Case C-519/07, Koninklijke FrieslandCampina

In 1997, the Member States adopted a code of conduct for business taxation, by which they agreed to dismantle progressively specific tax measures categorised as harmful, while the Commission expressed its intention to examine or re-examine, with regard to the rules governing State aid, the tax schemes in force in the Member States.

In the course of that examination, the Commission requested details on a scheme introduced by the Netherlands concerning international financing activities carried on by certain groups of undertakings (the “GFA scheme’).

That scheme permitted undertakings which had been given an individual authorisation for a period of 10 years to establish reserves to cover the risked associated with the exercise of those activities. The scheme was not notified to the Commission prior to its implementation.

In 2000, Koninklijke FrieslandCampina (hereinafter ‘KFC’) submitted a request for GFA authorisation to the Netherlands tax authority. In 2001, the Commission informed the Netherlands of its decision to initiate the procedure laid down in Art. 88(2) EC in respect of the GFA scheme. Subsequently, the Netherlands tax authority informed KFC that it was initiating that procedure. Consequently, KFC’s request for GFA authorisation was suspended. By decision of February 2003, the Commission took the view that that scheme constituted State aid incompatible with the common market. On 21 August 2003, the Netherlands tax authority rejected KFC’s request for GFA authorisation on the ground that the Commission had adopted this decision in relation to the GFA scheme.

Before the Court of First Instance, KFC sought the annulment of Art. 2 of the contested decision in so far as it excluded from the transitional scheme for which it provided operators who, at the time of the 11 July 2001 decision, had already lodged a request for GFA authorisation with the Netherlands tax authority but whose request had not yet been determined by that date. The Court of First Instance upheld KFC’s action and annulled Art. 2 of the contested decision.

The Commission appealed, arguing inter alia that the Court of First Instance erred in law by holding that KFC had an interest in bringing proceedings against the contested decision even if it did not meet the conditions laid down in Netherlands law for it to be able to benefit from the GFA scheme, and by finding that KFC was individually concerned by the contested decision.

The Commission furthermore alleged that the Court of First Instance erred in law when it found that the fact that the Commission was unaware of KFC’s existence, of its situation, and that of the other undertakings which found themselves in an identical situation to KFC, was irrelevant for the purposes of determining whether KFC had a legitimate expectation.

Direct and individual concern

The Court first of all held that under Art. 230(4) EC, a natural or legal person might institute proceedings against a decision addressed to another person only if that decision was of direct and individual concern to the former. The Court reiterated that for a person to be directly concerned by a Community measure, that measure must directly affect the legal situation of the individual and leave no discretion to its addressees who were entrusted with the task of Implementing it, such implementation being purely automatic and resulting from Community rules without the application of other intermediate rules (see e.g. Case C‑386/96 P Dreyfus v Commission [1998]).

the Court of First Instance was correct to hold that the contested decision affected KFC directly, since the Netherlands Authorities were obliged, without having any discretion whatsoever in the matter, to reject any pending request for first GFA authorisation, as the undertakings which were not beneficiaries of the GFA scheme at the time of the 11 July 2001 decision could not benefit from the transitional scheme.

As regards the second condition set out in Art. 230 EC, the Court reiterated that the fact that a disputed provision was, by its nature and scope, a provision of general application inasmuch as it applied to the traders concerned in general, did not of itself prevent it being of individual concern to some. However, natural or legal persons might claim that a contested provision was of individual concern to them only if it affected them by reason of certain attributes which were peculiar to them or by reason of circumstances in which they were differentiated from all other persons (Joined cases C-182/03 and C-217/03, Belgium and Forum 187 v Commission, [2007]).

The Court reiterated that, where a contested measure affected a group of persons who were identified or identifiable when that measure was adopted by reason of criteria specific to the members of the group, those persons might be individually concerned by that measure inasmuch as they formed part of a limited class of traders (see e.g. Case 11/82 Piraiki-Patraiki and Others v Commission [1985]).

