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Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> LC MANAGEMENT SERVICES (SCOTLAND) LTD (2) LC MANAGEMENT SERVICES (SCOTLAND) LTD AS ASSIGNEE OF LC SERVICES (SCOTLAND) LTD AGAINST (1) THE SCOTTISH MINISTERS, (2) HIGHLANDS AND ISLANDS ENTERPRISE [2019] ScotCS CSOH_72 (25 September 2019)
URL: http://www.bailii.org/scot/cases/ScotCS/2019/2019_CSOH_72.html
Cite as: [2019] CSOH 72, [2019] ScotCS CSOH_72, 2019 SLT 1210, 2019 GWD 32-499
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OUTER HOUSE, COURT OF SESSION
[2019] CSOH 72
CA47/15
OPINION OF LORD ERICHT
In the cause
(1) LC MANAGEMENT SERVICES (SCOTLAND) LIMITED
(2) LC MANAGEMENT SERVICES (SCOTLAND) LIMITED as assignee of
LC SERVICES (SCOTLAND) LIMITED
Pursuers
against
(1) THE SCOTTISH MINISTERS
(2) HIGHLANDS AND ISLANDS ENTERPRISE
Defenders
Pursuers: O’Neill QC, Welsh; Balfour +Manson LLP
First Defender: Johnston QC; O’Neill, sol adv; Scottish Government
Second Defender: M Ross QC; E Campbell; Dentons UK
25 September 2019
Introduction
[1] The Nigg Yard, also known as the Nigg Energy Park, consists of land reclaimed from
Nigg Bay. It has been used for fabrication and for a variety of oil and gas energy related
services such as repair of drilling rigs. In 2011 part of the yard was purchased for
commercial re-development by a company within the Global Energy group of companies.
Page 2 ⇓
2
Various public bodies had involvement with the re-development and various awards were
made.
[2] The pursuers maintain that these awards included unlawful state aid. They aver that
they were a competitor to the company which was the beneficiary of unlawful state aid.
They raised an action against the Scottish Ministers and Highlands and Islands Enterprise,
claiming that the awards were unlawful in that they were in breach of European Union State
Aid Law.
[3] The pursuers conclusions were as follows:
“1. For declarator that the awards by the defenders of financial aid to
undertakings within the group companies owned by Global Energy Holdings
Limited between October 2011 and May 2014 were unlawful in that they were
awarded in breach of Articles 107 and 108(3) of the Treaty on the Functioning
of the European Union, of provisions of European Commission Regulation
(EU) No 651/2014 and of the European Commission’s Guidelines on National
Regional Aid for 2007-2013.
2. For recovery of the unlawful aid in the amount as determined by the Court in
terms of the Commission Notice on the Enforcement of State Aid law by
National Courts ([2009] OJC 85/01).
3. For recovery of illegal interest relating to the unlawful aid in the amount as
determined by the Court in terms of the Commission Notice on the
Enforcement of State Aid law by National Courts ([2009] OJC 85/01).
4. For payment by the defenders to the pursuers by way of damages of the sum
of TWENTY FIVE MILLION POUNDS STERLING (£25,000,000) with interest
thereon at the rate of eight per cent per annum from the date of citation until
payment.
5. For such other order as to the court appears appropriate.
6. For the expenses of the action.”
[4] The pursuers’ pleas in law were as follows:
“1. The Defenders, being in breach of Articles 107 and 108(3) of the Treaty on the
Functioning of the European Union, Commission Regulation (EC)
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3
No 800/2008, Commission Regulation (EC) No 651/2014, the Framework on
State Aid to Shipbuilding (2003/C 317/06) and the European Commission’s
Guidelines on National Regional Aid for 2007-2013, declarator should be
pronounced as first concluded for.
2. The Defenders, being in breach of Articles 107 and 108(3) of the Treaty on the
Functioning of the European Union, Commission Regulation (EC)
No 800/2008, Commission Regulation (EC) No 651/2014, the Framework on
State Aid to Shipbuilding (2003/C 317/06) and the European Commission’s
Guidelines on National Regional Aid for 2007-2013, recovery should be
pronounced as second and third concluded for.
3. The Defenders, being in breach of Article 108(3) of the Treaty on the
Functioning of the European Union and the Pursuers having suffered loss
and damage thereby, are liable to the Pursuers in damages under European
Union Law.
4. The sum sued for being a reasonable estimate of the Pursuers’ loss and
damage, decree therefor should be pronounced as fourth concluded for.”
[5] The action came before me for debate on the first and second defenders’ pleas to the
relevancy and competency. The debate was led by the second defenders, with the first
defenders adopting the second defender’s submissions and making separate submissions on
certain matters.
[6] In this opinion I shall first set out the relevant provisions of EU State Aid Law. I
shall then consider what is the relevant minimum threshold applicable under EU State Aid
Law. Thereafter I will consider whether the pleadings of the pursuers disclose that the
minimum threshold has been reached in this case. I shall then consider the relevance of the
pursuers’ averments on market failure. Finally I shall go on to consider various other
matters.
