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Residex Capital IV v. Rotterdam

2011 March 24
by Hein Kernkamp

Court: Netherlands Supreme Court
Date: May 28, 2010
LJN Number: BL4082

Case: In August 2004, it appeared that the former director of the Port of Rotterdam – which Port is owned by the municipality of Rotterdam – had allegedly agreed to authorize a number of bank loan guarantees to a total amount of approximately EUR 100 million. The director of the Port of Rotterdam had agreed to issue these guarantees for the benefit of four subsidiaries of the Rotterdam Dry Dock Company (RDM) in order to ensure that the Port of Rotterdam gained several production contracts, but he apparently failed to inform the Port’s board of directors and the commissioners of the municipality of Rotterdam. This became known to the Port's board of directors and the commissioners of the municipality of Rotterdam when the RDM subsidiaries went bankrupt and their remaining activities appeared to be insufficient to cover the loans. The banks demanded repayment of the loans from the Port of Rotterdam and the municipality of Rotterdam, however neither were willing to honour the guarantees.

Residex started proceedings against the municipality to receive a payment of 10 million euros under one of these guarantees. Without this guarantee, Residex would not have issued a loan to a third party; because of default of the third party, Residex now claims under the guarantee from the municipality.

The guarantees qualify – according to the District Court – as State aid that should have been notified with the European Commission. Since such notification had not taken place, the guarantees were to be considered as unlawful aid. Unlawful State aid is null and void. It may reasonably be expected from the banks to verify whether the State aid rules have been complied with when guarantees are issued by public authorities, especially when these are issued for such large amounts as in the present case.

The Court of Appeals dismissed this submission on the grounds that, according to settled case law, all guarantees issued by public authorities (or undertakings controlled by public authorities), may constitute State aid where the conditions set out in Article 87 EC are fulfilled. The Port of Rotterdam qualifies as such an undertaking, as it is wholly owned by the municipality of Rotterdam. Neither the level of control that the municipality may exercise nor the actual involvement of the municipality in the day-to-day business of the Port of Rotterdam is relevant in this matter. Under Community law, national courts are obliged to apply the State aid provisions ex officio. Residex's second submission – that the application of these provisions is disproportionate to the objectives laid down in these provisions, as it would cause serious damage to Residex and the other creditors – was also dismissed by the Court of Appeals. The Court of Appeals pointed out that it follows from settled case law that the recovery of State aid unlawfully granted for the purpose of reestablishing the previously existing situation cannot in principle be regarded as disproportionate to the objectives of the Treaty in regard to State aid.

Held: The Supreme Court agrees with the decisions made by the Court of Appeals. Unlawful State aid needs to be paid back by the party or parties who took benefit from it. However, declaring that the guarantees were null and void in these proceedings do not lead to undoing the issuance of the loan by Residex, so the effect of the unlawful State aid is not undone by only voiding the guarantees.

The Supreme Court therefore asks the European Court of Justice to give an opinion on this matter, and to answer the question whether or not it is possible to declare the guarantee issued by the municipality to Residex null and void, even when this does not lead to undoing the loan issued by Residex to the third party, and therefore does not lead to undoing all effects of the unlawful State aid. The Supreme Court has suspended its judgment up until the European Court of Justice decides on this question.

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