C-223/85

Rijn-Schelde-Verolme Machinefabrieken en Scheepswerven NV ('RSV'), was at all material times the ultimate parent company of a large Dutch group engaged in a variety of manufacturing and engineering oper- The last paragraph of the letter reads: ations. It brings this action under Article 173 of the EEC Treaty to challenge Commission Decision 85/351 dated 19 December 1984 (OJ 1985, L 188, p. 44) which found in Article 1 that certain aid granted by the Netherlands to RSV was incompatible with the common market 'The aid offer described in this letter will be under Article 92 and ordered the set out in detail in a letter to RSV. In that Netherlands to recover the aid (Article 2) connection, I shall reflect as to the appro- and to inform the Commission within two priate formulation of the aid offer and of months of notification of the decision of the the conditions. Those conditions may also steps taken to comply with it (Article 3). cover matters other than those mentioned in this letter if that appears desirable to me in order to attain the aim pursued by the aid. Subsequently, the aid offer will have to be approved by the European Commission. As long as such approval is not forthcoming, the offer is in no way binding. Other It is common ground that RSV was in diffi- conditions considered appropriate in the culties before 1979 and that Government aid light of the views stated by the European had been granted to it with the Commission may be laid down.' Commission's approval. By letter of 1 June 1979, the Minister for Economic Affairs told the President of the Second Chamber of the States-General that RSV had concluded that it must withdraw from large-scale shipbuilding, offshore equipment manufacturing and repairing carried out by The parties disagree as to the effect of this various subsidiaries including one called letter. It is agreed, however, that it was sent VDSM'. It had therefore been decided that to the Commission and that the Commission the RSV group should be relieved, retroac- took no action following its receipt.

The Minister for Economic Affairs put forward proposals for aid further to that already granted in a letter to RSV dated 17 March 1980, and in modified form by letter On 19 November 1980, a multilateral of 23 April 1980. The proposals in the latter meeting between representatives of the were accepted by RSV in writing. The offer Commission and the Member States was as accepted was to pay HFL 280 million in held to discuss shipbuilding. One of the respect of RSV's losses since 1 January 1979 topics discussed was the Dutch relating to large shipbuilding and offshore Government's intention to grant further aid construction and the cessation of ship- to RSV. Although the Commission has not building by V D S M subject to repayment if supplied the Court with the minutes of that the losses proved to be less. The State meeting, it stated in its reply to the second further undertook to contribute 50% of of the Court's written questions that in such losses between HFL 330 and October 1980 it had received from the 400 million and 8 0 % of losses above Dutch Government a document headed HFL 400 million. The possibility was left 'Problems facing RSV' which set out open that the State's contribution would be proposed new aid to RSV on the basis of higher if the Dutch National Investment which the Commission sent out a telex to Bank advised the Minister that such higher the other Member States dated 4 November losses would result in an unacceptable 1980 in advance of the multilateral meeting. accounting position for RSV. A further Following that meeting, the Dutch HFL 30 million was to be paid in respect Government formally notified the of the costs of administration and of Commission of the proposed aid by telex of the reduction of capacity. Moreover, 12 December 1980 and letter of 26 February interest-free advances were to be made 1981, which seem to incorporate by

The losses relating to large shipbuilding and heavy offshore engineering ('ROS losses') however continued to rise and RSV and the The letter of 6 April 1982 was not itself Ministry came to a new arrangement sent to the Commission. However, the contained in a letter of 6 April 1982. The Government notified the new arrangement State put an upper limit on its contribution by telex of 19 July 1982, transmitted to the to the ROS losses. A distinction was made Commission by the Dutch Permanent between losses connected with the manu- Representation in Brussels on 20 July 1982. facture of an offshore dredging platform It was said that the final Government known as the 'Simon Stevin' and other ROS contribution to the ROS losses exceeded by losses. HFL 294 million what was foreseen in the middle of 1980, and reference is made to the telex of 12 December 1980. That figure seems to me to be too low if reference is made to the 1980 correspondence. For the other ROS losses, the State's contri- However, the Government stated that RSV bution was limited as follows. The first was entitled to charge the ROS losses to the HFL 330 million were said to be already State by virtue of the letter of 1 June 1979 covered. The State now undertook to pay which had been sent to the Commission. 100% of losses between HFL 330 and T h e Government went on to explain what 400 million, 8 0 % of losses between had happened subsequently, namely the HFL 400 and 470 million and nothing decision not to set up ROS and to ask RSV more (thus a further HFL 126 million in to supervise the carrying out of the orders all). For the Simon Stevin losses, the State obtained in the name of R O S ; without agreed to pay 8 0 % of losses up to referring specifically to the letters of March HFL 210 million, thus a maximum and April 1980 or of April 1982, the

