The Minister for Finance and Ireland v Comhfhorbairt (Gaillimh) Trading as Aer Arann

JurisdictionIreland
CourtCourt of Appeal (Ireland)
JudgeMr. Justice Murray
Judgment Date15 October 2021
Neutral Citation[2021] IECA 264
Docket NumberCourt of Appeal Record No. 2019/528 Court of Appeal Record No. 2019/530 High Court Record No. 2013/3288P
Between
The Minister for Finance and Ireland
Plaintiffs/Respondents
and
Comhfhorbairt (Gaillimh) Trading as Aer Arann
Defendant/Appellant
Between
The Minister for Finance and Ireland
Plaintiffs/Respondents
and
Aer Lingus Limited and Comhfhorbairt (Gaillimh) Trading as Aer Arann
Defendant/Appellant

[2021] IECA 264

Haughton J.

Ní Raifeartaigh J.

Murray J.

Court of Appeal Record No. 2019/528

High Court Record No. 2013/3285P

Court of Appeal Record No. 2019/530

High Court Record No. 2013/3288P

THE COURT OF APPEAL

CIVIL

UNAPPROVED
NO REDACTION NEEDED

JUDGMENT of Mr. Justice Murray delivered on the 15 th day of October 2021

TABLE OF CONTENTS

I THE FACTS, THE ISSUES AND THE HIGH COURT JUDGMENT

Introduction

1

The travel tax, the complaint and the examinership

4

The scheme of arrangement

5

The Commission Decision

8

The decision of the trial Judge

9

AA's appeal

11

II THE RECOVERY OF UNLAWFUL STATE AID

The relevant legal provisions

13

The governing principles

14

Application of provisions and recovery principles

17

III LEGAL CERTAINTY, THE SCHEME OF ARRANGEMENT AND THE COMMISSION DECISION

Context and definition

20

Final orders, European law and the obligation to recover State aid

22

Competence

24

The subsequent case law

26

Slovak Republic

30

Conclusion on the EU law issue

34

IV THE CONTINGENT CREDITOR ISSUE

Contingent creditors and the Companies Acts

35

Definition

36

Statutory contingent liabilities

40

Is the State aid liability ‘contingent’ within the meaning of CAA 90? .

41

V CONCLUSION

44

I THE FACTS, THE ISSUES AND THE HIGH COURT JUDGMENT
Introduction
1

. An interim examiner was appointed to Comhfhorbairt (Gaillimh) (‘Aer Arann’ or ‘AA’) on 26 August 2010. The ensuing examinership concluded almost three months later upon the coming into effect of a scheme of arrangement (‘the scheme’). One of the effects of the scheme – which was confirmed by an order of the High Court made pursuant to s. 24 of the Companies (Amendment) Act 1990 (‘CAA 90’) — was to limit the ability of certain creditors of the company (including its contingent creditors) to recover their debts.

2

. To the knowledge of the State — but not of AA or those making the investment underpinning the scheme — the European Commission (‘the Commission’) was at the time of the examinership in the process of considering a complaint that inter alia AA had been in receipt of unlawful State aid. The unlawful State aid (as it was subsequently found by the Commission to be) comprised a reduction by law in a ‘ travel tax’ applied to airline journeys originating in the State. The reduction applied to flights to destinations less than 300 km from Dublin, thereby favouring airlines (such as AA) operating short haul journeys.

3

. The question in these proceedings (in which Ireland and the Minister for Finance seek to recover that State aid together with compound interest) is whether the terms of the scheme when viewed in the light of the information available to the State at the time it was sanctioned, operates to prevent recovery of this unlawful aid from AA.

4

. As the proceedings have developed, the answer to this question has been presented by the parties as reducing itself to two issues. The first is whether the State was a ‘ contingent creditor’ in respect of the State aid. If it was not, then AA accepts that that the State aid is recoverable from AA. If the State was a contingent creditor in respect of this liability, with the result that the provisions of the scheme on their face preclude repayment of the unlawful State aid, a second question is said to arise as to whether there is any principle of law that would enable AA to rely on the scheme so as to displace the obligation otherwise arising under EU law to obtain recovery of that aid. AA says that the principles of res judicata and of legal certainty, in particular when viewed in the light of the State's knowledge of the State aid complaint at the time of the approval of the scheme of arrangement and its failure to advise AA, the investors or the court thereof, have this effect.

