Opinion of the Advocate-General

I – Introduction

II – Background

A – Procedures at Community level

5. On 10 June 1998, the Commission adopted a second decision concerning the aid in favour of CELF. According to Article 1 of the decision, ‘[t]he aid granted to CELF for the handling of small orders of books in the French language constitutes aid within the meaning of Article [87(1) EC]. As the French Government failed to notify the aid to the Commission prior to its implementation, the aid has been granted unlawfully. It is, however, compatible aid as it satisfies the conditions for derogation under Article [87(3)(d) EC].’ (4)

10. The Commission, in a third decision dated 20 April 2004, (7) while acknowledging the unlawful nature of the aid (8) to CELF, found again that the aid was compatible with the common market. Annulment proceedings are currently pending before the Court of First Instance with respect to the Commission’s third decision. (9)

B – Procedures at national level

11. A number of different procedures concerning the aid to CELF were introduced before the French national authorities and courts in parallel to the Community procedures.

12. Following the judgment of the Court of First Instance of 18 September 1995, SIDE requested the French Ministre de la culture et de la communication (Minister for Culture and Communication) to cease payment of the aid to CELF and to recover the aid already paid.

13. By a decision of 9 October 1996, the Minister for Culture and Communication rejected SIDE’s request. SIDE challenged that decision before the Tribunal administrative (Administrative Court) (France). By judgment of 26 April 2001, the Administrative Court annulled the Minister for Culture and Communication’s decision.

14. The Minister for Culture and Communication and CELF lodged an appeal against the judgment of the Administrative Court before the Cour administrative d’appel (Administrative Court of Appeal) (France). By judgment of 5 October 2004, the Administrative Court of Appeal upheld the judgment of the lower court and ordered the French State to recover within three months the aid paid to CELF between 1980 and 2002, subject to a penalty of EUR 1 000 per day of default.

15. The Minister of Culture and Communications and CELF lodged, before the Conseil d’État (Council of State) (France), appeals against the judgment of the Administrative Court of Appeal.

16. It is against this background that the Conseil d’État, by order dated 29 March 2006, referred the following questions to the Court of Justice for a preliminary ruling:

‘(1) Is it permissible under Article 88 (EC) for a State which has granted to an undertaking aid which is unlawful, and which the courts of that State have found to be unlawful on the ground that it had not previously been notified to the European Commission as required under Article 88(3) EC, not to recover that aid from the economic operator which received it on the ground that, after receiving a complaint from a third party, the Commission declared that aid to be compatible with the rules of the common market?

(2) If that obligation to repay the aid is confirmed, must the periods during which the aid in question was declared by the European Commission to be compatible with the rules of the common market, before those decisions were annulled by the Court of First Instance of the European Communities, be taken into account for the purpose of calculating the sums to be repaid?’

17. Written observations were submitted by SIDE, CELF, and the French, Danish, Netherlands, German and Hungarian Governments, as well as by the Commission and the EFTA Surveillance Authority. All, except the Netherlands and Hungarian Governments, presented oral submissions at the hearing on 27 February 2007 .

III – Assessment

A – First question

18. By its first question, the referring court asks essentially whether, pursuant to Article 88(3) EC, a Member State, which has granted unlawful aid in breach of the notification and standstill requirements established by that provision, must recover that aid from the beneficiary where the Commission subsequently adopts a decision declaring the aid in question compatible with the common market.

21. As regards the Commission’s role, Articles 87 EC to 89 EC establish, inter alia, a procedural framework which enables the Commission to determine whether payments made by a Member State or through State resources constitute aid within the meaning of those provisions. Article 88 EC establishes a procedure pursuant to which the Commission constantly monitors and reviews existing and new aid schemes. That procedure is complemented by Regulation No 659/1999 which lays down detailed rules on the application of Article 88 EC. (11)