According to the Court, the Court of First Instance stated correctly that KFC formed part of a closed group of undertakings – and not of an indefinite number of undertakings belonging to the sector concerned – specifically affected by the contested decision.

The Court furthermore held that the Commission had not established that KFC’s action before the Court of First Instance was not capable, through its outcome, of procuring an advantage to KFC. Therefore, the Court of First Instance was correct to find that KFC had an interest in bringing proceedings.


Principle of protection of legitimate expectations

The Court had repeatedly held that the right to rely on the principle of the protection of legitimate expectations extended to any person in a situation where a Community institution had caused him to entertain expectations which were justified by precise assurances provided to him. However, if a prudent and alert economic operator could have foreseen the adoption of a Community measure likely to affect his interests, he could not plead that principle if the measure was adopted .

The Court of Justice pointed out that even if, as KFC claims, the inspector was required to grant GFA authorisation to any taxpayer who made a request and satisfied the statutory conditions necessary to benefit from it, it was nevertheless true that Netherlands law required the adoption of a decision by the inspector – after ascertaining that the taxpayer satisfied those statutory conditions – which could itself, moreover, be subject to conditions.

Furthermore, KFC had never referred specifically to investments already made or to commitments already undertook. It was clear, on the contrary, from the position it adopted before the Court of First Instance, as summarized in paragraph 51 of the judgment under appeal, that “if the Commission had not adopted the contested decision, it [KFC] could have increased, from 2000, its risk reserved before the definitive tax assessment was established.” Likewise, KFC referred to decisions which it could have adopted in relation to risk reserved and the location of the seat of the financing company.

According to the Court of Justice, those various elements showed that KFC challenged the fact of not being able to benefit, in the future, from the advantage of GFA authorisation. Such a situation was different to that of beneficiaries of GFA authorisation which, if the transitional measures had not been adopted, would have suffered losses owing to investments made and commitments undertaken in the past, at a time when the legality of the tax scheme in question had not been in doubt.

Consequently, by holding that the Commission had infringed the principle of protection of legitimate expectations by not allowing KFC to benefit from the transitional scheme provided for by the contested decision, the Court of First Instance erred in law.


Principle of equal treatment

The Court of Justice furthermore reiterated that a breach of the general Community law principle of equal treatment arose through the application of different rules to comparable situations or the application of the same rule to different situations (see, inter alia, Case C‑390/96 Lease Plan [1998], and Case C‑156/98 Germany v Commission [2000]).

In the present case, it was common ground that the Commission treated differently, in the contested decision, those undertakings benefiting from the GFA scheme and those undertakings whose requests for first GFA authorisation were pending on the date of that decision, by granting a transitional scheme to the former and not to the latter. According to the Court of Justice, that difference of treatment was justified, as the criterion which established the difference describes objectively different situations regarding those two categories of undertakings.

Therefore, by holding that in the contested decision the Commission had infringed the principle of equal treatment by not allowing KFC to benefit from the transitional scheme on the ground that, in so doing, the Commission had treated individuals in a similar situation differently in respect of the legitimate expectation which they could have had in the granting of a reasonable transitional period, the Court of First Instance erred in law.

According to the Court of Justice, the state of proceedings did not permit the Court to give final judgment under Article 61(1) of the Statute of the Court of Justice. It therefore decided to refer the matter back to the Court of First Instance.

Text of Judgment

Case C‑196/08, Acoset

This reference for a preliminary ruling concerned the legal regime governing public-private partnership arrangements in the context of the management of public services. As is well known, the direct attribution of the management of public services to a semi-public company is contrary to Community law if the requirements of the directives on public procurement are not satisfied.

As pointed out by the Advocate General to this case, this case had “a specific characteristic which set it apart from other procurement procedures which the Court of Justice had ruled unlawful to date”. On the one hand, this case concerned the direct award of the integrated management of a water service to an entity in which both public and private interests converge. On the other hand, this was preceded by a call for tenders, albeit one whose traditional function appeared to have altered.

