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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> RECLAIMING MOTION IN THE ADVOCATE GENERAL AGAINST JOHN GUNN AND SONS LTD [2020] ScotCS CSIH_56 (04 September 2020)
URL: http://www.bailii.org/scot/cases/ScotCS/2020/2020_CSIH_56.html
Cite as: 2020 GWD 29-384, [2020] CSIH 56, 2020 SCLR 870, 2021 SC 195, [2020] ScotCS CSIH_56, 2020 SLT 1049
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FIRST DIVISION, INNER HOUSE, COURT OF SESSION
Lord President
Lord Woolman
Lord Doherty
OPINION OF THE COURT
[2020] CSIH 56
A152/16
delivered by LORD CARLOWAY, the LORD PRESIDENT
in the Reclaiming Motion
in the cause
THE ADVOCATE GENERAL
Pursuer and Respondent
against
JOHN GUNN AND SONS LIMITED
Defenders and Reclaimers
Pursuer and Respondent: Maciver; Office of the Advocate General
Defenders and Reclaimers: Simpson QC; Harper Macleod LLP
4 September 2020
Introduction
[1] In this reclaiming motion (appeal), the defenders seek the recall of the Lord
Ordinary’s interlocutor of 13 April 2018 which granted decree de plano for payment by the
defenders to the pursuer of £1,064,869 plus interest. The Lord Ordinary held that this was
the amount to be recovered in respect of Aggregates Levy which the defenders had not paid
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2
as a result of two statutory exemptions. The European Commission ultimately decided that
the exemptions amounted to unlawful state aid and were thus in breach of article 107(1) of
the Treaty on the Functioning of the European Union. The Commission ordered the United
Kingdom to recover the aid from the “beneficiaries”.
[2] What is the consequence of the Commission’s decision? The competing contentions
can be shortly stated. The pursuer maintains that the defenders must pay the amount of
Levy which they would otherwise have paid to HM Revenue and Customs but for the
unlawful exemptions. The defenders argue that they only have to pay the amount which
represented the actual advantage which the exemption had given to them. This sum would
be nil, standing the defenders’ averments that they had passed on the benefit of the
exemptions to their customers.
[3] There are other questions. First, is the pursuer, by seeking the larger amount, in
breach of Article 1 of Protocol 1 of the European Convention (protection of property)?
Secondly, is the pursuer acting unlawfully by breaching HMRC’s Policy Brief 11 (2015):
Reinstatement of certain Aggregates Levy exemptions, if it were applied mutatis mutandis to the
defenders’ situation? Thirdly, is the domestic time limit of four years applicable under the
EU principle of equivalence?
Background
[4] Aggregates Levy is a tax which applies to the commercial exploitation of rock, sand
or gravel. It was imposed by Part II of the Finance Act 2001, partly as an environmental
measure to discourage quarrying in favour of using recycled materials. It was charged on
the first exploiter, initially at a rate of £1.60, rising to £1.95 and then £2.00 per tonne.
Liability arises when the aggregate is, inter alia, removed from site, sold and used for
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3
construction purposes (2001 Act, ss 16(2) and (3), 19(1) and (2)). There were exemptions for
shale and shale spoil (s 17(3)(f)(i) and (4)(a)). The defenders had been involved in the
extraction of such materials (shale and shale spoil), and their commercial exploitation as
aggregate, since before the 2001 Act.
[5] In late 2001, the UK notified the European Commission of its intention to introduce
the Levy. Objectors to the Levy, including the British Aggregates Association, complained
to the Commission that the Levy would be unlawful because, as a result of the exemptions,
it amounted to state aid. On 19 April 2002, the High Court of Justice of England & Wales
refused the BAA’s application for judicial review (British Aggregates Association v HM
Treasury [2002] 2 CMLR 51). The judge at first instance held that the Levy was not the
equivalent of a customs duty and thus not in breach of EU law. The exemptions did not
amount to state aid. The BAA were given permission to appeal. The appeal was sisted in
May 2002 (see British Aggregates Association v HM Treasury [2013] EWCA Civ 720 at para 6).
[6] Meantime, on 24 April 2002, the Commission decided not to object to the Levy or the
exemptions. The BAA challenged that decision before the General (First Instance) Court of
the EU. The challenge initially failed (British Aggregates Association v EU Commission
[2007] Env LR 11) but, on 22 December 2008, it was successful on appeal to the Court of Justice of
CJEU referred the matter back to the General Court for reconsideration.
[7] On 7 March 2012, after almost 10 years, the General Court annulled the
Commission’s initial decision. That required the Commission to reassess its decision to raise
no objection. On 31 July 2013, it decided that the Levy was lawful but commenced an
investigation into the lawfulness of the exemptions (see Cloburn Quarry Co v HM Revenue &
Customs 2014 SLT 303). As a result, the United Kingdom suspended the exemptions with
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effect from 1 April 2014 (Finance Act 2014, s 94). Meantime, on 10 April 2013, the Court of
Appeal in England and Wales recalled the sist in the judicial review appeal proceedings.
