Court of Appeal: Aer Arann must pay €3.2 million after benefitting from unlawful State aid

The court rejected a submission that the State was not entitled to recover the monies because the airline company had entered examinership in 2010. It was argued that the Commission’s ruling made the State a contingent creditor and was therefore precluded from recovering monies under the examinership regime. The court also rejected the submission that the principle of res judicata applied to prevent recovery by the State.

Background

In August 2010, an interim examiner was appointed over Aer Arann. Three months later, a scheme of arrangement came into effect following a court order pursuant to section 24 of the Companies (Amendment) Act 1990. As with all examinerships, the scheme of arrangement limited the ability of creditors to recover debts which were owed by Aer Arann. Prior to the examinership application by Aer Arann, Ryanair had made a formal complaint to the EU Commission in relation to unlawful State aid. The complaint related to an air travel tax imposed by the State on flights, and which increased for longer journeys. As such, it was said that airlines like Aer Arann benefitted from the differential tax rate as it operated short-haul flights.

Importantly, while State bodies were involved in the examinership process, neither the court nor any other party was advised of the complaint against Aer Arann. As such, the scheme of arrangement was approved in November 2010. A formal investigation by the Commission was announced in 2011.

In 2012, the Commission determined that the tax favoured airlines operating short-haul flights, which meant in practice that Irish airlines benefitted from State aid. Accordingly, Aer Arann, Aer Lingus and Ryanair were required to repay certain monies to the State.

While Ryanair and Aer Lingus challenged the Commission’s decision in the European Courts, Aer Arann did not. Accordingly, Aer Arann never contended that the requirement of the Minister to recover the unlawful State aid was contrary to any principle of EU law.

However, Aer Arann did not repay any monies from before the date of the scheme of arrangement. It was argued that the State was a contingent creditor under the scheme and that, accordingly, it had lost the right to recover any monies. It was said that the State had failed to notify Aer Arann of its position as a contingent creditor under the terms of the scheme and that the State was therefore precluded as a matter of Irish law from recovery.

The High Court did not agree with this assessment. It was held that that the Commission’s State aid decision was not taken until July 2012 meaning that there was no actual or contingent liability for the State at the time of the examinership. Further, it was held that the supremacy of EU law meant that national law measures could not justify the refusal of recovery.

The decision was appealed to the Court of Appeal. It was argued that the State was a contingent creditor at the time of the arrangement because it was a creditor in respect of a debt which only became due on the happening of an event which might have occurred, and the scheme of arrangement was intended to apply to future creditor claims. Further, it was stated that the principles of legal certainty and res judicata operated to prevent the Minister from recovering the monies.

Court of Appeal

In a 79-page judgment, Mr Justice Brian Murray began by outlining the applicable legal principles to the recovery of unlawful State aid. It was noted that any party was entitled to bring an annulment action against a decision of the EU Commission and that a Member State may be excused of an obligation to recover monies only where such recovery was “absolutely impossible.” Further, it was held that the recovery of monies was not punitive and was designed to restore the status quo ante. Finally, it was noted that a Member State was obliged to recover all State aid monies in full and could not compromise a claim.

The court ruled that a beneficiary of State aid could not raise an issue of res judicata or legal certainty before a national court in order to resist the enforcement of a Commission decision if they had failed to challenge that decision in an annulment action. Accordingly, it was no longer open to Aer Arann to challenge the Commission’s decision in the case (Commission v. France applied).

The court also held that, while Aer Arann had framed its case in res judicata/legal certainty, it was in fact trying to rely on the State’s failure to advise it of the State aid complaint to resist recovery. As such, the court held that this was essentially a legitimate expectations case. It was held that mere silence could not generate any legitimate expectation where, owing to the State’s obligations under EU law, even an express representation could not create such expectation.

The above points were held to be fatal to the appeal. However, the court went on to consider the doctrines of legal certainty and res judicata under EU law. It was noted that, in Klohn v. An Bord Pleanála Case C-167/17, the principle of res judicata only applied to legal claims that had been ruled upon. Accordingly, the decision of the High Court to grant the scheme of arrangement could not prevent the recovery of State aid because the issue of State aid was not before the court at all.

Further, it was held that a decision as to whether an aid measure was compatible with the internal market was within the exclusive competence of the Commission and that jurisdiction could not be displaced by the res judicata effect of a national court decision (CSTP Azienda della Mobilita SpA v. European Commission Case C-587/18P).

Finally, it was held that, even if the doctrine of legal certainty could have precluded recovery in the case, it was necessary for Aer Arann to have brought an annulment action. In the circumstances, the court held it was “absolutely clear” that Aer Arann’s case had to fail and that it did so “by a distance that mandates refusal of its request for a reference.”

On the issue of whether the State was a contingent creditor, the court considered the test in Re Nortel Gmbh (in administration) [2013] UKSC 52 in great detail. Ultimately, it was held that the provisions of the Companies (Amendment) Act 1990 meant that the State was not a contingent creditor prior to any Commission decision directing recovery of State aid. In particular, the fact that the State could not compromise a State aid case pointed strongly to the conclusion that it was not a creditor within the meaning of the 1990 Act.

Conclusion

The court dismissed the appeal.