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Guarantees deliberately provided by the director of a public undertaking in disregard of that undertaking’s statutes – the question of imputability under Article 107(1) TFEU with criminal offences in the background

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On 17 September, the ECJ gave a preliminary ruling in Case C-242/13.[1] The request was made in proceedings between Commerz Nederland NV («CN») and Havenbedrijf Rotterdam NV («HR»), a port authority wholly owned by the municipality of Rotterdam. («the Municipality»). It concerned, in particular, the validity of guarantees provided on behalf of HR and in disregard of its statutes by HR’s sole director to CN to enable CN to make credit facilities available to third party borrowers, RDM Vehicles BV («RDM»).

 

In November 2003, CN made a credit facility to RDM. At the same time, the director of Gemeentelijk Havenbedrijf Rotterdam («GHR»), a port authority and a service department of the Municipality, provided a guarantee whereby GHR agreed to act as guarantor for the discharge of RDM’s liabilities to CN arising from the credit so provided. In January 2004, GHR was incorporated into HR, solely owned by the Municipality. In June 2004, the former director of GHR and the sole director of HR provided, on behalf of HR, a guarantee in favour of CN in respect of the credit provided to RDM while CN waived its rights under the guarantee provided by GHR. According to «legal opinions» CN was provided with, the guarantees in question were «valid, binding and enforceable obligations» as regards the guarantor. In February 2004, CN provided more credit facilities to RDM, which were again guaranteed by the director of HR. Their validity was also confirmed by a respective «legal opinion».

 

In April and August 2004, CN cancelled the credits provided to RDM and demanded repayment of the amounts outstanding. No payment was made. CN requested HR, under the guarantees provided in respect of the credits, to pay the sums due. HR did not respond favourably to that request. In December 2004, CN brought an action against HR before the District Court in Rotterdam demanding payments of the amounts due in respect of the provided guarantees. In January 2007, the District Court dismissed that action on the grounds that that guarantee constituted aid within the meaning of Article 107(1) TFEU that ought to have been notified to the Commission. Hence, the guarantee was void, pursuant to Article 3:40(2) of the Netherlands Civil Code.

 

The Regional Court of Appeal in the Hague upheld that judgment. In particular, the provision of the guarantees was imputable to the public authorities. In that regard, the Court took into account that: the Municipality solely owned HR, the members of HR’s management and supervisory board were nominated by the general meeting of shareholders, thus by the Municipality, according to HR’s statutes, the approval of the supervisory board was required for the provision of guarantees such as those at issue, the object assigned to HR by its statutes was not comparable to that of a purely commercial undertaking, (the significance of the public interest). The conclusion that the Municipality exerted a strong influence on HR was not altered by the fact that the director of HR acted arbitrarily, deliberately kept the provision of the guarantees secret and failed to seek the approval of HR’s supervisory. Moreover, the Court rejected CN’s argument that the guarantees conferred no advantage on RDM for they were provided pursuant to a contract between RDM and GHR from December 2002, by which RDM had undertaken not to supply any submarine technology to Taiwan and GHR in return gave guaranties to the creditors of the RDM group of companies. This previous commitment would not prevent those guarantees being «advantages» under Article 107(1) TFEU. 

 

CN asked thus the Supreme Court of the Netherlands to set aside the judgment of the Regional Court. As it argued, the municipality had not been involved in the provision of the guarantees. Had it been informed, it would not have accepted them. HR’s director had to resign from his position and he was convicted of criminal offences for his actions in this case. CN also questioned the classification of the guarantees as advantages. The Supreme Court referred the following questions to the ECJ for a preliminary ruling:

 

1) Is the imputability (…) to the public authorities of a guarantee provided by a public undertaking necessarily precluded in a situation in which that guarantee, (…) was provided by the (sole) director of the public undertaking who, while admittedly having the power to do so under civil law, acted arbitrarily, deliberately kept the provision of the guarantee secret and disregarded the statutes of the public undertaking by failing to seek the approval of the supervisory board, and in which, furthermore, it must be assumed that the public body concerned (…) did not wish the guarantee to be provided?

2) If the circumstances described do not necessarily preclude imputability to the public authorities, are those circumstances then irrelevant for the purpose of answering the question whether the provision of the guarantee may be imputed to the public authorities, or must the court consider the matter in the light of the other factors arguing for or against imputability to the public authorities?

 

As the ECJ summarised, for the purposes of imputability the following was relevant: 1) the sole director of HR acted improperly, deliberately kept the provision of those guarantees secret and disregarded that HR’s statutes, and, 2) HR would have opposed the provision of the guarantees, had it been informed of it. Do they exclude imputability?

 

Having referred to Case C-482/99 France v Commission (Stardust Marine) of 2002, the ECJ ruled that it is for the referring court to determine whether imputability to the State of guarantees provided by HR may be inferred from the evidence at issue. In particular, it must be determined whether that evidence demonstrates the involvement of HR. The fact that the sole director of HR acted improperly does not, of itself, exclude such involvement. As observed by the Advocate General, (see paras 90-91), the effectiveness of State aid rules would be considerably weakened if their application could be excluded, merely because a director of a public undertaking disregarded that


[1]http://curia.europa.eu/juris/document/document.jsf?text=&docid=157804&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=16896