France : An Overview on State Aid
State intervention is a long-standing tradition in France. EU state aid control rules apply to avoid any undue distortion of competition. The European Commission has exclusive powers to examine the compatibility of state aid with the internal market. National courts have a distinct but complementary role to safeguard subjective rights of third parties affected by the granting of aid that does not comply with the EU procedure. This article reviews the granting of state aid in France and the French courts’ state aid enforcement and procedure.
- National state aid granting and control
- National procedural rules
- Role of national courts
Referenced in this article
- Galerie de Lisieux v caisse Organic de recouvrement
- Etablissements J Richard Ducros v Société Métallique Finsider Sud
- Commission v France (Scott)
- Scott SA and Kimberly Clark SAS v Ville d'Orléans
- SFEI v La Poste ao
- Syndicat national de l’industrie des viandes ao
- Commune de Paulhac
- CELF cases
- SFEI v La Poste ao
- Groupe Salmon Arc-en-ciel
- Deutsche Lufthansa
State intervention in France is common and has resulted in various cases related to state aid. France has a long-standing tradition of state intervention, and the state regularly intervenes as a provider of subsidies, investors, lenders, guarantors and creditors.
With this experience in state aid, French state organs are familiar with the procedures associated with notifiable aid measures; however, there is still the risk of breaches of state aid rules, and such cases do arise. The French courts are also increasingly aware of their duties and obligations with regard to unlawful non-notified aid.
National state aid granting and control: competent authorities
Authorities in charge of state aid oversight
In France, there is no centralised person who represents the state in respect of its aid policy in cases or with regard to policy issues with the European Commission (the Commission). All relations with the European Union must go through the Permanent Representation of France to the European Union based in Brussels.
The General Secretariat for European Affairs (SGAE), a department attached to the prime minister’s office, centralises all issues that arise in relations with European institutions. It ensures the unity and consistency of any French positions submitted within the European Union. One of its 18 operational offices is responsible for competition and state aid.All state issues and aid notifications are coordinated by the SGAE.
The General Commission for Territorial Equality also organises working groups, bringing together ministries, representatives of regional prefects and representatives of local authorities. It harmonises ministerial and local practices to detect the risks of measures being classified as state aid.
The Treasury (also known as ‘Bercy’ or the Ministry of the Economy and Finance) is generally involved in all state aid matters, in particular with regard to the financial impact such matters have on the state budget. The Inter-Ministerial Committee on Industrial Restructuring, a department of the Ministry, is also often involved in state aid matters relating to rescue or restructuring aid. This organ aims to assist undertakings in difficulty and to develop remedies to ensure such undertakings’ restructuring and, if appropriate, their long-term viability. These measures may give rise to various state aid procedures.
The Ministry of the Economy and Finance usually cooperates and exchanges information with the local authorities or other public bodies (ie, social security institutions), with coordination by the SGAE.
The State Shareholdings Agency (APE) is also naturally involved in state aid measures concerning undertakings in which the French state holds shareholdings or is likely to enter its capital following state aid recapitalisation measures.
The sub-directorate for EU law and international economic law, which is a team of specialised agents for EU litigation matters, of the Legal Directorate of the Ministry for Europe and Foreign Affairs handles France’s representation before the EU courts.
That sub-directorate liaises with the SGAE and the relevant ministries, in particular the Ministry of Economy and Finance. As such, it has a responsibility to draft the briefs and the written observations of the government for the EU courts and to plead before them.
Council of State in the compliance and implementation of EU law
The Council of State is a special adviser to the government with regard to its legislative and regulatory action. In this advisory role, the Council of State is seized of bills before they are passed by the Council of Ministers. It also has jurisdiction over draft orders, as well as the most important draft decrees, which are referred to as ‘decrees of the Council of State’.
The government may refer a matter to the Council of State for an opinion on any other regulatory text or particular legal issue. Since the 2008 constitutional reform, the president of the National Assembly or the Senate may also refer any bill submitted to either of the two parliamentary assemblies to the Council of state for an opinion before the text is examined in the committee. It also plays an important role as a filter in the priority ruling on the issue of constitutionality.
