C-83/98

A — First ground of appeal I -3277

(a) First part of the first ground of appeal (national measure reducing the

public levy by 1.6%) I -3277

(i) Scope of the judicial review I -3277

(ii) Particular nature of the system of levies on horse-racing as a basis for

not categorising the national measure as State aid I - 3279

(i) Legitimate expectations, a dual-natured concept I - 3290

(ii) Legitimate expectations as a purely Community concept 1-3299

(iii) Failure to notify State aid as a ground which precludes legitimate expectations I -3 305 IV — Conclusion I -3 307

* Original language: Greek.

I - 3273

OPINION OF MR COSMAS — CASE C-83/98 P

3. It is common ground that on 7 April 1989 Ladbroke Racing Ltd (a company incorporated under English law whose activities include organising and providing betting services in connection with horse- races in the United Kingdom and elsewhere 1. In the present appeal, the French Repub- in the European Union; hereinafter 'Lad- lic seeks the setting aside of the judgment of broke'), jointly with six other companies in the Court of First Instance of 27 January the Ladbroke Group, submitted a com- 1998 in Case T-67/94. 1 The contested plaint to the Commission in respect of a judgment was given following an applica- n u m b e r of measures which had been tion by Ladbroke Racing Ltd for the adopted by the French Government in a n n u l m e n t of C o m m i s s i o n D e c i s i o n favour of the Pari Mutuel Urbain (herein- 93/625/EEC. 2 T h a t decision was con- after 'the PMU'). The PMU is an economic cerned with the classification of a number interest group (groupement d'intérêt écon- of measures adopted by the French autho- omique) consisting of the principal race- rities which Ladbroke Racing Ltd had course undertakings, with exclusive rights complained of to the Commission, claiming in relation to racecourse organisation and that they fell within Article 92(1) of the EC to management of the totalisator betting Treaty. The following two issues are among rights of the racecourse undertakings in those raised by the present appeal: first, France. there is the question of the breadth of the judicial review conducted by the Court of First Instance when it assesses a determina- tion by the Commission as to whether or not a national measure amounts to (unlaw- ful) State aid; second, the Court of Justice is 4. On 22 September 1993 the Commission asked to rule on the conditions under which adopted Decision 93/625, in which it found the principle of the protection of legitimate that three of the seven measures adopted by expectations may be relied on and applied the French Government for the benefit of so as to limit the obligation to recover the PMU constituted State aid under Arti- unlawfully granted aid. cle 92(1) of the Treaty but qualified for exemption under Article 92(3)(c) thereof. In the case of the other four measures, the 1 — Case T-67/94 Ladbroke Racing v Commission [1998] ECR II-1. Commission decided that the conditions for 2 — OJ 1993 L 300, p. 15. applying Article 92(1) were not met.

5. Ladbroke brought an action before the applicable to horse-races were the Court of First Instance for the annulment of responsibility of the Member States; Decision 93/625. The French Republic increases or reductions in the rate of applied for leave to intervene in support tax did not constitute fiscal aid provi- of the Commission, which was granted by ded that they applied uniformly to all order of the President of the Second the undertakings concerned. There was Chamber of the Court of First Instance of State aid, therefore, only where a 30 August 1994. significant reduction in the rate of taxation strengthened the financial situation of an undertaking in a mono- poly position. According to the Com- mission, that was not the case here in 6. The Court of First Instance found errors so far as the reduction in 1984 in the of law and of fact in certain points of the public levy on bets was limited (some Commission decision challenged before it, 1.6%) and was subsequently main- of which the following five present parti- tained; it was therefore not designed cular interest: to finance a specific ad hoc operation. The French authorities had acted with the aim of increasing the resources of the recipients of the non-public levies on a permanent basis. The Commission — first, the point where it was found that, accordingly concluded that, taking in so far as the amounts resulting from account of the special nature of the winnings which are not claimed by recipients' situation, the measure in bettors have always been regarded as question did not constitute State aid, 'normal resources', those amounts but a 'reform in the form of a " t a x " form part of the 'non-public levies', adjustment that [was] justified by the and that their use to finance social nature and economy [sic] of the system security expenditure together with in question' (Parts IV and V, point 3, of monitoring and supervision costs, the decision); horse-breeding incentives and invest- ment connected with the organisation of horse-racing and totalisator betting cannot be regarded as State aid, since the State resources criterion is not met (Parts IV and V, point 1, of the deci- — third, the Court of First Instance did sion); not accept that Decision 93/625 was correct at the point where the Commis- sion found that the national measures which granted the PMU cash-flow benefits, consisting in authorisation to — second, the Court of First Instance defer payment of the public levies, did focused criticism on the point in the not constitute a temporary waiving of Commission decision relating to the resources by the public authorities or a legal classification of the national mea- specific ad hoc measure, and accord- sures which changed the allocation of ingly could not be classified as State aid the public levies. The Commission had (Parts IV and V, point 5, of the deci- found t h a t the tax a r r a n g e m e n t s sion);

7. In view of the foregoing matters the Court of First Instance, by its judgment of 27 January 1998, annulled 'Commission Ill — Grounds of appeal Decision 93/625 ... in so far as it found that various advantages granted to the PMU, through (a) the amendment in 1985 and 1986 of the allocation of the levies, (b) 10. The French Government puts forward cash-flow benefits granted to it by the two grounds of appeal. The first ground of authorisation to defer payment of certain appeal concerns those points in the con- levies on betting, (c) access to unclaimed tested judgment which resulted in the winnings, and (d) exemption from the one- partial annulment of the Commission deci- month delay rule for the deduction of value sion on the basis that it had incorrectly added tax, after 1 January 1989, do not found that certain of the measures adopted constitute State aid for the purposes of by the French Government in favour of the Article 92(1) of the EC Treaty, and also in PMU fell outside the scope of Article 92(1) so far as it decided that the obligation on of the EC Treaty. The second ground of the French State to require repayment of appeal relates to the point in the contested the aid deriving from the PMU's exemption judgment where it is found that it was not

