State aid and outdoor advertising: the Zwolle vs JCDecaux case

Zwolle JCDecaux

The municipality of Zwolle (Municipality) is of the opinion that outdoor advertising giant JCDecaux pays too little for the concession to exploit advertising objects in the outdoor space in Zwolle. In its interlocutory judgements of March 14, 2018 and July 18, 2018 (both in Dutch only), the District Court of Overijssel (Court) addresses the question whether JCDecaux may have received unlawful State aid and, if so, what this means for the existence of the concession.

The case

State aid

First of all, the Court notes that according to Article 107, paragraph 1, TFEU, State aid is involved if (i) an undertaking receives a (ii) selective advantage, which is (iii) provided by the State or is financed through State resources, thereby (iv) distorting competition and (v) affecting trade between Member States.

Next, the Court states that the present case revolves around the question whether JCDecaux has received and continues to receive an advantage (element ii). JCDecaux had argued in this context that with its acquisition of Wall Nederland (Wall), the predecessor of the contract, any advantage had been passed on to the shareholders of Wall. After all, the return on the contract between the Municipality and Wall was discounted in the purchase price that JCDecaux paid. The Court rejects this defense, because JCDecaux (as successor of Wall) is the prime beneficiary of the alleged State aid. The possible retention of the alleged advantage is not considered relevant.

Because of the different opinions of the parties involved, the Court does not consider itself able to determine whether JCDecaux has indeed received an advantage and, if so, to which amount. Therefore, an expert is assigned. In anticipation of the expert’s report, a number of other issues are already dealt with. In this respect, the Court presumes for argument sake that JCDecaux has received unlawful State aid.

Appropriate measures and the principle of legitimate expectation

The Court points out that the Municipality is obliged to take appropriate measures in order to eliminate the consequences of unlawful aid. Contrary to what JCDecaux had stated, the Municipality is under no obligation to consult the Commission first. Nor does the Municipality violate the principle of legitimate expectations with its recovery action. With reference to the Alcan judgement (recital 25) of the European Court of Justice (ECJ), the Court states that a diligent undertaking is supposed to make sure that the aid is granted in accordance with the applicable European law.

Nullity contract and conversion

The Municipality argued that the contract concluded with JCDecaux is partially null and void. This was disputed by JCDecaux. With reference to the Residex judgement (recitals 46-48) of the ECJ, the Court states that there is no obligation to declare an agreement containing unlawful State aid null and void in full. The situation prior to the granting of State aid may also be restored by requiring the beneficiary to repay the advantage enjoyed with interest. The Court considers this to be less onerous in the present case than the integral nullity advocated by JCDecaux.

The foregoing means that the disputed contract can be partially annulled in accordance with Article 3:40, paragraph 2 of the Dutch Civil Code. The provisions thus declared null and void can subsequently be converted into valid provisions on the basis of Article 3:42 of the Dutch Civil Code by incorporating a market-based fee. According to the Court, the null and void provisions have never been legally valid. Instead, the converted provisions will have applied from the moment of entering into the contract.

Limitation period of the claims of the Municipality

Since the concession fee was owed annually, the five year limitation period with regard to the converted market-based payments started in accordance with Article 3:308 of the Dutch Civil Code after the expiration of each calendar year. Now that the Municipality has interrupted the limitation period of the annual claims for the first time in 2017, the possible claim of the Municipality is partly time-barred. The Municipality’s argument that the application of this Dutch limitation rule is in conflict with EU law, is rejected by the Court.

Comments

The average market operator will rub his eyes in disbelief that the government can reconsider contracts just like that. But it is not the first time this happens in the Netherlands. Undertakings therefore do well not to lose sight of the State aid rules when entering into agreements with the government. They are in fact required to check whether the State aid rules are properly complied with. As a consequence they are usually not protected by the principle of legitimate expectations.

It is also striking that the Court is not prepared to verify whether the shareholders of Wall have retained the alleged advantage. The question is whether this is justified. According to the Germany v Commission judgement, unlawful State aid must be repaid by the beneficiary, i.e. by the undertaking which actually benefited from it (recitals 75). It follows, inter alia, from the Italy v Commission judgement that a party buying the shares of an undertaking which has received unlawful State aid may be regarded as the beneficiary if there is ‘economic continuity‘ between the two undertakings. One of the factors involved is the sale price. When the shares are purchased at market value, the seller may have retained the illegally obtained advantage (recitals 78 and 83). Therefore, if applicable, it is the seller who must repay the benefits. In this way, the competitive situation prior to the granting of the aid is restored. And that is, according to the Residex judgment, the purpose of recovery (recital 34).

Finally, it is also remarkable that the Court does not need many words to consider the limitation period of 5 years for periodic claims stipulated by Article 3: 308 of the Dutch Civil Code to be in accordance with EU law. Under Article 17 of Reg. 2015/1589, the Commission’s powers to recover aid become time-barred after a ten-year period. This period starts to run from the moment the State aid is granted. It is not clear why in the interim judgment no attention is paid to this.

* The picture below the title depicts the Broerenkerkplein in Zwolle

door | 17 augustus 2018 | Staatssteun

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