European Union State Aid Law
[7] Article 107 of the treaty on the functioning of the European Union 2012/C326/01
provides:
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4
“1. Save as otherwise provided in the Treaties, any aid granted by a Member
State or through State resources in any form whatsoever which distorts or
threatens to distort competition by favouring certain undertakings or the
production of certain goods shall, in so far as it affects trade between Member
States, be incompatible with the internal market.
…
3. The following may be considered to be compatible with the internal market:
…
(c) aid to facilitate the development of certain economic activities or of
certain economic areas, where such aid does not adversely affect
trading conditions to an extent contrary to the common interest…”
[8] Article 108 provides:
“1. The Commission shall, in cooperation with Member States, keep under
constant review all systems of aid existing in those States. It shall propose to
the latter any appropriate measures required by the progressive development
or by the functioning of the internal market.
2. If, after giving notice to the parties concerned to submit their comments, the
Commission finds that aid granted by a State or through State resources is not
compatible with the internal market having regard to Article 107, or that such
aid is being misused, it shall decide that the State concerned shall abolish or
alter such aid within a period of time to be determined by the Commission.
…
3. The Commission shall be informed, in sufficient time to enable it to submit its
comments, of any plans to grant or alter aid. If it considers that any such plan
is not compatible with the internal market having regard to Article 107, it
shall without delay initiate the procedure provided for in paragraph 2. The
Member State concerned shall not put its proposed measures into effect until
this procedure has resulted in a final decision.
4. The Commission may adopt regulations relating to the categories of State aid
that the Council has, pursuant to Article 109, determined may be exempted
from the procedure provided for by paragraph 3 of this Article.”
[9] European State Aid Law includes a system of block exemption whereby aid below
certain thresholds is compatible with the internal market under Article 107 of the Treaty and
exempt from the notification requirement under Article 108.
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5
[10] Article 109 provides:
“The Council, on a proposal from the Commission and after consulting the European
Parliament, may make any appropriate regulations for the application of Articles 107
and 108 and may in particular determine the conditions in which Article 108(3) shall
apply and the categories of aid exempted from this procedure.”
[11] One such regulation is Commission Regulation EC number 800-2018, the “General
Block Exemption Regulation (“GBER”). The full title of GBER is:
“COMMISSION REGULATION (EC) No 800/2008 of 6 August 2008 declaring certain
categories of aid compatible with the common market in application of Articles [107]
and [108] of the Treaty (General block exemption Regulation)”
[12] The recitals to GBER explain that the Commission had powers to declare that certain
regional aid was compatible with the common market and not notifiable under Article 108(3)
(Recital (1)). They also explain that the Commission now had sufficient experience in
applying Articles 107 and 108 to simplify and ensure more efficient monitoring of aid by the
Commission by replacing various regulations with a single regulation (Recitals (2) to (4)).
They further explain the purpose of a system of financial thresholds above which the block
exemption does not apply:
“(23)
Due to the higher risk of distortion of competition, large amounts of aid
should continue to be assessed by the Commission on an individual basis.
Thresholds should therefore be set for each category of aid within the scope
of this Regulation, at a level which takes into account the category of aid
concerned and its likely effects on competition. Any aid granted above those
thresholds remains subject to the notification requirement of article 88(3) of
the Treaty.”
[13] Article 3 of GBER provides that aid which meets the requirements of GBER has a
twofold effect. It:
“shall be compatible with the common market within the meaning of Article [107(3)]
of the Treaty and shall be exempt from the notification requirement of
Article [108(3)]”.
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6
So the two fold effect of article 3 of GBER is that:
(1) the aid is compatible with the internal market and Article 107 is not breached;
and
(2) the aid does not required to be notified under Article 108.
[14] Article 6 of GBER sets out various notification thresholds which apply to various
types of aid. In relation to regional investment aid, which is the type of aid relevant to the
current action, it states:
“Individual notification thresholds
...
2. Regional investment aid awarded in favour of large investment projects shall
be notified to the Commission if the total amount of aid from all sources
exceeds 75% of the maximum amount of aid an investment with eligible costs
of EUR 100 million could receive, applying the standard aid threshold in
force for large enterprises in the approved regional aid map on the date the
aid is to be granted.”
[15] Article 7 provides for different forms of aid to be cumulated in order to assess
whether the threshold has been reached:
“1. In determining whether the individual notification thresholds laid down in
Article 6 and the maximum aid intensities laid down in Chapter II are
respected, the total amount of public support measures for the aided activity
or project shall be taken into account, regardless of whether that support is
financed from local, regional, national or Community sources.
2. Aid exempted by this Regulation may be cumulated with any other aid
exempted under this Regulation as long as those aid measures concern
different identifiable eligible costs.”
[16] The European Commission has issued guidelines in respect of regional aid, which
include specific guidelines in respect of large investment projects. The guidelines in force at
the relevant time were the Guidelines on National Regional Aid for 2007-13 (2006/C 54/08) (the
“RAGs”), which included the following provisions:
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7
“4.3. Aid for large investment projects
60.