The Government replied by telex of 12 August admitting that HFL 286 million had been made available to RSV at the end of The Government had subjected the aid April 1982 (though in fact 47.5 million had which it had given to the condition that it been paid in December 1981) in pursuance would be repaid if RSV went into liqui- of the State's obligation to contribute dation. It appears from RSV's answer to the towards the cost of phasing out large-scale fifth of the Court's written questions that shipbuilding though the largest part of the the State is seeking to recover a total of sum had been paid in connection with the HFL 892 934 037.04 plus interest and costs cancellation of the Simon Stevin platform. from RSV. Of that amount, HFL 576 The Government added that cautious million is said to relate to the ROS losses optimism for the future of the RSV group since April 1983. Although it seems to me as a whole was justified. that the figure should be HFL 596 million as already stated the discrepancy is not material for present purposes. RSV has attacked the administrative orders requiring repayment and the matter is still before the By letter of 8 October 1982, the national courts. Commission informed the Dutch Government that it was opening the Article 93 (2) procedure in respect of the aid. The Commission noted that the Government had failed to notify the aid before paying it out In the present case, RSV thus challenges a and reserved the possibility of applying the decision taken over two years after the procedure laid down for such breach of the opening of the Article 93 (2) procedure, rules of the Treaty. namely on 19 December 1984.

The Commission raises an issue as to the arrangements (by limiting them rather than admissibility of the action. It suggests that, extending them) which in turn flow from since RSV will be obliged to repay the aid the letter of 1 June 1979 which the in any case, it has no interest in bringing the Commission approved. The Commission action. RSV replies that the recovery obli- argues, rightly in my view, that the letter of gation imposed by the decision is relied on 1 June 1979 is not an agreement, nor does it by the Government in the national institute an aid measure: rather, it is the proceedings and, if RSV were to win on the statement of an intention to grant aid, the domestic law grounds raised in those details of which were to be set out in a proceedings, the decision would constitute letter to RSV. The Minister described that the Government's sole justification for letter as such a statement in his letter to claiming repayment. It therefore has an RSV of 17 March 1980. In any case, the interest in challenging it. That I think is Commission did not approve that letter. right but, in any event, it seems to me that a Nothing that happened subsequently seems decision ordering a Member State to to me to prevent the Commission from recover substantial sums of money paid by saying in these proceedings that it took the way of incompatible aid to an undertaking letter at its face value and that its silence is is of direct and individual concern to that not to be taken as approval of an aid undertaking within the meaning of Article programme therein set out. Moreover, it is 173 of the EEC Treaty. The action is in my to my mind clear that the Commission was view clearly admissible. not aware of the open-ended arrangements made in the letters of 17 March and 23 April 1980 at that time or when the April 1982 arrangements, which for the first time gave the Commission specific details, were notified to it. There was no justification for the Ministry of Economic Affairs to tell RSV (as it did in its letter of 3 April 1981) that the Commission had approved the aid set out in those two letters. In any case, RSV challenges the decision on eight Article 93 (3) requires Member States to grounds. The parties followed this scheme notify 'plans to . . . alter aid' and on any in their pleadings and it is reflected in the view the 1982 arrangements were alteration report for the hearing. I shall, therefore, of aid already given or promised. It seems follow it here. to me that there is no substance in RSV's first argument and I would reject it.

In my view, the Commission is not entitled to open an Article 93 (2) procedure and then leave it in abeyance or postpone a decision indefinitely. It must go on to reach a decision within a reasonable time, in the The Commission's response is that during light of the circumstances prevailing, both in the 26-month period it regularly consulted order to remove such part of the aid as is the Dutch Government on the developments incompatible with the common market and in the liquidation of RSV. Refraining from to let the persons involved know where they taking a decision shows, not lack of stand. That this in inherent in the procedure diligence or failure to observe the rules of seems to me to be accepted by the Court good administration, but an appreciation of in Case 59/79 Fédération nationale des the difficulties caused by the decline of a producteurs de vins de table et vins de pays v large group. RSV's situation was so complex Commission [1979] ECR 2425 where it is and the implications of its collapse so said: 'If the Commission decides to initiate a serious that it was impossible to reach a procedure pursuant to the provisions of decision earlier. Article 93 of the EEC Treaty it has a reasonable period within which to complete this procedure'.

