On November 11, 2015, the European Court of Justice (‘Court of Justice’‘ECJ’) was confronted with a request for a preliminary ruling from the Landgericht Münster, Regional Court of Münster, regarding the interpretation of Articles 107 TFEU and 108 TFEU and the principle of effectiveness. The request was made in proceedings between Klausner Holz Niedersachsen GmbH (‘Klausner Holz’) and Land Nordrhein-Westfalen (‘Land’) concerning a failure by Land to execute agreements concluded with Klausner Holz to supply wood.
At the core of this dispute is a wood supply agreement, under which Land undertook to sell to Klausner Holz fixed quantities of wood at predetermined prices depending on the size and quality of the wood and not to make other sales at prices lower than those set in the agreement. A ‘framework sales contract’ was also concluded which supplemented the agreement previously concluded by both parties.
Between 2007 and 2008 there were significant mishaps in the execution of the agreement, because the purchase amounts of wood provided by Land were never filled, while at the same time Klausner Holz faced financial difficulties, at times involving late payments. Thus, in August 2009 Land rescinded the ‘framework sales contract’ and ceased to supply wood to Klausner Holz on the terms set out in the agreements.
Confronted with the contract’s termination, Klausner Holz brought an action to Landgericht Münster which held that the contracts at issue remained in force. This judgment was also confirmed by the appeal court. Following these judgements, Klausner Holz brought an action against Land before the Landgericht Münster, seeking the payment of damages in respect of the failure to supply wood, the supply of the missing amounts of wood, and information concerning the financial conditions of the agreements concluded between the five largest purchasers of wood and Land in the period of 2010 to 2013. For its part, Land raised the argument before the referring court that EU law precludes the execution of the contracts at issue since they constitute ‘State aid’ within the meaning of Article 107(1) TFEU, implemented in breach of the third sentence of Article 108(3) TFEU.
Although the Landgericht Münster reached the conclusion that the agreements concluded between Klausner Holz and the Land constituted State aid, it also regarded itself as prevented from drawing on the consequences of the breach of the third sentence of Article 108(3) TFEU because of the declaratory judgment of the court of appeal which held that the contracts at issue remained in force which is res judicata. In those circumstances, the Landgericht Münster referred to the ECJ the following question: ‘In civil proceedings concerning the performance of a civil-law contract granting aid, does EU law, in particular Articles 107 TFEU and 108 TFEU (or Articles 87 TEC and 88 TEC) and the principle of effectiveness, require that a final declaratory judgment under civil law which has been delivered in the same case and which confirms that the civil-law contract remains in force, without any consideration of the law on aid, be disregarded if under national law the performance of the contract cannot otherwise be prevented?’
A national rule which prevents the national court from drawing all the consequences of a breach of the third sentence of article 108(3) TFEU because of a decision of a national court, which is res judicata, given in a dispute which does not have the same subject-matter and which did not concern the state aid characteristics of the contracts at issue must be regarded as being incompatible with the principle of effectiveness.
The Court of Justice began by recalling that ‘National courts must offer to individuals the certain prospect that all the appropriate conclusions will be drawn from an infringement of the third sentence of Article 108(3) TFEU’. Therefore, the Court of Justice considered that the Landgericht Münster acted correctly in identifying the violation to the above mentioned provision, while at the same time it did not forget the res judicata force of the appeal court’s judgement that confirmed the validity of the agreements concluded between Klausner Holz and the Land.
On the other hand, the ECJ highlighted that EU law does not always require a national court to disapply domestic rules of procedure conferring finality on a judgment, even if to do so would make it possible to remedy a breach of EU law by the decision at issue. In this matter, although the principle of the procedural autonomy of the Member States takes prevalence, the rules governing the res judicata principle should not ‘be less favourable than those governing similar domestic situations (principle of equivalence) and must not be framed in such a way as to make it in practice impossible or excessively difficult to exercise the rights conferred by EU law (principle of effectiveness)’.
Trying to further define the scope of the principle of effectiveness, the ECJ argues that an interpretation of national law as the one made in the present case ‘can have the consequence, in particular, that effects are attributed to the decision of a national court [...] which frustrate the application of EU law, in that they make it impossible for the national courts to satisfy their obligation to ensure compliance with the third sentence of Article 108(3) TFEU’. Therefore, continues the Court of Justice, ‘(...) both the State authorities and the recipients of State aid would be able to circumvent the prohibition laid down in the third sentence of Article 108(3) TFEU by obtaining, without relying on EU law on State aid, a declaratory judgment whose effect would enable them definitively to continue to implement the aid in question over a number of years’.
The ECJ thus concludes that ‘a national rule which prevents the national court from drawing all the consequences of a breach of the third sentence of Article 108(3) TFEU because of a decision of a national court, which is res judicata, given in a dispute which does not have the same subject-matter and which did not concern the State aid characteristics of the contracts at issue must be regarded as being incompatible with the principle of effectiveness’.
From this case it is possible to gather relevant guidelines for the construction of the balance between the principle of legal certainty in the form of the res judicata principle and the principle of effectiveness of EU law. The Court of Justice, although respecting the natural procedural autonomy of Member States, is of the opinion that the rules defining the finality of a decision and its projection on national law cannot have as a consequence the full disregard and infringement of the rights and guarantees conferred by EU law.
This article was written by lawyers Gonçalo Machado Borges and Miguel Cortes Martins.