Through this specific advisory competence, the Council of State has the means to play an important role in avoiding any violation by the French state of EU state aid rules through a kind of national ex ante state aid control, even though it does not have a binding advisory role in most cases.
National procedural rules
There are no specific French laws relating to state aid, except administrative circulars on the topic.
The latest applicable administrative circular on state aid is the Prime Minister's Circular of 5 February 2019 on the application of European competition rules on public aid to economic activities. This circular is the main text providing guidance on the process of granting state aid at the national level. It provides administrations with the information and methodology they need to understand the regulations on state aid. It also defines the principles that form the basis of French policy in this area.
Concerning the authorities that are competent to grant aid, a distinction must be drawn between the types of aid concerned. Under French law, a fundamental distinction is made depending on whether the aid is governed by public or private law.
Regarding public law, for example, fiscal aid includes all kinds of tax relief, tax exemptions or tax cuts that are not precluded by law and that are granted in accordance with a general economic policy. Article 34 of the Constitution states that fiscal aid must be provided for by a legislative act; therefore, a parliamentary act is necessary to approve the grant of fiscal aid by a public authority. The law can provide that a ministerial decree will specify the conditions of the application of such fiscal aid, but the application rules and the final decision to grant the aid are provided for under administrative law.
Also within the scope of public law, budgetary aid includes grants, loans, capital contributions and guarantees from the state that are financed through the state budget. Pursuant to article 34 of the Constitution, the granting of budgetary aid should be provided for by a parliamentary law. When budgetary aid is directly granted by the state in the form of subsidies, it must be shown in the expenditure section of the general budget. This also applies to aid granted by public bodies that are legally separate from the state but that are financed by its budget.
Aid financed by special funds (eg, the Economic and Social Development Fund, the National Forestry Fund and financial support for the film industry) does not need to be provided for by statute. The types of aid granted directly from the state budget or by public bodies are also governed by administrative law.
The decision to grant budgetary aid is usually an administrative decision, although it can also be granted by an administrative contract. Where loans are granted directly by the state or by public bodies, they will be governed by administrative law and budgetary law. Where the aid is granted by a private body, however, private law must be applied.
Banking aid that is granted by private funds does not need to be based on statute and is generally governed by private law; however, when the aid is granted by a private body controlled by the state, the decision on whether to grant the aid is an administrative one, whereas the contract between the private body and the beneficiary will be concluded under private law, more specifically credit law.
The state usually exercises its power over the private bodies that grant banking aid by giving instructions in the form of ministerial decrees or letters of instruction; however, when the aid is granted directly by a private body that is only marginally under the control of the state, only private law (banking law) will apply.
The state can also grant aid by the way of a capital contribution that is governed by company law; however, when the beneficiary of this kind of aid is a public undertaking, the capital contribution is called a capital endowment, and public law should be applied.
Regarding services of general economic interest (SGEI), French law does not recognise as such the concept of SGEI but only that of ‘public service’. The national legislator defines some activities as activities of general interest, or of public or national interest, but there is no general legal definition of general interest nor a legal definition of public service; therefore, the notion of SGEI refers to the notions of public service obligations and public service compensation, as developed by EU case law.
Furthermore, the organising public authority has broad powers to manage the SGEI. In particular, the authority may decide to carry out the SGEI by its own departments or by a separate entity over which it exercises control similar to that exercised over its own departments, or it may entrust the execution of the SGEI to one or more external companies. This can be done in several ways:
- by purchasing the provision of SGEI in return for a price (public contracts);
- by transferring the operating risk of the SGEI (public service delegation); and
- by entrusting the mission of SGEI by a unilateral act, in accordance with national and European public procurement law.
The authority may also decide to subsidise an activity of a public service nature, in view of the general interest attached to it.