I - 3276

FRANCE V LADBROKE RACING AND COMMISSION

(a) First part of the first ground of appeal 14. The appellant submits that the Court of (national measure reducing the public levy First Instance misdefined the nature and by 1.6%) extent of the judicial review which it had been called on to carry out. I.adbrokc, on the other hand, maintains that the Court of First Instance was right not to restrict itself to ascertaining whether the Commission 12. The appellant challenges paragraphs 42 had manifestly erred in its assessment but to 62 of the contested judgment, where the to carry out a comprehensive review of the Court of First Instance found that, contrary substance as regards the Commission's to the Commission's assessment, the reduc- views on whether the French measures at tion from 1985 onwards in the share of the issue in favour of the PMU fell within the revenue from horse-race betting levied by scope of Article 92( I ) of the Treaty. the French State constituted State aid. According to the French Government, the Court of First Instance made a number of errors in law concerning the nature of its review, its understanding of the Commis- sion's decision, the legal classification of 15. In my view, the Court of First Instance the facts and the obligation to give a did not err in law in relation to the scope of statement of reasons for judicial decisions. its review of the relevant determinations by

I - 3277

OPINION OF MR COSMAS — CASE C-83/98 P

In correct to classify a national measure as conclusion, a comprehensive review as to State aid for the purpose of Article 92(1) of the substance in cases such as the present the EC Treaty, they must carry out — in one does not, of course, supplant the principle to the fullest possible extent — a administrative work of the Commission comprehensive review of the substance. but constitutes a correct exercise of judicial That rule is reversed only where the court establishes that there are particular circum- stances which prevent an extensive judicial review from being carried out. Those 3 — I consider that a typical example is the development of judicial review of Commission decisions relating to whether circumstances may consist in the compli- or not mergers of undertakings are compatible with Community competition rules. cated and technical nature of certain It is settled case-law that, 'although as a general rule the assessments which are directly connected Community judicature undertakes a comprehensive

In reality, however, the intention of the above judicial statement is not to restrict absolutely the scope for the Community judicature to intervene in the substance of the case, but to recognise that the Community judicature has the power to remain master of its tasks, defining itself the depth to which its investigation will go on each occasion. As is indeed apparent from the judgment in Joined Cases 16. It should be noted that the breadth of a C-68/94 and C-30/95 France and Others v Commission [1998] ECR 1-1375, there is clearly a will on the part of the court's jurisdiction when it reviews the Community judicature to use that power with a view to carrying out a more comprehensive review than formerly. legality of an administrative measure — While the Court may, in the major premiss of its reasoning, consider the 'discretion' of the Commission 'especially with such as the measure challenged at first respect to assessments of an economic nature' (paragraphs instance •—· cannot be defined in an abso- 223 and 224), it nevertheless then proceeds to make findings of substance on issues which are very much economic in lute and static manner. Apart from the need nature. It finds, for example, that the undertakings involved in the concentration 'did not have a privileged relationship to adjust the breadth to the facts of each for the distribution of potash-based products' and that 'the cluster of structural links .

It would certainly be absurd to exclude the possibility of the instances where it is necessary to solve Community judicature using the experience which it has acquired to fill the gaps in judicial review. complex legal problems with a strong

17. The French Government considers that the Court of First Instance erred in its assessment of the legality and correctness of the Commission's arguments forming the 19. First of all, as the appellant acknowl- basis of the latter's decision not to categor- edges there are very few express references ise the national measure at issue as (unlaw- in the case-law to the 'nature and general ful) State aid. It centres its argument on the scheme of the system' as a criterion for failure by the Court of First Instance to categorising a measure as State aid. In Italy take into account that the Commission had v Commission, 5which concerned the Ita- based its reasoning on the particular nature lian textile industry, the Court found that and general scheme of the system of levies the measure before it partially exempted on horse-racing in France. The particular the eligible undertakings 'from the financial nature of the system was directly related to charges arising from the normal application three separate criteria which the Commis- of the general social security system, with- sion relied on in order to substantiate its out there being any justification for this view that the measure was not State aid. exemption on the basis of the nature or The appellant considers that the Court of general scheme of this system'. The Court First Instance entirely ignored the signifi- did not go on to analyse in greater detail cance of the argument derived from the what is or may be included within the particular nature of the system at issue, an concept of the 'nature and general scheme argument which had been clearly analysed of a system'. In fact, the Court founded its in the pleadings submitted to it by the reasoning in Italy v Commission not on Commission and the French Government. It adds that the same argument had been taken into account by the Court of Justice 4 — Case C-353/95 P Tiercé Ladbroke v Commission [1997] in an earlier judgment where it had rejected ECR I-7007, paragraphs 34 and 35. 5 — Case 173/73 Italy v Commission [1974] ECR 709, para- Ladbroke's claims that the PMU was ben- graph 15 et seq.

that criterion but on the exceptional nature notes that 'the system of statutory and of the national provision at issue in relation fiscal retentions on bets on French horse- to the system which constituted the 'natural races was adopted in the light of the legal s i t u a t i o n ' in some way, while specific regulatory and economic condi- acknowledging at the same time that the tions prevailing with regard to horse-racing particular characteristics of the system, had and totalisator betting in France. There can they been proved, might have justified the be no requirement to transpose that system relevant divergences from the general rules. to totalisator betting on Belgian horse- races, which are organised under different regulatory and economic conditions. More- over, since the levy rates in France and Belgium differ and the application of Belgian rates to bets placed in France is justified for reasons relating to the logic of the totalisator betting system referred to in 20. The same conclusion is, moreover, paragraph 34 of this judgment, that levy reached by Advocate General D armon in cannot, in any event, be shared out between his Opinion in Sloman Neptun. 6Contrary the various recipients on exactly the same to the appellant's submissions, the analysis basis in the two cases.' 8 of the Advocate General in that case is centred on what is meant by the excep- tional nature of a measure vis-à-vis the general scheme of the overall system in which it is set, as a criterion for finding that there is State aid within the meaning of Article 92(1) of the EC Treaty, and not on the 'nature and general scheme of the system' themselves. In other words, neither 2 2 . In that judgment, the Court took that Opinion nor the judgment in Italy v account of the particular nature and the Commission contains sufficient guidance as general scheme of the system of retentions to the significance of the particular char- on totalisator horse-race betting in order to acteristics of a system when applying substantiate its position that (i) the differ- Article 92(1) of the Treaty. ences in the retentions on bets in France and Belgium and (ii) the application of the Belgian rates to bets placed in France on Belgian horse-races were compatible with Community law. It follows, therefore, from that reasoning of the Court that the nature and general scheme of the particular frame- work within which the national measure at 2 1 . The judgment in Tiercé Ladbroke v issue is set should be examined. The above Commission 7 is of greater interest for the view of the Court is all the more important present case. In that judgment, the Court, for deciding the present case inasmuch as it after describing the logic of the system of was expressed in a judgment which con- levies on totalisator betting (paragraph 34), cerned precisely the same legal and factual context as the one at issue here, namely the 6 — Joined Cases C-72/91 and C-73/91 Sloman Neptun v Bodo Ziesemer [1993] ECR I-887. 7 — Case C-353/95, cited in footnote 4 above. 8 — Paragraph 35.

