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High Court of Ireland, Kingdom of Belgium v - Judgment Title Bupa ---

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High Court of Ireland, Kingdom of Belgium v - Judgment Title Bupa ---

    Judgment Title: Kingdom of Belgium v Ryanair Limited

    Neutral Citation: [2006] IEHC 213

    High Court Record Number: 2005 998S

    Date of Delivery: 30/06/2006

    Court: High Court

    Composition of Court: O'Neill J.

    Judgment by: O'Neill J.

    Status of Judgment: Approved

- 2 -

    Neutral Citation Number [2006] IEHC 213

    THE HIGH COURT

    [2005 No. 998 S]

    BETWEEN

    KINGDOM OF BELGIUM

    PLAINTIFF

    AND

    RYANAIR LIMITED

    DEFENDANT

    JUDGMENT of O’Neill J. delivered the 30th June, 2006.

    The defendants by their Notice of Motion on 28th day of October, 2005, seek an order staying these

    proceedings pending the determination of case TT196/04 Ryanair Ltd. v. the Commission of the

    European Communities, which is currently before the Court of First Instance of the European

    Communities (hereinafter referred to as the “CFI”).

    The background to this matter is as follows.

    By its decision published on 12th February, 2004, the Commission of the European Communities

    (hereinafter referred to as the “Commission”), decided that certain arrangements or transactions which had been concluded between the Walloon region and the defendants and implemented by the plaintiff

    were determined to be illegal state aids and incompatible with Article 87(1) of the Treaty. The conclusion of the Commission was expressed at paragraph 6 of the decision in the following

    terms:-

    “6. CONCLUSIONS.

    The Commission notes that Belgium has unlawfully provided aid for the benefit of the

    airline Ryanair in violation of Article 88(3) of the Treaty. However, for the contribution

    that this aid can make to the launching of new air transport services and the sustainable

    development to a regional airport, a portion of this aid may be declared compatible with

    the common market, subject to the conditions set out in ss. 338 to 334.

    HAS ADOPTED THIS DECISION:

    Article 1

    The aid measures implemented by Belgium in the contract of the 6th November, 2001,

    concluded between the Walloon Region and Ryanair in the form of a reduction in airport

    landing charges that goes beyond the official tariff set in Article 3 of the Walloon

    Government decree of 16th July 1998 laying down charges to be levied for the use of

    airports in the Walloon Region, and the general discounts provided for in Article 7(1)

    and (2) of the said Decree, are incompatible with the common market within the

    meaning of Article 87(1) of the Treaty.

    Article 2

    The aid measures implemented by Belgium through the contract of 2nd November, 2001

    concluded between Brussels South Charleroi Airport (BSCA) and Ryanair, in the form of

    discounts on ground handling services in comparison with the official airport tariff, are

    incompatible with the common market within the meaning of Article 87 (1) of the Treaty.

    Belgium shall determine the total aid recoverable by calculating the difference between

    the operating costs borne by BCSA and linked to the ground handling services provided

    to Ryanair and the price invoiced to the airline. So long as the two-million passenger

    threshold provided for in Directive 96/67/EC remains unattained, Belgium may deduct

    from this total any profits realised by BCSA or other strictly commercial activities.

    Article 3

    Belgium shall ensure that the compensation guarantees granted in the contract of 6th

    November, 2001 by the Walloon Region in the event of losses suffered by Ryanair

    through the exercise by the Walloon of its regulator powers are void. The Walloon

    Region shall have with Ryanair, as with other airline companies all the necessary

    freedom and fixing airport charges, airport opening hours, or other provisions of

    regulatory nature.

    Article 4

    The other types of aid granted by BSCA, including marketing contributions, one-shot

    incentives and provision of office space, are declared compatible with the common

    market as start-up aid for new routes, subject to the following conditions:

    (1) The contributions must relate to the opening of a new route and be limited in time. In

view of the intra-European destinations covered, the time period must not exceed five

    years following the opening of a route. The contributions may not be paid for a route opened as a replacement for another route closed by Ryanair in the preceding five

    years. In future, aid may not be granted for a route that Ryanair has provided in

     replacement for another route that served previously from another airport located in the (2) The marketing contributions, currently set at EUR 4 per passenger, must be justified same economic or population catchment area.

    in a development plan compiled by Ryanair and validated by BSCA for each route

    concerned. The plan shall specify the costs incurred and eligible, which must relate

    directly to the promotion of the route with the aim of making it viable without aid after

    an initial period of five years. At the end of the five year period BSCA shall a posteriori

    validate the start-up costs incurred by each airline, and BSCA shall where necessary

    enlist an independent auditor in the task.