Role of national courts
Jurisdiction to apply state aid rules by national courts
Both administrative and civil courts have jurisdiction to apply state aid rules. In actions brought before the administrative courts, the competent courts at first instance are the administrative courts, the administrative courts of appeal and the Council of State. The Council of State is competent at first and last instance for actions concerning the validity of decrees or for actions concerning decisions that fall within the scope of its exclusive competence. It is also competent to hear actions concerning administrative decisions applicable throughout the French territory.
Actions may be brought before the civil courts (including the commercial courts and labour courts) regarding litigation between private parties, including claims against state-owned companies and their subsidiaries, governed by private law (this raises cross-subsidy issues).
The civil courts have exclusive jurisdiction for some specific areas, such as indirect taxes. In those cases, the competent courts are the courts of first instance, the courts of appeal and the Supreme Court.
The commercial courts have jurisdiction over litigation between professionals acting in the course of their business and over any litigation between businesses; therefore, the commercial courts are often the relevant courts in which to bring actions for damages against a competitor receiving alleged unlawful aid. If the applicant is not a commercial company, an action can also be brought before the civil courts.
The judgments of a national court can generally be appealed. Before an administrative court, a judgment can be appealed to the administrative court of appeal and further appealed on points of law before the Council of State as the supreme administrative court. Before a civil court, a judgment can be appealed to the commercial division of the courts of appeal and further appealed on a point of law only to the Court of Cassation. The grounds of appeal can be based on the finding of aid, the amount to be recovered, the identification of beneficiaries, the qualification of unlawful aid etc.
In the Scott I case, the Court of Justice of the European Union (CJEU) ruled that a French national court should set aside national administrative law providing suspensive effect to an appeal of a national recovery order. It held, among other things, that a procedure that provided for the suspensory effect of actions brought against demands for payment issued for the recovery of unlawfully received aid does not fulfil the conditions laid down in the EU regulation on state aid procedure and that, accordingly, the rule providing for such suspensory effect should have been left unapplied.
In another Scott case, the CJEU ruled that article 14 of Council Regulation (EC) No. 659/1999 (now article 16 of Council Regulation (EU) 2015/1589) is to be interpreted as not precluding, in circumstances in which amounts corresponding to the aid in question have already been recovered, annulment by the national court of assessments issued to recover the unlawful state aid on grounds of there being a procedural defect, in cases where it is possible to rectify the procedural defect under national law. The provision does, however, preclude those amounts being paid once again, even provisionally, to the beneficiary of that aid.
Challenging a government measure on the grounds of unlawful state aid
With regard to the general powers of the French courts concerning the direct effect of article 108(3) of the Treaty on the Functioning of the European Union (TFEU), both the administrative and civil courts are competent to hear claims against unlawful aid.
Although most actions are brought before the administrative courts because state aid measures are usually granted through acts governed by public law, French administrative law distinguishes between two main types of actions. Depending on the object of the dispute, the claimant can either:
- contest the legality of a decision of the administration; or
- bring an action for damages for the harm caused by the decision of the administration (or an action for cease and desist order, or for a recovery order), whereby the administration’s decision or act can also, incidentally, be declared illegal.
For both types of actions, the claimant must submit a preliminary request to the administration before bringing an action in the competent administrative court. This requirement, which may take the form of an administrative action or a recours hiérarchique lengthens the procedure in the event that the administration refuses to act, in which case the claimant would be required to challenge the decision of the administration in court.
Before the administrative courts, the claimant can bring an action for annulment of a state decision or state measure involving state aid or an action engaging the liability of the state to obtain damages (in principle, the state can only be sued before administrative courts). For the action in point (1), action for annulment, the claimant must show that it has an interest in challenging the decision (ie, the challenged act must produce legal effects). Various interests have been held to justify the bringing of an action by the claimant, including a purely financial interest. The conditions for admissibility are less strict than those of the latter type of action.
The action in point (2), action for indemnity or full review, is to protect the rights of the natural or legal person subject to the administration in the context of state liability or contracts with the state. The claimant must demonstrate that it has a personal interest in the action. This requirement is not difficult to meet when the claimant requests damages from the state.
