C-120/73

with proper diligence if it omitted to which is granted without being define its attitude within a reasonable notified; in the event of notification, period, guided by Articles 173 and it operates during the preliminary 175, which provide for a period of period, and where the Commission two months. sets in motion the contentious procedure, up to the final decision. As 3. When this period has expired, the regards the whole of this period it Member State concerned may confers rights on individuals which the national courts are bound to implement the plan, but the requirements of legal certainty safeguard. involve that prior notice should be 7. While the direct effect of the last given to the Commission. The aid sentence of Article 93 requires thereupon comes under the system of national courts to apply this existing aid. provision without any possibility of its being excluded by rules of national 4. The objective pursued by Article law of any kind whatsoever, it is for 93 (3), which is to prevent the the internal legal system of every implementation of aid contrary to the Member State to determine the legal Treaty, implies that this prohibition is procedure leading to this result.

In Case 120/73

Reference to the Court under Article 177 of the EEC Treaty by the Verwal­ tungsgericht (Administrative Court) of Frankfurt-on-Main for a preliminary ruling in the action pending before that court between

GEBR. LORENZ, GMBH, 675 Kaiserslautern, Denisstraße,

and

FEDERAL REPUBLIC OF GERMANY, represented by the Bundesamt fur gewerb-

Advocate-General: G. Reischl Registrar: A. Van Houtte

gives the following

JUDGMENT

Issues of fact and of law

I — Facts and procedure In accordance with Article 93 (3), first sentence, of the Treaty, the Commission The facts of the case, the matter referred was notified of the draft law by note and the observations submitted under verbale dated 22 April 1969. Other plans Article 20 of the Statute of the Court of included in the same programme had Justice are described in the report for the already been notified previously (20 hearing as follows: February 1969), or were so during the next few months (9 June and 19 During 1968, a draft law providing for September 1969). In the course of the grants to be made available to support parliamentary procedure for adoption of investment in certain regions was drawn the draft, additional information — up by the Government of the Federal mainly concerned with some amend­ Republic of Germany as part of a ments adopted at the second reading — general scheme of aid for regional was given to the Commission on 20 June economic development. 1969 in the multilateral consultations

JUDGMENT OF 11. 12. 1973 — CASE 120/73

August 1969. this provision still apply if the The Commission's staff did not complete procedure in accordance with the its report for the Commission on the set second sentence of Article 93 (3) of of plans notified between February and the EEC Treaty, in spite of the September 1969, until 18 December Commission having been informed 1969. The Commission took the view by the Member State in sufficient that the proposed aid scheme was not time, is not initiated until after the compatible with the common market, system of aid has come into effect? and accordingly initiated the procedure under Article 93 (2) of the Treaty on 13 (d) If question (b) is answered in the January 1970. negative and question (c) in the affirmative, is the making of a 'final The plaintiff in the main action, a decision' a precondition of the transport undertaking, wished to validity of the proposed national construct a warehouse and applied to law, and must a national law the defendant in the main action for a enacted contrary to this provision be certificate confirming the value to the regarded as invalid or inapplicable economy of its planned investment, until the decision has been reached? which was necessary in order to obtain a

decision? following questions for a preliminary ruling: As to the first question, the national court favours a reply in the affirmative, (a) Has the third sentence of Article particularly in view of the requirements 93 (3) of the EEC Treaty to be of legal certainty and the principle which interpreted as meaning that the holds that all legal procedure must Commission has in any case to reach terminate in a decision. a final decision, i.e. even when the proposed national law has been held As to the second, the Verwaltungsgericht is far from certain that the Commission's by the Commission to be compatible with Article 92 of the EEC Treaty? failure to speak or act can be construed as an indication of approval.

LORENZ v GERMANY

The same would be true in particular to any law whereby the of a decision by the Court of Justice under Articles 169 and 170 of the system of aid is introduced. Treaty, that the State concerned has In respect of the last question, the failed to fulfil an obligation. According Frankfurt Verwaltungsgericht considers to Article 171, the Member State must that even if the third sentence of Article take the necessary measures to comply 93 (3) is not direct in its effect, the with the judgment of the Court of national court is competent to hold that Justice. a breach of the Treaty has occurred and As regards new aid, on the other hand, to attach to it the legal consequence of since the requirements of maintaining nullity, by reason precisely of the fact certainty and confidence in the law are that this Community provision is by not involved, the scheme of Article 93 nature a formal condition of validity for national laws. (3) is more exacting.

