AG Wathelet Opinion: No Half-Baked Excuses On State Aid And The Incentive Effect

Advocate General Wathelet has issued his opinion in the Eesti Pagar preliminary ruling, 1 which if followed could have significant implications for Member States, national authorities and beneficiaries of State aid. Wathelet's opinion is of particular interest as judgments on the existence and test for incentive effect are rare and the incentive effect is an essential element required for an aid measure to benefit from the General Block Exemption Regulation (GBER). It remains to be seen if the CJEU will follow the opinion in its judgment, expected later this year or in 2019.

The case concerns aid awarded by the Estonian Foundation for development of business (EAS) in 2009 to Eesti Pagar for the purposes of purchasing a bread production line. EAS deemed this aid to be within Article 8(2) of the then applicable GBER as the proposed aid incentivized Eesti Pager to invest in a project that they would not otherwise have undertaken, i.e., the aid had an incentive effect.2

In January 2014, Estonia attempted to recover the aid on the grounds that it had been unaware of earlier financial contracts entered into in relation to the production line. Although not mentioned in Wathelet's opinion, the aid recovery followed an inspection of the Eesti Pagar project by EAS.3 There is no evidence that there was any other motivation on the part of EAS to recover the money than this new assessment of the facts. The Estonian authorities argued that since Eesti Pagar had already entered into leasing agreements in relation to the production line before it applied for aid, the aid did not have an incentive effect. Eesti Pagar disputed this in the Estonian courts, arguing that they had been encouraged to sign the "preliminary" agreements by EAS before receiving the aid and that they had acquired the legitimate expectation that the aid had been granted in a manner compliant with the GBER.

The Estonian Court of Appeal referred five questions to the CJEU, asking: (i) how national authorities should assess when a project or activity starts for the purposes of Article 8(2) of the GBER; (ii) if Member States are obliged to recover unlawful aid even if the Commission has not adopted a corresponding decision; (iii) whether the granting of aid by a national authority engenders a legitimate expectation on the part of the beneficiaries; (iv) what limitation period applies to the recovery of unlawful aid by a Member State; and (v) whether a Member State is obligated to demand...