earlier so that all the parties knew where notification, which it puts at 19 July 1982. they stood. In those circumstances, its delay The aid was in fact notified to the is unjustified. The Commission's breach of Commission on 20 July 1982, the date on this requirement to proceed with due which the Dutch Government's telex of 19 diligence is more than merely formal: it has July 1982 was transmitted to it by the Dutch a practical consequence which defeats the Permanent Representation in Brussels. The object of Articles 92 and 93. It perpetuates parties seem to agree that the Article 93 (2) the effect of incompatible aid on the market procedure was opened on 8 October 1982, and risks leaving the parties in a false the date on which the Commission wrote to position as with the passage of time, even if the Dutch Government announcing that it they cannot assume that silence amounts to was opening the procedure and that the approval affirmatively, they may not unrea- date of 14 October given in the decision is sonably assume that the aid is not objected erroneous. RSV takes this period of two to. It does not seem to me possible to say months, as I understand it, from the group that RSV was not affected by the delay. of cases decided on 11 December 1973, Even discounting that it had been told notably Case 120/73 Lorenz v Germany (wrongly) in April 1981 that the aid was [1973] ECR 1471 and from Case 84/82 approved by the Commission, it was entitled Germany v Commission [1984] ECR 1451. to proceed on the basis that if the Commission did not diligently give notice or at any rate warning that the aid was not or might not be approved, the aid would not have to be repaid.

This is not, however, a case where planned aid was notified. The aid had already been granted or existing aid altered before notifi- cation. Instead of seeking a declaration that Where aid has been already given, though the aid had been introduced in breach of not in accordance with Article 93 (3) of the Article 93 (3) of the Treaty, the Treaty and notice is subsequently sent to the Commission by letter of 8 October 1982 Commission, the Member State is not held told the Government that it had decided to up. It can be said that there is not the same open the procedure provided for in Article urgency to know if the aid is approved and 93 (2) and it invited the Government to that if aid has been operated for some time present its observations within two months. it may take the Commission longer to Other Member States were notified on 10 decide whether the aid is approved than if it November 1982 and third parties by notice has to consider plans for aid. in the Official Journal on 20 November 1982.

letter of 8 October 1982 when the the Commission does not (a) state the Netherlands Government was asked to grounds on which it asserts that the submit its observations, or whether it was measures in question constituted 'State aid' opened on 10 or 20 November 1982 when within the meaning of Article 92 (1), (b) the Member States and third parties were does not explain how those measures affect respectively notified, the procedure was inter-State trade and competition, and (c) opened within a reasonable time in all the gives inadequate reasons for refusing to circumstances of the case and without exempt the measure under Article 92 (3), vitiating delay. There is no suggestion here especially since the earlier measures had that anyone was prejudiced by the delay to been exempted. 8 October or 20 November 1982. In a case where prejudice is shown (as in Germany where Member States were not properly The Commission's reply to the first is that, consulted or in Lorenz where a Member when a Member State considers that a State was not able to proceed to implement measure is an aid and notifies it as such and aid because of the delay) different consider- the Commission agrees, there is no need to ations may arise. spell out why. In any case, the Commission considers it self-evident that for the State to advance HFL 294 (or 286) million to RSV constitutes a State aid. I would therefore not accept the third argument as a ground for quashing the decision. I agree with the Commission. There could be no clearer case of 'aid granted by a Member State' than the direct payment of large sums to cover an undertaking's debts. There was no issue between the If I had come to the opposite view, namely Commission and the Dutch Government on that the procedure must be opened within that score, and RSV does not contest, as a two months of notification, I would not matter of substance, the payment's charac- accept the Commission's argument that a terization as aid (as opposed to its effect on request for information stops time running trade and competition and its compatibility until the answer is received as otherwise the with the common market, on which there is administration could in all cases and more an issue between the parties); rather, it than once extend time by asking for infor- alleges that the Commission should have mation. made a specific finding to that effect, instead of merely implying it, and that failure to do so constitutes a fatal lack of reasoning. This is too formalistic. The Commission was here entitled to take for RSV's fourth argument, based on Article granted what was not contested by the 190 of the EEC Treaty, is that the reasoning Dutch Government and is not now of the decision is insufficient or at least contested by RSV, namely that the sums incomprehensible and/or contradictory. paid as aid by the government are indeed aid.