[8] On 27 March 2015, the Commission issued its final decision (2016/288 C(2015) 2141).
It determined that the exemptions in relation to shale and shale spoil amounted to unlawful
state aid because they were not justified in environmental terms (TFEU, Art 107(3)(c);
Community Guidelines on State Aid for Environmental Protection 2001). Central to its
determination was a finding (see recitals 353, 366 and 505) that freshly quarried shale was a
material which was subject to the Levy. It was, like other rock, used as aggregate. The
exemptions preferred those who extracted shale or shale spoil for use as aggregate over
those who extracted other materials for the same use. As such, they provided a “selective”
advantage (para 507) over other traders in aggregate, including those involved in cross-
border trade between the UK and Ireland (para 509). Contrary to the UK’s contention, the
exemptions undermined the environmental objective of the Act and encouraged the fresh
quarrying of shale (para 582). They distorted competition in the local aggregates markets
(592).
[9] The Commission continued:
“(513) Although the [Levy] was notified by the UK authorities before being put into
effect, the UK did not observe the standstill clause of Article 108(3) … before the
Commission adopted its decision on 24 April 2002 to not raise objections. The
Commission decision was timely challenged and eventually annulled by the General
Court on 7 March 2012 … Thus that decision must be considered void with regard to
all persons as from the date of its adoption. Since the annulment of the Commission
decision put a stop, retroactively, to the presumption of its lawfulness, the
implementation of the aid in question since 1 April 2002 must be thus regarded as
unlawful… According to the case-law the recipients of the aid cannot entertain
legitimate expectations as to the lawfulness of the implementation of the aid, since
the Commission decision not to raise objections to the measure was challenged in
due time before the General Court .”
The Commission concluded, in relation to recovery, that:
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(621) … [T]he exemptions from the [Levy] granted for: (i) material wholly or
mainly consisting of shale that is deliberately extracted for commercial exploitation
as aggregate, including here shale occurring as by-product of fresh quarrying of
other taxed materials; and (ii) spoil of shale that is deliberately extracted for
commercial exploitation as aggregate; which have been unlawfully implemented,
represent State aid that is incompatible with the internal market.
(622) According to the Treaty and established case-law, the Commission is
competent to decide that the Member State concerned must abolish or alter aid when
it has found that it is incompatible with the internal market [C-70/72 Commission v
Germany [1973] ECR 813, para 13]. The Court has also consistently held that the
obligation on a Member State to abolish aid regarded by the Commission as being
incompatible with the internal market is designed to re-establish the previously
(623) In this context, the Court has established that this objective is attained once
the recipient has repaid the amounts granted by way of unlawful aid, thus forfeiting
the advantage which it had enjoyed over its competitors on the market, and the
situation prior to the payment of the aid is restored [C-75/97 Belgium v Commission
[1999] ECR I-3671, paras 64 and 65].
(624) In line with the case-law, Article 14(1) of Council Regulation (EC)
No 659/1999 states that ‘where negative decisions are taken in cases of unlawful aid,
the Commission shall decide that the Member State concerned shall take all
necessary measures to recover the aid from the beneficiary […]’.
(625) Thus, given that the exemptions from the [Levy] … were implemented in
violation of Article 108 of the Treaty, and are to be considered as unlawful and
incompatible aid, they must be recovered in order to re-establish the situation that
existed on the market prior to their granting. Recovery should cover the time from
when the aid was put at the disposal of the beneficiary (i.e. the day from which the
beneficiary would have been obliged to pay the [Levy] if the unlawful and
incompatible exemptions from the [Levy] had not existed) until the day when the
advantage of the beneficiary ceased to exist. The sums to be recovered should bear
interest until effective recovery.
(626) As the exemptions constitute forgone revenues by the UK authorities, the
recovery of the aid entails that the beneficiaries of the exemptions should pay the
[Levy], for the period of its application, together with interest until effective
recovery.
…
(630) In order to define … the respective aid amounts, … The UK authorities
should … by means of all available sources of information, including public
information and confidential tax records, establish the amounts of shale material
specified in recital 621 … commercially exploited by these shale producers. Should it
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not be possible to establish these amounts on the basis of the available information,
the UK authorities should request the shale producers to demonstrate to what extent
the shale material they produce is (and to what extent it is not) the material
specified…”.
[10] The operative articles of the decision include the following:
“Article 1
1.
The aid scheme consisting of the exemptions from the aggregates levy …
granted for:
(a) material wholly or mainly consisting of shale that is deliberately
extracted for commercial exploitation as aggregate, … and
(b) aggregates consisting wholly of the spoil from any process by which
shale that is deliberately extracted for commercial exploitation as aggregate
has been separated from other rock …
put into effect by the United Kingdom in breach of Article 108(3) TFEU are
incompatible with the internal market.
…
Article 5
1.
The United Kingdom shall recover the incompatible aid granted under the
scheme referred to in Article 1(1) from the beneficiaries.