...
4.3.1
For the purpose of these guidelines, a ‘large investment project’ is an ‘initial
investment’ as defined by these guidelines with an eligible expenditure above
EUR 50 million. In order to prevent that a large investment project being
artificially divided into sub-projects in order to escape the provisions of these
guidelines, a large investment project will be considered to be a single
investment project when the initial investment is undertaken in a period of
three years by one or more companies and consists of fixed assets combined
in an economically indivisible way.
Increased transparency and monitoring of large investment projects
64. Member States are required to notify individually to the Commission any aid
to be awarded to investment projects under an existing aid scheme if the aid
proposed from all sources is more than the maximum allowable amount of
aid that an investment with eligible expenditure EUR100 million can receive
under the scale and the rules laid down in paragraph 67.
The notification thresholds for different regions with the most commonly
encountered aid intensities under these guidelines are summarised in the
table below.
Aid intensity
Notification
threshold
10%
EUR
7,5
million
15%
EUR
11,25
million
20%
EUR
15,0
million
30%
EUR
22,5
million
40%
EUR
30,0
million
50%
EUR
37,5
million
...
4.3.2 Rules for the assessment of large investment projects
67. Regional investment aid for large investment projects is subject to an adjusted
regional aid ceiling, on the basis of the following scale:
Eligible expenditure
Adjusted aid ceiling
Up to EUR 50 million
For the part between EUR 50 million and
EUR 100 million
For the part exceeding EUR 100 million
100 % of regional ceiling
50% of regional ceiling
34% of regional ceiling
Thus the allowable aid amount for a large investment project will be
calculated according to the following formula: maximum aid amount = R x
(50 + 0,50 x B + 0,34 x C), where R is the unadjusted regional aid ceiling, B is
the eligible expenditure between EUR 50 million and EUR 100 million, and
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8
C is the eligible expenditure about EUR 100 million. This is calculated on the
basis of the official exchange rates prevailing on the date of the grant of aid,
or in the case of aid subject to individual notification, on the date of
notification.
68. Where the total amount of aid from all sources exceeds 75% of the maximum
amount of aid an investment with eligible expenditure of EUR 100 million
could receive, applying the standard aid ceiling in force for large enterprises
in the approved regional aid map on the date the aid is to be granted, and
where
(a) the aid beneficiary accounts for more than 25% of the sales of the
product(s) concerned on the market(s) concerned before the
investment or will account for more than 25% after the investment, or
(b) the production capacity created by the project is more than 5% of the
market measured using apparent consumption data for the product
concerned, unless the average annual growth rate of its apparent
consumption over the last five years is above the average annual
growth rate of the European Economic Area’s GDP.
the Commission will approve regional investment aid only after a detailed
verification, following the opening of the procedure provided for in
Article 108(2) of the Treaty, that the aid is necessary to provide an incentive
effect for the investment and that the benefits of the aid measure outweigh
the resulting distortion of competition and effect on trade between Member
States.”
What is the relevant minimum threshold applicable under EU State Aid Law?
Second defender’s submissions
[17] Counsel for the second defender submitted that the notification threshold was €15
million. This was calculated by the formula set out in paragraph 67 of the RAGs. The
application of that formula results in a threshold of €15 million. That had been accepted by
the pursuers in their original pleadings but the pursuers had adjusted and now maintain
that the threshold is €11.25 million. Counsel submitted that the effect of paragraph 68 was
not to create a lower threshold, but must be read separately and provides for what is to
happen when the aid is over the threshold and either of conditions (a) or (b) is met. She
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9
submitted that the second defender’s reading was supported by paragraphs 6, 7 and 8 of the
Communication from the Commission 2009/C-223/02.
Submissions for the pursuers
[18] Counsel for the pursuers submitted that the ceiling for allowable aid was as set out in
paragraph 67 of the 2016 guidelines and amounted to €15 million. However, the threshold
for notification under Article 6(2) of GBER was 75% of that ceiling paragraph 67 figure, that
is €11.25 million. You would expect the notification hurdle to be set below the ceiling.
Paragraph 68 says that if there is market concentration in a large investment project, the
notification at €11.25 million will also trigger a detailed enhanced verification process.
Counsel submitted that the distinction between notification and assessment was made clear
in case T-671-14 BMW v Commission ECLI: EU: T: 2017: 599, and also referred to case T-304/8
Smurfit Kappa Group v Commission EU: T: 2012: 351.
Discussion and decision
[19] State aid is in principle unlawful as it is incompatible with the internal market
(Article 107(1)). However, there are some exceptions to this principle set out in Article 107.
Some types of state aid are expressly stated to be compatible with the internal market: these
include, for example, aid of a social character, or to make good the damage caused by
national disasters, or certain aid relating to the re-unification of Germany (Article 107(2)).
Other types of state aid such as regional investment aid “may be” compatible with the
internal market where such aid does not adversely affect trading conditions to an extent
contrary to the common interest (Article 107(3)).