5

. In a careful, comprehensive and detailed judgment ( [2019] IEHC 545), Barrett J. found inter alia that the State was not, at the time of the approval of the scheme of arrangement, a contingent creditor of AA in respect of this aid but that, if it was, that fact could not as a matter of European law preclude recovery from AA of the unlawful State aid. He also held, on the facts, that AA was not entitled to maintain a set off of the amount of any such aid against sums due on foot of a claim that the tax was unlawfully levied on AA. This latter finding not having been appealed, this Court is solely concerned with the correctness of the trial Judge's conclusions on the first and second of these issues.

The travel tax, the complaint and the examinership
6

. AA was incorporated in 1969, originally providing a passenger air service between Galway and the Aran Islands. In 1994 it expanded its operation and fleet, running flights to a number of regional airports. In 2002 it introduced services to the United Kingdom and Jersey and, in 2004, to France. By 2010, its focus was on what it described as ‘ the short haul commuter market place’ with typical commute times of between 30 and 90 minutes. Commencing in March 2010, it undertook short haul flights between Ireland and the UK on behalf of Aer Lingus trading as ‘ Aer Lingus Regional’, the tickets for these flights being sold and distributed though Aer Lingus' website.

7

. Section 55(2)(b) of the Finance (No. 2) Act 2008 came into effect on 30 March 2009. It imposed an air travel tax (‘ATT’) on all passengers departing from an Irish airport. The tax was collected from the relevant airline which was free to pass the ATT on to its customers. The amount of the tax varied according to the distance travelled by the passenger in question, being €2 if their destination was within 300 km of Dublin airport, and €10 if it was not. The tax was collected by the airline and paid to the Revenue Commissioners.

8

. Prior to the introduction of the tax, Ryanair (by letter dated 31 October 2008) advised the Minister for Transport of its view that the then proposed differentiated rates of ATT constituted an illegal State aid. In July 2009, Ryanair made a formal complaint to the European Commission to that effect. Both the complaint to the European Commission and a press release publicising it issued by Ryanair on 21 July 2009 specifically named AA as a beneficiary of the allegedly unlawful State aid, the latter referring to Ryanair having made inter alia:

A state aid complaint to challenge the illegal aid provided to Aer Arann through the Irish Government's reduction of the tourist tax from €10 to €2 on short routes (destinations less than 300 km from Dublin).’

9

. The European Commission forwarded a copy of the complaint to the authorities in this jurisdiction on 29 July 2009. The first full response from Ireland issued on 15 October 2009. By letter dated 13 July 2011 the Commission officially informed the State that it was initiating the formal investigation procedure under Article 108(2) TFEU. The Commission requested the State to forward a copy of that decision to the beneficiaries of the aid. The Commission decision to initiate the procedure was publicly announced in the Official Journal of the European Union on 18 October 2011.

10

. At the same time, the Commission advised the State of its view that the differentiated rates of ATT breached Article 56 TFEU on the freedom to provide services and Regulation (EC) No. 1008/2008 of the European Parliament and of the Council of 24 September 2008 on the common rules for the operation of air services in the Community. A formal notice to this effect was sent by the Commission on 18 March 2010. This was followed by a decision by the Government to seek to replace the differentiated rates with a single €3 rate as of 1 March 2011. This change was announced by the Minister for Finance on 7 December 2010 and was effected by s. 48 of the Finance Act 2011. This came into effect on 1 March 2011.

11

. The timing of the complaint (July 2009), the initiation of the formal investigation (13 July 2011) and the final Commission decision (25 July 2012) are important. By August 2010 (at which point AA was the only regional airline in the country, employing 315 staff and indirectly supporting in excess of 200 jobs in the regional airports throughout the State) AA was in acute financial difficulty, suffering losses in the region of €6M in the periods ending 31 December 2009 and 31 July 2010. The application issued by AA on 26 August 2010 seeking protection pursuant to the provisions of CAA 90 was grounded upon inter alia a report of an independent accountant, in which he expressed the view that AA would have a reasonable prospect of survival subject to the acceptance of an appropriate scheme of arrangement by the creditors of the Company and the approval of such a scheme by the High Court. The High Court having duly made an order pursuant to the provisions of CAA 90 appointing Michael McAteer as interim examiner of the company, on 8 September a further order was made appointing him as examiner.

12

. The Revenue Commissioners were a creditor of AA (including in respect of monies due on foot of the ATT). They actively participated in the examinership process. At no point in the course of that process did they or any other agency of the State advise the company, the examiner, the investors or the Court, of the fact that a complaint was being considered by the European Commission that the ATT had operated as an unlawful State aid. While there was no evidence that the...

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