In the present case, the selection of the contractor or concession holder had been transformed into a method for deciding on a private participant for the commercial company which assumed responsibility for the contract or concession, the role of that participant entailing, in addition to a financial outlay, the provision of the service.

The case concerned a cooperation agreement by which the Provincia Regionale di Ragusa (pictured) and its municipal councils established the “Ambito Territoriale Ottimale” (Optimal Territorial Ambit) for water, the main purpose of which was to provide the management of the “Servizio Idrico Integrato” (Integrated Water Service).

Two years later, the Conferredenza dei Sindaci e del Presidente della Provincia Regionale di Ragusa (Conferredence of Mayors and of the President of the Province) entrusted the management of the integrated water service to a “semi-public company with share capital which was predominantly publicly owned’. One year later, it approved the draft deed of incorporation of the company and its Arts of association, which confirmed that the company had a single corporate purpose.

A contract notice was published in the Official Journal in order to select an undertaking as the private minority participant to which the operation of the service and execution of the related works would be entrusted. Three temporary groups of undertakings took part in the competition: Saceccav Depurazioni Sacede SpA, Acoset SpA and Aqualia SpA. The contracting authority excluded Aqualia SpA and admitted the others to the tendering procedure, but after it had invited them to indicate if they were still interested, only Acoset SpA answered in the affirmative.

However, on February 26, 2007, the process for cancelling the tendering procedure was commenced on the grounds that it might be contrary to Community law. After hearing the relevant submissions, the Conferredence of Mayors and of the President of the Province finally cancelled the procedure by act of October 2, 2007, which also adopted the consortium as management model.

Acoset SpA brought an action contesting that administrative act and the previous acts which had given rise to it, claiming that it was entitled to be awarded the contract or to receive compensation for damage, and requesting the interim suspension of the contested acts.

By its question, the referring court asked, in essence, whether Arts 43 EC, 49 EC and 86 EC precluded the direct award of a public service which entailed the prior execution of certain works, such as the service at issue in the main proceedings, to a semi-public company formed specifically for the purpose of providing that service and possessing a single corporate purpose, the private participant in the company being selected by means of a public and open procedure, after verification of the financial, technical, operational and management requirements specific to the service to be performed and of the characteristics of the tender with regard to the particular services to be provided.

The Court noted, first, that the direct award of a local public service for the integrated management of water, such as that at issue in the main proceedings, might fall, depending on the specific details of the consideration for that service, within the definition of “public service contracts” or “service concession” within the meaning of Art. 1(2)(d) and Art. 1(4) of Directive 2004/18 respectively or, as the case might be, Art. 1(2)(d) and Art. 1(3)(b) respectively of Directive 2004/17, Art. 4(1)(a) of which provided that that directive was to apply to the provision or operation of fixed networks intended to provide a service to the public in connection with the production, transport or distribution of drinking water or the supply of drinking water to such networks.

The Court reiterated that the question whether such an operation was to be classed as a “service concession” or a “public services contract” must be considered exclusively in the light of Community law. The difference between a service contract and a service concession lies in the consideration for the provision of services. A public service contract within the meaning of Directives 2004/18 and 2004/17 involved consideration which was paid directly by the contracting authority to the service provider. A service concession was present where the agreed method of remuneration consisted in the right to exploit the service and the provider took the risk of operating the services in question (see, inter alia, Case C‑458/03 Parking Brixen [2005], Case C‑382/05, Commission v Italy [2007], and Case C‑206/08, WAZV Gotha [2009]).

The Court held that notwithstanding the fact that public service concession contracts were excluded from the scope of Directives 2004/18 and 2004/17, the public authorities concluding them were, none the less, bound to comply with the fundamental rules of the EC Treaty, in general, and the principle of non-discrimination on the ground of nationality, in particular (see also Case C-324/07, Codital Brabant [2008], on which I wrote this post).

