Ireland v Comhfhobairt (Gaillimh) t/a Aer Arann; Ireland v Aer Lingus Ltd
| Jurisdiction | Ireland |
| Judge | Mr Justice Max Barrett |
| Judgment Date | 02 July 2019 |
| Neutral Citation | [2019] IEHC 545 |
| Date | 02 July 2019 |
| Court | High Court |
| Docket Number | 2013 No. 3285 P 2013 No. 3288 P |
[2019] IEHC 545
THE HIGH COURT
Barrett J.
2013 No. 3285 P
2013 No. 3288 P
AND
AND
AND
State aid – Set-off – Liability – Plaintiffs seeking to recover State aid – Whether the defendant was entitled to raise a claim of set-off
Facts: The plaintiffs, Ireland and the Minister for Finance (the State parties) sought to recover State aid pursuant to a decision of the European Commission. A number of points were put down for hearing concerning the entitlement (if any) of the defendant, Comhfhobairt (Gaillimh) trading as Aer Arann, to raise a claim of set-off and the issue of liability more broadly. The Court of Justice gave judgment on 21.12.2016 in Joined Cases C-164/15P and C-165/15P European Commission v. Aer Lingus Ltd, etc, upholding the European Commission’s State aid decision, the within proceedings taking fresh life thereafter. Although there were two cases before the High Court, the fact that there were two cases became largely redundant. This was because Aer Lingus Ltd ‘stepped out of the picture’, consequent upon a resolution of matters between Aer Arann and Aer Lingus as to who operated particular flights at relevant times; the State parties initially sued Aer Lingus and Aer Arann because it was not clear who the operator was. Although there were two sets of pleadings, they in effect, though not form, coalesced into one. Consequently, the court had only the pleadings in Case No. 2013/3285P opened before it, that set of pleadings being a mirror image of the other.
Held by Barrett J that the court accepted the various contentions made by the State parties and, respectfully, did not accept the various contentions made by Aer Arann.
Barrett J held that the court would discuss with the parties the form of the orders to be made.
Judgment approved.
In these proceedings the State parties seek to recover State aid pursuant to a decision of the European Commission. A number of points have been put down for hearing at this time concerning Aer Arann's entitlement (if any) to raise a claim of set-off and the issue of liability more broadly. The background to these proceedings is identified in Aer Lingus v. Minister for Finance and ors, etc. [2018] IEHC 198, paras. 2-16. Perhaps the only additional point to note in the context of these proceedings is that the Court of Justice gave judgment on 21.12.2016 in Joined Cases C-164/15P and C-165/15P European Commission v. Aer Lingus Ltd, etc, upholding the European Commission's State aid decision, the within proceedings taking fresh life thereafter. Given the foregoing, it suffices in this judgment to summarise certain pertinent facts by way of summary chronology:
30.03.2009 Differential air travel tax (ATT) introduced.
21.07.2009 Ryanair complains to European Union re. tax.
15.10.2009 Ireland responds to European Commission re. Ryanair complaint.
18.03.2010 European Commission issues letter of formal notice re. tax.
22.07.2010 Ireland responds to letter of formal notice re. tax.
26.08.2010 Interim examiner appointed to Aer Arann.
08.09.2010 Examiner appointed to Aer Arann.
05.11.2010 Court confirms scheme of arrangement, sets examinership exit date.
10.11.2010 Aer Arann exits examinership.
March 2011 Flat-rate air travel tax introduced.
July 2012 European Commission issues State aid decision.
03.04.2013 State issues these proceedings.
01.04.2014 Air travel tax abolished.
21.12.2016 Court of Justice upholds decision of European Commission.
Although there are two cases before the court, the fact that there are two cases has become largely redundant. This is because Aer Lingus has “stepped out of the picture”, consequent upon a resolution of matters between Aer Arann and Aer Lingus as to who operated particular flights at relevant times. (The State parties initially sued Aer Lingus and Aer Arann because it was not clear who the operator was). So although there are two sets of pleadings, they have in effect, though not form, coalesced into one. Consequently, the court had only the pleadings in Case No.2013/3285P opened before it, that set of pleadings being a mirror image of the other.