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10
[20] The assessment of whether regional investment aid is indeed compatible with the
internal market involves a balancing of the potentially positive effects of the aid against the
potentially negative effects of the aid. Article 108 provides for a procedure which gives the
Commission an opportunity to undertake such an assessment. Article 108 also provides for
a system of block exemptions from Article 108. The system of block exemptions benefits
both the member state and the Commission. The member state knows that if the state aid
falls within the exemption it is lawful. The Commission does not require to expend its
resources assessing every award of state aid but instead can concentrate its resources on the
cases which involve a higher risk of distortion of competition.
[21] It was a matter of agreement that the applicable category of aid in this particular case
was regional aid awarded in favour of large investment projects. Article 6(2) of GBER, read
short, provides that this category of aid requires to be notified to the Commission if the
total amount of aid exceeds 75% of the maximum amount of aid an investment with eligible
costs of €100 million could achieve, applying the standard aid threshold in the approved
regional map. This gives an adjusted notification threshold which is 75% of the normal
threshold. This affords the Commission the opportunity to scrutinise awards which are
close to the normal threshold.
[22] In order to calculate the normal threshold it is necessary to know the aid intensity
specified in the regional map. It was a matter of agreement that the correct aid intensity
applicable in this case was 20%. To calculate the maximum aid an investment with costs of
€100 million could achieve, the aid intensity of 20% is applied to the costs. 20% of €100
million is €20 million. This gives a normal threshold of €20 million.
[23] However, as we have seen, under Article 6(2) of GBER the notification threshold for
regional investment aid for large investment projects is 75% of the normal threshold. 75% of
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11
€20 million is €15 million. So the notification threshold in respect of aid at Nigg Energy Park
was €15 million.
[24] The RAGs provide a useful cross check of this figure which confirms that the
threshold was €15 million. In paragraph 65 the Commission has calculated the normal
notification threshold for certain common aid intensities and set these out in a table.
Conveniently for present purposes, it happens to have calculated the normal notification
threshold for the aid intensity relevant to this case, ie 20%. The Commission’s calculation
confirms that the normal notification threshold in the current case is €20 million and
accordingly that the notification threshold for the present case is €15 million. The table
shows that the Commission has calculated the normal notification threshold for a 20% aid
intensity as €20 million. So when one takes 75% of the normal threshold as calculated by the
Commission the threshold in this case is €15 million.
[25] Counsel for the pursuers submitted that the notification threshold was 75% of €15
million rather than €20 million, and so the notification threshold in the present case was
€11.25 million. He founded on paragraph 68 of the RAGs which refers to 75% of the
unadjusted standard ceiling. The flaw in counsel’s argument is that he is taking 75% not of
the unadjusted standard ceiling (ie of €20 million) but of the ceiling which has already been
adjusted under paragraph 67 (ie of €15 million). Accordingly in my view on a correct
reading of paragraph 68 the notification threshold is 75% of €20 million that is €15 million.
[26] Counsel for the pursuers sought to derive assistance from the decisions of the
European Court of Justice in Smurfitt and BMW. In my view while these cases provide useful
illustrations of the procedure to be followed once the notification threshold has been
reached, they do not advance the pursuers’ argument as to what the notification threshold
is.
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12
[27] In BMW the court considered whether the Commission in conducting an in-depth
assessment for regional aid to large investment projects was restricted to that part of the aid
amount exceeding the notification threshold. It held that the Commission was not so
restricted: the presumption of compliance under GBER did not prevail over an individual
assessment conducted by the Commission after notification (para 177). However in that case
the court was considering a case in which the notification threshold had been met and the
aid had been notified. As the court said:
“As [the aid in question] exceeded the threshold for triggering mandatory
notification, the Commission was correct in finding that it had to assess it as an
individual aid and not as aid coming under the regulation on block exemption [ie
GBER]”(para 176)
[28] Smurfit is another example of a case which was notified to the Commission. In that
case the Commission took the view that the 25% requirement in paragraph 68(a) of the
RAGs had not been exceeded. The court held (para 88) that in these circumstances the
Commission had the power to decide not to initiate the formal investigation procedure but
had a discretion in that regard and could not justify that decision by claiming that it was
required by paragraph 68 of the RAGs not to do so.
[29] While these cases clarify the role of the Commission once an award of aid has been
notified, they do not assist with the logically prior question of whether the awards require
to be notified in the first place.
[30] Accordingly, in my opinion, the notification threshold in the present case was €15
million.
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Has the €15m threshold for notification been exceeded?
The awards
[31] The pursuers averred that the following awards had been made:
(1) An award by the second defender to Global Energy Nigg Limited
of £1,694,000, dated 11 December 2012.
(2) An additional sum of £725,000 made by the second defender on 28 October
2013.
(3) An award by Highland Council from the Derelict Land Fund to Global
Energy Nigg Limited of £651,897 on 27 February 2012.