Besides the principle of non-discrimination on the ground of nationality, the principle of equal treatment as between tenderers was also to be applied to public service concessions, even in the absence of discrimination on grounds of nationality. The Court furthermore reiterated that it followed from Art. 86(1) EC that the Member States must not maintain in force national legislation which permitted the award of public service concessions without their being put out to competition, since such an award infringed Art. 43 EC or 49 EC or the principles of equal treatment, non-discrimination and transparency (see Case C‑410/04 ANAV [2006], on which I wrote this post).

However, the application of the rules set out in Arts 12 EC, 43 EC and 49 EC, as well as the general principles of which they were the specific expression, was excluded if the control exercised over the concessionaire by the concession-granting public authority was comparable to that which the authority exercises over its own departments and if, at the same time, that entity carried out the essential part of its activities with the controlling authority. In such a case, an invitation to tender was not mandatory, even if the other party to the contract was an entity that was legally distinct from the contracting authority.

The Court held that where a private undertaking had a holding, even a minority holding, in the capital of a company in which the contracting authority in question also had a holding, it was impossible for that contracting authority to exercise over that company control comparable to that which it exercises over its own departments.

The award of a public contract to a semi-public company without a call for tenders would interfered with the objective of free and undistorted competition and the principle of equal treatment, in that such a procedure would offer a private undertaking with a capital holding in that company an advantage over its competitors (See Case C‑29/04 Commission v Austria [2005]).

Furthermore, the fact that a private entity and a contracting entity co-operated within a semi-private entity could not serve as justification for the contracting entity not having to comply with the legal provisions on concessions when assigning concessions to that private entity or to the respective semi-private entity.

However, according to the Court, it was difficult to reconcile the use of a double competitive tendering procedure with the aim of reducing procedural formalities which underlay institutionalised public‑private partnerships, such as that at issue in the main proceedings, whose establishment involved the use of the same procedure both to select the private economic participant and to award concessions to the public‑private entity to be formed for that sole purpose.

The Court held that while the absence of a competitive tendering procedure in connection with the award of services would appear to be irreconcilable with Arts 43 EC and 49 EC and with the principles of equal treatment and non‑discrimination, that situation might be rectified by selecting the private participant in accordance with the requirements set out above and choosing appropriate criteria for the selection of the private participant, since the tenderers must provided evidence not only of their capacity to become a shareholder but, primarily, of their technical capacity to provide the service and the economic and other advantages which their tender brought.

In so far as the criteria for the selection of the private participant were based not only on its capital contribution but also the participant’s technical capacity and the characteristics of its tender with regard to the particular services to be provided and, as in the case in the main proceedings, the participant was entrusted with the operation of the service in question and thus with the management of the service, the selection of the concessionaire could be regarded as an indirect result of the selection of that participant which was made at the conclusion of a procedure conducted in accordance with the principles of Community law, so that a second competitive tendering procedure for the selection of the concessionaire was unnecessary.

The Court concluded that the use in such a situation of a double procedure for, first, the selection of the private participant in the semi‑private company and, second, the award of the concession to that company, would be liable to deter private entities and public authorities from forming institutionalised public‑private partnerships, such as that in question in the main proceedings, on account of the length of time involved in implementing such procedures and the legal uncertainty attaching to the award of the concession to the previously selected private participant.

The Court added a company with share capital with mixed public and private ownership, such as that in question in the main proceedings, must retained the same corporate purpose throughout the duration of concession and it would be necessary, if there was any material amendment to the contract, to launch a new competitive tendering procedure (see Case C‑454/06 pressetext Nachrichtenagentur [2008]).

The Court therefore found that Arts 43 EC, 49 EC and 86 EC did not preclude the direct award of a public service such as that at issue in the main proceedings, provided that the tendering procedure in question was consistedent with the principles of free competition, transparency and equal treatment laid down by the Treaty with regard to concessions.

Text of Judgment

Cases referred to in this case which have been discussed on this blog:
- Case C‑410/04 ANAV [2006]
- Case C‑324/07 Coditel Brabant [2008]