issue of levies on totalisator horse-race concerned with the specific measure, redu- betting in France. cing the public levy by 1.6%, referred to by the French Government in the part of the first ground of appeal now under consid- eration; it demonstrates, however, that the Court of First Instance is at least aware of the particular features of the legal frame- work governing public levies on totalisator 2 3 . I will now examine the individual horse-race betting in France and is willing criticisms made by the appellant of the to take them into account. judgment at first instance. I consider that the Court of First Instance neither ignored nor misconstrued the need to assess the nature and general scheme of the system within which the national measure was set before it concluded that the measure con- stituted State aid. 25. So far as concerns the specific criticisms of the French Government now under consideration, it is to be noted that its reasoning is founded on an incorrect under- standing of the Commission's decision. The Commission did not assess the particular nature of the French system of levies on 24. An initial indication that the Court of totalisator horse-race betting in an auto- First Instance neither failed nor refused to matic and vague manner when it decided consider the criterion of the 'nature and that the measure reducing the public levies general scheme of the system' when exam- was not State aid; on the contrary, it first ining the facts of the case with regard to applied three criteria from which it derived Article 92( 1 ) of the Treaty is provided by three propositions — (i) that the measure at paragraph 76 of the contested judgment. issue amounted merely to a limited reduc- After stating that the tax arrangements tion in the levy rates which docs not applicable to the PMU took into account strengthen the financial situation of an not only the particular way in which undertaking in a monopoly position; (ii) totalisator betting was organised in France that the measure was permanent in nature; but all the characteristic features of French and (iii) that the measure was not designed horse-racing, the Court of First Instance to finance a specific ad hoc operation — in held that 'the Commission was entitled to order to reach the conclusion that the take the view that the special system of measure amounted not to State aid hut to levies, which determines the proportion of 'a reform in the form of a "tax" adjustment betting revenue allocated to the State, the that is justified by the nature and economy bettors, the PMU and the racecourse under- [sic] of the system in question'. Conse- takings, respectively, did not constitute a quently, since the Court of First Instance derogation from the tax arrangements disputed the interpretative value and cor- generally applied to other activities, and rectness of those three criteria in para- that, consequently, the measure concerned graphs 56 to 62 of the contested judgment, had to be evaluated solely in the context of it was also correct in disputing the conclu- the special tax arrangements applicable to sion reached by the Commission that the the horse-racing sector'. That finding of the French measure at issue amounted to 'a Court of First Instance is, of course, not reform in the form of a "tax" adjustment

26. N o r could it have been found that the 27. In that regard, there is no foundation in criterion of the 'nature and general scheme the submission that the Court of First of the system' was separable from the three Instance erred because it did not consider other abovementioned criteria and capable the three abovementioned Commission cri- of independently constituting the legal teria in the light of the particular nature foundation for the contested finding by and general scheme of the system of levies the Commission. First, that approach is in on totalisator horse-race betting in France. direct conflict with the wording of the First, the Court of First Instance did not Commission decision. Second, justification examine whether those criteria were cor- of action by a Member State consisting of rect in the abstract but sought to ascertain vague reliance on the particular character their practical utility and legal correctness and the nature and general scheme of a in the specific context of the dispute before system is not in any way a sufficient basis it, that is to say in the context of the for that action to be taken outside the scope particular system of public levies on horse- of Article 92(1) of the Treaty. If general race betting in France; it therefore took arguments of that kind are to be used, there account of the nature and particular char- must be a substantive and thorough analy- acter of the system. Second, even if it were sis of the facts of the case which supports accepted that additional arguments could the conclusion that those arguments are have been drawn from the parameter of the correct. In other words, if the particular nature and general scheme of the system nature and general scheme of the system of which might have led the Court of First levies on totalisator horse-race betting in Instance to accept the Commission's rea- France could in fact justify, from the point soning so far as concerns the three criteria of view of Community competition law, the adopted by it, again, as indicated above, adoption of a measure such as that at issue, those arguments had not been placed the Commission was obliged to explain before the Court of First Instance for its with detailed arguments the causal rela- consideration. tionship linking the argument as to the 'particular character of the system' and its conclusion that the national measure was not to be categorised as State aid. Since the matters which had been put before the Court of First Instance for its considera- 2 8 . The French Government considers, tion, as set out in the contested judgment, furthermore, that even if it were accepted did not include specific and thorough that the Court of First Instance took arguments from which it could be clearly account of the nature and the general demonstrated that the national measure scheme of the system when it assessed was justified by the nature and general whether the views taken by the Commis- scheme of the system of levies on horse-race sion were lawful, the contested judgment betting in France, the decision of that should again be set aside in that regard Court, adjudicating on the substance, to because the legal classification of the rele-

29. By those submissions the French Gov­ ernment is in reality seeking to contest the findings of the Court of First Instance on the facts. Since the criticisms of the con­ tested judgment are directed at factual appraisals of the court adjudicating on the substance, they must be rejected as inad­ 31. That appellant's argument is not cor­ missible. 9 rect. As Ladbroke rightly observes, a find­ ing that there was no competition at the time when a national measure favouring 9 — The Court has consistently held that appeals may he based certain undertakings was adopted does not only on grounds relating to the infringement of rules of law, to the exclusion of any appraisal of the facts. The Court of necessarily mean that it is not State aid. The First Instance, as the court ad|iidicatim; on the suhstancc, has exclusive |unsdiction to find the facts, 'the Court of requirements for establishing the existence Justice may merely review the legal classification of those of State aid, which relate to conditions of facts and the legal consequences which the Court of First Instance has drawn from them, except where the suhstantive trade and of the market, must be examined inaccuracy of the hitter's findings is apparent from the documents submitted to the Court of Justice (distortion of in a dynamic fashion. In other words, it is the sense of evidence). Sec, for example. Case C-136/92 I' Commission v Brazzclli l.ualdi Mid Others [1994] 1CR necessary to take account of likely pro­ I-1981, paragraphs 48 and 49, and Case C-8/95 P New spects and developments with regard to Holland Tord v Commission [1998] ľ.CR I - i l 7 5 . inter-State commerce, trade and the con-

