Maybe not such a global appraisal of State aid after all: CJEU backtracks from a truly economic approach (C-124/10)

In an interesting recent paper, Pablo Ibáñez Colomo conducts a very detailed statistical overview of State Aid Litigation before EU Courts (2004–2012) [Journal of European Competition Law & Practice doi: 10.1093/jeclap/lpt057]. One of his relevant findings is that the 'private investor test' and its application by the European Commission was one of the most litigated areas of EU State Aid law in that period and that '[a]nnulments were more likely where the ‘private investor test’ was raised as a ground'.
In its Judgment of 24 October 2013 in Joined Cases C-214/12 P, C-215/12 P and C-223/12 P Land Burgenland v Commission, the Court of Justice of the EU has been confronted again with the test--this time in the mirror image of the ‘private vendor test'--and, on this occasion, has upheld the approach taken by the European Commission. In my opinion, there are several passages of the Judgment that bear stressing, particularly because the CJEU is backtracking from a much more economically oriented assessment of State aid that was (at least) suggested in Commission v EDF (C-124/10 P).
The case involved the existence of State aid in the privatisation of HYPO Bank Burgenland AG, where the relevant Austrian authorities decided to sell the bank to GRAWE despite the fact that the price it offered (EUR 100.3 million) was significantly lower than the price offered by a competing Austro-Ukrainian consortium (EUR 155 million). As the CJEU explains:
The decision was based, in particular, on a [...] recommendation by HSBC  [which] essentially states that, although on the basis of the proposed purchase price the decision should be made in favour of the Consortium, it was recommended that BB be sold to GRAWE, in view of the other selection criteria, namely the reliability of the purchase price payment, the continued operation of BB while avoiding the use of Ausfallhaftung [ie the Austrian performance guarantee system for public credit institutions], capital increases and transaction security (C-214/12 P at para 9).
Not surprisngly, the Consortium challenged the decision claiming that the Republic of Austria had infringed State aid rules during the privatisation of BB and stressing that, amongst other irregularities, the tender procedure had been unfair, untransparent and discriminatory towards it--which resulted in the sale of BB not to the highest bidder, namely the Consortium, but to GRAWE.

The European Commission found that Austria had indeed granted illegal State aid to GRAWE in the privatisation Bank Burgenland because it failed to meet the requirements of the 'private investor test'. In the Commission's view, a private seller would only reject the highest bid in two circumstances: either where it is obvious that the sale to the highest bidder is not realisable, or where consideration of factors other than the price is justified, subject to the proviso that only those factors which would have been taken into consideration by a private vendor are taken into account.

The key aspect then becomes whether the (likely) avoidance of the use of the Ausfallhaftung that would follow the sale to GRAWE rather than to the Consortium was a valid justification under the second scenario (ie whether it was a risk which avoidance justified the transaction). The Commission clearly considered that according the private investor test excludes risks stemming from potential liability to make payment under a guarantee which has to be classified as State aid, such as Ausfallhaftung. The reasoning was similar to the one followed (or, at least, the one I identified) in Commission v EDF, where the CJEU rejected a similarly formalistic approach followed by the Commission.
In that case, the CJEU found that
in view of the objectives underlying [Article 107(1) TFEU] and the private investor test, an economic advantage must – even where it has been granted through fiscal means – be assessed inter alia in the light of the private investor test, if, on conclusion of the global assessment that may be required, it appears that, notwithstanding the fact that the means used were instruments of State power, the Member State concerned conferred that advantage in its capacity as shareholder of the undertaking belonging to it (C-124/10 P, para 92, emphasis added).
In essence, this supported the approach followed by the General Court, which had ruled that
the purpose of the private investor test is to establish whether, despite the fact that the State has at its disposal means which are not available to the private investor, the private investor would, in the same circumstances, have taken a comparable investment decision. It follows that neither the nature of the claim, nor the fact that a private investor cannot hold a tax claim, is of any relevance (C-124/10 P, at para. 37, emphasis added).

In that regard, it would seem that in the Burgenland case, the GC and the CJEU should also reject the Commission's argument and, consequently, allow the selling authorities to integrate the total potential costs of the use of the Ausfallhaftung as a valid reduction of the nominal price offered by the Consortium and, dependeing on the result of such an assessment, potentially award the contract to GRAWE, as they effectively did. It would have been expected, as the Austrian authorities claimed, that the nature and origin of potential liabilities would be considered irrelevant and that a gloabl (economic) appraisal of the offers received for the Burgenland Bank would have been considered in line with EU law.
However, the CJEU reexamines the interpretation of the 'private investor (rectius, vendor) test' to take into account this issue and rules in the following terms:
46 In their first argument, the Province of Burgenland, the Republic of Austria and GRAWE claim, in essence, that the General Court failed to appreciate, in the light of Ausfallhaftung’s characteristics, both the role of the Province of Burgenland as owner and shareholder of BB and, therefore, the private investor test, such as it emerges from Spain v Commission and Germany v Commission. […]

48 the General Court found, in line with that case-law that, when applying the private investor test, it must be determined whether the measures in question are those which such an investor, who counts on making a profit in the short or long term, could have granted.

49 Finally,
[…] the General Court found, in its assessment of the facts which cannot be appealed, that Ausfallhaftung was not entered into on normal market conditions, given its characteristics.