Governments of the Federal Republic of its infringement? Germany and the United Kingdom. As to the first point, the Commission is Oral observations were heard from the of the opinion that the obligation to Commission, represented by its agent, refrain from putting the measures into Mr Karpenstein, the German Govern effect cannot depend solely on the ment, represented by Mr Seidel, Commission's initiation of the procedure Regierungsdirektor, and the United set out in Article 93 (2). This obligation

JUDGMENT OF 11. 12. 1973 — CASE 120/73

sentence of Article 93 (3) merely serves soon as notification has been given, to extend that obligation. ceases either when the Commission

In a draft regulation submitted to the procedure is not commenced until after Council on 18 April 1966 on the the period for consideration has elapsed, application of Article 93, the it ought to be treated as a procedure Commission envisaged a period the against an aid scheme already existing, normal duration of which would be 8 and as such be effective only as to the future. weeks, and which would not in any case exceed 16 weeks, at the end of which As regards the consequences of a breach Member States might, in the absence of of the prohibition against putting the any express decision, proceed to put the aid scheme into effect, the Commission aid scheme into effect. cites the judgments of the Court of 15 However, it is conceded by the July 1964 (Case 6/64, Costa-Enel, Rec. Commission that since the draft was not 1964, p. 1141) and 19 June 1973 (Case adopted by the Council, the suggestion 77/72 Capolongo, not reported) as above is open to the criticism, already recognizing the direct of the final expressed by the court referring the sentence of Article 93 (3). questions, that it lacks precision, But this direct effect cannot be limited contrary to the requirement of legal exclusively to cases where the

Such a duty could be restriction does not necessarily invalidate supported by the sanction of proceedings the national measure which has been put for failure to fulfil an obligation. into effect. All that is required is that the However, this kind of notification would national courts declare it not to be not have to be couched in the form of a applicable for as long as the restrictive formal decision within the meaning of obligation subsists. Article 189; moreover, it could not have The replies suggested by the the effect of excluding a subsequent Commission to the questions referred are review, this time under paragraphs 1 and as follows: as to the first question, the

If the Thus, the prohibition against putting the Commission fails, within a reasonable aid scheme into effect, which applies as time, to initiate the procedure under

Article 93 (3), second sentence, then the It is evident from the general scheme of prohibition against implementation Article 93 that Member States are free to lapses. exercise their own judgment in The Commission observes that in the implementing and applying their existing present dispute it considers the purposes systems of aid, subject to the of the law of 18 August 1969, taken as a requirement of compatibility with the whole, to be acceptable. It wishes merely common market expressed in Article 92 to amend it in certain respects and to and that of scrutiny by the Commission restrict its scope. That is why the expressed in Article 93, particularly in Commission informed the Federal paragraph 2. Government that it regarded the German As regards the control exercisable over regional economic subsidies as aid new plans for granting aid under Article already in existence, so that the 93 (3), the United Kingdom Government procedure initiated on 13 January 1970 observes, firstly, that there is no definite did not prevent that law from being put requirement that the Commission must into effect pending a final decision. give its approval or authorization The reply to the third question depends expressly. The absence of authorization on when the procedure was initiated. does not prevent a system of aid from Initiation of the procedure, if done being introduced or altered.

market. The third sentence of Article 93 As to the fifth question, the Commission considers that both the normal (3) relates exclusively to the procedure restriction during the examination above, under Article 93 (2). period and the extended restriction The only duty laid upon Member States, provided for in the third sentence of then, is to notify proposed measures for Article 93 (3) are of direct effect. Failure granting aid and to suspend those to observe this restriction would not, measures, if the Commission considers however, result in nullity. The national them to be incompatible with the courts could declare the scheme not to common market and initiates without be applicable until the Commission's delay the procedure under Article 93 (2).

