the Federal Ministry for Economic Affairs, acting as Agents,

intervener,

v

Commission of the European Communities, represented by Antonino Abate, Principal Legal Adviser, Bernhard Jansen and Bernard Langeheine, of the Legal Service, and by Claus Michael Happe, national official seconded to the Commission, acting as Agents, assisted by Meinhard Hilf, Professor at the University of Hamburg, with an address for service in Luxembourg at the office of Carlos Gómez de la Cruz, of its Legal Service, Wagner Centre, Kirchberg,

defendant,

APPLICATION for annulment of Article 2 of Commission Decision 91/391/EEC of 26 March 1991 on aid granted by the German Government to Deggendorf GmbH, a producer of polyamide and polyester yarns located in Deggendorf (Bavaria) (OJ 1991 L 215, p. 16), and of Article 2 of Commission Decision 92/330/EEC of 18 December 1991 on aid by Germany to the Deggendorf textile works (OJ 1992 L 183, p. 36),

THE COURT OF FIRST INSTANCE

OF THE EUROPEAN COMMUNITIES (Third Chamber, extended composition),

composed of: J. Biancarelli, President, R. Schintgen, C.P. Briët, R. García-Valdecasas and C.W. Bellamy, Judges,

Registrar: H. Jung,

having regard to the written procedure and further to the hearing on 10 January 1995,

gives the following

Judgment

Grounds

Facts and procedure

1 During the period from 1981 to 1983 the applicant, TWD Textilwerke Deggendorf GmbH (hereafter "TWD"), a company active in the synthetic fibre sector, received State aids, initially not notified to the Commission, consisting of a subsidy of DM 6.12 million from the Federal German Government and a loan on preferential terms of DM 11 million from the Land of Bavaria (hereafter "the TWD I aid"). Following late notification by the German authorities in March and July 1985 after repeated requests from the Commission, the Commission adopted, on 21 May 1986, Decision 86/509/EEC on aid granted by the Federal Republic of Germany and the Land of Bavaria to a producer of polyamide and polyester yarn situated in Deggendorf (OJ 1986 L 300, p. 34, hereafter "the TWD I decision"), in which it found that the aids in question were unlawful, on the ground that, in breach of Article 93(3) of the EEC Treaty, they had not been notified to the Commission, and on the ground that they were incompatible with the common market because they did not satisfy any of the conditions laid down in Article 92(2) and (3) of the EEC Treaty, owing in particular to the fact that they were contrary to the synthetic fibre and yarn aid code. The decision ordered the aid in question to be recovered. No legal challenge was mounted against the TWD I decision, which thus became definitive.

2 On 19 March 1987 the Federal German Ministry for Economic Affairs withdrew the certificates concerning the subsidy of DM 6.12 million granted by the Federal German Government, in order to recover that subsidy in accordance with the TWD I decision. However, the applicant challenged that step before the national administrative courts by lodging an appeal before the Verwaltungsgericht (Administrative Court) Cologne and then appealing against that court' s judgment to the Oberverwaltungsgericht (Higher Administrative Court) for the Land North Rhine-Westphalia.

3 On 31 October 1989 the Federal Republic of Germany notified the Commission of a second aid plan for the applicant comprising a new subsidy of DM 4.52 million and the grant of two loans, of DM 6 and DM 14 million, on preferential terms (hereafter "the TWD II aid"). On 26 March 1991 the Commission adopted Decision 91/391/EEC on aid granted by the German Government to Deggendorf GmbH, a producer of polyamide and polyester yarns located in Deggendorf (Bavaria) (OJ 1991 L 215, p. 16, hereafter "the TWD II decision"). Articles 1 and 2 of the TWD II decision read as follows:

"Article 1

The aid in the form of a grant of DM 4 520 000 and two soft loans of DM 6 million and DM 14 million granted to Deggendorf for 12 years and 8 years respectively at 5% interest with a two-year grace period and notified to the Commission by letter dated 31 October 1989 from the German authorities is compatible with the common market within the meaning of Article 92 of the EEC Treaty.

Article 2

The German authorities are hereby required to suspend payment to Deggendorf of the aid referred to in Article 1 of this decision until such time as they have recovered the incompatible aids referred to in Decision 86/509/EEC."

4 The TWD II decision has not been challenged by the Federal Republic of Germany but, by application lodged at the Registry of the Court of Justice on 19 June 1991, the applicant brought an action, registered under No C-161/91, for annulment of Article 2 of that decision.