50 In those circumstances, the General Court rightly concluded
[…] that Ausfallhaftung could not be taken into account when assessing the conduct of the Austrian authorities in the light of the private vendor test (sic) and that, consequently, the Commission could not be criticised for having rejected Ausfallhaftung’s relevance when evaluating the offers submitted by the Consortium and by GRAWE.

51 Further, as regards the impact of Commission v EDF, it must be pointed out that that judgment was principally concerned with whether the private investor test was applicable in the circumstances of that case, which was rejected by the Commission in the decision at issue in that case, and not how that test was applied in the particular case (see Commission v EDF judgment, paragraph 75). However, in the present cases, it is undisputed that the Commission applied the private vendor test and the Province of Burgenland, the Republic of Austria and GRAWE are in actual fact challenging the General Court’s approval of the manner in which the Commission applied that test.

52 As regards the application of that test, Commission v EDF confirmed the case-law which emerges, in particular, from Spain v Commission and Germany v Commission, according to which, in order to assess whether the same measure would have been adopted in normal market conditions by a private vendor in a situation as close as possible to that of the State, only the benefits and obligations linked to the situation of the State as shareholder – to the exclusion of those linked to its situation as a public authority – are to be taken into account (see, to that effect, Commission v EDF, paragraph 79).

53 In Commission v EDF judgment, the Court further made it clear that, when carrying out that assessment, the manner in which the advantage is provided and the nature of the manner by which the State intervenes are irrelevant where the Member State concerned conferred that advantage in its capacity as shareholder of the undertaking concerned (see Commission v EDF, paragraphs 91 and 92).

[…] The General Court examined whether Ausfallhaftung had to be taken into account when implementing the private vendor test and found that a private vendor would not have entered into such a guarantee (sic).

55 The Province of Burgenland, the Republic of Austria and GRAWE do not put forward any argument liable to put that finding into doubt, but claim themselves that Ausfallhaftung is a State aid, as the Commission had moreover found in Decision C(2003) 1329 final.

56 In those circumstances, and since, by granting aid, a Member State pursues, by definition, objectives other than that of making a profit from the resources granted to an undertaking belonging to it, it must be held that those resources are, in principle, granted by the State exercising its prerogatives as a public authority.

57 In so far as the Province of Burgenland, the Republic of Austria claim that, through Ausfallhaftung, the Province of Burgenland was none the less seeking to make profit or, at the very least, attempting to do so in addition to its other objectives, it must be recalled that, if a Member State relies on a test such as the private vendor test, it must, where there is doubt, establish unequivocally and on the basis of objective and verifiable evidence that the measure implemented is to be ascribed to the State acting as shareholder (see, to that effect, Commission v EDF, paragraph 82).

58 That evidence must show clearly that, before or at the same time as conferring the economic advantage, the Member State concerned took the decision to make an investment, by means of the measure actually implemented, in the public undertaking (Commission v EDF, paragraph 84).

59 In that regard, it may be necessary to produce evidence showing that the decision is based on economic evaluations comparable to those which, in the circumstances, a rational private vendor in a situation as close as possible to that of the Member State would have had carried out, before making the investment, in order to determine its future profitability (see, to that effect, Commission v EDF, paragraph 84).

60 It is only in cases where the Member State concerned provides the Commission with the necessary evidence that the onus is on the Commission to carry out a global assessment, taking into account – in addition to the evidence provided by that Member State – all other relevant evidence enabling it to determine whether the Member State took the measure in question in its capacity as shareholder or as a public authority (see, to that effect, Commission v EDF, paragraph 86).

61 However, neither during the administrative procedure nor before the General Court did the Province of Burgenland, the Republic of Austria or GRAWE put forward any evidence showing that the introduction or retention of Ausfallhaftung was based on economic evaluations carried out by the Province of Burgenland for the purposes of establishing its profitability. It follows that the Commission was not required to undertake such a global assessment as regards Ausfallhaftung and that the Burgenland and GRAWE judgments were not vitiated by any errors in that regard
(C-214/12 P at paras 46-61, emphasis added).
I am puzzled by the findings of the CJEU. If it rightly held in Commission v EDF that the fiscal nature of the credit converted into capital was irrelevant for the assessment of the transaction as a whole, why is it now relevant that the potential liability incurred in the use of the Ausfallhaftung by the disappointed Consortium derives from a public law system? Surely, if it was not questioned that 'the General Court [rightly] rejected the Commission’s argument that the private investor test could not be applied to the conversion into capital of a tax claim, since a private investor could never hold a tax claim against an undertaking, but only a civil or commercial claim' (C-124/10 P, at paras 37 and 95), it should not be now relevant that a private investor could have not entered into a guarantee scheme such as the Ausfallhaftung (C-214/12 P at para 54).
Moreover, an economic assessment should be carried out regardless of the subjective intentions of the State authority (cfr. C-214/12 P at para 59) and, in any case, it was cristal clear in the Burgenland case that an (independent) economic evaluation was carried out by (HSBC), which clearly indicated that, all factors considered, the rational decision was to enter into the transaction with the lowest bidder. Why is the CJEU now not willing to assess the economic transaction as a whole is something I cannot come to grips with.
I guess that this will be an area that, as Ibáñez Colomo's study shows, will continue to occupy a significant amount of cases and, possibly, remain one of the obscure areas of State aid litigation for quite some time.