    (3) With regard to the portion of contributions already paid by BSCA, a similar exercise

    must be carried out to validate this aid on the same principles. (4) The one shot contributions paid in a lump sum when Ryanair set up at Charleroi, or

    whenever a route was opened, must be recovered, except for any portion that Belgium

    can justify being directly linked to the costs that were incurred by Ryanair at the Charleroi airport hub and are proportional and incentive in nature. (5) The sum total of aid for which a new route benefits must never exceed 50% of start-up marketing and one shot costs aggregated for the two destinations in question,

    including Charleroi. In the same way, the contributions granted for the destination must

    not exceed 50% of the actual costs for that destination. Specific attention shall be paid in

    these evaluations to routes that link Charleroi to a major airport, such as those included in Categories A and B as defined in the Committee of the Regions outlook opinion of 2nd

    July 2003 on the capacity of regional airports and identified in the present decision,

    and/or to co-ordinated or fully coordinated airports within the meaning of Regulation EEC No. 95/93.

    (6) The contributions paid by BSCA that at the end of the five year start-up period exceed the criteria laid down must be repaid by Ryanair. (7) The contributions paid where applicable for the Dublin-Charleroi route under the November 2001 contracts examined herein shall be recovered. (8) Belgium shall set up a non-discriminatory aid scheme intended to ensure equality of

    treatment for airlines wishing to develop new air services departing from Charleroi

    airport in accordance with the objective criteria laid down in the present Decision.

    Article 5

    (1) Belgium shall take all the necessary measures to recover from the beneficiary the aid

    mentioned in Articles 2 and 2 and unlawfully made available to it. The aid mentioned in Article 1 may however remain partly unrecovered, for the portion that does not exceed

    the ceiling, in compliance with the conditions laid down in Article 4. The recovery shall

    be effected immediately in accordance with the procedures of national law, insofar as

    they allow immediate and effective enforcement of the present decision. The aid to be

    recovered shall include interest running from the date at which it was made available to

    the beneficiary to the date of recovery. The interest shall be calculated on the basis of

     the reference rate used for calculating the subsidy equivalent for regional aid. It shall be

    (2) If the conditions laid down in Article 4 are not complied with a portion of the aid, calculated on a compound basis.

    whether that portion corresponds to a category of aid or an aided route, or if the terms

    for balancing the agreements concluded between Ryanair and BSCA are substantially

    altered, Belgium shall be required to recover all the corresponding aid referred to in the

    said article

Article 6

    Belgium shall inform the Commission within two months of the date of notification of

    this decision of the measures taken to comply with it”. Following on this decision there ensued correspondence between the plaintiff and defendant herein

    with a view to the recovery of the shortfall in the airport landing charges, the discounts on ground

    handling services, and the marketing contributions, one shot incentives and other payments made to

    the defendants.

    This correspondence led to an agreement whereby 4 million euro was placed in a joint escrow account pending the determination of the case taken by the defendants against the Commission in which the

    defendants seek the annulment of the Commission decision. This sum represented recovery of the

    reductions in airport landing charges condemned in Article 1 and the discounts on ground handling

    charges condemned in Article 2 of the decision.

    Insofar as the payments to Ryanair are concerned the correspondence failed to resolve the issue of

    their recovery, the defendants terminating correspondence in that regard by indicating an

    unwillingness to engage in any further clarification or exploration of the issue pending the outcome of

    the case before the CFI.

    As a result of failure to achieve agreement on this, the plaintiffs issued these proceedings seeking the recovery of the sum of ?2,288,000.00 together with interest which as of the 1st November, 2005, was

    claimed in the sum of ?333,606.00.

    In the meantime as already indicated the defendants have brought a case to the CFI in which they seek

    the annulment of the decision of 12th February, 2004. It is common case that if the defendants are

    successful in that case there will be no legal basis for the recovery of the sums sought as liquidated

    sums in these proceedings.