5 In the meantime, on 25 February 1991, the German authorities had notified the Commission of a third plan to grant aid to the applicant in the form of "soft" loans (hereafter "the TWD III aid"). That aid concerned investments to be made in the Pietsch undertaking specializing in the manufacture of textile curtains, which had been acquired by the applicant. On 18 December 1991 the Commission adopted Decision 92/330/EEC on aid by Germany to the Deggendorf textile works (OJ 1992 L 183, p. 36, hereafter "the TWD III decision") whose operative provisions are in similar terms to those contained in the TWD II decision. The operative part of the TWD III decision reads as follows:

"Article 1

The aid in the form of two subsidized loans of DM 2.8 million and DM 3 million granted to Textilwerke Deggendorf GmbH for 15 years and 8 years respectively at 4.5% interest with a three-year grace period and notified to the Commission by letter dated 25 February 1991 from the German authorities is compatible with the common market within the meaning of Article 92 of the EEC Treaty.

Article 2

The German authorities shall suspend payment to Deggendorf of the aid referred to in Article 1 of this Decision until such time as they have recovered the incompatible aid referred to in Article 1 of Decision 86/509/EEC.

Article 3

The German Government shall inform the Commission within two months of the date of notification of this Decision of the measures taken to comply therewith.

...".

6 By application lodged at the Court Registry on 6 April 1992 the Federal Republic of Germany brought an action, registered under No C-110/92, for annulment of Articles 2 and 3 of the TWD III decision.

7 By application lodged at the Court Registry on 18 May 1992, the applicant brought an action, registered under No C-220/92, for annulment of Article 2 of the TWD III decision.

8 By order of 12 March 1993, Cases C-161/91 (concerning the TWD II decision) and C-110/92 and C-220/92 (concerning the TWD III decision) were joined for the purposes of the oral procedure and the judgment.

9 Pursuant to Council Decision 93/350/Euratom, ECSC, EEC of 8 June 1993 amending Decision 88/591/ECSC, EEC, Euratom establishing the Court of First Instance of the European Communities (OJ 1993 L 144, p. 21), the Court, by order of 15 September 1993, disjoined Case C-110/92 (Germany v Commission) from Cases C-161/91 and C-220/92 (TWD v Commission) and, by order of 27 September 1993, referred Joined Cases C-161/91 and C-220/92 to the Court of First Instance. Those cases were registered at the Court of First Instance under Nos T-244/93 and T-486/93 respectively.

10 By order of 13 December 1993 made pursuant to the third paragraph of Article 47 of the Statute (EC) of the Court of Justice, the Court of Justice stayed proceedings in Case C-110/92 until delivery of judgment by the Court of First Instance in Joined Cases T-244/93 and T-486/93.

11 Meanwhile, in the national proceedings concerning the TWD I aid (paragraph 2 above), the Oberverwaltungsgericht for the Land North Rhine-Westphalia, by an order received at the Court of Justice on 12 May 1992, submitted to it for a preliminary ruling a question asking essentially whether the applicant could plead as a preliminary issue in proceedings before the national courts the unlawfulness of the TWD I decision, although it had allowed the period prescribed in Article 173 of the EEC Treaty to expire and, secondarily, whether that decision was lawful. In its judgment in that case (C-188/92 TWD Textilwerke Deggendorf v Germany [1994] ECR I-833) the Court held: "The national court is bound by a Commission decision adopted under Article 93(2) of the Treaty where, in view of the implementation of that decision by the national authorities, the recipient of the aid to which the implementation measures are addressed brings before it an action in which it pleads the unlawfulness of the Commission' s decision and where that recipient of aid, although informed in writing by the Member State of the Commission' s decision, did not bring an action against that decision under the second paragraph of Article 173 of the Treaty, or did not do so within the prescribed period."

12 By order of 22 March 1994 made by the Court of First Instance pursuant to the second paragraph of Article 42 of the Statute (EC) of the Court of Justice the Federal Republic of Germany was granted leave to intervene in Case T-486/93 in support of the applicant.

13 Upon hearing the report of the Judge-Rapporteur the Third Chamber (extended composition) of the Court of First Instance decided to open the oral procedure in Joined Cases T-244/93 and T-486/93 without any prior measures of inquiry. However, as a measure of organization of procedure the Court of First Instance put certain questions in writing to the Commission in order to clarify the Commission' s calculations concerning the amount of aid in question. The Commission replied by letter of 14 December 1994.

14 The Court of First Instance heard oral argument from the parties and their replies to the Court' s oral questions on 10 January 1995.