(4) Awards to Nigg Skills Academy Limited in or around February and March
2012 amounting to a total of £705,101. These awards consisted of a loan
of £250,000 from the second defender, the gross grant equivalent of which
is £40,101; a grant by the Scottish Funding Council of £365,000 and a grant by
Skills Development Scotland of £300,000.
(5) Financial aids awarded on 2 May 2014 in the amount of £6,532,226.
(6) The designation of Nigg as an assisted area for the purposes of section 35K of
the Capital Allowances Act 2001. The pursuers averred that designation
attracted financial incentives including advantageous business rates and that
companies within the Enterprise Area benefit from enhanced capital
allowances.
Second defender’s submissions
[32] Counsel for the second defender submitted that it was unnecessary to notify the
commission because, taken together, the awards fell beneath the applicable notification
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14
threshold. Counsel submitted that, even if all of the items identified by the pursuers were
cumulated, the total would not exceed the €15 million. The total sums averred by the
pursuers for cumulation amounted only to €12,961,539. The pursuers’ averments about
enhanced capital allowances were irrelevant as they did not offer to prove that any such
allowances were claimed nor give specification of the value of such allowances. In any
event, it was not possible to claim enhanced capital allowances because of the provisions of
section 45M of the Capital Allowances Act 2001.
First Defenders’ submission
[33] Counsel for the first defender submitted designation of Nigg Energy Park as within
the Low Carbon/Renewables North Enterprise Area does not constitute an award of state
aid. He further submitted that the pursuers were wrong to aver that designation as an
enterprise area attracts advantageous business rates: for the purposes of the Non-Domestic
Rates (Enterprise Areas) (Scotland) Regulations 2012 SSI 2012/48 the Low
Carbon/Renewables North Enterprise Area does not include the Nigg Energy Park.
Pursuers’ submission
[34] Counsel for the pursuers submitted that he was not in a position to place a value on
the designation under the Capital Allowances Act. It was the role of the defender (RAGs
section 4.1). The cumulated total of the other grants was £10,308,223 and it was reasonably
estimated that the gross grant equivalent of the capital allowances would exceed a million
pounds and therefore cumulatively exceed the €11.25 million.
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15
Discussion and decision
[35] The cumulative total of items (1)-(5) of the awards averred by the pursuers
is £10,308,224. That is well below the threshold of €15m. So the pursuers have pled a
relevant case only if the sixth item, that is the designation of Nigg Energy Park as an assisted
area for the purposes of section 45K of the Capital Allowances Act 2001, takes the total to
over the €15m threshold.
[36] The UK government designated Nigg as an assisted area for the purposes of section
45K by The Capital Allowances (Designated Assisted Areas) Order 2014 (SI2014/3813). The
Order came into force on 23 December 2014 and the designations under it are to be treated
as having been designated on 1 April 2012.
[37] The pursuers’ position was that the designation gave rise to capital allowances and
rates relief which were state aid and so required to be cumulated towards the threshold.
[38] In my opinion neither capital allowances nor rates relief are to be cumulated
towards the threshold.
Capital allowances
[39] By express statutory provision, the capital allowances which the pursuers seek to
accumulate are not available where state aid is provided.
[40] Section 45K provides for capital allowances in respect of first-year expenditure
incurred on the provision of plant or machinery for use primarily in an area which at the
time the expenditure was incurred was a designated assisted area.
[41] However section 45M(8) provides:
“(8) A section 45K allowance made in respect of first-year qualifying expenditure
is to be withdrawn if –
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16
…
(b) within the period of 3 years beginning when that expenditure was
incurred, a relevant grant or relevant payment is made towards any
other expenditure which is incurred by any person in respect of the
same designated assisted area, and on the same single investment
project, as that expenditure.”
The definition of “relevant grant or relevant payment” includes (sec 45M(12)):
“a State aid, other than an allowance under this Part”
[42] As the capital allowances under section 45K are not available where state aid is
provided, they cannot be cumulated with state aid towards the notification threshold.
Rates Relief
[43] The Non-Domestic Rates (Enterprise Areas) (Scotland) Regulations 2012 (SI 2012/48)
grant rates relief in respect of certain Enterprise Areas. The relevant enterprise areas are
listed in regulation (3) with reference to definitions in regulation (1). The Nigg Energy Park
is not included in the enterprise areas so listed. As it is not included, then rates relief is not
available to it.
[44] As there is no rates relief for Nigg Energy Park, then no such rates relief can be
cumulated towards the €15m threshold.
The pursuers’ averments about market failure
Introduction
[45] The pursuers made detailed averments in article 25 about the award of state aid in
the amount of £1.694 million referred to in paragraph [31] above. The award was made
under the GBER Scottish Property Support Scheme 2009-2013 (“the SPSS scheme”).
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17
[46] The pursuers averred that the award of £1.694 million was unlawful in that the
defenders committed four infringements of law. The fourth infringement was the failure to
notify the Commission, and I have found that this was not unlawful as the €15 million
threshold was not exceeded. The other infringements can be summarised as follows.