2.
The aid to be recovered shall include interest …”
Article 6
1.
Recovery of the aid… shall be immediate and effective”.
Following the Commission’s final decision, the exemptions were repealed (Finance (No. 2)
Act 2015, s 48).
The Dispute on Record
[11] The parties agree that recovery of the unlawful state aid is required. The dispute is
on quantum. The pursuer avers that Article 5 of the Commission decision orders the UK to
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recover unlawful aid granted from 1 April 2002 to 31 March 2014 by requiring the defenders
to pay the Levy which ought to have been charged during that period.
[12] The defenders paid the Levy on shale and shale spoil exploitation, which they
carried out between 1 April 2002 and about November 2003. In autumn 2003, HMRC
confirmed that the defenders’ shale and shale spoil exploitation qualified for exemption
from 1 April 2002. The defenders then reclaimed the Levy which they had paid. HMRC
refunded them £90,598. On 26 July 2016, after the Commission’s final decision, the
defenders repaid that sum to HMRC. On 5 August 2016 they paid HMRC compound
interest of £55,554.21 on that sum. The principal sum of £1,064,869, which is that concluded
for, represents the sum which the defenders would have paid as Levy from November 2003
to 31 March 2014, had their exploitation of shale and shale spoil during that period not been
exempt.
[13] The pursuer maintains that, if the defenders had wanted to challenge the
Commission decision, they should have done so before the CJEU. The defenders admit that
the court is bound to implement the Commission decision. They state expressly that they do
not challenge the decision. They claim that their only obligation was to repay the £90,598
which they received from HMRC after they had retrospectively qualified for the shale
exemptions. This had been the sole advantage which they had obtained. Repayment of that
sum restored the market to the situation in which it had been before the unlawful aid was
paid. In other words, this was the actual advantage to them of the exemptions. The law
ought to reflect the fact that they had passed on the benefit to their customers, without
obtaining a competitive advantage. Their local competitors in Caithness and Sutherland had
also received the exemptions, but they had operated on a much smaller scale. The state aid,
which those local competitors had received, fell below the de minimis threshold for recovery.
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8
[14] The defenders’ pleadings include something of an essay on the purpose of
determining state aid to be unlawful; that being to restore the status quo ante. That was
achieved by the person, who had enjoyed the benefit of the aid, repaying it and, in so doing,
forfeiting the advantage which he had enjoyed in the market. It was a form of restitution.
The recovery sought here was excessive and disproportionate. It would itself constitute
unlawful aid in favour of quarriers from whom recovery was not required. The defenders
had not increased their prices by the amount of the Levy. Their prices had been unaffected
by the Levy. Article 1 of Protocol 1 of the European Convention would be breached. The
legitimate public interest in recovering unlawful state aid was limited to the value of any
advantage received.
[15] At the stage of the reclaiming motion, the defenders introduced a new defence based
upon the EU law principle of equivalence. Recovery of state aid ought to be effected in
accordance with national procedural rules, which must not be less favourable than those
governing similar domestic actions. The relevant similar domestic action was an assessment
to recover the Levy. In the absence of negligence or deliberate conduct, UK law imposed a
time limit of four years for the making of such an assessment (Finance Act 2001, sch 5, para 4
(Aggregates Levy: Recovery and Interest)). Accordingly, only the Levy that ought to have
been paid in accounting periods ending no more than four years before the HMRC’s
demand letter ought to be recoverable.
Lord Ordinary’s reasoning
[16] The Lord Ordinary found in favour of the pursuer. The amount to be recovered was
the amount that would have been paid as Aggregates Levy had there been no shale and
shale spoil exemptions. The calculation of any other amount would be “wholly unrealistic”.
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There was no merit in the defenders’ argument that all aggregate quarriers within the
relevant local market benefited from the exemptions and there was therefore no distortion of
competition. The Commission did not think in terms of small local markets, but in terms of
the European single market. What a recipient of state aid did or did not do with the
financial benefit, which he had gained from the application of an unlawful exemption, was
immaterial.
[17] The Lord Ordinary’s finding on the main issue dealt with Article 1, Protocol 1. In
any event, section 6(1) of the Human Rights Act 1998 was not engaged as a result of
subsection (2)(a). The UK had no alternative, in terms of section 2(1) of the European
Communities Act 1972, but to seek recovery of the sums sought.
[18] The Lord Ordinary considered that the Policy Brief was necessary to ensure that, in
the converse situation, a party who had been required, unlawfully, to pay a Levy, obtained
compensation. Here, the amount due was that which should have been paid over the
relevant period. Therefore, there was no requirement for a corresponding policy brief.
