Case C‑290/07 P, Commission v. Scott SA

By its appeal, the Commission of the European Communities requested the Court of Justice to set aside the judgment of 29 March 2007 in Case T366/00 Scott v Commission [2007] . By that judgement, the General Court had annulled Art. 2 of Commission Decision 2002/14/EC of 12 July 2000 on the State aid granted by France to Scott Paper SA/Kimberly-Clark.

The state aid concerned was aid granted in the form of a preferential price for developed land. Scott Paper Company was an American company engaged in the manufacture of paper for sanitary and household used. The land in question had been sold to Sempel, for the nominal figure of FRF 1, by the City of Orléans (pictured), which had itself acquired the land earlier through three transactions: 30 hectares in 1975, 32.5 hectares in 1984 and 5.5 hectares in 1987. The City of Orléans and the departément of Le Loiret undertook to cover the costs of developing the site up to a maximum of FRF 80 million.

At the end of 1987, Sempel sold Scott a parcel of the developed land – 48 hectares out of the 68 hectares available – for the sum of FRF 31 million (approximately EUR 4.7 million), in accordance with an agreement concluded on 31 August 1987 between the City of Orléans, the departément of Le Loiret and Scott.

That sale was not notified to the Commission under the rules on State aid.

In January 1996, Scott’s shares were purchased by Kimberly-Clark Corp, which announced the closure of the manufacturing plant in January 1998. The plant’s asset – namely, the site and its improvements – were purchased by Procter & Gamble in June 1998.

Following a report by the French Cour des comptes (Court of Auditors) for 1996 which commented on the sale of the parcel of land to Scott, the Commission received a complaint. In May 1998, it decided to initiate the procedure provided for under Art. 88(2) EC, which led to the adoption of the contested decision.

The contested decision, as amended by the corrigendum of 2 March 2001, declared incompatible with the common market the State aid implemented in favour of Scott in the form of a preferential purchase price for 48 hectares of land – worth an amount assessed at FRF 39.588 million (approximately EUR 6.03 million) or, at present-day values, FRF 80.77 million (EUR 12.3 million) – and the application of the water treatment levy at a preferential rate, the value of which was to be determined by the French authorities.

Art. 2 of that decision required repayment of the amount already unlawfully made available in that way.

By the appeal, the Commission claimed that the Court should set aside the judgment under appeal and gave judgment on the matters subject to appeal, or, for any matter for which it considered that the state of the proceedings did not permit it to give judgment, to refer the case back to the General Court for a decision.

The Commission inter alia took issue with the fact that the General Court held that, for the purposes of assessing the value of the land at issue and its improvements, the Commission was wrong in choosing the costs-based method used by the French authorities and that it had thereby acted in breach of its obligation to examine the facts of the case impartially and diligently.

According to the Commission, however, given the absence, at the date of the grant of the aid in question, of any valuation of that land or of the organisation of a public call for tenders, it was justified in using such a method.

Broad discretion Commission
The Court stressed that in the area of State aid, the Commission enjoyed a broad discretion the exercise of which involved economic assessments which must be made in a European Union context, that did not imply that the European Union judicature must refrain from reviewing the Commission’s interpretation of economic data.

According to the case-law of the Court, not only must the European Union judicature, inter alia, establish whether the evidence relied on was factually accurate, reliable and consistent but also whether that evidence contained all the relevant information which must be taken into account in order to assess a complex situation and whether it was capable of substantiating the conclusions drew from it (Case C12/03 P Commission v Tetra Laval [2005] and Case C-346/06, Ruffert [2008], on which I wrote this post).

However, when conducting such a review, the European Union judicature must not substitute its own economic assessment for that of the Commission (Case C‑525/04 P Spain v Lenzing [2007]).

The review by the European Union judicature of the complex economic assessments made by the Commission was necessarily limited and confined to verifying whether the rules on procedure and on the statement of reasons had been complied with, whether the facts had been accurately stated and whether there had been any manifest error of assessment or misuse of powers (see Joined Cases C501/06 P, C513/06 P, C515/06 P and C519/06 P GlaxoSmithKline Services and Others v Commission and Others [2009]).

With regard to the choice of the costs-based method and the assessment of the market value of the undeveloped land at issue, the Court stressed that the use of an independent expert was a method by which an assessment of the market value of land could be obtained.

By applying that method, the Commission arrived at a market value for the undeveloped land at issue – FRF 10.9 million – which roughly tallied with the information produced by the French authorities during the administrative procedure. The Commission had no compelling reason to doubt the reliability of that information. According to the Court, it was entirely legitimate for the Commission to prefer to rely on the information provided by the French authorities.

With regard to the assessment of the market value of the improvements carried out on the land at issue, the Court held that the Commission could not be criticized for not requesting clarification from Scott on that point, in so far as a link between the extension of the surface area of the factory and the cost overrun could readily be inferred.

The Court concluded that in so far as the General Court did not demonstrate that the Commission had made a manifest error of assessment in the determination of the market value of the land at issue and its improvements, it had exceeded its jurisdiction by holding that, on the facts, the Commission had, in its examination of the market value of the land at issue, acted in breach of its duty to exercise due diligence.

The Court reiterated that the Commission was required, in the interests of sound administration of the fundamental rules of the EC Treaty relating to State aid, to conduct a diligent and impartial examination of the contested measures, so that it had at its disposal, when adopting the final decision, the most complete and reliable information possible for that purpose (Case C367/95 P Commission v Sytraval and Brinks France [1998]).

According to the Court, it should also be borne in mind that the lawfulness of a decision concerning State aid fell to be assessed by the European Union judicature in the light of the information available to the Commission at the time when the decision was adopted (Case C390/06 Nuova Agricast [2008]).

The Court found that the General Court had erred in law in holding that, on the basis of the evidence available to it when it adopted the contested decision, the Commission had acted in breach of its duty to exercise due diligence for the simple reason that the Commission had not requested either Scott or the French authorities to produce the valuations of the land at issue to which they referred merely in order to call in question the valuation used by the Commission and that it had not reopened the investigation procedure.