(a) In order to award aid under the SPSS Scheme, the second defender needed to
evidence market failure. There was no market failure as the second defender
made errors in its calculations. The valuation of market value by Graham
and Sibbald Chartered Surveyors was flawed: it did not take into account a
bid for the Energy Park for £13.25 million not including development costs.
The costs of £8.63 million were overstated as there was no Bill of Quantities
and an unjustified contingency fee.
(b) The award could not be lawfully made under the SPSS scheme as the
pursuers were in direct competition with Global.
(c) The second defender failed to establish an incentive effect for the award. The
State aid was awarded while there was a competing bid which was not
dependent on state funds. The award could not therefore be made under the
SPSS scheme.
The second defender’s submissions
[47] Counsel for the second defender submitted that the proof of the pursuers’ averments
in Article 25 was insufficient to amount to an absence of market failure for the purposes of
the SPSS scheme. The definition of market value in “Commission on State Aid Elements in
Sales of Land and Buildings by Public Authorities Guidance (97/C209/03 at page 2)” was
consistent with the domestic definition of market value under the RICS Professional
Page 18 ⇓
18
Standards, Global 2017 page 10 and Stewart MacDonald & Pamela Coyne, liquidators of Grampian
The bid was not acceptable: there was a willing buyer and a price of £13.25 million was not
achieved. Further, it was not contended that chartered surveyors would have altered their
view of market value had they been aware of the unsuccessful bid. There was no offer to
prove that the view taken by the implementing bodies was an irrational one: accordingly
there was no breach of the SPSS scheme. In the absence of an offer to prove irrationality,
there could be no breach. The alleged errors by Graham & Sibbald were insufficient to
amount to a breach the SPSS scheme.
The pursuers’ submissions
[48] Counsel for the pursuers submitted that the existence of the offer of £13,250,000
demonstrated that there was no shortfall between the acquisition and development costs
and the value of the completed project. Therefore no State aid was required to fill the gap
and the provision of the £1,694,000 award was not in accordance with section 3 of the SPSS
rules. The pursuers’ pleadings at Article 25 on market failure were relevant. The averments
about the Graham & Sibbald valuation were sufficient for the purposes of a commercial
court action, and if necessary could be developed following normal commercial court
procedure.
Discussion and decision
[49] The scope of this action is delineated by the conclusions and the pleas in law. These
are set out in paragraphs [3] and [4] above. The declarator sought is in respect of breach of
Articles 107 and 108(3), GBER and the RAGs, on the basis of a plea in law to the effect that
Page 19 ⇓
19
there has been a breach of these items. The conclusion for recovery is for recovery in
relation to these breaches, on the basis of a plea in law to the effect that there has been a
breach of these items. The conclusion for Francovich damages is on the basis of a plea in law
that there has been a breach of Article 107(3). This is not a petition for judicial review of a
decision of a public body to award grants. It is an action for declarator and damages for
breach of specified items of European State Aid Law. In order to be relevant the pursuers’
averments require to go to a breach of one of the items specified in the conclusions and pleas
in law.
[50] In my opinion, the pursuers’ averments as to infringements (a), (b) and (c) in
Article 25 do not go to breach of the items specified in the conclusions and pleas in law. It
follows that they are irrelevant.
[51] In submitting that the averments on market failure were relevant, counsel for the
pursuers drew my attention to references to market failure in Recital 35 of GBER and
paragraph 13 of the Communication from the Commission Concerning the Criteria for an in depth
assessment of regional aid to large investment projects (2009/C 223/02). However, in my opinion
neither of these references assists the pursuers.
[52] Recital 35 of GBER states:
“It is necessary to establish further conditions that should be fulfilled by any
measure exempted by this regulation. Having regard to articles [107(3)(a)] and
articles [107(3)(c)] of the Treaty such aid should be proportionate to the market
failures or handicaps that have to be overcome in order to be in the Community
interest. It is therefore appropriate to limit the scope of this Regulation, as far as it
concerns investment aid, to aid granted in relation to certain tangible and intangible
investments”
[53] However, this is no more than a recital. It merely explains the reason why the scope
of the regulation has been limited. I was not directed to any substantive provision within
the regulation which would have been breached by the matters averred by the pursuers.
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[54] Paragraph 13 of the Communication states:
“13 While the primary objective of regional aid is to foster equity concerns as
economic cohesion, regional aid may also address issues of market failure. Regional
handicaps may be linked to market failures such as imperfect information, co-
ordination problems and difficulties for the beneficiary to appropriate investments in
public goods or externalities from investments. Where, apart from equity objectives,
regional aid also addresses efficiency concerns, the overall positive effect of the aid
will be considered greater”.
[55] However, when that paragraph is read in its context, it is of no assistance to the
pursuers. The purpose of the Communication is set out in paragraph 8 of the Communication
and footnote 63 of the RAGs: the Commission is giving further guidance on the criteria it
will use when conducting an in-depth assessment of State aid in cases above the notification
threshold. The communication does not apply to cases, such as this one, where the
notification threshold has not been exceeded.