Submissions
Defenders
[19] The defenders advanced five grounds of appeal. First, the Lord Ordinary’s decision
did not comply with the principles of EU law. The correct sum had to correspond to the
actual advantage to the defenders and be proportionate to it (T-308/00 Salzgitter v
Commission EU:T:2013:30, para 138; T-459/93 Siemens v Commission [1995] ECR II-1675, at
para 99; T-366/00 Scott v Commission [2007] ECR II-797, at para 95). Repayment of the sum
could not return the market to the pre-aid situation (C-164 and 165/15 P Commission v Aer
Lingus and Ryanair [2017] 2 CMLR 23, at paras 89, 92 and 105). The defenders had passed the
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financial advantage of the exemptions to customers, which was consistent with the nature of
the Levy as an indirect tax. The true beneficiaries were the customers, from whom the
pursuer should recover the Levy. The defenders had gained no competitive advantage.
There was no distortion of competition.
[20] The defenders did not challenge the Commission decision because they could only
have done so if they had been directly affected by it (C-15/98 and C-105/99 Italy and Sardegna
Lines v Commission [2001] 1 CMLR 10, at paras 32-34). Although it was not founded upon in
the pleadings, and was produced only at the stage of the reclaiming motion, the defenders
referred to a letter to them from HMRC dated 4 August 2003. This referred to a professional
analysis of the aggregate which had been removed from two of their quarries. The level of
the shale content was between 78% and 90%. On this basis, HMRC told the defenders that
the aggregate from their quarries would be exempt. The defenders had not advanced a plea
based on legitimate expectation as it could only arise from something which the
Commission had said or done.
[21] Secondly, the Commission decision and the Recovery Order did not require the
pursuer to recover the sums sued for. The direction required the UK to examine the
defenders’ individual circumstances in order to identify the actual financial advantage. The
Commission’s statement of reasons (paras 622, 623, 625 and 626) supported this approach
and had to be taken into account when interpreting the operative part of the decision (C-
Greece (Re aid to Olympic Airways) [2005] 3 CMLR 10, at para 41).
[22] Thirdly, the Lord Ordinary erred in rejecting the defenders’ submissions on Article 1
of Protocol 1. The pursuer’s approach to quantum constituted an unlawful interference with
the defenders’ possessions. Recovery of state aid must not be incompatible with
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fundamental rights (Council Regulation (EU) 2015/1589, art 16; TFEU art 6.3). If there was a
conflict, the defenders’ Article 1 Protocol 1 rights prevailed (Bosphorus Airlines v Ireland
[23] Fourthly, the court had to consider if “equivalent protection” existed in EU law.
Only if it did, would there be a presumption that the state’s action was compatible with the
Convention. If not, the court had to scrutinise the measure for compatibility (Matthews v
would be no equivalent protection provided by EU state aid law because recovery would
not be limited to the advantage gained. It was for this court to scrutinise whether ordering
recovery would be disproportionate. It was beyond the margin of discretion to interfere
with property to an extent significantly beyond what would be proportionate (National &
[24] Fifthly, the pursuer’s approach to quantum contradicted the guidance contained in
HMRC’s Policy Brief 11/15. If refunds were applied mutatis mutandis to the recovery of state
aid, it would require a consideration of whether or not any advantage had been retained by
the business or passed on to the customer. The same general principles should apply in
determining who had ultimately benefited. The guidance in part 5 of the Brief accorded
with EU law by recognising the need to consider individual circumstances. The pursuer
failed to recognise that whether or not a business passed on the cost of the Levy to
customers was of critical importance when recovering state aid, as it was when determining
what refunds were payable.
[25] Recovery of aid had to comply with general principles of EU law, one of which was
the principle of equivalence (Council Regulation (EU) 2015/1589, art 16(3); C-205 to 215/82
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national procedural rules relating to the enforcement of EU law rights did not discriminate
against the enforcement of EU law rights by comparison with the national procedural rules
applicable to analogous domestic law rights. Where a taxpayer had incorrectly claimed an
exemption, and underpaid tax, HMRC had to make an assessment within four years. The
equivalent here is the notification to the defenders of the amount of the Levy to be
recovered. The time limit of four years should apply. C-349/17 Eesti Pagar v Ettevõtluse
concerned the separate EU law principle of effectiveness. At worst, there could be said to be
a tension between the two principles, in which event it could be that a reference to the CJEU
would be required.
Pursuer
[26] The pursuer submitted that seven principles were determinative of the case. First,
the identification and amount of the state aid was set out unambiguously in the Commission
decision. The exemptions had been found to constitute unlawful state aid. The Commission
had ordered the UK to effect recovery. This was done across the UK. The defenders were
the only entity not to have repaid the aid. Secondly, the UK was obliged to implement the
Commission decision. Article 5 directed it to recover the aid from the beneficiaries. The
obligation was given effect by section 2(1) of the 1972 Act.