JUDGMENT OF 11. 12. 1973 — CASE 120/73

On an overall analysis of the Treaty Even if it is conceded, contrary to the provisions applicable in respect of aid, opinion of the United Kingdom the German Government observes that Government, that the Commission is the prohibition in Article 92 (1) does not bound, under the terms of Article 93 (3), apply to all grants of aid but only to in every instance to make a final those which affect trade between decision, the fact that Article 93 contains Member States and distort competition. no general prohibition against granting That is why the prohibition is addressed aid makes it clear that failure on the part solely to Member States and has no of the Commission to take action within

1185). The existence of the procedure for be in the negative. According to Article 93 (3), the control exercised over aid failure to fulfil an obligation does not schemes makes use of a twofold affect the argument. procedure. The compulsory notification In answer to the first question, the by a Member State of its proposals to United Kingdom Government submits grant aid is to enable the Commission to that the Commission is not required by give its opinion, either that there is no Article 93 (3) to reach a final decision in objection to the introduction of the every case, even where it considers the proposed scheme, or that since some proposals to be compatible with the objections do appear a formal scrutiny common market. has been commenced.

93 (2). adopt during the initial period measures The third question should be answered which might later be prohibited under in the negative since any procedure the investigation procedure.

Neither the wording nor the purpose of in Article 93. Moreover, the same view Article 93 (3) requires the Commission was maintained by Mr Advocate-General to give a final decision at the end of the Mayras in Case No 70/72 (Commission notification procedure. Since the v Federal Republic of Germany). The prohibition in Article 92 does not have period within which the Commission direct effect, it would be sufficient for must make known any objections must the Commission to make known by be gauged, in each case, in the light of informal means that it has no objection the urgency of the aid proposed and the to the proposed aid. Even where the needs of the Commission regarding Commission terminates the notification information. procedure by initiating the investigatory If the Commission has given a procedure mentioned in the second favourable opinion, any subsequent sentence of Article 93 (3), a formal reservations it may have only entitle it to decision would not be necessary, since it initiate a procedure under Article 93 (2), would be incompatible with the purely which does not have suspensorysuspensory effect.

It is necessary period for reaching an opinion evident from the reasoning of the Court on the aid proposals notified has elapsed in Case 34/67 (Judgment of 4 April (question two), the opinion of the 1968, Luck, Rec. 1968, p. 370) that where German Government is that the Community regulations having direct restriction based on the first sentence of effect are concerned, the national courts Article 93 (3) subsists only for a certain may adopt measures which guarantee period which varies according to the the precedence of Community law, particular case and that when that without necessarily having to declare the national law void. period has elapsed the aid plan, if properly notified, may be implemented. Furthermore, the national law adopted This was the result envisaged by the in breach of the prohibition expressed in Commission in its draft regulation on the last sentence of Article 93 (3) is not the application of some of the provisions deprived of effect permanently, but only

Paragraph 1, concerning existing aid, enables the Commission, after giving notice to the parties to submit their comments as described in paragraph 2, to require the Member State concerned to abolish it or alter it within a period of time to be determined by the Commission.

Paragraph 3 institutes prior control of plans to grant new or alter existing aid and provides that '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 common market having regard to Article 92, 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'.

LORENZ v GERMANY

3 In stating that the Commission shall be informed of plans to grant new or alter existing aid 'in sufficient time to enable it to submit its comments', the draftsmen of the Treaty have sought to provide this institution with sufficient time for consideration and investigation to form a prima facie opinion on the partial or complete conformity with the Treaty of the plans which have been notified to it.

It is only after being put in a position to form this opinion that the Commission is bound, if it considers the plan incompatible with the common market, to initiate without delay the contentious procedure, provided for in Article 93 (2), by giving notice to the Member State to submit its comments.

4 According to the last sentence of Article 93 the Member State shall not put its proposed measures into effect until this procedure has resulted in a final decision.