In Joined Cases 296 and 318/82 Netherknds and Leeuwarder Papierwarenfabriek BV v Commission ('LPF), judgment of 13 March 1985, the Court stated that Article 190 requires reasoning which is 'sufficient to permit a review by the Court and gives those concerned an appropriate opportunity to express their views on the accuracy and 'Such aid intended to preserve production relevance of the alleged facts and circum- capacity which market forces would ordi- stances' (paragraph 21). In that case, whilst narily cause to go out of business, allowing satisfied that the decision's reasoning was expansion by more efficient competitors, is sufficient on the question whether the likely to have a particularly adverse effect measure constituted aid, the Court held on competitive conditions. The company (paragraphs 22-24) that there was no exports over 7 0 % of its output of ceramic reasoning on the criteria relating to the sanitary ware to the other Member States. effect on trade or distortion of competition Hence the aid is likely to affect trade within Article 92 (1) because 'the contested between Member States and distort compe- decision does not contain the slightest infor- tition within the meaning of Article mation concerning the situation of the 92 ( 1 ) . . . ' (Official Journal 1985, L 59, relevant market, the place of [the applicant] p. 22). in that market, the pattern of trade between Member States in the products in question or the undertaking's exports'. The reasoning on the inability of the aid to qualify for exemption under Article 92 (3) (c) was also held to be defective since the Commission confined itself to a recitation of its belief that the aid would not facilitate the devel- opment of certain economic areas and that the maintenance of capacity in the relevant sector was not in the common interest: it did not indicate whether the Commission took into consideration the fact that the aid was part of a restructuring programme Even on that basis, and without requiring under which LPF was to diversify into high- too detailed an exposition of the quality products, reducing its capacity and Commission's reasoning, I am of the market share. opinion that the contested decision does not satisfy the requirements of Article 190 as

interpreted by the Court in respect of the relevant part of which was designed to close two related issues of the aid's effect on down the large-scale shipbuilding and trade and competition and its compatibility offshore engineering divisions of RSV, but with the common market. In the first place did not feel able to approve the 1982 it contains practically nothing on the arrangements which were, so far as the relevant market or RSV's share of that Commission was aware, designed to cover market and there can be no suggestion here unanticipated further costs of the same (as there was in Case 40/85) that the operation. There may be good reasons for Commission suffered from any lack of this, but if there are they should be spelled cooperation since the Commission admitted out. in its reply to the first of the Court's written questions that it had not sought any infor- mation from the Dutch Government on the question of RSV's market share in the offshore engineering sector. Secondly, the Commission says nothing to substantiate the assertions in the decision that the relevant market was suffering from overcapacity. Thirdly, and more seriously, in part IV of the decision it is said: 'According to the information which the Commission has in its possession concerning the sector, which is in serious difficulties, the recipient under- taking's competitors, both in the Netherlands and in the other Member States, have been prevented for more than two years from bidding for one or more offshore structures in the market which the recipient undertaking has set its sights on. As a result, attempts by the Community shipbuilding industry to diversify have been hampered.' The Court's third written question asked the Commission to give an account of the data on which it relied to make that assertion and to produce the relevant documents. The Commission replied that it was using the phrase In its fourth objection concerning figuratively and had no documents to reasoning, RSV criticizes the decision for support its assertions since no complaint to not considering whether the aid in respect that effect had been made to it. This is of the Simon Stevin apparatus could have unacceptable. If the Commission wishes to been compatible with the fifth shipbuilding draw an inference that competitors will be directive (Council Directive 81/363/EEC, deterred from going to the considerable Official Journal 1981, L 137, p. 39). The expense of tendering for contracts if they Commission replied that the Dutch believe that a company such as RSV has its losses underwritten by the State, it must say Government did not ask it to consider the so and not set out an inference as a aid in the light of the fifth directive but also statement of fact that on information in its contended that the Simon Stevin could not possession competitors have been prevented qualify under the fifth directive. The from tendering. Finally, the reasoning in my Commission alleged in its pleadings that, view is defective because the Commission first, the Simon Stevin itself was not an does not explain why it felt able to approve object which fell within the terms of the the aid notified in December 1980, the directive and, second, in any case, even if it