National requirements for plaintiff seeking interim measures to prevent the granting of aid
Competing undertakings (or any affected third party) can seek the suspension of a decision granting unlawful state aid. In theory, this type of action can be based on the principle of supremacy of EU law (C-39/94, SFEI). The judge can also order suspension of a contested decision in the context of an action for annulment. Suspension can only be requested when the administrative decision granting the aid has not yet been fully implemented.
The conditions that must be satisfied for this type of interim measure to be granted are:
- the establishment of a prima facie case; and
- harm to the claimant, if the contested measure comes into effect.
Under French law, the interpretation of the above criteria is generally less strict than under EU law. For example, urgency may be established on the basis of purely financial consequences resulting from the implementation of the contested measure. The Council of State requires that the implementation of the administrative act must affect in a sufficiently serious and immediate manner, a public interest, the legal situation of the claimants or the interest the latter wants to defend.
Recovery of unlawful state aid
Where a member state has granted unlawful aid (non-notified aid) to an economic operator, it is, in principle, incumbent on the member state to recover the aid to restore the economic situation as it existed prior to the payment of the aid. EU case law considers that such recovery cannot be regarded as a penalty; it is merely the logical and proportionate consequence, having regard to the objective of effective competition established by the TFEU, of the infringement found.
Failure to notify the aid measure to the Commission automatically renders the aid unlawful. Aid that is unlawful because it has not been notified but has been declared compatible by the Commission is not subject to recovery; however, the national court must require the aid beneficiary to reimburse the equivalent of the interest that it should have paid on the banking market between the payment of the aid and the declaration of compatibility by the Commission.
The recovery of incompatible unlawful aid (non-notified aid declared incompatible by the Commission) is a provision to incite member states to comply with the obligation laid down in article 108(3) of the TFEU to notify the Commission of planned aid. Before doing so, the national court must first determine whether the measure constitutes state aid. In case of doubt, the court may ask the Commission (the amicus curiae procedure under article 29 of Council Regulation (EU) 2015/1589) or refer a question to the CJEU for a preliminary ruling; however, once the Commission has decided to open the formal investigation procedure under article 108(2) of the TFEU, the national judge is in a way divested of this competence and is obliged to adopt all the necessary measures to draw the consequences of a possible violation of the law following the aid qualification by the Commission.
Unless there are exceptional circumstances where, for example, a recovery order proves inappropriate, the French courts apply the CELF case law, thereby only ordering the recovery of unlawful interest instead of full recovery if the state aid is deemed compatible by the Commission. Full recovery is required if the aid is deemed both unlawful and incompatible.
The relevant member states shall take all the measures available under their respective legal systems, including interim measures, without prejudice to EU law. The Scott I judgment illustrates the full force of this principle. It follows from the Scott I case, which stems from aid granted by the French state, that the national measures chosen to execute a Commission decision must lead to immediate and effective execution. The Court held that a national provision that provided for an automatic suspensory effect of actions brought against recovery orders failed to have regard to the objectives pursued by the EU rules on state aid, in particular the immediate restoration of the previously existing situation on the market. Any delay in the recovery process would go against the effectiveness of recovery itself as the natural consequence flowing from unlawful aid.
The Scott saga continued when the Administrative Court of Appeal in Nantes was seized of the question of the regularity of the revenue documents issued for the recovery of unlawful aid on the grounds that they did not indicate the surname and first name of the signatory. Being divided between its obligation to annul the revenue vouchers for that reason and its obligation to ensure the immediate and effective recovery of the unlawful aid, the Administrative Court of Appeal referred the matter to the Court for a preliminary ruling.
While the Court acknowledged that ‘the annulment of a revenue order is not open to criticism as such’ (since it results only from the full exercise of the principle of effective judicial protection), it found that such annulment could, in principle, lead to repayment of the unlawful aid to the beneficiary.
