Social housing, State aid and procurement show up again in EU Courts' case law (T-397/12)

In its Judgment in Diputación Foral de Bizkaia v Commission, T-397/12, EU:T:2015:291 (only available in ES and FR), the General Court (GC) of the Court of Justice of the European Union (CJEU) has decided a case involving State aid and public procurement for social housing. The issues raised in this case are technically different from those discussed in previous cases and, particularly, in Libert and Others (joined cases C-197/11 & C-203/11, EU:C:2013:288). However, there are some elements worth discussing. 

As a preliminary point, it is worth stressing that the case only concerned violations of State aid rules under Arts 107 and 108 TFEU. However, there was a very significant violation of EU public procurement rules as well--as a result of the direct award of over €150mn worth of works or supplies (depending on how pre-fabricated modular homes are categorised). Nonetheless, given that this was not discussed in the case, the comments are limited to the State aid dimension of the Spanish infringement of EU law.

The claimant, Diputación Foral de Bizkaia (DFB) is a regional authority in Spain and it owns 100% of public corporation Bizkailur SA (Bizkailur), which is dedicated to urban development, particularly for industrial purposes, with the ultimate aim of attracting business to the region. Through Bizkailur, DFB entered into two contracts with Habidite Technologies País Vasco SA (Habidite) for the set-up of a construction module factory in Alonsotegi and the delivery of 1,500 modular homes. 

According to the first contract, DFB and Bizkailur would purchase a land plot and adapt it for industrial use to prepare the setting up of a Habidite factory in Alonsotegi. Under the second contract, the public authorities committed to purchase from Habidite a total of 1,500 homes constructed with modules produced in Alonsotegi in order to sell them as social housing [see the Commission's press release].

The Commission found that the contracts contained illegal state aid because no private player would have accepted to contract on such terms. In the Commission's view, the maximum support that could be granted to the project was of €10.5 mn, but the actual advantage given to Habidite was much larger [see Commission's Decision for details]. Moreover, given that the measures had not been notified before they were granted to Habidite, the aid was unlawful.  DFB challenged the Commission's decision, but the GC has dismissed the appeal. A further appeal before the CJEU seems unlikely, given that the Habidite project was eventually abandoned by DFB due to lack of financial resources.

Some of the arguments submitted by DFB to the GC are so shocking that they deserve some discussion before laughing them off. In particular, I find it ridiculous for DFB to have submitted that no aid existed on the basis of a circular argument ultimately based on its own failure to comply with EU law, which would suffice to trigger a constructive estoppel under Spanish law (as, indeed, later declared by the competent domestic courts; see press release). 

The argument goes as follows: DFB signed a contract with Hadibite through Bizkailur for interests in land and property, which subjected it to Spanish civil rules (ie private law). A fundamental element in the Spanish contract formation rules is the requirement of Art 1258 Civil Code, according to which "Contracts are perfected by mere consent, and since then bind the parties, not just to the performance of the matters expressly agreed therein, but also to all consequences which, according to their nature, are in accordance with good faith, custom and the law" (emphasis as per GC's extracts). The aid given to Hadibite through the contracts was illegal under Arts 107 and 108 TFEU. Hence, the contract was null and void and, ultimately, there was no aid because DFB (through Bizkailur) was not boud to comply with an illegal contract. 

This is a circular and preposterous argument, as it would mean that there would never be illegal and unlawful State aid measures because they would be legally non-existent as a result of the supremacy and direct effect of Arts 107 and 108 TFEU, regardless of the specific (private or public) contract rules of the specific Member State. And, in any case, domestic theories of estoppel could well de-articulate the argument on strictly contractual terms--which would immediately trigger issues of good faith in negotiations and pre-contractual liability for the authorities granting aid, which is also prevented by the effet utile of Arts 107 and 108 TFEU.

Along these lines, and more elegantly, the GC considered that "as to the applicant's argument that there can be no breach of EU law because national law requires a prior notification of the planned aid to the Commission [without which there is no legally binding and unconditional commitment to actually grant the aid], it suffices to state that it cannot be declared that no infringement of EU law existed for the mere fact that [the contracts] also violated national law" (T-397/12, para 36, own translation).

Finally, it is worth mentioning that the Judgment is also interesting for the discussion of the procedural rights of sub-central public authorities in State aid infringement procedures opened against the Member State of which they are part. The GC reiterated the standard position that (given that they are interested parties, but not parties of the procedure) such authorities cannot rely on the rights of defense or try to maintain an open debate with the Commission (paras 53-63).