[27] Thirdly, the court’s duty was to enforce the decision by ordering recovery from the
recipients. It was not disputed that the court should order recovery (C-39/94 Syndicat
Francais de l’Express International v La Poste [1996] 3 CMLR 369). The Commission notice on the
1 This case is not available in an official English translation.
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enforcement of State aid law by national courts (2009/C 85/01) identified (para 30) the duty of
national courts to order full recovery. The national courts could not (para 66) be used to
challenge the underlying validity of the Commission decision. Fourthly, a Commission
decision could only be challenged by an application to the Court of Justice of the European
Union. An individual could do so within two months and ten days (Article 263 TFEU; C-
15/98 and C-105/99 Italy and Sardegna Lines v Commission (supra), at paras 34 to 37; Article 51
of the Rules of Procedure of the CJEU). The defenders had been directly concerned but they
did not raise a challenge.
[28] Fifthly, the amount to be recovered was the amount of aid received (T-366/00 Scott v
Commission (supra), at para 95). That was the amount of the Levy which was not paid. This
conformed to the terms of the decision itself and the principle set out in C-164 and 165/15 P
Commission v Aer Lingus and Ryanair (supra, at paras 89 to 102). Sixthly, whether the
advantage obtained through non-payment was passed on to customers was irrelevant. Aer
Lingus was determinative of the outcome. Seventhly, no national procedural law could
stand in the way of an effective recovery. That meant that any limitation period under
national law did not apply (C-24/95 Land Rheinland-Pfalz v Alcan Deutschland [1997] 2
CMLR 1034 at para 37; C-94/87 Commission v Germany (re Alcan Aluminiumhütte) [1989] 2
CMLR 425, at para 12, citing Deutsche Milchkontor v Germany (supra)).
[29] On the first and second grounds of appeal, the pursuer’s averments relating to
quantum were irrelevant. The pursuer was bound by the terms of the Commission decision.
The defenders’ averments on quantum and market effect were without merit. Those
averments amounted to an attempt to challenge the terms of the final decision. Commission v
Aer Lingus (supra) confirmed that the amount to be recovered was the advantage gained;
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being the amount that the recipient of the aid would have paid had the unlawful aid not
been granted. The Commission decision left no scope for a different amount to be sought on
the basis of the particular circumstances of the defenders. Aer Lingus confirmed that, where
unlawful aid was granted by means of the payment of a lower rate of tax, the advantage was
the amount of tax which the recipient of that aid would have paid had it not been granted.
The transactions actually carried out by the recipient of the aid were irrelevant as was the
notion of passing on the benefit. The defenders’ argument, that the Commission decision
was to be read otherwise, was, as the Lord Ordinary described it, “tortuous and untenable”.
The Lord Ordinary correctly rejected the argument that enforcement required the court to
undertake a detailed investigation into what a beneficiary had done with the aid.
[30] On the third and fourth grounds, there was no unlawful interference with the
defenders’ A1P1 rights. It was in the public interest to enforce the law on state aid. The
quantification was in conformity with EU law as expressed in the Commission decision and
the CJEU case law. It was accordingly subject to conditions provided for by law. The
specific unlawfulness averred was that recovery of the entire unlawful aid would fall
outwith the margin of appreciation afforded to states in the implementation of A1P1. The
test of “devoid of reasonable foundation” could not be met in light of the express terms of
the Commission decision, the general principles in Commission v Aer Lingus and Ryanair
(supra), and the defenders’ failure to challenge the Commission decision in the correct forum.
Even if the defenders were correct in their criticism regarding the compatibility of the state
aid regime with the Convention, recovery would not be unlawful under the Human Rights
Act 1998. The UK was obliged by the 1972 Act to effect recovery. Section 6(1) of the 1998 Act
did not apply to the bringing of the action or the grant of recovery.
[31] On the fifth ground, the Policy Brief 11/15 had no application. The Brief related to
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other exemptions, which were suspended on 1 April 2014 pending the Commission’s
investigation but which the Commission ultimately found to be lawful. In those cases,
taxpayers could reclaim the Levy which they had paid between 1 April 2014 and 31 March
2015; provided that they had not passed on the cost of the Levy to their customer (or, if they
had, provided that they would reimburse those customers with the Levy charged). There
was no equivalence between a claim by a taxpayer for such a repayment and the pursuer’s
claim against the defenders. Repayment of tax may be refused to entities which had not
passed on that cost and would be unjustly enriched by a repayment (C-76/17 Petrotel-lukoil v
and Ryanair (supra) was definitive. Recovery was to be effected regardless of whether the
benefits had been passed on.
[32] On limitation, the defenders’ argument was without merit for two reasons. First, by
invoking a domestic law limitation period in order to seek to modify the recovery obligation,
the argument became that the obligation on the UK was unlawful under EU law. By
operation of a principle of EU law, the Commission decision exceeded the scope of what the
Commission could order. The obligation was defined in scope by the dates specified in the
recovery order. This new point sought to restrict those dates as being contrary to EU law.
