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District Court declared a contract partly void in order to recover illegal state aid

District Court declared a contract partly void in order to recover illegal state aid

District Court declared a contract partly void in order to recover illegal state aid

05.01.2016 NL law

On 16 December 2015, the District Court of North Holland ("District Court") declared a contract between the municipality of Harlingen and the undertaking Spaansen partly void due to illegal state aid. 

The District Court decided that only a clause related to the price, found in an earlier interlocutory ruling to have been set above the market value, was void insofar as the price was set above market value. As a consequence, Spaansen had to sell the property for a lower price than agreed upon in its contract with the municipality.

On 23 June 2009, the municipality agreed to buy Spaansen's real estate property. The agreement stipulated that Harlingen would pay (i) EUR 6.5 million after the title had been transferred and (ii) an additional EUR 2 million after the undertaking had left the premises as compensation for relocation. In an interlocutory ruling, the District Court found the sales price was EUR 2.25 million higher than the market value and that an additional compensation for the relocation of the undertaking is not permitted under state aid rules. After the interlocutory ruling, the District Court gave the parties the opportunity to give their views on how the illegal aid should be recovered. 

Spaansen argued that the price clause was not severable from the agreement, and that the entire agreement should therefore be declared void. The price was of critical importance to the agreement, and it would not have sold the property for the price excluding the amount that was considered state aid. As a consequence, the municipality should return the property and the undertaking should pay back the sales price. The municipality on the other hand, argued that only the price clause should be declared void, to the extent that the price exceeded market value.

The District Court emphasized that recovery of state aid in order to restore competitive market conditions should take place in the least inconvenient way possible. Furthermore, according to the District Court, it should be assessed whether a partial annulment can be justified taking into account all the relevant circumstances and the interests of the parties. In that light, the District Court considered that adjusting the sales price was the least burdensome option. The District Court dismissed Spaansen's argument that it would not have sold the property for the lower price. It considered that the adjusted price excluding the state aid represented market value and Spaansen would not have been able to sell the premises for a higher price under normal market conditions.

This case illustrates how far-reaching the consequences can be if an agreement is found in violation of state aid rules. The state aid rules cannot only annul, but can also alter an agreement between a government entity and an undertaking.

This article was published in the Competition Law Newsletter of January 2016. Other articles in this newsletter:

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