Where the sums corresponding to the aid have already been recovered, the national court is not precluded from annulling, on the ground of a formal defect, revenue cheques issued to recover unlawful state aid, where the possibility of rectifying that formal defect is guaranteed by national law; however, the national courts are precluded from paying back the sums, even provisionally, to the beneficiary of that aid.
The administrative court may be seized by a competitor to enjoin the state to use its power of substitution for a local authority that has failed in its obligation to recover. It would be sufficient for the claimant to establish the absence of recovery and to ask the national court to enjoin the representative of the state to give formal notice to the community in question to recover the aid in order to extend the one-month period from which substitution is possible.
Although it appears that no such action has been brought, it would have a good chance of succeeding given that article L1511-1-1 of the General Code of Local and Regional Authorities does not leave the state representative any room to manoeuvre in the exercise of the substitution. Substitution appears to be a duty to guarantee the effectiveness of a Commission recovery decision.
State liability for damage caused by state aid
In an action engaging state liability, the claimant must request that the administration adopt a decision permitting the award of damages from the state, prior to bringing an action before the administrative courts (rule of the prior decision). In principle, the administration has two months to react to this request before the claimant can turn to the administrative courts to engage the liability of the granting authority.
When the administration fails to adopt a decision, the claimant has five years from the date of notification of the administration’s refusal (if there is one) to file an action before the administrative courts. The action before the administrative courts comprises a request to annul the administrative decision refusing to award damages or compensation.
The conditions for awarding damages in cases of state liability are very strict under French law. Moreover, the court will not automatically award damages, even if it finds that the state is liable. Damages can be awarded only if the rule breached intended to confer rights on individuals and there is a direct causal link between the damage sustained and the breach of the relevant rule. The main liability regime is liability for fault, although, in specific areas, liability of the state can be triggered without proof of fault by the administration.
The administrative courts have shown a certain reluctance to engage the liability of the legislator for infringement of a provision of EU law. It has been held that the illegality enabling state liability to be engaged should be found at the level of the administrative act implementing the law, even if it was adopted in violation of EU law. The proof of the existence of fault is hard to demonstrate as the courts have recognised a certain margin of appreciation for the legislator.
The liability of the state can also be based on EU law, according to the conditions laid down in the Francovich and Brasserie du Pêcheur cases:
- the infringed rule (article 108(3) of the TFEU) confers rights on individuals;
- the breach is sufficiently serious (no discretion); and
- the direct causal link between the violation and the loss or damage.
That liability of the state under EU law was relied on, for the first time, in a state aid case brought by a beneficiary of unlawful aid before the Administrative Court of Grenoble in 2003 (Société Stéphane Kélian). The claimant argued that the liability of the state for breach of EU law, namely article 108(3) of the TFEU, could be raised without proof of fault on the part of the state and that it concerned all ‘emanations’ of the state, including the legislator. It was alleged that liability arose both under principles of French liability law and the principles of EU law that derived from the CJEU’s Francovich case law. The action was dismissed for reasons relating to the conditions of causation.
In other cases in which the direct causal link between the violation of article 108(3) of the TFEU and the damage was recognised, the state was condemned to compensate the damage suffered by the beneficiary. The breach of the obligation to notify the aid constitutes a fault that is likely to engage the responsibility of the state by a competitor of the beneficiary undertaking that has suffered damage, as well as by the beneficiary of the aid itself, in limited circumstances for the latter (Borotra case).
The administrative court recognises the duty of diligence of companies receiving aid. In the Borotra case, the company could not have been unaware that a formal investigation procedure had been initiated by the Commission, and the court exonerated the state from one-quarter of its liability.
In any event, neither the amount of aid to be repaid nor the corresponding default interest constitute compensable damages. Only the consequences of recovery, such as the cost of opportunity (delocalisation benefits missed because the aid encourages not to delocalise) and the financial costs arising from the loan taken out to repay the aid, are compensable.
The most recent significant example of a state liability recognised by the French courts, following an action by the competitor of the beneficiary, is the SNCM case, in which the Corsica territorial collectivity was condemned to pay €86 million in damages for having granted unlawful and incompatible aid to SNCM; however, the French courts have confirmed that loss of chance to benefit from unlawful state aid cannot be redeemed in damages.