Forms of order sought by the parties

15 In Case T-244/93 the applicant claims that the Court should:

° annul the Commission' s decision of 26 March 1991 on aid granted by the German Government to Deggendorf GmbH, a producer of polyamide and polyester yarns located in Deggendorf (Bavaria), in so far as Article 2 thereof requires the German authorities to suspend payment to the applicant of the aid referred to in Article 1 of the decision until actual recovery of the aid referred to in Article 1 of Commission Decision 86/509/EEC of 21 May 1986 and deemed incompatible with the common market;

° annul the Commission' s decision of 26 March 1991;

° order the defendant to pay the costs.

16 In Case T-486/93 the applicant claims that the Court should:

° annul Article 2 of the Commission' s decision of 18 December 1991;

° order the Commission to pay the costs.

17 In the latter case the intervener submits that the Court should:

° annul Article 2 of the Commission' s decision of 18 December 1991;

° order the Commission to pay the costs.

18 In both cases the defendant contends that the Court should:

° dismiss the application;

° order the applicant to pay the costs.

Substance

19 In its application in Case T-244/93 the applicant essentially advances three pleas. The first plea is that the Commission was not empowered to adopt Article 2 of the TWD II decision. The second is that Article 2 of the TWD II decision prevents it from pleading the protection of legitimate expectations under national law, and thus constitutes an unwarranted interference in the national legal system. Thirdly, the applicant maintains that it derives no competitive advantage from the TWD I aid because the funds have been used and the loans repaid.

20 In its reply in Case T-244/93 the applicant essentially makes two further pleas: at least part of the TWD I aid satisfied the substantive conditions for it to be declared lawful and, secondly, the principle of proportionality was infringed in that the Commission did not authorize payment of the balance of the TWD II aid after deduction of the amount of the TWD I aid.

21 In its application in Case T-486/93, the applicant essentially advances six pleas. The first is that the Commission was not empowered to adopt Article 2 of the TWD III decision. The second plea alleges misuse of powers on the ground that, by adopting Article 2 of the TWD III decision, the Commission sought to exert pressure on the applicant so that it could not rely on the rights it has under the national legal system, thus usurping the powers of a Member State. Thirdly, the applicant maintains that it derives no competitive advantage from the TWD I aid since the requirements of the TWD I decision have been observed and it has established reserves in anticipation of the possible outcome of the national proceedings. Fourthly, the applicant pleads infringement of the principle of proportionality, in particular on the ground that the Commission did not authorize payment of the difference between, on the one hand, the total amount of the TWD II and TWD III aid and, on the other, the amount of TWD I aid. The fifth plea is that at least part of the TWD I aid satisfied the substantive conditions for it to be declared lawful. Finally, as its sixth plea, the applicant contends that recovery of the TWD I aid is precluded under German law, which is the sole law applicable to the claim for repayment.

22 The pleas which are common to both cases must be dealt with together. Some of the pleas must also be grouped together, in so far as they overlap. The Court therefore considers it appropriate to examine the applicant' s pleas under the following headings:

° first, the pleas alleging the Commission' s lack of competence and infringement of the principles governing the division of powers between the Community and the Member States;

° secondly, the pleas that no competitive advantage was gained from the TWD I aid;

° thirdly, the pleas alleging infringement of the principle of proportionality, and

° fourthly, the pleas of lawfulness of the TWD I aid.

The pleas of the Commission' s lack of competence and of infringement of the principles governing the division of powers between the Community and the Member States

Summary of the parties' arguments

23 The applicant submits that there is no legal basis for the suspension of payment of the TWD II and TWD III aid ordered in Article 2 of the operative parts of the decisions in question. Furthermore, it alleges essentially that the Commission infringed the principles governing the division of powers between the Community and the Member States. It maintains, in particular, that Article 2 of the operative parts of the decisions constitutes an unwarranted interference in the national legal system.

24 In its view, when the Commission takes a decision under Article 92(3)(c) of the Treaty, it certainly has a wide discretion, but that discretion must be exercised in accordance with the procedural requirements of Community law. If it wished to use coercion in order to make the Federal Republic of Germany take action to recover the TWD I aid, the Commission was obliged to use the procedure provided for in Article 169 of the EEC Treaty, or the procedure provided for in the second subparagraph of Article 93(2) of the Treaty, to the exclusion of a conditional authorization procedure, not provided for in the Treaty (see the judgment of the Court of Justice in Case C-294/90 British Aerospace and Rover v Commission [1992] ECR I-493, paragraph 11 et seq). Similarly, the possibility of "altering" the aid, available under Article 93(2) of the Treaty, concerns only aid incompatible with the common market, which, according to the decisions themselves, is not the case here.