did, the RSV group was too diversified to respect of the first three specific matters to qualify as a shipbuilding undertaking under which reference has been made. the directive. In its sixth written question to RSV, the Court asked RSV whether it maintained its argument that the Simon Stevin platform qualified under Article 1 (a) of the directive as a 'dredger' and, if so, to provide a written expert's report supporting that argument. In reply, RSV merely submitted a letter from an engineer who confined himself to certifying that the Simon Stevin platform did indeed qualify for aid under the fourth directive. In my RSV's fifth argument is that the April 1982 view, this certificate is not a written expert's arrangements do not constitute State aid report supporting RSV's argument. It does within Article 92 (1). Those arrangements not assist the Court to decide whether the were inseparable from the earlier Simon Stevin platform came within the agreements: they create a situation in which terms of the fifth directive. Accordingly, I RSV incurred the ROS losses on behalf of am not satisfied at present that this platform the State. Money paid to cover those losses was a dredger within the meaning of the therefore does not represent munificence on fifth directive and that the Commission was the State's part but the fulfilling of a real required to deal with it in its reasoning. contract between RSV and the State. The Moreover, the Commission considered, Commission contents itself with the obser- correctly in my view, that even if the Simon vation that the 1982 arrangements are a Stevin platform did qualify under the fifth development of the April 1980 arrangements directive, it had not been shown that RSV which were never, and would never have as a group was capable of being an aid been, approved by the Commission and recipient under that directive. On this basis Article 93 (3) itself puts Member States the argument fails and it is not necessary to under the obligation to notify plans to come to a view on the question whether the modify existing aids. In my view, whether Commission is obliged to consider the terms or not the ROS losses were incurred at the of the shipbuilding directives of its own State's behest, they were covered by public motion when notification is made under money and that is enough on the facts of Article 93 (2) of an aid or a proposed aid. this case to constitute a State aid. It is irrelevant that RSV might have refused to carry out the ROS orders if it had been fully aware of the implications.

RSV's seventh argument is that, if (which RSV denies) the April 1982 measures constitute aid, the Commission was wrong not to exempt them under Article 92 (3) (c). It criticizes the Commission's statement to the effect that at the time when the aid was granted it was not accompanied by any restructuring plan capable of contri- This quotation from LPF deals, of course, buting to a Community objective within the with reasoning, not substance. However, the meaning of Article 92 (3). RSV emphasizes Commission's position in its pleadings is that the whole purpose was indeed to identical with that taken in the decision, restructure the large-scale shipbuilding and namely that trade and competition must be offshore equipment manufacturing activities taken to have been affected since, without of the RSV group. It is, however, to be the aid, market forces would have forced noted that in the fifth paragraph of Part I of the closure of the relevant divisions of RSV the decision it is said: 'The Commission also earlier. established that the case in point involved the rescue of an undertaking experiencing difficulties as a result of mismanagement and unfavourable market conditions and that the aid in question seemed to pursue no objective of rationalization with a view to ensuring the future viability of the firm. By enabling the undertaking to pay off its debts, the aid made it possible to retain uneconomic production units in a market suffering from overcapacity.' I think the Although I consider that the reasoning is position is that in April 1982 there was a deficient and that the Commission does not slight hope that the final State cash injection show how inter-State trade was affected would allow RSV's activities in question to (not least since most of the work was for be run down in an orderly fashion, a hope domestic buyers and since its exports were which subsequent developments frustrated; for third countries) it does not seem to me that might be characterized as restructuring that it has been shown that inter-State trade of a sort, but not necessarily one which the was not affected. Even if RSV accepted no Commission was obliged to exempt under

RSV's eighth and final argument is directed against the recovery order contained in Article 2 of the decision. RSV claims that it could not reasonably be expected to have On the basis that the decision should be known that the payment of the aid was anulled on the second ground advanced this illegal. The State did not inform it of any argument does not arise; if I had come to possibility of illegality under Community the view that the decision was taken in due law; RSV could legitimately believe that no time, I would reject the arguments advanced notification was necessary (since the 1982 under the eighth ground. On any view, the arrangements served only to put an upper Commission cannot be responsible for limit on the early arrangements which RSV expectations aroused by the Dutch had been led to believe were approved by Government and apart from the delay there the Commission), RSV was not involved in is no evidence that the Commission posi- the notification procedure either by the tively encouraged RSV to think that the aid State or by the Commission, and it did not would be approved and not recoverable. It see the announcement in the Official is not sufficient for RSV merely to assert Journal of the opening of the Article 93 (2) that it was not warned that the aid might be procedure. In any case, that notice appeared unlawful and might be recoverable.

RSV v COMMISSION

In summary, my opinion is that the decision should be annulled on two grounds, namely that the Commission's failure to take a position on the notification of the aid made on 20 July 1982 until 19 December 1984 was in breach of its obligation to proceed with due diligence and that the reasoning contained in the decision is inadequate. The Commission should be ordered to pay RSV's costs.