    In seeking a stay on these proceedings Mr A. Collins S.C. for the defendants makes the following

    submissions.

    1. The defendants will inter alia as part of their defence to these proceedings claim that

    the decision of the 12th February, 2004, of the Commission is invalid and if necessary

    will seek a reference to the European Court of Justice (hereinafter referred to as the

    “E.C.J.”) on that point under Article 234 of the Treaty.

    2. The defendants have initiated proceedings in the C.F.I. seeking an annulment of the

decision. These proceedings were initiated within time and raise issues of the utmost

    importance to the defendants and to the airline industry in general. The defendants case

    is bona fide and weighty, the salient elements of which are set out in paragraph 8 of the

     affidavit of Jim Callaghan for the defendants and summarised in the official journal of

    3. The courts of this jurisdiction have no jurisdiction to question or determine the the European Union on 11th September, 2004.

    validity of the decision of the 12th February, 2004, that jurisdiction being reserved to the

    courts of the European Union either C.F.I. or E.C.J. as appropriate as per the decision of

    the E.C.J. in case 314/85 Foto-Frost v. Hauptzollamt Lubeck Ost [1987] E.C.R. 4199.

    4. As the plaintiffs right to make the claim that is made in these proceedings depends

    wholly upon the validity of the decision of the 12th February, 2004, and as Irish courts cannot do otherwise than proceed upon the basis of the validity of this decision, if these

    proceedings are permitted to continue to final judgment, there is a risk of an injustice to

    the defendant insofar as a judgment may be obtained on the basis of an E.U. decision which may ultimately be annulled by the C.F.I. and/or the E.C.J. 5. At best there is a risk, having regard to the fact that the trial of these proceedings

    would take four to five days, that there would be a waste of judicial resources in this jurisdiction, by permitting these proceedings to continue in advance of a determination

    on the validity of the aforesaid decision by the C.F.I.

    7. In any event when the matter would come on for trial the defendants intend to apply to

    the court for a reference to the E.C.J. pursuant to Article 234 of the Treaty on the

    question of the validity of the said decision and in the event of the court granting to that

    request the proceeding would be automatically stayed.

    8. Irish case law and in particular the cases of Merck and Co. Ink v. G.D. Searle and Co.

    and Monsanto and Co. [2002] 3 I.R. 614 and the case of Friends of the Irish Environment v. the Minister of the Environment, judgment delivered the 15th April,

    2005 by Murphy J, favour the granting of a stay in circumstances similar to those in this

    case. Similarly the case of the Department of Trade v. British Aerospace [1991] C.L.M.R. 165 demonstrates a similar approach in the Courts of England and Wales. 9. The judgment of the ECJ in the case of Masterfoods Limited v. HB Ice-Cream Limited

    [2000] E.C.R. 1-11 369 establishes a binding jurisprudence throughout the community

    which governs issues such as arise on this motion. The following passage from that

    judgment illustrates the pith of the defendant’s case on this motion.

    “When the outcome of the dispute before the national court depends upon

    the validity of the Commission decision, it follows from the obligation of

    sincere cooperation that the national court should in order to avoid

    reaching a decision that runs counter to that of the Commission, stay its

    proceedings pending final judgment in the action for annulment by the

    community courts, unless it considers that in the circumstances of the case

    a reference to the Court of Justice for a preliminary ruling on the validity

    of the Commission decision is warranted.”

    In this motion the defendant is not seeking to stay the operation of a national measure

    based on a community regulation, but was merely seeking to stay a court proceeding

    which relates only to a specific claim by the plaintiff against the defendant herein and

    hence a stay has no wider effect and accordingly it was submitted that the jurisprudence

    of the E.C.J. in regard to the suspension of national measures based on community

    regulation as set out in the joined cases of C 413/88 and C 92/89 Zuckerfabrik

    Suederdithmarschen A.G. Hauptzllamt Itzehoe and Ors [1991] E.C.R. 415, does not

    apply.

    10. The governing principle of European law relevant to the issues arising on this

    appliation are set out in the case of Masterfoods Limited v. HB Ice-Cream limited and

    not in the Zuckerfabrik case.