32. That obvious aspect of reviewing whe- ther the requirements of Article 92(1) of the Treaty are met is also recognised by Advocate General Tesauro in his Opinion in Belgium v Commission 10 when he refers (b) Second part of the first ground of appeal to 'the need to assess, in a dynamic (cash-flow benefits in favour of the PMU) perspective, whether the condition of hin- drance to trade (and also that of distortion of competition) exists' and to appraise the 'foreseeable development of the pattern of trade'. 11 In the same case, the Court 34. This part of the first ground of appeal justified its finding as to the existence of concerns paragraphs 63 to 82 of the State aid within the meaning of Arti- contested judgment, where the Court of cle 92(1) of the EC Treaty by stating more First Instance held that the Commission specifically that 'it [was] possible that aid had misapplied Article 92(1) of the Treaty might distort competition within the Com- in finding that the cash-flow benefits munity' 1 2 inasmuch as 'it was ... reason- granted by France, which enabled the ably foreseeable 13 that Tubemeuse [the PMU to defer the payment of certain recipient of the aid] would redirect its betting levies, did not constitute (unlawful) activities towards the internal Community State aid. The appellant essentially repeats market'. 14 its complaints connected with the first part of this ground of appeal concerning the scope of judicial review and the failure of the Court of First Instance to assess the particular nature and general scheme of the system of levies on totalisator horse-race betting in France. Those complaints should, 33. Having regard to the above, the view of however, be rejected for the reasons set out the Court of First Instance concerning State above. aid as a result of the reduction in the public levy on totalisator horse-race betting in France is entirely correct; its correctness in law is not undermined by the finding in

39. The above submission relates to the assessment of matters which arc for the Court of First Instance when it adjudicates on the substance and it cannot be examined 37. The appellant is in reality attempting to on appellate review. Thus, this part of the induce the Court of Justice to reassess the first ground of appeal should be rejected in facts of the case, in order to reverse the part as inadmissible and in part as unfoun- position of the Court of First Instance that ded. the national measure at issue constituted an ad boc provision for the exclusive benefit of the PMU. Its submissions must therefore be rejected as inadmissible in that they fall outside the scope of appellate review. Even if they were interpreted as pleas that the Court of First Instance distorted the con- (c) Third part of the first ground of appeal tent of the Commission decision or did not (making unclaimed winnings available to consider a material submission, they should the PMU) still be rejected as unfounded. The Court of First Instance was aware of the passages in that decision referred to by the appellant (as is clear from paragraph 31 of the 40. In paragraphs 96 to 112 of the con- contested judgment), carried out a correct tested judgment, the Court of First Instance legal assessment of its entire content and overturned the Commission's conclusion concluded that it contained nothing to that the French decree which placed support the view that the provision in unclaimed horse-race winnings at the dis- question amounted not to an ad hoc posal of the PMU did not amount to State measure but to tax reform of a general aid because those sums constituted 'normal nature. resources' and not 'State resources' within the meaning of Article 92( I ) of the Treaty.

to that extent. The sums in question have out in a legally correct manner the justifi- always been made available to the race- cation for its view that the national mea- course undertakings and the national mea- sure at issue is to be characterised as State sure merely altered (widened) the spectrum aid. of possible uses to which they could be put, without there being any question of a transfer of State resources to the PMU. The French Government maintains that, having regard to the particular nature and the general scheme of the horse-race betting 43. More specifically, the Court of First system, the revenue which remains avail- Instance, after noting that the measure at able to the racecourse undertakings after issue enables the racecourse undertakings the payment of winnings to bettors and to cover certain social security costs of the deduction of the public levies necessarily PMU, finds, on the basis of certain criteria, constitutes normal resources. The fact that that in France the amount which is col- at a given moment the public authorities lected from the winnings left unclaimed by restrict the use of part of those resources to bettors is under the control of the compe- particular objectives does not convert them tent national authorities. Inasmuch as the from normal resources into State resources. relevant national provision extended the Furthermore, the appellant points out, an range of possible uses for those sums to undertaking's 'private' funds are not con- activities of the racecourse undertakings verted into State aid by making their use other than those originally envisaged, it subject to State regulation. 15 follows that all the national legislature did by means of that extension was 'in effect to waive revenue which would otherwise have been paid to the Treasury, so that, for the same reason, the condition for applying Article 92(1) of the Treaty, namely that State funds are transferred to the recipient, is satisfied in the present case'. 16 42. I am unable to accept the above reasoning of the appellant. The latter relies in an unclear and speculative fashion on the particular features and special characteris- tics which are, in its view, exhibited by the system for allocating the revenue from 44. It should also be noted that the path totalisator horse-race betting in France, in followed by the Court of First Instance an attempt to overturn the finding of the when interpreting the concept of State aid Court of First Instance that the relevant is entirely consistent with the route traced resources, irrespective of how they are by the Court of Justice in its case-law. It is described, were subject to State control sufficient to refer to its recent judgment in and therefore constituted State resources. Piaggio, 17 which demonstrates the breadth In paragraphs 105 to 111 of the contested of the concept of State aid for the purposes judgment the Court of First Instance sets of Article 92(1) of the EC Treaty. That

47. This part of the ground of appeal concerns paragraphs 113 to 122 of the contested judgment, where the Court of First Instance finds an error of fact on the part of the Commission. More particularly, when the Commission assessed, from the 45. In addition, it is stated in Air France, a point of view of Community law, a national case relied on by the appellant, that Arti- measure exempting the racecourse under- cle 92(1) of the Treaty applies to 'all the takings from the one-month delay rule for financial means by which the public sector the deduction of VAT, it manifestly erred as may actually support undertakings, irre- to the facts in thinking that the system spective of whether or not those means are under which a permanent deposit is lodged permanent assets of the public sector'. 20 with the Treasury in order to offset the Accordingly, the fact that the sums in exemption had existed since 1989 when it question, while not held by the State had in fact first applied in 1969. throughout, are continuously subject to its control and therefore to the power of