As such, the true challenge is to the vires of the Commission decision. This ought to have
been raised before the CJEU. Secondly, a decision of an EU institution is binding upon those
to whom it is addressed (TFEU, Art 288). The defenders sought to have the EU obligation of
the UK defeated by limitation provisions under UK law. The legal hierarchy operates in the
other direction (1972 Act s 2(1); C-106/77 Amministrazione delle Finanze dello Stato v
Simmenthal [1978] 3 CMLR 263 at para 17). A limitation period could not be invoked as a
means of frustrating the recovery of unlawful aid (C-24/95 Land Rheinland-Pfalz v Alcan
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Deutschland (supra), at para 34). This has been described as the principle of effectiveness. It
is not open to the court to apply a limitation provision in order to deprive the Commission
decision of its effectiveness.
[33] The principle of “equivalence” provided that it was for the domestic legal systems to
lay down the procedural rules governing actions for safeguarding rights which individuals
derive from Community law; provided that such rules were not less favourable than those
governing similar domestic actions (C-231/96 Edilizia Industriale Siderurgica (EDIS) v
Ministero delle Finanze [1999] 2 CMLR 995 at para 34). It was bound up with the protection of
EU rights. This case was not about safeguarding an EU right conferred upon the defenders.
There was no EU right involved. Rather there was an obligation imposed upon the UK to
recover the aid. There was no procedure under domestic UK law for the recovery of
unlawful aid; hence the present action which sought a remedy sui generis. It was not
equivalent to an assessment to tax, which in ordinary (but not all) cases, would be subject to
a four year time limit. The action did not seek the payment of tax, but the recovery of
unlawful and incompatible aid. There was no basis for reading any time limit from taxation
legislation across to procedure for the recovery of unlawful aid. Even if there were, it would
immediately be disapplied by EU law (C-94/87 Commission v Germany (supra), at para 12)
because national procedures must not render the recovery of unlawful aid practically
impossible (C-627/18 Nelson Antunes da Cunha (supra), at paras 52 and 56-57). There was no
scope for the principle of equivalence. No reference to the CJEU was required. What was
required by way of recovery of unlawful aid, in accordance with the Commission decision,
was acte clair.
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Decision
[34] C-164 and C-165/15 P Commission v Aer Lingus and Ryanair [2017] 2 CMLR 23 sets out
the principles to be applied in relation to the recovery of unlawful state aid in clear terms.
First, the purpose of the obligation on the state to recover such aid is “to restore the situation
as it was before the aid was granted” (para 89). The obligation is fulfilled when the aid, and
interest, is “repaid by the recipient, or, in other words, by the undertakings which actually
enjoyed the benefit of it” (para 90). Repayment forfeited the advantage gained over
competitors (ibid). Secondly, recovery does “not imply reconstructing past events differently
on the basis of hypothetical elements such as the choices… which could have been made…
since the choices actually made with the aid might prove to be irreversible” (para 91).
Recovery involves “restitution of the advantage … not the restitution of any economic
benefit” (para 92). There may be no benefit but that did not justify any failure to recover the
aid “or the recovery of a different sum from that constituting the advantage procured by the
unlawful aid” (ibid). Where the aid was in the form of a tax advantage, recovery meant that
the “transactions actually carried out by the recipients of the aid… must be subject to the tax
treatment which the recipients would have received in the absence of the unlawful aid”
(para 93).
[35] Just as Aer Lingus and Ryanair had to pay the difference between the unlawful lower
air travel tax and the higher figure in respect of each transaction (ie €10 - €2 = €8),
irrespective of what actual advantage was gained by the airlines, so, as the Commission
determined, the defenders have to pay a sum equivalent to the amount of the Aggregates
Levy which they would have had to pay, but for the exemptions.
[36] T-308/00 Salzgitter v Commission EU:T:2013:30 concerned a number of issues
surrounding special depreciation allowances which had been afforded to certain steel
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manufacturers on the Germany border with what was then Czechoslovakia. It does not
contain any dicta which differ from C-164 and C-165/15 P Commission v Aer Lingus and
Ryanair (supra). Under reference to T-459/93 Siemens v Commission [1995] ECR II-1675 (at
para 99) the court in Salzgitter stated (at para 138) that the recovery must “be limited to the
financial advantages actually arising from the placing of the aid at the disposal of the
beneficiary, and be proportionate to them”. There is nothing controversial about that. In the
defenders’ case, the advantage arising is quantified by determining the amount of the Levy
which was not paid by them. No more intricate a calculation is necessary. Similar
considerations apply to T-366/00 Scott v Commission [2007] ECR II-797. Scott concerned the
correct valuation of heritable property which had been transferred to a manufacturer by a
local authority at a price which the Commission maintained was preferential. The Court of
First Instance emphasised (at para 95) the need for an accurate valuation of the benefit
received. In restoring the situation to the status quo ante, the real advantage; that being the
“value of the aid” received, had to be ascertained and recovered in full. That is entirely
consistent with the approach in Aer Lingus.