    11. The plaintiffs will not suffer any prejudice as a result of the stay being granted, it

    being clear that the defendants have ample resources ultimately to meet a judgment and

    any delay is compensatable in favour of the plaintiff by the application of interest

    pursuant to Article 5 of the decision which involves, compound interest.

    12. Having regard to the fact that the plaintiffs had initiated these proceedings and

    pursued them with vigour, if a stay were to be granted it could not reasonably or

    realistically be said, as was apprehended by the plaintiffs that there was a risk to the

    plaintiffs of infringement proceedings pursuant to Article 226 of the Treaty, being taken

    against the plaintiffs by the Commission.

    For the plaintiffs it was submitted by a Mr. Donal O’Donnell S.C. as follows: 1. Article 87(1) of the Treaty prohibits the granting of aid by a Member State in any form whatsoever

    which distorts or threatens to distort competition by favouring certain undertakings and insofar as

    such aid effects trade between Member States it is declared to be incompatible with the common

    market.

    2. Articles 1 and 2 of the decision of the Commission of the 12th February, 2004, found that the reduction in landing charges and discounts on ground handling charges which were conceded to the

    defendants by the plaintiffs through the Walloon region at the BSCA were illegal State aids. Article 4

    of the decision listed the type of start up aid considered to be compatible with the common market

    provided that certain conditions were met. As the defendant in correspondence eventually declined to

    provide information which would have enabled a decision to be made as to whether or not these conditions were met, the plaintiffs were left with no option but to proceed immediately to recover the

    aid given as it was required to do by Article 5 of the decision. Insofar as the aid which was

    condemned in Articles 1 and 2 of the decision was concerned, recovery in respect of that was satisfied

    by the placing in escrow of the sum of four million euro. The failure to reach any agreement on the

    amount due in respect of the aids dealt with in Article 4 has led to these proceedings.

    3. The plaintiffs are obliged by virtue of Article 5 of the said decision to

    recover the illegal aid provided. This obligation arises by virtue of Article 5

    of the said decision and also by virtue of Article 14 of Council Regulation

    (E.C.) No. 659/1999.

    4. The reason or philosophy which underpins the policy of the speedy

recovery of illegal aids is to restore the equilibrium of the market distorted

    by the provision of illegal state aid to an undertaking. If this is not done

    speedily, in sensitive markets undertakings which profit from illegally granted aid, may well distort the conditions of competition in such a way as

    the competitive structure is permanently altered. Thus the policy of speedy

    recovery of a illegal State aids is integrally bound up with the underlying

     policy, fundamental to the common market, of protecting competition from

    5. Article 242 of the Treaty provides that actions before the Court of Justice distortion by the provision of illegal State aids.

    do not have a suspensory effect. Accordingly the initiation of its proceedings before the CFI did not have the effect of staying the decision

    of the 12th February, 2004.

    6. See in this respect Case-137/92P, Commission v. BASF [1994] E.C.R. 1/2555, para. 48. National Courts do not have a power to annul a

    Commission decision that jurisdiction being reserved to the community

    courts, either the E.C.J or C.F.I. (see Case 314/85 Foto-Frost [1987] E.C.R. 4199).

    7. A national court may stay proceedings where those proceedings involve

    the validity of a community measure until a decision has been given in any

    action for annulment in respect of that decision by the C.F.I. or E.C.J. In

    this regard reference was made to Case C-344/98, Masterfoods Limited v. HB Ice-Cream Limited [2000] E.C.R. 1-11369. 8. Any decision to stay these proceedings is a decision to suspend the

    enforcement of the decision of the Commission made the 12th February,

    2004. Whilst this court has a jurisdiction to do that, it must exercise its discretion in that regard in accordance with the principles laid out by the

    E.C.J in the joint cases C-413/88 and C-92/89, Zuckerfabrik [1991] E.C.R 415 which governs the staying or suspension of the enforcement of an

    administrative measure based upon a community regulation. In this case it

    was held that national courts could grant relief only on the same basis as

    the community courts, applying the same principles. 9. Pursuant to the judgment in the Zuckerfabrik case, the defendants in order to obtain a stay or suspension must satisfy a three part test. Firstly,

    they must persuade this court that serious doubts exist as to the validity of

    the community measure, i.e. the decision of the 12th February, 2004.