JUDGMENT OF 11. 12. 1973 — CASE 120/73

5 On the other hand although it is in the interests of good administration for the Commission, when, at the end of the preliminary examination, it considers that the aid conforms with the Treaty, to inform the State concerned, it is not however bound to take a decision thereon within the meaning of Article 189 of the Treaty, since Article 93 requires such a step only at the end of the contentious procedure.

It is not possible to conclude that the measure of aid is compatible with the Treaty from the fact that the Commission did not consider itself obliged to initiate the contentious investigation procedure within the reasonable period referred to above.

Article 93 (1) requires the Commission, in cooperation with Member States, to keep under constant review all existing systems of aid.

Aid implemented, during the Commission's silence, after a period necessary for its preliminary examination, is thus subject, as an existing aid, to the provisions of Article 93 (1) and (2).

6 In the first place, therefore, it is proper to reply to the questions put that Article 93 (3) of the Treaty must be interpreted as meaning that if the Commission, during the preliminary period, arrives at the conclusion that there is no need to initiate the contentious procedure, it is not bound to issue a decision within the meaning of Article 189.

Thus the direct effect of the prohibition extends to all aid which has been implemented without being notified and, in the event of notification, operates during the preliminary period, and where the Commission sets in motion the contentious procedure, up to the final decision.

9 As regards the second part of this question, while the direct effect of the prohibition in question requires national courts to apply it without any possibility of its being excluded by rules of national law of any kind whatsoever, it is for the internal legal system of every Member State to determine the legal procedure leading to this result.

Costs

10 The costs of the Governments of the Federal Republic of Germany and of the United Kingdom, as well as those of the Commission of the European Communities, which have submitted observations to the Court, are not recoverable, and as these proceedings are, in so far as the parties to the main action are concerned, a step in the action pending before a national court, the decision on costs is a matter for that court.

On those grounds,

Upon reading the pleadings; Upon hearing the report of the Judge-Rapporteur; Upon hearing the observations of the Government of the Federal Republic of Germany, the Government of the United Kingdom and the Commission; Upon hearing the opinion of the Advocate-General; Having regard to the Treaty establishing the European Economic Community, especially Articles 92, 93, 173, 175 and 177; Having regard to the Protocol on the Statute of the Court of Justice of the European Economic Community, especially Article 20;

3. The direct effect of the prohibition on the Member State concerned from putting its proposed measures into effect extends to all aid which is granted without being notified and, in the event of notification, is granted during the preliminary period, and up to the final decision where the Commission sets in motion the contentious

procedure. As regards the whole of this period it confers rights on the individual which the national courts are bound to safeguard.

4. While the direct effect of the last sentence of Article 93 compels national courts to apply this provision without it being possible to object on the grounds of rules of national law, whatever they may be,

LORENZ v GERMANY

it is for the internal legal system of every Member State to determine the legal procedure leading to this result.

Lecourt Donner Sørensen Monaco Mertens de Wilmars

Mr President, investment grants and the modification Members of the Court, of tax and premiums legislation. Its principal effect was to grant an Today, I have the honour for the first investment subsidy of 10 % from time — as required by Article 166 of the taxation sources for construction or EEC Treaty — 'with complete purchasing costs, to taxpayers in areas impartiality and independence, to make, along the East-West border, Federal in open court, reasoned submissions'... Development regions or Federal They concern four references (119/73, improvement areas, who construct or 120/73, 121/73 and 141/73) from the improve business premises or plant after Frankfurt Verwaltungsgericht, made by 31 December 1968. The Commission of orders dated 19 March and 28 May 1973 the European Communities was and joined, for the purpose of having informed of the proposals in accordance common oral proceedings, by an order with Article 93 (3) of the EEC Treaty, of this Court of 18 September 1973. by means of a note verbale from the To enable the proceedings to be more Permanent Representative of the Federal easily followed, I should like, by way of Republic of Germany dated 22 April introduction to say this, 1969, after the draft law had had its first In the course of 1968 the Government of reading in the Bundestag. The the Federal Republic of Germany drew communication was accompanied by the up, as part of a programme for regional draft law and included an explanation development, a draft law providing for that the draft was only a part of a wide

1 — Translated from the German.