[37] It follows that the challenge to the pursuer’s assessment of quantum must fail and
with it the first and second grounds of appeal. In any event, any such challenge would have
had to have been made to the Court of Justice of the European Union (C-39/94 Syndicat
Francais de l’Express International v La Poste [1996] 3 CMLR 369 at paras 70-71 adopting the
Advocate General’s opinion, at para 70 et seq). The national courts are required to implement
the Commission’s decision (Council Regulation (EU) 2015/1589 laying down detailed rules for the
application of Article 108 of the [TFEU], Art 16.3).
[38] The order of the Commission is unambiguous. Articles 1, 2 and 5 state that the UK
“shall recover the incompatible aid”, including interest, “from the beneficiaries” and that the
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recovery is to be “immediate and effective”. For the reasons already explored in relation to
C-164 and 165/15 P Commission v Aer Lingus and Ryanair (supra), “beneficiaries” refers to the
persons who did not pay the Levy because of the unlawful exemption. These are the
defenders and not their customers. The tax is levied on the first exploiter of the aggregate,
not on the eventual users of the material.
[39] If this court held that the defenders were not required to repay state aid equivalent to
the total Levy, which they did not pay because of the unlawful exemptions, that would
amount to a determination that the Commission’s decision was itself unlawful. This court
has no power to make such a declaration; the Commission being subject to the jurisdiction of
the CJEU in terms of Article 263 of the Treaty on the Functioning of the European Union.
That article permits any legal person to challenge an act of the Commission if it is “of direct
and individual concern” to that person. It is, of course, for the CJEU to interpret that Article,
but this court has no reason to consider that the CJEU would not have entertained a timeous
challenge by the defenders to a determination that resulted in them having to pay a sum in
excess of a million pounds. As stated in C-15/98 and C-105/99 Italy and Sardegna Lines v
Commission [2001] 1 CMLR 10, although an undertaking cannot challenge a decision purely
on the basis that it may potentially be a beneficiary of a scheme (para 33), it is different when
it is an actual beneficiary of aid (para 34). In that situation it is “individually concerned”
(para 35) with the decision of the Commission to require recovery of that aid.
[40] As a general principle, if recovery of unlawful state aid would be contrary to the
European Convention on Human Rights, it ought not to be ordered. Even when applying
EU law, which is binding upon them, states remain bound by the Convention (Avotiņš v
para 102, in turn citing Bosphorus Airways v Ireland (2006) 42 EHRR 1, at paras 152 et seq). EU
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law already encompasses the rights under the Convention, thus providing an equivalent
level of protection to that available using the Convention mechanisms (ibid para 102). On
that basis, where a state is acting in accordance with the terms of EU law, and there is no
discretionary element involved, there is a presumption that it is behaving in a Convention
compliant manner unless the protection afforded to Convention rights is “manifestly
deficient” (ibid, para 101 citing Michaud at para 103).
[41] In seeking recovery of the sums ordered by the Commission, the pursuer is
complying with a requirement made by an EU institution. The pursuer has no option to do
otherwise. The United Kingdom is simply abiding by the terms of section 2(1) of the
European Communities Act 1972. It is not acting unlawfully (of the Human Rights Act 1998,
s 6(2)(a)). The requirement to ensure recovery involves the implementation of EU law in
relation to unlawful state aid. Recovery affects the defenders’ possessions. It engages
Article 1 of Protocol 1. However, there is no breach of that Article.
[42] Article 1 of Protocol 1 provides that no-one is to be deprived of his possessions
except in the public interest and subject to conditions provided for by law. The deprivation,
which the defenders will suffer, is justified in the public interest. It is subject to conditions
provided for by law. It redresses unlawful state aid. A measure must strike a fair balance
between the general interests of the community and the individual’s fundamental rights
no basis for concluding that the law relating to state aid, which is what is being enforced
against the defenders, does not strike that balance. There is no manifest deficiency in the
protection of the defenders’ fundamental rights in the enforcement of the law relating to
state aid. As already noted, the remedy available to the defenders was to challenge the
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Commission decision, including on human rights’ grounds, in the CJEU. They did not do
so. The third and fourth grounds of appeal fall to be rejected.
[43] The HM Revenue and Customs’ Policy Brief 11/15 applied to persons who had paid
the Levy, following the suspension of the exemptions. It concerned different exemptions
which the Commission subsequently found to be lawful. Such persons could reclaim the
amount of Levy paid, provided that they could demonstrate that they had paid it. If they
had passed on the cost to their customers, they could not claim a repayment for themselves.
The Brief has no relevance to the defenders’ situation. The defenders have been found liable
to return the state aid, which they received by way of a favourable tax treatment. There is
no relevant basis for maintaining that, if the defenders can demonstrate that they did not
pass on the Levy to their customers, they should not be liable to repay that state aid. There
is no merit in this fifth ground of appeal.
[44] The new ground of appeal is based on a contention that the order for recovery is the
equivalent of an assessment for Aggregates Levy and that since there is a four year
limitation period for making such an assessment, the same limitation period should be
applied to the recovery of unlawful state aid. The court does not agree.