    Secondly, they must show that a stay is necessary in order to avoid serious

    and irreparable damage to the defendant and that such harm is likely to

    materialise before the decision of the community courts. In this regard

    financial loss simpliciter will not be regarded in principle as irreparable. It must be established that immediate enforcement of the community decision

    is likely to result in irreversible damage to the defendant which could not

    be made good if the Community Act were declared to be invalid. Thirdly,

    the court must take account of the community’s interest and must consider

    whether the community measure in question would be deprived of

    effectiveness if not immediately implemented.10. The defendants in a letter of 25th October, 2005, have accepted, in

    explaining why they did not apply to the C.F.I. for a suspension that “the

    Court of First Instance would not be likely to grant such a stay because our

    client’s exposure was financial and was at a level within its capacity to

    meet”. On the basis that this court should approach the application for a

    stay on the same basis as would the C.F.I., the acknowledgment by the

    defendant that it would not be successful in getting a suspension from the

    C.F.I., of itself is sufficient to persuade this court to refuse the application

    for a stay.

    11. Without prejudice to the foregoing, it is submitted that the defendants have failed to place before

    this court sufficient material to enable this court to determine whether or not there exists serious

    doubts as to the validity of the decision of the 12th February, 2004, and hence this court is not in a

    position to ascertain whether there is a real possibility of the invalidity of that decision. The defendant

    has wholly failed to put forward any evidence to demonstrate that in the absence of a stay they will suffer irreparable harm and have contented themselves with merely contending that the plaintiffs will

    suffer no prejudice by the grant of a stay. The aforesaid acknowledgment in the letter of the 25th

    October, 2005, demonstrates that the only potential consequence for the defendants of enforcement of

    the decision is purely financial and well within its capacity to bear and hence demonstrates that no

    irreparable loss is apprehended.

    12. Insofar as the third condition is concerned the interest of the

    community in the restoration of competition in the market in question

    requires that the defendants repay immediately the aids received so that

    they are not continuing to trade with the benefit of those financial

    advantages. Insofar as the illegal aids which were condemned in Articles 1

    and 2 of the decision are concerned recovery has already been achieved by

    the placing of the ?4 million in escrow. There remain outstanding sums

    sought in these proceedings and so long as the defendants continue to retain

    those funds they continue to trade with that advantage over other

    competitors in that market. Hence any delay in the enforcement of the

    decision of the 12th February, 2004, injures a fundamental community

    interest, i.e. the protection of competition from distortion by illegal State

    aids.

    13. The judgment of the E.C.J. in the Masterfoods case is distinguishable

    because in that case there was a real risk that without a stay the judgments

    of the Supreme Court might have been in conflict with the judgment of the

    community courts so, that the parties would have found themselves subject

    to conflicting judgments which would have been inimical to the principle

    of legal certainty. In this case it was submitted no such risk exists and this

     court in refusing a stay honours the status of the current decision of the

    14. Insofar as the defendants contend that they would in due course seek a 12th February, 2004, as a valid act without suspensory effect.

    reference under Article 234 to the E.C.J. in this case, it was submitted that

    the circumstances which might give rise to such a reference should not be

    anticipated at this stage nor could this court at this stage on this application

    proceed upon the basis that such a reference would be sought and/or if it

    was sought that the circumstances would exist which would warrant such a

    reference.

    15. The plaintiffs in this case, if a stay is granted, are at risk of

    infringement proceedings being taken against them by the Commission

    pursuant to Article 226 of the Treaty. In this regard reference is made to

    case no. C-232/05 Commission v. France and the decision of the E.C.J., in

    case C-224/01, Kobler where the judgment of the court was delivered on

    the 30th September, 2003, and held that in certain circumstances Member

    States may be liable in damages for breach of E.U. law where the

    infringement is attributable to a national court.

DECISION

    The first issue to be confronted is to determine what is the correct approach to be adopted to ascertain

    whether or not a stay should be granted. This comes down to whether or not the rulings of the E.C.J.

    in the Zuckerfabrik case applies or not. Mr. Collins submitted that it did not because the Zuckerfabrik

    case was to be distinguished as applying only where a stay or suspension was sought in relation to a

    national measure based on community regulation and also he drew attention to the absence of any linkage in the judgment of the E.C.J. in the Masterfoods case to the three part test for a suspension set out in the Zuckerfabrik case.