18 — Piaggio, cited in footnote 17 above, paragraph 35. See also Joined Cases C-52/97, C-53/97 and C-54/97 Viscido and Others v Ente Foste italiane [1998] ECR I-2629, para- 48. The appellant maintains that it was not graph 13. 19 — Piaggio, cited in footnote 17 above, paragraph 42. open to the Court of First Instance to rely 20 — Air France, cited in footnote 15 above, paragraph 67. on facts relating to the period before

I - 3287

OPINION OF MR COSMAS — CASE C-83/98 P

1 January 1989 in deciding whether the B — Second ground of appeal Commission's assessment as to the legality of the exemption after 1 January 1989 was correct. In its view, the approach of the Court of First Instance is wrong in law or, in any event, its reasoning at this point is inadequate. (a) Arguments of the parties

I - 3288

FRANCE V LADBROKE RACING AND COMMISSION

51. The French Government submits that proceedings against the Commission deci- the view of the Court of First Instance that sion. Thus — still following the French legitimate expectations cannot be invoked Government's reasoning — the Court of when the Commission exercises its super- First Instance wrongly denied the Commis- visory functions under Article 92 et seq. of sion the possibility of examining the sub- the EC Treaty is not consistent with mission of a Member State that a recipient Community law.

functions. Article 93 of the Treaty is an absolute requirement in order for legitimate expec- tations to be invoked. The French Govern- ment meets the settled case-law of the Court of Justice that a Member State cannot invoke the expectations of a recipi- ent of aid in order to escape its duty to take the necessary measures to enforce a Com- mission decision requiring it to recover aid, 52. Ladbroke agrees with the reasoning of by relying on Case C-169/95 Spain v the Court of First Instance, considering that Commission, 23 whose effect, in its view, it alone is compatible with Community law is that a Member State may raise the on State aid and the objectives of that law. legitimate expectations of the recipient Ladbroke observes that Spain v Commis- undertaking in order to challenge the sion, upon which the appellant's line of legality of such a Commission decision in argument is founded, is fundamentally judicial proceedings.

I - 3289

OPINION OF MR COSMAS — CASE C-83/98 P

purely at national level. It would thus be subject to the conditions, and within the wrong to allow the Commission to inter- framework, specified by Community law; vene in a national matter of that kind and second, the recipient's belief as to the to regard such a matter as capable of legality of the unlawful aid may be created hindering the application of Community both by conduct of the national authorities rules on State aid. That would render the and by that of the Commission. procedure under Article 93 of the EC Treaty redundant, in particular the obliga- tion to notify aid. Finally, Ladbroke states that paragraph 182 of the contested judg- ment is legally correct.

55. The duality of legitimate expectations is shown by the Court's judgment in Deutsche Milchkontor, 24 which concerned the repayment of unlawful Community aid. In that judgment it is stated:

(b) Consideration of the ground of appeal

I - 3290

FRANCE V LADBROKE RACING AND COMMISSION

It may be observed 57. There is, however, a fundamental dif- in summary that, even where the refund of ference between the repayment of Commu- State aid is at issue, the Court follows, in nity aid and the recovery of unlawful State aid. State aid is adjudged contrary to Community law because it confers a com- 28 — With regard to the difference in the treatment of legitimate expectations according to whether State or Community aid petitive advantage on the undertaking is at issue, see the judgments in, respectively, Case C-24/95 receiving it and distorts the conditions of Land Rheinland-Pfalz v Alean Deutsehland [19971 ECR I-1591 (known as Alean II) and Case C-298/96 Oelmühle

In For example, a claim by a recipient of State particular, the interests of the Community must be taken fully into consideration when applying a provision which makes the revocation of an unlawful administrative act subject to an assessment of the different interests arising. O n the other hand, the Court's case-law relating to these 26 — Deutsche Milchkontor, paragraphs 22 and 32. two areas differs considerably. The specific nature of State aid justifies the Court's very rigorous approach t o pleas 27 — See Case 94/87 Commission v Germany [1989] ECR 175 based on principles of national law such as that of the (known as Alean 1), paragraph 12, and Case C-5/89 protection of legitimate expectations or that of legal Commission v Germany (1990] ECR I-3437 (known as certainty in order to resist the repayment of aid.' BUG-Alutechnik), paragraphs 13 to 16.

'Community law requires the competent authority to revoke a decision granting unlawful aid, in accordance with a final decision of the Commission declaring the aid incompatible with the common market and ordering recovery, [(i)] even if the 59. More specifically, the Court has pre- authority has allowed the time-limit laid ferred to define the concept of a diligent down for that purpose under national law businessman itself, restricting the opportu- in the interest of legal certainty to elapse ..., nities for recipients of aid to invoke legit- [(ii)] even if the competent authority is imate expectations. 2 9 In addition, it has responsible for the illegality of the aid decision to such a degree that revocation 29 — 'In view of the mandatory nature of the supetvision of State aid by the Commission under Article 93 of the Treaty, undertakings to which an aid has been granted may 30 — 'A Member State whose authorities have granted aid not, in principle, entertain a legitimate expectation that the contrary to the procedural rules laid down in Article 93 aid is lawful unless it has been granted in compliance with may not rely on the legitimate expectations of recipients in the procedure laid down in that article. A diligent order to justify a failure to comply with the obligation to businessman should normally be able to determine whe- take the steps necessary to implement a Commission ther that procedure has been followed' (Case C-5/89, cited decision instructing it to recover the aid' (Case C-5/89, in footnote 27 above, paragraph 14). cited in footnote 2 7 above, paragraph 17).