22. In order to ensure the effectiveness of the Commission’s role in monitoring and reviewing aid in the Community interest, Article 88(3) EC imposes two unequivocal obligations on Member States when they intend to grant a new aid or alter an existing aid: a notification and a so-called ‘standstill’ obligation. The first sentence of Article 88(3) EC requires the Member States to inform the Commission of a planned aid in due time. The last sentence of Article 88(3) EC imposes an additional obligation on the Member States concerned to refrain from implementing the aid until the procedure provided in Article 88 EC has resulted in a final decision by the Commission. Thus, as the Court pointed out in Adria-Wien Pipeline and Wieterdorfer & Peggauer Zementwerke , (12) Article 88 EC ‘imposes on Member States specific obligations to facilitate the Commission’s task and to prevent faits accomplis for that institution’.

23. Member States may not grant State aid until the Commission has adopted a final decision stating that the aid in question is compatible with the common market. Failure to comply with those obligations renders the State aid unlawful. (13)

25. The importance of the standstill clause in the Community system of review of aid is underscored by the fact that the involvement of the national courts in that system arises as a result of the direct effect of the clause. The standstill clause thus gives rise to rights in favour of individuals, which the national courts are bound to safeguard. (17) It is settled case-law that when Article 88(3) EC is breached the national courts must, in accordance with their national law, draw the necessary consequences, with regard to both the validity of the acts giving effect to the aid and the recovery of financial support granted in disregard of that provision. In particular, the finding that aid has been granted in breach of the last sentence of Article 88(3) EC must, in principle, lead to its repayment in accordance with the procedural rules of domestic law. (18)

26. It is settled case-law that a Commission decision declaring aid compatible only takes effect prospectively. (19)

27. More recently the Court restated this principle in its judgment in Transalpine Ölleitung . Accordingly, ‘[a] Commission decision finding aid that was not notified compatible with the common market does not have the effect of regularising ex post facto implementing measures which were invalid because they were taken in disregard of the prohibition laid down by the last sentence of Article 88(3) EC, since otherwise the direct effect of that provision would be impaired and the interests of individuals, which are to be protected by national courts, would be disregarded. Any other interpretation would have the effect of according a favourable outcome to the non-observance of that provision by the Member State concerned and would deprive it of its effectiveness.’ (20)

28. A number of the interveners in this case have asked the Court to reconsider the principle outlined above and the body of case-law which applied that principle, or at least to distinguish the present case in the light of its specific facts.

29. France has argued, inter alia, that the FNCE and Van Calster cases, which concerned the request for repayment of charges levied in order to finance unlawful aid, differs substantially from the case currently pending before the national jurisdiction. In the present case, it is a competitor of the beneficiary of an illegal aid which requests the national court to order recovery of the unlawful aid. Denmark argued that the present case must be distinguished from the Transalpine Ölleitung case as the latter concerned the enlargement of the circle of beneficiaries of an unlawful aid and is thus not of relevance to the case pending before the referring court. Germany argued that the FNCE , Van Calster and Transalpine Ölleitung cases must be understood as imposing an obligation on the national court to order recovery of unlawful aid even where it has subsequently been found compatible. However, Germany invited the Court to reconsider this case-law in the light of the submissions made by France and Denmark. The Commission argued that an order of recovery of unlawful aid by the national courts would, in the present case, deprive its decision on compatibility of all practical effect. It submits that in the present case an order of recovery by the national court of the aid granted would have the same effect as a Commission decision declaring the aid incompatible and ordering repayment.

30. The notification and the standstill obligations established by Article 88(3) EC constitute, in my view, one of the cornerstones of the State aid rules established by the EC Treaty. Indeed, in his Opinion in the Boussac case, (21) Advocate General Jacobs noted that the obligation to notify proposed aids is of such manifest importance for the functioning of the common market that the obligation must be rigorously observed both as to content and as to form. (22) The Court in its Adria-Wien Pipeline and Wieterdorfer & Peggauer Zementwerke judgment restated that the standstill obligation ‘is the safeguard of the review machinery established by Article 88 EC which, in turn, is essential for protecting the proper functioning of the common market’. (23)

31. In my view, in order to preserve the carefully crafted system of review of State aids, failure to comply with the requirements of Article 88(3) EC must constitute more than a mere procedural irregularity which can be remedied ex post facto by a Commission decision declaring the aid compatible with the common market. Such an approach would considerably reduce the incentives of Member States to comply with Article 88(3) EC and the scope of the Commission’s obligation to review State aid prior to it being put into effect. Infringements of Article 88(3) EC must therefore be subject to the imposition of a dissuasive sanction.