    In my view the Zuckerfabrik case and the Masterfoods case form part of a cohesive jurisprudence. In circumstances such as existed in the Masterfoods case where there was a real risk of two courts of

    competent jurisdiction i.e. community court and a national court producing judgments which

    conflicted with each other, there would be an overriding imperative to avoid the parties being subject

    to conflicting judgments, and hence it would seem to follow that notwithstanding non-compliance with the three part test set out in the Zuckerfabrik case that a stay or suspension should be granted by

    the national court. That is the approach that was taken by McCracken J. in the Monsanto case.

    There is of course perhaps the more fundamental question raised by Mr. Collins and that is whether

    the Zuckerfabrik judgment is to be distinguished, as confined to applications to suspend or stay the national measures based upon community regulation.

    If Mr. Collins is correct in his submission it would have the strange effect of excluding from the

    Zuckerfabrik test decisions of the Commission generally on the grant of illegal aids to particular parties and also decisions of the Commission condemning anti competitive practices on the part of

particular parties. Given that the provisions of Article 87 of the Treaty can only be given effect

    through the decisions of the Commission in regard to particular alleged illegal state aids, and having

    regard to the fact that pursuant to Article 249 of the treaty decisions of the Commission are binding on

    those to whom they are addressed, I am of opinion, having regard to the fundamental importance of decisions of this type in achieving one of the most important policy objectives of the Treaty namely

    the establishment of a common market free from distortion, inter alia by illegal state aids or anti

    competitive practices, that it would necessarily follow that where a suspension of a decision was

    sought or a stay sought on enforcement proceeding pending the outcome of annulment proceedings in

    the community courts, that the three part test set as out in the Zuckerfabrik case applies, notwithstanding the absence of an express reference in the Zuckerfabrik case to decisions of the

    Commission such as is in issue in this case. The obligation of sincere co-operation enjoined on Member States by Article 10 of the Treaty, in my

    view implies that National Courts, in an application for a stay on enforcement of a decision of the

    Commission, must apply the general jurisprudence of the Community Courts on such issues as set out

    in the Zuckerfabrik case.

    In my view therefore the correct approach to this application for a stay is to apply the three part test as

    set out in the Zuckerfabrik case.

    The first requirement here is that this court should have serious doubts as to the validity of the

    decision of the 12th February, 2004. In that regard the plaintiff submitted that the defendants had not placed sufficient material before the court to enable it to form any view on the validity of the decision.

    Clearly what is required here is not that this court should be required to form any kind of a decisive or

    conclusive opinion on the question of validity. I do not think that a national court could be expected to

    go any further than to do as is done in the judicial review jurisdiction here on the ex parte application

    for leave, namely, simply to ascertain that there are arguable grounds for contending that the decision

    is invalid. If more were required of the national court it would necessitate a much deeper inquiry as to

    the nature of or merit of the challenge to the decision, than I think is envisaged on an application such as this.

    The material which is available to this court setting out the nature of the defendants challenge to the

    validity of the decision is set out in the affidavit of Jim O’Callaghan sworn for the purposes of this

    application and particular paragraph 8 thereof. In addition there is set out in the Official Journal of the

    E.U. Union of the 11/9/2004, pleas in law and main arguments of the defendants. There is sufficient

    material between these two sources to persuade me that the defendants have arguable grounds for contending that the decision is invalid or to put it another way to establish serious doubts as to the

    validity of the decision.

    The second requirement is that the defendants demonstrate that they will suffer irreparable harm if a

    stay is not granted. It is quite clear that the defendants have put forward no evidence which can come

    close to satisfying this test. The letter of the 25th October, 2005, candidly acknowledges that the only

    harm apprehended is pure financial loss which is well within their capacity to bear. This brings me to the third aspect of the test namely the interest of the community. The interests

    asserted here is, as mentioned earlier, the necessity to restore the equilibrium of the market by the

    recovery of the sums paid to the defendants as claimed in these proceedings. Specifically what has to

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