63. It is not by accident that the possibility of relying on legitimate expectations is tied to the jurisdiction of the national courts. The latter are the national authorities before which legal disputes concerned with the enforcement of Commission decisions requiring unlawfully paid aid to be refun- 61. It is to be noted that in that case the ded are considered likely to end up. Fur- Court followed the Opinion of the Advo- thermore, they provide greater guarantees cate General and found that the national of independence and neutrality than the authorities 'do not ... have any discretion as national administrative departments which regards revocation of a decision granting might also have played a part in the grant aid', 32 overturning in that way the funda- of the unlawful aid; it is therefore to be mental rule of German administrative law anticipated that national courts will weigh that it is in principle for the administration, up the Community interest better than acting in its discretion, to decide on the some other State authority. They are also revocation of an advantageous administra- the most suited to taking account of the tive measure which is contrary to the law. parameter of the effectiveness of Commu- nity law. Finally, if a problem of interpreta- tion arises with regard to the above issues and the way in which they affect the application of national rules concerning legitimate expectations, the national courts are in the privileged position of being able to refer a question to the Court of Justice 62. There is a further interesting aspect of for a preliminary ruling. the Community case-law on the repayment of unlawful State aid, from which it appears that the Court of Justice prefers 33 — The Court's preference in favour of the national court as the 'natural adjudicator of the legitimate expectations of to entrust the national courts with the issue recipients of unlawful State aid' is apparent in paragraph of assessing the legitimate expectations of 16 of the judgment in Case C-5/89, cited in footnote 27 above, which followed the Opinion of Advocate General recipients of aid, the latter being expected Darmon (points 17 to 26). The judgment states: 'It is true that a recipient of illegally granted aid is not precluded to take action before those courts if they from relying on exceptional circumstances on the basis of which it had legitimately assumed the aid to be lawful and thus declining to refund that aid. If such a case is brought before a national court, it is for that court to assess the material circumstances, if necessary after obtaining a 31 — Alcan II, operative part of the judgment. preliminary ruling on interpretation from the Court of 32 — Alcan II, paragraph 34. See also point 27 of the Opinion Justice'. See also Case C-39/94 SFEI and Others v La Poste of Advocate General Jacobs in the same case. and Others [1996] ECR O-3547.

67. The chief reason for the creation of the 65. Consequently, always assuming that above — in my view regrettable •—• situa- the above indications in the case-law are tion must be sought in the starting point borne out by future judgments, it appears from which the logic of the present case- that the Court has laid down a further law proceeds, that is to say in the accep- procedural and formal rule concerning the tance of the duality of legitimate expecta- application of the principle of the protec- tions. It is not clear that the endeavour to tion of legitimate expectations where the combine Community and national elements recovery of unlawful State aid is at issue. in order to fashion a dual-based concept of Under the above rule, that general principle legitimate expectations results in conclu- is not protected by the national adminis- sions which are acceptable for the legal trative bodies, acting of their own accord system or in a satisfactory reconciliation of or following a request, but by the courts. In the need to protect the trader acting in other words, the national courts are con- good faith and the need to safeguard the verted into special authorities for assessing conditions of competition. an issue which in principle falls within the competence of the administrative authori- ties, while the latter are relegated to bodies which merely implement Commission deci- sions.

34 — The above explanation is necessary in order to understand 68. Nor is it obvious that, by entrusting the final words of paragraph 183 of the contested judgment, according to which the recipient of the aid this issue to the national courts for decision may plead legitimate expectations '... in the context of proceedings before the public authorities or before the by them, their role is enhanced, preserving national courts'. the balance between the national and I - 3294

Community legal orders at the present result of the abovementioned judgment of stage of European integration. The national the Conseil d'État as regards the lawfulness courts are in a difficult position. First, they of the national measure at issue and, do not feel secure when they rely on the consequently, that the Commission should specific provisions of national law, in not have relied on that submission to particular following the stringent position restrict the temporal scope of the obligation adopted by the Court in Alcan II. 35 to recover the unlawfully granted aid. Second, the Court of Justice, by its above- mentioned case-law, is giving them strong encouragement to refer questions to it for a preliminary ruling on a systematic basis, especially when they are called on to weigh up the Community interest in that particu- lar category of disputes. From the moment, 70. The principal argument in favour of the however, that definition of the Community position adopted by the Court of First interest determines entirely whether, and in Instance must, prima facie, be sought in the what manner, the national provisions will settled case-law of the Court, according to be applied, the whole legal problem passes which 'a Member State whose authorities in reality to the 'high inspectorate' of the have granted aid contrary to the procedural Court. Finally, it is not clear that legal rules laid down in Article 93 may not rely certainty is served by the fact that the on the legitimate expectations of recipients national rules regarding legitimate expecta- in order to justify a failure to comply with tions remain in force but may be over- the obligation to take the steps necessary to turned at any moment if they are consid- implement a Commission decision instruct- ered to be incompatible with the objectives ing it to recover the aid. If it could do so, of Community law. Articles 92 and 93 of the Treaty would be set at naught, since national authorities would thus be able to rely on their own unlawful conduct in order to deprive deci- sions taken by the Commission under provisions of the Treaty of their effective- ness'. 36 Moreover, the Court of First Instance expressly refers to that case-law in paragraph 181 of the contested judg- ment.

which nobody may obtain benefit from his for the expectations but also of the features own violation of the law (nemo potens particular to the person who entertains propriam turpitudinem allegane). In other them. 38 Thus, when the question is raised words, it has been adjudged unacceptable as to whether the recipient of the aid for the effectiveness of the Community entertained legitimate expectations that rule — which is safeguarded by the impo- the aid was lawful (in which case it might sition of a strict obligation to notify not have to be recovered) it is preferable for proposed aid and by the systematic repay- the authority which will decide that ques- ment of aid which has been given unlaw- tion to have a direct connection with the fully — to be undermined by the very trader allegedly persuaded that the conduct transgressor, namely the Member State, at national level was lawful; it is then relying on conduct contrary to the Com- possible to carry out the fullest assessment munity interest. To allow such reliance of those aspects of the concept of legitimate could give rise to the absurd result that a expectations which relate to the subjective Member State is vindicated where, apart situation and to the conduct of the person from infringing the express obligation to holding the expectations, for example the inform the Commission laid down by diligence which he displayed and/or his Article 93(3) of the EC Treaty, it has good faith. This point also appears to be succeeded in shaping the legal and factual implicit in the Court's preference in favour context within which a sum of aid is of entrusting the issue to the national courts granted in such a way as to mislead even and in principle not examining it within the the diligent businessman, thereby rendering framework of disputes between Member practically inapplicable the decision declar- States and the Community, when the reci- ing the aid contrary to Community compe- pient of the aid is not present. 3 9 tition law.