32. Contrary to the arguments of a number of the interveners, I do not consider that an effective sanction for violation of the notification and standstill obligations laid down in Article 88(3) EC would be, inter alia, for the national court to order the recipient of an unlawful aid that was subsequently declared compatible by the Commission with the common market to pay interest on the aid for the period in which it was paid prematurely. Moreover, I do not consider that the possibility for competitors to seek compensation for damages caused by such premature payment would be an effective sanction. It is extremely questionable whether in such circumstances private litigants would have any incentive to bring proceedings before national courts if the present sanction of recovery of the unlawful aid were to be replaced, for instance, by a mere obligation to pay interest for the premature payment of aid or by an action for compensation for damages suffered. Indeed, at the oral hearing the representative of the French Government indicated that it was unlikely that a competitor would be able to prove a causal link between the premature payment of aid and any alleged damage suffered. Such an approach would not act as a cogent deterrent to infringement of Article 88(3) EC and would considerably undermine the possibility of effective review of aid by the Commission in accordance with Article 88 EC.

33. The national courts should thus, in my view, continue to be required in principle to penalise, by ordering the recovery of unlawful aid in accordance with national procedural rules, irrespective of a subsequent decision by the Commission declaring the aid compatible with the common market. This procedure, far from weakening the role of the Commission, by allegedly rendering its final decision declaring an aid compatible of little or no import in some cases, safeguards the Commission’s role in the system of State aid control laid down by Articles 87 EC and 88 EC and ensures that it is not diminished.

34. Moreover, contrary to the arguments of some interveners, I do not believe that it is possible to reinterpret or alter the long-standing case-law of the Court on this matter as recently confirmed in the Transalpine Ölleitung case, or to draw any meaningful distinction on the basis of the factual situation prevailing before the national court in the present case and those in the FNCE, Van Calster or Transalpine Ölleitung cases. It is very clear, for example, from a reading of the FNCE and Van Calster cases that the Court intended to extend to charges collected to finance unlawful aid the general principle that a Commission decision declaring aid compatible cannot retrospectively validate the aid. The Court did not intend to limit that general principle to the repayment of charges. As to its ruling in Transalpine Ölleitung, the Court reconfirmed the long-established principle that it is for the national courts pursuant to Article 88(3) EC to safeguard the rights of individuals against possible disregard, by the national authorities, of the prohibition on putting aid into effect before the Commission has adopted a final decision authorising that aid. In addition and without prejudice to the previous point, the Court considered that, in the light of the very specific facts of the case where some parties had sought the extension of an aid in the form of a tax rebate to them, the national courts when safeguarding individuals’ rights must take the Community interest fully into consideration and must not adopt a measure which would have the sole effect of extending the circle of recipients of the aid. Thus the Court held at paragraph 50 of its ruling that ‘care must be taken by the national courts to ensure that whatever remedies they grant are such as in fact to negate the effects of the aid granted in breach of Article 88(3) EC and not merely to extend it to a further class of beneficiaries’.

35. At the oral hearing the representatives of the French, Danish and German Governments indicated that the ruling of the Court in this case could have far-reaching financial implications. During the period between the Ferring and Altmark Trans and Regierungspräsidium Magdeburg judgments handed down by this Court, payments were made by Member States as compensation for the discharge of public service obligations which might in hindsight fail to satisfy the four criteria laid down in Altmark Trans and Regierungspräsidium Magdeburg and thus be caught by Article 87(1) EC. On the basis of the Ferring case, Member States may not have notified certain payments in the belief that they did not constitute aid.