Turning to the State aid decision (see O.J. L119, 30.04.2013, 30-39), a number of points fall to be made regarding same:
(1) it was particularly motivated by the position of Aer Arann because Aer Arann was the entity which Ryanair, as complainant, identified as particularly benefiting from the air travel tax (see e.g., para. 40 of the State aid decision).
(2) at para. 50 there is a final paragraph in relation to the question of selectivity, it being a requirement of State aid, that there must be a selective aspect to same: the Commission finds that the aid here was selective.
(3) as to the issue of advantage, another ingredient of State aid, the European Commission, at para.54, states:
‘[T]he lower tax rate provided an advantage to airline operators serving the routes to which that rate applied. The lower cost that they had to pass on to their customers or to assume directly represented financial resources that those airlines operators could economise and therefore improved their economic situation vis-à-vis other airline operators competing in the air transport market. The advantage corresponds to the difference between the lower rate of EUR 2 and the normal rate of EUR 10 during the period between 30 March 2009 and 1 March 2011. The Commission notes that the flights to which the lower rate applied were mainly operated by airline operators with a strong connection with Ireland (Aer Lingus, Aer Arann and Ryanair were set up in Ireland and still have their headquarters there). Therefore, de facto the reduced rate provided an advantage to Irish airline operators compared to other Union operators.’
The notion that ‘[t] he lower cost…represented financial resources’ to the airlines is borne out by the accountancy reports that featured in the examinership process, in which mention is made of the possible abolition of the tax and that such an abolition would eliminate a source of working capital.
(4) at p.38 of the State aid decision one finds the dispositive part of same, the Commission concluding that the lower air travel tax constituted unlawful State aid. The decision states, at para.70, that ‘ The State aid amounts to the difference between the lower rate of the air travel tax and the standard rate of EUR 10 (that is to say, EUR 8 per passenger) levied on each passenger.’
(5) Art.4 of the State aid decision states that ‘ Ireland shall recover the incompatible aid granted under the scheme referred to in Article 1 from the beneficiaries’. That is the genesis of these proceedings.
(i) Examinership.
What has happened consequent upon the State aid decision? Aer Arann has paid in relation to post-examinership periods. However, it maintains that in relation to the pre-examinership period, the amount that would otherwise have been payable under the State aid decision should not be ordered by this Court to be paid because examinership operates to wipe out and forgive all debts previous to same, including State aid debt. There are a couple of immediate problems with this proposition:
(i) the State aid decision was not taken until July 2012, i.e. some time after the examinership, with the result that there was no State aid decision in being, no liability, no contingent liability vis-à-vis the State at the time of the examinership. For the reasons identified later below, the court does not accept that the State was a contingent creditor of Aer Arann at the time of the examinership.
(ii) if the court is wrong and the State was a contingent creditor and so the State aid amounts owing by Aer Arann to the State ought to have been determined by the Scheme of Arrangement, this is a situation established by national law and, under the principle of supremacy of EU law, such national law cannot stand in the way of recovery under a State aid decision.
(ii) Set-Off.
The plaintiffs maintain that any amount for which they are found liable under the State aid decision can be set off against the amount owing to them in relation to the illegal tax. Three points might be made in this regard.
First, the plaintiffs point to their pleadings and say “Yes, we settled certain aspects of our case. We settled our restitution case. We deleted other parts of our pleadings; however we have asserted the illegality of the tax as part of our defence, we never struck that out, and we are entitled to rely on that.” However, this proposition cannot stand in the face of the decision of the Court of Justice in Joined Cases C-164/15P and C-165/15P, op. cit. That decision makes it entirely clear that the illegality of the tax cannot be raised as a defence to State aid. There, Aer Lingus and Ryanair, inter alia, were seeking to resist the State aid decision on the basis that the tax through which the State aid was effected was illegal, breaching the principle of free movement. The Court of Justice did not agree, concluding that illegality in, essentially, a different dimension of matters is not relevant. At para. 61 of its judgment, the Court of Justice states:
‘Aer Lingus recalls that it argued before the General Court that the levying of ATT at the rate of EUR 10 per passenger was unlawful as it was contrary to Article 56 TFEU and Regulation No 1008/2008, and that ATT collected at that rate was liable to be repaid to the companies concerned. The fact that ATT at that rate was unlawful means that the lower rate of ATT cannot be characterised as State aid.’
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