I - 3296

FRANCK V LADBROKE RACING AND COMMISSION

I - 3297

OPINION OF MR COSMAS — CASE C-83/98 P

national measure is lawful 'is attributed' to directly connected with the 'Community' the conduct of national authorities, the nature of the conduct at issue, that is to say Court refuses to intervene; only as an with the fact that the conduct was attribu- exception does it agree to rule on whether table to a Community institution. 47 legitimate expectations formed at national level should be protected or are contrary to the Community interest. 45 By contrast, in cases where it is contended that the mis- taken belief as to the legality of the State measure was created by conduct of the Community authorities, usually the Com- mission, the Court appears to cast its qualms aside and examines that particular dimension of the issue of legitimate expec- tations.

aroused. 77. Spain v Commission was such an See, however, the Opinion of Advocate General Jacobs in instance. In its judgment in that case, the SFEI and Others, cited in footnote 33 above, from which it appears to follow indirectly that national courts may take Court exceptionally agreed to examine conduct on the part of the Commission into account when whether particular conduct on the part of establishing whether a recipient of aid entertains legitimate expectations, without it being necessary to refer a question the Commission — its adoption of a deci- to the Court of Justice for a preliminary ruling.

In the present case it seems doubtful whether that is so. First, the latter was consistent with Community measures in question are not ones which self-evidently law. 46 The choice made by the Court to constitute aid; whether they do depends on whether the Post Office received adequate remuneration for its services, go into the substance of the issue was a matter which SFMI may have found it difficult, if not impossible, to verify. Secondly, the Commission, after conducting its preliminary inquiry, decided not to proceed with the matter; moreover, since re-opening its inquiry, it has failed for a period of more than three years to reach a 45 — See Alcan II (cited in footnote 28 above). In those decision. In such circumstances the national court, if it instances, the Court answers questions referred to it for a were to find that the measures constitute aid, may in my preliminary ruling by national courts, having substantive view be justified in considering it inappropriate to order jurisdiction in respect of the assessment of the legitimate repayment of the aid.' expectations which have arisen at national level. The second question concerns the applicable law in 46 — Nor is it an accident that, on the only occasion when Court instances where the Court examines the issue of legitimate has accepted that aid should not be repaid because of expectations created by conduct at Community level. legitimate expectations entertained by the recipient, those What legal criteria are used to establish whether legitimate expectations had been created by acts and omissions of the expectations are entertained in those specific instances?

I - 3298

F R A N C E V L A D B R O K E R A C I N G A N D C O M M I S S I O N

tion. In that way, the Commission involves expectations entertained by the PMU. itself with the assessment of conduct to be attributed to a national authority, an assessment which is carried out in accor- dance with the national provisions govern- ing the protection of legitimate expecta- tions and the revocation of unlawful administrative measures. In accordance with the case-law as analysed above, the (ii) Legitimate expectations as a purely option taken by the Commission of exam- Community concept ining the issue in question is therefore not

That submission was, for that malter, made by the Ciernian Governement i n Case C 5/H9 and, correctly, not accepted by- Advocate Cenerai Harmon (points 14, 15 and 16 of the Opinioni. In reality, this issue has many aspects, some of winch are lor the Member States and others for the Community, For example, the question as to whether national requirements for establishing legitimate expecta- tions arising from conduct at national level are satisfied has a purely Member State character and is a matter for decision by the competent national authorities.

expectations. The principle of the protection of legitimate Commission determined a Member State issue purely by expectations, as a component or the Community legal itself, or it contented itself with submissions of the national order, requires the Community institutions to examine authorities regarding how the question of the legitimate whether their conduct has caused persons subject to their expectations of the recipient of the aid was to be administration to entertain beliefs or such a kind as to considered. On either interpretation, its decision is detec- deserve protection. The ultimate decision on that issue live. rests, of course, with the Community indicatine.

81. The transfer of such a matter to the exclusive regulatory power of Community law is, of course, a further blow to the autonomy of national law, inasmuch as it takes away a particular area of jurisdiction.

50 — See the observations of Advocate General Jacobs in Alcan II, cited in footnote 28 above. It is to be noted that it is more correct from a methodological point of view to agree to the issue of legitimate expectations being examined during the Community stage of the procedure, that is to say when the decision-making body (the Commission) has a discretion as to the decisions which it will adopt, than during the national stage of the procedure, when the national bodies will be obliged to give effect to the order 83. It is also important to refer to a less issued by the Commission. well-known passage from the judgment in I - 3300

F R A N C E V LADBROKE RACING AND COMMISSION

86. The intervention by Community law 84. That pronouncement by the Court is could be achieved by drafting Community entirely correct and reinforces the com- legislation which would include the basic procedural and substantive rules governing the recovery of unlawful aid and, of course, 51 — Deutsche Milchkontor, cited in footnote 24 above , para graph 19. also broach the issue of safeguards for 52 — Deutsche Milchkontor, paragraph 24. traders who have in good faith received

I - 3301

OPINION OF M R COSMAS — CASE C-83/98 P

law. Second, the concept at issue already exists as a general principle with a purely Community content, applying principally to the revocation of unlawful administra- tive measures which create rights. 53 88. Two observations are called for at this point. First, the national provisions which operate to protect legitimate expectations under domestic law are not immaterial when assessing whether recipients of aid have expectations which are protected at Community level. It is logical for the particular circumstances under which that issue is judged in national law to influence

Both other words, the body applying Commu- the conduct of the national authorities nity law — and ultimately the Court — which is presented as the underlying reason for the belief that the aid is lawful and the particular provisions concerning legitimate 53 — See, for example, Case 14/61 Hoogovens v High Authority [19621 ECR 253 and Joined Cases 42/59 and 49/59 Snupat expectations are substantive issues for v High Authority (19611 ECR 5 3 . It is settled case-law that 'while it must be acknowledged that any Community institution which establishes that a measure which it has just adopted is tainted with illegality has the right to withdraw it within a reasonable period, with retroactive 54 — The Court traditionally follows the above judicial reason- effect, that right may be restricted by the need to fulfil the ing when it examines the issue of prior expectations.

1801.

