On 18 May 2022, the General Court of the EU confirmed the legality of the European Commission's decision of 2 March 2020 concerning the recovery of illegal and incompatible aid granted by Italy to the former Tirrenia di Navigazione SpA group for one of its subsidiaries, Adriatica, between 1992 and 1994. This judgment provides useful clarifications on the statute of limitations for State aid, the distinction between new and existing aid, and the compatibility of State aid in connection with an illegal cartel between undertakings.
Presenting the case
The Italian company Tirrenia di Navigazione SpA was a shipping company for passengers and cargo traffic between several ports in Italy and the Mediterranean. To guarantee the continuity of the maritime transport service, the Italian authorities paid public service compensation to the five subsidiaries of the Tirrenia group. In 1999, following several complaints, the Commission opened a formal investigation into the subsidies granted to each company in the group.
In 2005, the Commission adopted a decision concluding that the compensation granted by Italy to the shipping companies Adriatica, Caremar, Siremar, Saremar and Toremar was partially compatible. In the case of Adriatica, the Commission qualified the aid for the period between January 1992 and July 1994 as incompatible and illegal and requested that the Italian authorities recover the aid from Adriatica. This decision was the subject of three actions for annulment before the General Court of the EU: (1) by Tirrenia, which had taken over Adriatica's current activities (case T-265/04), (2) by Caremar, Saremar, Siremar and Toremar (case T-292/04) and (3) by Navigazione Libera del Golfo SpA (case T-504/04). In a judgment released on 4 March 2009, the General Court of the EU rescinded the Commission's decision for lack of reasoning.
As a result, the Commission carried out a further in-depth examination of the measures. It invited the Italian authorities to provide all the information necessary to assess the measures in question. Following these exchanges, which lasted until 2018, the Commission adopted a new decision on 2 March 2020.
The Commission's decision of 2 March 2022
The Commission gave its opinion on the public service compensation granted to the group’s subsidiaries Adriatica, Caremar, Saremar, Siremar and Toremar during the period 1992–2008. It concluded that the subsidies granted in this period to the former Tirrenia group were compatible, with the exception of the subsidy granted to Adriatica for operating the Brindisi/Corfu/Igoumenitsa/Patras seaway between January 1992 and July 1994.
First, the Commission considered that the aid to Adriatica constituted new aid because the mechanism for calculating the amount of compensation had been substantially modified several times.
Secondly, it confirmed that the maritime transport service between Greece and Italy is a service of general economic interest (SGEI). Indeed, this connection ensures the continuity of the transport of goods and passengers. Consequently, the company could properly benefit from public service compensation under Article 106(2) of the Treaty on the Functioning of the EU.
However, the Commission found that, while receiving public aid for this route between Greece and Italy, Adriatica was involved in a price cartel relating to the vehicles carried by the ships between October 1990 and July 1994. Because of this cartel, the Commission considered that the compensation paid for public service obligations in operating this route between January 1992 and July 1994 was incompatible with the internal market.
Therefore, the Commission confirmed in its decision of 2 March 2020 the obligation for Italy to recover the illegal and incompatible aid from Adriatica for the period between 1992 and 1994.
Tirrenia di Navigazione SpA filed a new action before the EU General Court to annul the Commission's decision.
The arguments of Tirrenia di Navigazione SpA
In its appeal, the Italian company raised several legal grounds for annulment:
Infringement of procedural matters in relation to the limitation period for recovering the aid held to be unlawful and incompatible. The Commission's powers to recover aid are subject to a statutory limitation period of 10 years.
Misapplication of State aid rules, misclassification of the aid as new, unlawfulness of the decision declaring the State aid as new and incompatible, and failure to fulfil the obligation to state reasons and observe the principle of proportionality.
Infringement of the principles of legal certainty and sound administration regarding the duration of proceedings, and relevance, in this case, of the principle of legitimate expectations.
Assessment of the General Court of the EU
First, the Court of First Instance examined whether the Commission was entitled to recover the aid more than 25 years after it was granted. In this respect, the Court of First Instance held that the limitation period of 10 years from granting the aid had not expired because this period was interrupted several times due to procedural measures taken by the Commission.
Secondly, as regards the qualification of new aid, note that the Commission's control differs depending on whether the aid is considered existing or new. New aid must be notified before it enters into force and can only enter into force after a positive decision by the Commission. Conversely, existing aid is aid which existed before the entry into force of the EEC Treaty (now the Treaty on the Functioning of the EU) or which is time-barred because a period of 10 years has elapsed since it was granted without interruption by a Commission investigation. In this regard, the Court notes that, under the EU State Aid Procedure Regulation 2015/1589, any substantial modification of existing aid amounts to implementing new aid. Such substantial changes include changes to the compensation mechanism for the operation of routes subject to the public service obligation, to the period for which compensation is paid or to the budgetary resources allocated to the financing of public service routes.
Thirdly, according to the Court, the establishment of a cartel for fixing the prices for vehicles using the route between Greece and Italy is not the only reason for the incompatibility of aid with the internal market. In fact, the Commission based its decision on the influence that the Italian company's participation in a cartel had on the compensation for public services granted to the company for the construction of the SGEI. In this respect, the General Court found a contradiction between the cartel’s objective, which is to increase prices for consumers, and, conversely, the objective of the public service obligations, which is to maintain accessible prices for consumers of this service. Consequently, the Court of First Instance held that the Commission had sufficiently substantiated the link between the participation in the cartel and the aid to conclude that the aid was incompatible with the internal market.
Furthermore, the Court of First Instance found that the principle of proportionality had not been infringed because the Commission's request for recovery of the aid did not constitute a fine but was simply the consequence of the incompatibility of that aid with the internal market.
Moreover, with regard to the principles of legal certainty and sound administration, the Court stated that the excessive duration of the procedure was attributable to the Italian authorities, which did not fully cooperate with the Commission by refusing to transfer to it the documents necessary to check the compatibility of the aid with the internal market.
Finally, with its 2005 decision, the Commission had already expressed doubts about the compatibility of the aid with the internal market. Therefore, the Italian company [knew it was likely that the Commission would continue its investigation into the aid granted, which it had already considered illegal in 2005.
This ruling ends a long procedural saga, subject to a possible appeal by Tirrenia to the EU Court of Justice.
It highlights the length of State aid procedures, as this case started almost 25 years ago. However, this length of time does not prevent the recovery of aid granted 30 years ago if the delay is attributable to the State concerned, as confirmed by the EU Court in this case. The question remains as to whether the delay is due to the European Commission, which must respect the principle of reasonable time.
The Court of First Instance also provides clarification on substantial changes to aid that may prevent the application of the 10-year limitation period.
Finally, the Court confirms the principle of legality of public service compensation and the possible impact of a price cartel on the compatibility of such aid. This principle of legality had already been applied with regard to compliance with the rules applicable to public procurement, but not yet with regard to competition law.
Annabelle Lepièce - Partner, Brussels