Conclusion
[56] In summary then, in my opinion the pleadings of the pursuer do not disclose that the
minimum threshold of €15 million has been exceeded. Further, the pursuers have not pled a
relevant case on market failure. In these circumstances, the action falls to be dismissed.
Other Matters
[57] As I have dismissed the action for the reasons set out above, it is not necessary for
the purposes of my decision to come to views on the other matters raised at debate.
Nonetheless I will set these out briefly for the sake of completeness.
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Competency of the pursuers’ second and third conclusions
[58] The defenders challenged the competency of the second and third conclusions. The
second conclusion was for recovery of unlawful aid. The third was for recovery of illegal
interest relating to unlawful aid.
Second defender’s submissions
[59] The second defenders accepted that recovery of unlawful aid could occur and be
ordered by the Commission and national courts, albeit there was not an absolute obligation
to order recovery (SFEI v La Poste (see – 39/94) [1996] ECRI-3547, paragraph 68, 70; Residex
Capital v Municipality of Rotterdam (see 275/10) [2011] ECRI-13043, paragraphs 33 to 36; OTP
Bank v Magyar Allam (see – 672/13) [2015] EU: C: 2015: 185 at paragraphs 69 to 74). The
2009 Notice recognised that national procedural rules would apply to recovery of aid
awarded. However, the effect of the second and third conclusions would be that the court
was being asked to award a decree enforceable against Global Energy in circumstances
where Global Energy was not party to the proceedings. Where it is the Commission that is
recovering aid, such third parties have an opportunity to comment (Council Regulation (EC)
number 659/199 dated 22 March 1999, article 6). A recovery order by the Commission did
not give rise to any obligation of direct payment for the beneficiary of aid, but was
addressed to the member state and required implementing by the member state (Telefonica
SA v Commission, 19 December 2013, see – 274/12P, para 26). Accordingly there was a two
stage approach: the first a decision in principle that the unlawful aid should be recovered
and second recovery by the member state. Such a twofold approach should be followed in
this case. There are various exceptions to the normal rule that unlawful aid should be
recovered which could be advanced only in a case against the beneficiary (Procedural
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Regulations of 1999 article 2014 and 2015, article 16 and 17. The only Scottish case which has
dealt with recovery of unlawful aid is an example of the second stage (The Advocate General
Pursuers’ submissions
[60] Counsel for the pursuers explained that intimation of these proceedings had been
made on Global Energy who declined to take part and submitted that for that reason alone
the second defender’s submissions were ill founded. National courts were obliged to protect
the directly effective individual rights of affected persons, including the beneficiaries’
competitors (2019 Commission Notice para 24). The court is obliged to ensure that its
procedures comply with the EU Principle of Effective Judicial Protection: case C-284/16
Slovak Republic v Achmea BV ECLI: EU: C: 2017: 699; Case 73/16 Puškár v Slovak Republic
ECLI: EU: C: 2017: 725 (27 September 2017) [2017] 4 WLR 209 at section 59. Member states
authorities can be ordered to require that any state aid is repaid by the recipient (eg
article 16 of Council Regulation 2015 – 1589; Case 52/84 Commission v Belgium [1986] ECR 89;
Case C-232/05 Commission v France [2006] ECRI-10071, section 42; Case C-419/06 Commission
v Greece 14 February [2008] ECRI-27 (Summ Pub) at sections 38 and 61; Case C-177/06
Commission v Spain [2007] ECRI-7689, section 46; Case C-214/07 Commission v France
[2008] ECR I-8357, section 44; Joined Cases C-485/03 to C-490/03 Commission v Spain [2006] ECR I-11887,
section 74; Case -304/09 Commission v Italy [2010] ECR I-13903 at section 37; Case C-
363/16 Commission v Greece ECLI: EU: C: 2017: 746 at sections 44-51). Recovery of unlawful
state aid from its beneficiary is not a penalty but a means of eliminating the distortion of
competition (Case C-537/08 P Khala Thüringen Porzellan GmbH v Commission [2010] ECR I-
12917; Case C-5/89 Commission v Germany [1990] ECR 1-3437, section 14; Case C C-169/95
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Cases C-346/03 and C-529/03 Atzeni and Others [2006] ECR I-1875, section 64).
Discussion and decision
[61] Had I not dismissed the action, I would have taken the following approach to orders
for recovery.
[62] Counsel for the second defenders accepted, correctly in my view, that if the court
were to grant declarator in terms of the first conclusion then the member state had an
obligation to recover. I would not at this stage have repelled the pleas in law on recovery
and excluded the second and third conclusions from the action, but would instead have
reserved all matters relating to the second and third conclusions. I would have used the
commercial court case management powers to allow the case to proceed to a proof on
liability on the first plea in law (declarator) only. If after proof I granted the declarator, I
would expect that the member state, through the relevant bodies, would recover the
unlawful aid and interest without the necessity of any further order from this court.