25 The applicant also claims that it is for the Member States to recover unlawful aid and that TWD is entitled to challenge the recovery of the TWD I aid before the national courts by relying on the principle of the protection of legitimate expectations (judgment in Joined Cases 205/82 to 215/82 Deutsche Milchkontor [1983] ECR 2633). In those circumstances, the link made by the contested decisions between the TWD I aid and the TWD II and TWD III aid constitutes unwarranted interference in the national legal order. The suspension of payment of the TWD II and TWD III aid prevents TWD from pleading legitimate expectations in national law because, even if it won in the national proceedings which it has commenced, it could never receive the TWD II and TWD III aid.

26 Moreover, in stressing, in the TWD II and TWD III decisions, that it did not have any "means of coercion at its disposal to accelerate or enforce the implementation of its decision of 21 May 1986", the Commission sought to exert economic pressure on TWD in order to obtain recovery of the TWD I aid; this constituted misuse of power and usurpation of the power of a Member State. Since the procedure for recovery is governed by national law, the Commission could not, without awaiting the decision of the national court, purport to require TWD to repay the TWD I aid and could not therefore make its authorization conditional.

27 With regard to its position in national law, the applicant states that restitution is now impossible in so far as the two loans granted by the Land of Bavaria are concerned. Since the Land has not claimed repayment of the aid in question, such restitution is now precluded by Paragraph 48 of the Verwaltungsverfahrengesetz (Law on Administrative Procedure, hereinafter "the VwVfG"), which requires an unlawful administrative act to be withdrawn within a period of one year from the time when the administrative authorities became aware of the circumstances justifying that step.

28 As regards the aid granted by the Federal Government, the applicant states that, in its action before the Verwaltungsgericht, Cologne, and then in its appeal to the Oberverwaltungsgericht for the Land North Rhine-Westphalia, it claimed protection of its legitimate expectations and relied on the provisions of the VwVfG. At no time was it informed that the TWD I aid ran counter to provisions of Community law so that, when the investment was made and the relevant national administrative decisions adopted, it was entitled to expect that they would not be overturned. Moreover, the period of one year provided for in Paragraph 48 of the VwVfG expired with regard to the federal German authorities, which knew that the decisions granting the TWD I aid were unlawful as soon as they were adopted.

29 Even if, as was held in the judgment of the Court of Justice in Case C-5/89 Commission v Germany [1990] ECR I-3437, the principle of the protection of legitimate expectations cannot apply to aid granted in breach of Article 93(3) of the Treaty, there are nevertheless cases in which the undertaking may expect aid granted to be lawful and in which it will ultimately be for the Court to decide whether the principle of the protection of legitimate expectations applies. That is so in the present case since the sectoral code was published in the Official Journal of the European Communities ° and thus brought to the notice of the applicant ° only in 1985, after the TWD I aid had been applied for and granted and after the applicant had received assurances from the German authorities about the lawfulness of the aid in question. The prior publication of the sectoral code in the Bulletin of the Communities was not sufficient, in the applicant' s view, to found an obligation on its part to take cognisance of it.

30 The intervener in Case T-486/93 does not dispute that the Commission may take account of a competitive advantage unlawfully acquired by the applicant but considers that in the present case the question as to the extent to which the Commission may take account of the effects of maintaining in force the TWD I aid is of no significance. Since the TWD III decision found the TWD III aid to be compatible with the common market, it was not possible for its implementation to be prohibited. The suspensory condition is therefore without legal foundation; as a measure restricting the rights of those concerned, it needed authorization under the Treaty (judgment of the Court of Justice in Case 111/63 Lemmerz-Werke v High Authority [1965] ECR 677, at p. 699), since the Commission is not authorized to apply procedures not provided for therein (see the judgment in Case C-294/90 British Aerospace and Rover v Commission, cited above, paragraph 14). The effect of the first subparagraph of Article 93(2) and Article 92(3)(c) of the Treaty is that a Member State must abolish or alter aid found to be incompatible with it, and not that it should refrain from disbursing aid found to be compatible.

31 Moreover, the benefit conferred on the applicant by the TWD I aid, on the assumption that it still subsists, is merely the consequence of its right to challenge recovery of that aid, and the link established by the Commission is incompatible with the principles of the rule of law, should the applicant be successful in the national proceedings which it has commenced. Since recovery is subject to national law, the Commission should accept the consequences thereof; it may not circumvent them by means of procedures which are not provided for in the Treaty. At the most it could bring proceedings against the Fed