Community law and as such are taken into be deserving of special protection, a situa- account by the body implementing it. tion which in principle arises only when he is 'misled' into believing that the aid is lawful not only by the conduct or measures of the national authorities but also by inappropriate or misleading acts on the part of the Community institutions. Only then is the need to safeguard the Commu- nity interest weakened and the need to protect the trader acting in good faith 89. Second, when the private interest of a correspondingly strengthened. trader acting in good faith is balanced against the general Community interest in rectifying the conditions of competition and ensuring that the Community rules are observed, it is expected that the out- come will be unfavourable to the trader. 55 Moreover, we are not faced with a classic 90. Having regard to the foregoing, I will relationship between a benefits authority now examine the question which occupied and an individual, as is usually the case in the Court of First Instance in the present national law. 56 In the category of disputes case. If the above analysis is accepted, the under consideration, the unlawful act of the Commission was correct to consider the national authorities does not prove detri- issue of the legitimate expectations enter- mental solely to their own interests, when it tained by the PMU, and the Court of First could be maintained that they themselves Instance was wrong to find that it was not are to blame for the financial loss which open to the Commission to assess the they will suffer if aid is not repaid; that ground put forward by the French Govern- unlawful act adversely affects both a super- ment. That view is imposed precisely by the ior legal order, that of the Community, and Community character of the protection of a category of persons, namely competitors legitimate expectations entertained by reci- and all those who suffer the adverse pients of aid acting in good faith. Since the consequences of the distortion of competi- investigation as to whether those expecta- tion and the prejudice to inter-State trade. I tions exist flows from the general principles therefore believe that, in practice, the cases of Community law, the Commission, when where the protection of the legitimate adopting the relevant measures regarding expectations of a recipient of aid prevails repayment of the unlawful aid, is not over the abovementioned interests will merely entitled, but obliged, to consider prove to be entirely exceptional. In order that parameter. for there to be such an exception, the particular position in which the trader acting in good faith has been placed must

question in the course of the Community various unfavourable legal consequences procedure at issue means that the Member for them. 58 States are indirectly given the opportunity to derive benefit from their own unlawful acts and that the legitimate expectations end up being assessed in the absence of the person alleged to hold them, without his even having made a request in that regard. I 92. Nor would there be any foundation to have already explained that the value of the argument that acknowledgment of that those arguments is only relative and that competence to the Commission prejudices the Court puts them to one side when faced the national courts, which are the 'natural with a case where it is contended that a adjudicators' of the legitimate expectations measure or conduct of a Community insti- of recipients of State aid. Irrespective of the tution has given rise to the trader's belief Commission's assessment, the national that the aid is lawful. I consider that the courts, as the 'ordinary courts of Commu- same arguments lose force if it is accepted nity law', may examine the issue in ques- that the issue of legitimate expectations of a tion if an application is made to them. recipient of aid falls in the domain of Indeed, if they consider that the Commis- Community law. In accordance with a sion has misinterpreted and misapplied the commonly held view in administrative Community principle of the protection of legitimate expectations, they can refer a law, the protection of legitimate expecta- question to the Court for a preliminary tions, as a fundamental principle which ruling. governs the action of administrative bodies under every legal system, must be taken into account by those bodies of their own accord. Since the Commission must there- fore examine that parameter in any event, it is entirely within the Commission's power 93. I consider that greater attention should to rely on it in its decisions even if they are be paid to another criticism which may be adopted in the absence of the person made of the view which I am now putting immediately concerned •— that is to say forward, a criticism which relates to the the person entertaining the expectations — limits of the Community legal order. Does or even without a request by him in that the suggested transfer to Community law regard. 57 It is immaterial that the Member alone of jurisdiction to apply legitimate States may benefit if the aid is not repaid. expectations constitute an excessive and The decision that it need not be repaid will impermissible challenge to the Community have been adopted irrespective of the legal order? As I have explained above, the appraisal of their interests, and that deci- solution of making the protection of legit- sion does not remove their liability arising imate expectations a Community matter, from the unlawful acts which have been even solely in relation to the particular committed, a liability which may have issue of the repayment of unlawful State aid, is at first sight a significant blow to the autonomy of national law, in that it takes

away a portion of national jurisdiction. interests of the person who has received the Nevertheless, I take the view that that blow aid in good faith may prevail only in wholly is preferable to the blow inflicted by the exceptional cases over the need to safe- case-law of the Court of Justice to date, on guard the Community interest at issue. the grounds that the Community interest is Accordingly, Commission Decision 93/625 better protected, legal clarity and certainty manifestly suffered from a defective state- are enhanced and the specific elements ment of g r o u n d s and was correctly which make up the national legal order annulled by the Court of First Instance. are safeguarded. As I have stated at a previous point in my analysis, it proves more prejudicial to national law, and is uncertain from a systemic and theoretical viewpoint, for national law to be legally autonomous in circumstances where funda- mental rules of the national legal order might be overturned or even distorted when they are applied in cases of interest to the (iii) Failure to notify State aid as a ground Community. which precludes legitimate expectations

I - 3305

OPINION O F M R COSMAS — CASE C-83/98 P

article. A diligent businessman should nor- judgment is sufficient to overturn the mally be able to determine whether that previous case-law and to establish an procedure has been followed'. 59 On the irrebuttable presumption that failure to other hand, the Court nevertheless finds notify national measures is sufficient to that 'it is true that a recipient of illegally preclude the creation of legitimation expec- granted aid is not precluded from relying tations on the part of the recipient of the on exceptional circumstances on the basis aid. of which it had legitimately assumed the aid to be lawful and thus declining to refund that aid. If such a case is brought before a national court, it is for that court to assess the material circumstances, if necessary after obtaining a preliminary ruling on interpretation from the Court of Justice'. 60 Thus, while in principle a failure to comply with the obligation of notifica- tion laid down by Article 93 of the Treaty prevents legitimate expectations from being created, a recipient of aid nevertheless has a narrow leeway for proving that there may be exceptional circumstances which enable the presumption against him that there are 98. In any event, however, the error no legitimate expectations to be rebutted. 61 detected in paragraph 182 of the contested judgment is not sufficient to undermine its correctness, since the position of the Court of First Instance with regard to the relevant point of the disputed Commission decision is entirely correct for the reasons previously 59 — Case C-5/89, cited in footnote 27 above, paragraph 14. set out. 60 — Case C-5/89, paragraph 16. 61 — Traders in receipt of State aids are professionals who have a duty to take care .

The first expectations itself and the jurisdiction of the national tranche was paid on 9 June 1983, without prior advice to courts to determine such matters must be preserved, and the Commission, and the second on 30 November 1983, allowance must therefore be made for cases in which the after the Commission's letter of 25 November 1983 fundamental rights of an undertaking, although it has not informing the Federal Government that the grant of the verified whether the aid had been notified, are such that it first tranche had been unlawful and that the second should none the less be accorded the benefit of the tranche should not be paid. In accordance with the

I - 3306

FRANCE V LADBROKE RACING AND COMMISSION

IV — Conclusion

99. In view of the foregoing, I propose that the Court should:

— dismiss the appeal in its entirety;

— order the appellant to pay the costs.