Beneficiary liability for damages caused by state aid
The existence of an action for liability and damages against the beneficiary can be seen as an incentive in national law for private parties to be more cautious when they receive state aid; however, these ‘horizontal’ litigation cases are still rare.
In several cases, the Court of Cassation has confirmed the principle of extra-contractual liability of the beneficiary of the aid. Since the CJEU has ruled that the principle of liability of the beneficiary cannot be derived from EU law, it must also be based upon national unfair competition pursuant to article 1240 of the Civil Code (civil liability). The claimant must demonstrate the existence of fault, damage and a causal link between the fault and the damage. Where the Commission has already adopted a negative decision, there is a presumption that a fault has been committed.
Actions engaging the liability of the beneficiary of unlawful aid must be brought before the civil courts. The court first determines whether the beneficiary benefited from the unlawful state aid and whether he or she knew or could have known that the aid received was unlawful (ie, granted in violation of article 108(3) of the TFEU). It then evaluates the amount of damages to be granted to its competitors.
 Court of Cassation, 4 July 2006, Galerie de Lisieux v caisse Organic de recouvrement, Case No. V-03-12.565.
 Court of Cassation, 15 June 1999, Etablissements J Richard Ducros v Société Métallique Finsider Sud, Case No. B 97-15.684.
 CJEU, 5 October 2006, Commission v France, C-232/05, EU:C:2006:651.
 CJEU, 20 May 2010, Scott SA and Kimberly Clark SAS v Ville d'Orléans, C-210/09, EU:C:2010:294, paragraph 33.
 CJEU, 11 July 1996, SFEI v La Poste ao, CJEU, C-39/94, EU:C:1996:285.
 See, for example, cases where all actions were dismissed, such as Council of State, 11 February 2004, Syndicat national de l’industrie des viandes ao, Case No. 264346.
 Council of State, 30 July 2003, Commune de Paulhac, Case No. 254904.
 CJEU, 12 February 2008, CELF I, C-199/06, EU:C:2008:79, paragraph 51; and Council of State, 19 December 2008, CELF, Case No. 274923. The CELF cases gave rise to three ultimate cases at national level: Council of State, 30 May 2018, Mandataires judiciaires associés (MJA), Case No. 402174 (rejection of the appeal of a company seeking the liability of the state for the recovery of unlawful aid from which it benefited); Council of State, 5 April 2019, CELF, Case No. 413712 (there is no absolute impossibility to recover unlawful aid from a company in judicial liquidation); Council of State, 22 July 2020, SIDE, Case No. 434446 (condemnation of the state to award €10 million in compensation to the competitor of a beneficiary of unlawful aid).
 CJEU, 21 November 2013, Deutsche Lufthansa, C-284/12, EU:C:2013:755.
 CJEU, 8 December 2011, Residex, C-275/10, EU:C:2011:814.
 Council of State, 19 December 2008, CELF, Case No. 274923.
 See footnote 3.
 See footnote 4.
 CJEU, 19 November 1991, Andrea Francovich and Danila Bonifaci ao v Italian Republic, C-6/90 and C-9/90, EU:C:1991:428; and CJEU, 5 March 1996, Brasserie du Pêcheur SA, C-46/93 and C-48/93, EU:C:1996:79.
 Administrative Court of Grenoble, 15 October 2003, Société Stéphane Kelian, Case No. 0102341.
 See footnote 5.
 Administrative Court of Appeal of Paris, 23 January 2006, Groupe Salmon Arc-en-ciel, Case No. 04 PA01092.
 Administrative Court of Appeal of Marseille, 22 February 2021, Corsica Ferries, Case Nos. 17MA011582 and 17MA011583, confirmed by the Council of State, 29 September 2021, Case No. 450892.
 Court of Cassation, 23 June 2021, Erisay, 2021:CO00544.
 See footnote 5.