36. In my view, any alleged ambiguity that may have arisen in the intervening period between the Court’s judgment in Ferring and its judgment in Altmark Trans and Regierungspräsidium Magdeburg with regard to payments by Member States as compensation for services provided in discharge of public service obligations does not appear to be of any relevance in the particular circumstances of the case before the referring jurisdiction. Given that the payments to CELF took place on an annual basis between 1980 and 2002, it seems unlikely that those long-standing payments could have been induced in error as a result of the ruling in Ferring which was handed down on 22 November 2001.

37. I therefore conclude that in accordance with the terms of Article 88(3) EC a Member State, which has granted unlawful aid in breach of the notification and standstill requirements established by that provision, must recover that aid from the beneficiary, even where the procedure under Article 88 EC has resulted in a final decision declaring the aid in question compatible with the common market.

B – Second question

38. The referring court’s second question arises if the first question is answered as I suggest in point 37 above. In that question, the referring court asks whether, for the purpose of calculating the sums to be repaid, unlawful aid paid during the period subsequent to a Commission decision declaring that aid compatible with the common market, but prior to the annulment by the Court of First Instance of the European Communities of that decision, must be taken into account.

39. This question seems to have been prompted by the fact that the Commission on three occasions declared the aid in question compatible with the common market and that on two occasions, to date, the Court of First Instance annulled the Commission’s decisions. By its question, the referring court asks in effect whether such a situation might constitute an exceptional circumstance likely to preclude repayment of the unlawful aid for certain periods.

40. As with the first question, the second question also triggered diverging reactions from the interveners.

41. It is settled case-law that acts of the Community institutions are in principle presumed to be lawful and accordingly produce legal effects until such time as they are withdrawn, annulled in an action for annulment or declared invalid following a reference for a preliminary ruling or a plea of illegality. However, according to Article 231 EC, if an action for annulment is well founded, the Court of Justice declares the act concerned to be void. The annulment of an act leads to its retroactive disappearance with regard to all persons.

42. In the present case the decisions of the Commission dated 18 May 1993 and 10 June 1998 finding the aid to CELF compatible with the common market were annulled by the Court of First Instance in its judgments of 18 September 1995 and 28 February 2002 respectively. Those judgments thus led to the retroactive disappearance of the decisions in question. Considering the answer indicated to Question one above, the third decision of the Commission of 20 April 2004, declaring the aid to CELF paid between 1980 and 2002 compatible with the common market, does not have the effect of regularising those unlawful payments ex post facto and they must, in principle, be recovered by the Member State.

43. The national court in this case must, however, prior to ordering recovery of the aid to CELF, examine whether CELF may entertain any legitimate expectations or whether there exist any special circumstances which would militate against repayment of the aid. In this regard, a number of interveners have argued that, given that the Commission adopted, pursuant to its exclusive competence on the matter, a number of decisions declaring the aid to CELF compatible with the common market, the national court when calculating the amount to be recovered should not take into account the amounts paid during the period subsequent to a Commission decision declaring the aid compatible and the annulment of the decision by the Court of First Instance.

44. I do not share that view. As indicated above, in the normal course of events a Member State should, pursuant to Article 88(3) EC, notify any planned State aid and not put it into effect unless the Commission adopts a final decision declaring the aid compatible with the common market. It is settled case-law that due to the mandatory nature of the supervision of State aid by the Commission under Article 88 EC, undertakings to which aid has been granted may not, in principle, entertain a legitimate expectation that the aid is lawful unless it has been granted in compliance with the procedure laid down in that article. A diligent businessman should normally be able to determine whether that procedure has been followed.

45. Moreover, as pointed out by Advocate General Tizzano in his Opinion in P & O European Ferries (Vizcaya) and Diputación Foral de Vizcaya v Commission, a diligent businessman should also be aware that a Commission decision is liable to be challenged before the Community Courts. The Court also held in Italy v Commission ‘… that, so long as the Commission has not taken a decision approving aid and so long as the period for bringing an action against such a decision has not expired, the recipient cannot be certain as to the lawfulness of the proposed aid which alone is capable of giving rise to a legitimate expectation on his part’.