[45] First, the order is for recovery of unlawful state aid. It has a different purpose from
an assessment to pay Aggregates Levy. The measure of the unlawful aid is the Levy which
would have been paid but for the unlawful exemptions. It is state aid law (not tax law)
which is the source of the authority to recover it and of the obligation to pay it. The object of
recovery is to correct the distortion of the market, which the unlawful aid caused. The
making of an assessment to the Levy is not analogous to the recovery of unlawful aid.
[46] Secondly, even if it were analogous, the principle of equivalence cannot be prayed in
aid in order to defeat the recovery of unlawful state aid. The object of the principle of
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equivalence is to ensure that national procedural rules which apply when an individual
seeks to enforce a right derived from EU law are not less favourable to enforcement of the
right than the national procedural rules which apply to the enforcement of an analogous
right derived from domestic law (C-234/17 XC, YB, ZA ECLI:EU:C:2018:853, at paras 22 and
Lord Sumption at para 146).
[47] There are four reasons why the principle of equivalence does not assist the
defenders. First, this is not an instance of an individual seeking to enforce a right conferred
upon him by EU law. The defenders are not such a person. Neither is the pursuer. Rather,
the pursuer has been ordered by the Commission to recover unlawful state aid.
[48] Secondly, there are no national procedural rules which have been applied specifically
to the recovery of unlawful state aid. The court is not faced with a situation in which there
are such rules and where those rules are less favourable to the enforcement of the recovery
of state aid than national rules applicable to enforcement of an analogous domestic right.
[49] Thirdly, even if a right conferred by EU law was being enforced, and there were
national procedural rules which had been applied to that enforcement, the principle of
equivalence would not prevent the EU right being treated more favourably by national
procedural rules than an analogous domestic right. The object of the principle is to prevent
national procedural rules singling out the enforcement of rights derived from EU law for
discriminatory (ie unfavourable) treatment in comparison with the treatment of the
enforcement of analogous domestic law rights.
[50] The fourth reason is that the principle of effectiveness provides that EU law rights
and obligations must not be rendered ineffective by the application of national law,
including limitation. This was made clear in C-24/95 Land Rheinland-Pfalz v Alcan
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Deutschland [1997] 2 CMLR 1034. There, the recipient of unlawful state aid had successfully
resisted recovery in the German administrative courts on the basis of a number of aspects of
national law, including: (i) a prohibition on recovery when the beneficiary had relied upon
the lawfulness of the relevant measure and his expectation required protection because he
could not reverse the benefit gained without incurring unreasonable disadvantages; and
(ii) a time bar of one year from the date upon which the recovering authority became aware
of the unlawfulness of the act. The CJEU in C-24/95 Land Rheinland-Pfalz v Alcan Deutschland
reiterated (supra, at para 24) the general principle that recovery required to be in accordance
with the:
“procedural provisions of national law, subject however to the proviso that those
provisions are to be applied in such a way that the recovery required by [EU] law is
not rendered practically impossible [(C-142/87 Belgium v Commission [1990] ECR I-
applies as regards recovery of [EU] aid, see Deutsche Milchkontor [v Germany [1984] 3
CMLR 586 at para 19]...”.
The court repeated the limitations on legitimate expectation and what might be expected of
the “diligent businessman” and continued:
“34 … where State aid is found to be incompatible with the Common Market, the
role of the national authorities is… merely to give effect to the Commission’s
decision. The authorities do not, therefore, have any discretion as regards revocation
of a decision granting aid. Thus, where the Commission, in a decision which has not
been the subject of legal proceedings, orders the recovery of unduly paid sums, the
national authorities are not entitled to reach any other finding…
…
37 The principle of legal certainty cannot… preclude repayment of the aid on the
ground that the national authorities were late in complying with the decision
requiring… repayment. If it could, recovery of unduly paid sums would be rendered
practically impossible and the [EU] provisions concerning State aid deprived of
effectiveness”.
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(see also FMX Food Merchants Import Export Co v Revenue and Customs Comrs [2020] 1 WLR
757, Lady Arden at para 61. Even if the statutory provision which authorises the making of
assessments to Aggregates Levy is analogous to the recovery of state aid, the time limits in
that provision would not limit the recovery ordered by the Commission, which is subject to
its own limitation period (Council Regulation (EU) 2015/1589 (supra) Art 17.1). National
procedures must not render the recovery of unlawful state aid practically impossible. These
propositions are acte clair. Even if the making of an assessment to the Levy was an
analogous procedure to the recovery of state aid, and the principle of equivalence could be
used to restrict, rather than safeguard, the enforcement of a right conferred by EU law no
reference to the CJEU would have been required. This additional ground also fails.
[51] The recovery sought by the pursuer is what EU law requires and the pursuer has no
option but to comply with it. The reclaiming motion must accordingly be refused. From the
defenders’ perspective, this may seem hard. After all, the unlawful exemptions were the
prevailing law at the material times. Nevertheless, the fact that they were unlawful state aid
created distortion of the market. The consequences of that distortion require to be
redressed.
2 This case is not available in an official English translation.