[63] The result of splitting the issues before the court in this way would be that if the
member state failed to recover, it would be left open to the pursuers to seek further
procedure in this court in respect of their second and third conclusions. That would
necessitate further pleading to focus the issue in the light of the particular failures of the
member state. It would also allow the pursuers to give further consideration of the
appropriate wording in a conclusion for recovery. The current wording is silent as to who
is to recover, and it is difficult to see how a court order for recovery which did not impose
an obligation on any person could be enforced.
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The pursuers’ averments of causation and loss
Averments
[64] The pursuer sought damages of £25 million on the basis of Francovich v Italy
[1991] ECR I-5357. For breach of Article 108(3). The pursuers averred as follows:
“If there is a breach of Article 108(3) TFEU then it is open to the European
Commission, and it alone, to determine whether there has also been a breach of
Article 107 TFEU. Unless and until the European Commission determines that there
has been an additional breach of Article 107 TFEU and so determine the nature and
extent of the Defenders’ breach of EU law, it is not yet possible for the Pursuers to
quantify finally the losses they have suffered.”
[65] The pursuers then averred the various factors which they averred were relevant to
that final quantification exercise.
Second defender’s submissions
[66] Counsel for the second defender submitted that the potential for further involvement
of the Commission in hypothetical connected proceedings did not remove the obligation
upon the pursuers to provide fair notice of their case within these proceedings for Francovich
damages. No notice was given of even the most basic facts that the pursuers would be
required to prove in order to justify any loss. For example there was no notice of:
(a) pre-aid profits associated with competitive activities;
(b) any particular contracts which the pursuers contend they lost to Global
Energy;
(c) the value of any such contract;
(d) projected profits, but for the award of aid;
(e) what loss is attributed to each company over which period; or
(f) the benefits received from the sales of assets relied upon by the pursuers.
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Fair notice was required so that the defenders would not be taken by surprise at proof
(MacDonald v Glasgow Western Hospitals [1954] SC 453 at 465; Sajjad Soofi v Dykes [2017] SCS
[67] Counsel further submitted that there must be a direct causal link between breach of
the obligation resting on the member state and the damage sustained by the injured party
(see-46/93) [1996] ECR I-1029). The pursuers had not averred such a direct causal link.
[68] Further, the second defender submitted that averments regarding the competition of
IFAB Limited with Global Energy were irrelevant as IFAB Limited was not the pursuer. The
pursuers had provided insufficient notice of why any loss to IFAB was a loss of which the
pursuers were entitled to claim.
[69] Counsel further argued that the pursuers’ averments regarding the award of state
aid in May 2014 were irrelevant as the pursuers had also averred that all the assets in the
business were sold on 4 October 2014. The pursuers were not trading at that time and were
therefore not competitors who suffered a disadvantage as a result of any award of aid in
May 2014.
Pursuers’ Submissions
[70] Counsel for the pursuers submitted that the pursuers had sufficiently identified the
basis on which the sum sought was calculated and offered to prove it. Notwithstanding that
some of the payments were actually made after the sale of the pursuers’ business to Global
Energy, Global Energy was aware that the payments were to be made in advance of
October 2013. The pursuers’ loss was caused by the unlawful grants of aid placing Global
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Energy at a competitive advantage at the time when the funds were to be made available
rather than the time the funds were actually made over. The availability of the grants
allowed projects to be planned in advance by Global Energy which allowed it to capitalise
on its increasingly dominant market position in the geographic location.
Discussion and decision
[71] The defenders seek to have the Francovich claim dismissed for lack of specification of
loss. As I have already indicated, had I not dismissed the action I would have allowed a
proof on liability restricted to the declarator. I would not at this stage have dismissed the
Francovich claim for lack of specification, but if the pursuers had succeeded on liability I
would have taken the specification issues forward through commercial court case
management.
Whether case against first defenders should be dismissed
Submissions for first defenders
[72] Counsel for the first defenders invited me to dismiss the action insofar as directed
against them. He submitted that the pursuers’ pleadings did not contain any relevant
averments as to awards of aid for which the first defenders were said to be responsible. The
designation of Nigg Energy Park as an Enterprise Area did not confer any rates relief and
did not constitute an award of state aid. The designation as an assisted area in respect of
section 45K of the Capital Allowances Act 2001 was an act of the UK government, not the
Scottish Ministers. Skills Development Scotland and the Scottish Funding Council had legal
personality and the first defenders were not responsible in law for any awards of state aid
made by them.
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Submissions for the pursuers
[73] Counsel for the pursuers submitted that the first defenders had more than a passive
role and their fingerprints were all over it. It was their money which was the bulk of the
State Aid.
Discussion and decision
[74] Had I not dismissed the action on other grounds, I would have dismissed it quoad the
first defenders. I have found that there was no State aid in relation to rates relief and
capital allowances. It follows that the first defender’s actions in designating Enterprise
Areas and in entering into a memorandum with the UK government in relation to
designation for capital allowances are not grants of State aid. The pursuers did not aver any
other specific example of State aid granted by the first defenders. In these circumstances the
pursuers have not pled a relevant case against the first defenders.
Order
[75] I shall uphold the first plea in law for the first defenders and the fourth plea in law
for the second defenders and dismiss the action.