46. In addition, as the Court of First Instance pointed out, to conclude otherwise would render ineffective the review conducted by the Community judicature of the legality of a Commission decision declaring State aid compatible. The annulment of such a decision would ultimately become a pyrrhic victory, since the negative effects of the aid could not be remedied by recovery of aid. If a Commission decision declaring unlawful aid compatible with the common market were automatically to give rise to legitimate expectations on the part of the recipients of aid, competitors of those recipients or other third parties harmed by the Commission’s decision would have no interest in seeking its annulment.

47. In my view, in the context of the recovery by a Member State of unlawful aid and in the light of the case-law of the Court, the term ‘final decision’ as referred to in Article 88(3) EC must be understood to mean a decision of the Commission declaring aid compatible with the common market which has not been the object of review proceedings pursuant to Article 230 EC within the two-month period laid down in that provision or, where such proceedings have been brought, has had its validity upheld by the Community Courts.

48. I accordingly consider that the answer to the second question should be that the obligation to repay unlawful aid applies to any period prior to the adoption by the Commission of a final decision declaring the aid compatible with the common market, the term ‘final decision’ being understood to mean a decision which has not been the object of review proceedings pursuant to Article 230 EC within the two-month period laid down in that provision or, where such proceedings have been brought, has had its validity upheld by the Community Courts.

IV – Conclusion

49. I therefore consider that the questions referred by the French Conseil d’État should be answered as follows:

(1) In accordance with the terms of Article 88(3) EC a Member State, which has granted unlawful aid in breach of the notification and standstill requirements established by that provision, must recover that aid from the beneficiary, even where the procedure under Article 88 EC has resulted in a final decision declaring the aid in question compatible with the common market.

(2) The obligation to repay unlawful aid applies to any period prior to the adoption by the Commission of a final decision declaring the aid compatible with the common market pursuant to the procedure under Article 88 EC, the term ‘final decision’ being understood to mean a decision which has not been the object of review proceedings pursuant to Article 230 EC within the two-month period laid down in that provision or, where such proceedings have been brought, has had its validity upheld by the Community Courts.

(1) .

(2) – Aid to exporters of French Books, No NN 127/92 (OJ 1993 C 174, p. 6).

(3) – Case T‑49/93 SIDE v Commission [1995] ECR II‑2501. The Court of First Instance, in the first operative part of its judgment, annulled the Commission’s decision of 18 May 1993 declaring certain aids (NN 127/92) granted by the French Government to exporters of French-language books to be compatible with the common market, in so far as it concerns the subsidy granted exclusively to CELF to offset the extra cost involved in handling small orders for French-language books placed by booksellers established abroad.

(4) – 1999/133/EC: Commission Decision of 10 June 1998 concerning State aid in favour of Coopérative d’exportation du livre français (CELF) (OJ 1999 L 44, p. 37).

(5) – Case C‑332/98 France v Commission [2000] ECR I‑4833.

(6) – Case T‑155/98 SIDE v Commission [2002] ECR II‑1179.

(7) – 2005/262/EC: Commission Decision of 20 April 2004 on the aid implemented by France in favour of the Coopérative d’exportation du livre français (CELF) (OJ 2005 L 85, p. 27).

(8) – Article 1 of the decision provides that ‘[t]he aid to the Coopérative d’exportation du livre français (CELF) for processing small orders of French-language books, implemented by France between 1980 and 2001, is aid that is caught by Article 87(1) of the EC Treaty. Since France failed to notify the aid to the Commission before implementing it, the aid was granted unlawfully. It is, however, compatible with the common market under Article 87(3)(d) of the Treaty.’

(9) – Case T‑348/04 SIDE v Commission, pending before the Court of First Instance (OJ 2004 C 262, p. 57).

(10) – See Case C‑39/94 SFEI and Others (‘SFEI’) [1996] ECR I‑3547, paragraph 41, and more recently, Case C‑368/04 Transalpine Ölleitung [2006] ECR I‑9957, paragraph 37.

(11) – Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article [88 EC] (OJ 1999 L 83, p. 1).

(12) – Case C‑143/99 [2001] ECR I‑8365, paragraph 23.

(13) – See Transalpine Ölleitung, cited in footnote 10, paragraph 40.

(14) – See Case C‑354/90 Fédération Nationale du Commerce Extérieur des Produits Alimentaires and Syndicat national des Négociants et Transformateurs de Saumon (‘FNCE’) [1991] ECR I‑5505, paragraph 14; SFEI, cited in footnote 10, paragraph 42; and Case C‑295/97 Piaggio [1999] ECR I‑3735, paragraph 31. Thus a national jurisdiction may not declare an aid incompatible with the common market: see by analogy order in Case C‑297/01 Sicilcassa and Others [2003] ECR I‑7849, paragraph 47. This is without prejudice to the Council’s limited powers under Articles 87(3)(e) EC and 88(2) EC.

(15) – See, for example, FNCE, cited in footnote 14, paragraphs 13 and 14.

(16) – This is without prejudice to the Commission’s power to adopt an interim decision ordering suspension of payment of aid pending its final decision.

(17) – See Case 120/73 Lorenz [1973] ECR 1471, paragraph 8; FNCE, cited in footnote 14, paragraph 11; and SFEI, cited in footnote 10, paragraph 39.

(18) – See, for example, Case C‑71/04 Xunta de Galicia [2005] ECR I‑7419, paragraph 49.

(19) – See FNCE, cited in footnote 14, paragraphs 16 and 17; Joined Cases C‑261/01 and C‑262/01 Van Calster [2003] ECR I‑12249, paragraphs 62 and 63; and Xunta de Galicia, cited in footnote 18, paragraph 31.

(20) – See Transalpine Ölleitung, cited in footnote 10, paragraph 41.

(21) – Case C‑301/87 France v Commission (‘Boussac’) [1990] ECR I‑307.

(22) – See Opinion in ‘Boussac’, cited in footnote 21, point 19. Advocate General Jacobs stressed the necessity to ensure strict compliance with the procedures laid down in Article 88 EC, in particular, in the absence of a procedural regulation on the matter.

(23) – Cited in footnote 12, paragraph 25.

(24) – Case C‑53/00 [2001] ECR I‑9067.

(25) – Case C‑280/00 [2003] ECR I‑7747.

(26) – Case C‑475/01 Commission v Greece [2004] ECR I‑8923, paragraph 18 and the case-law referred to therein.

(27) – See Joined Cases C‑442/03 P and C‑471/03 P P & O European Ferries (Vizcaya) and Diputación Foral de Vizcaya v Commission [2006] ECR I‑4845, paragraph 43 and the case-law cited therein.

(28) – See Case C‑5/89 Commission v Germany [1990] ECR I‑3437, paragraph 14, and Case C‑169/95 Spain v Commission [1997] ECR I‑135, paragraph 51.

(29) – ‘… judicial review by the Community Court of decisions concerning State aid cannot be regarded as an exceptional and unforeseeable event, forming as it does an integral and essential part of the system established by the Treaty for that purpose. A diligent businessman should be well aware of the fact that a Commission decision to the effect that a State measure does not constitute State aid is, within the time‑limit of two months referred to in Article 230 EC, liable to be challenged before the Community Court.’ Judgment cited in footnote 27; see point 153 of the Opinion.

(30) – Case C‑91/01 Italy v Commission [2004] ECR I‑4355, paragraph 66.

(31) – See Joined Cases C‑261/01 and C‑262/01 Van Calster [2003] ECR I‑12249, paragraphs 62 and 63; and Xunta de Galicia, cited in footnote 18, paragraph 31.

(31)– See Joined Cases T‑116/01 and T‑118/01 P & O European Ferries (Vizcaya) and Diputación Foral de Vizcaya v Commission [2003] ECR II‑2957, paragraph 209.