UFEX is successful in challenging EU state aid involving French postal services
Clients Union Francaise de l'Express International (UFEX)
Jones Day represented Union Française de l'Express International (UFEX), a consortium of express delivery companies that includes DHL and FedEx, before the European Commission ("Commission") in a State aid case involving the postal services sector. UFEX claimed that SFMI-Chronopost, a competing express delivery company and a subsidiary of the French State post office ("La Poste"), had an economic advantage due to its access to the French postal network, equipment and personnel which constituted State aid. After the Commission initially found there was no State aid, UFEX appealed to the Court of First Instance ("CFI") which in December 2000 annulled the Commission decision. SFMI-Chronopost subsequently appealed to the European Court of Justice ("ECJ") on the grounds that the relationship between a former monopoly and its subsidiary could not be compared to a private group of undertakings not operating in the reserved sector. In July 2003 the ECJ found that, because La Poste's network could not be compared to a commercial market, the CFI had erred by not applying the correct state aid test to determine whether or not Chronopost had properly indemnified its parent for the costs of using the La Poste network. The case was referred back to the CFI.
On 7 June 2006 the CFI again annulled the Commission decision in favor of UFEX, based on two factors. First, it held that the Commission's decision failed to demonstrate that the contribution paid by Chronopost for the fixed and variable costs of using La Poste's network met the requirements of article 190 of the EC Treaty. Second, the CFI found that the Commission made an error of law when deciding that the free transfer of clients and goodwill by Postadex (the Postal Administration service in charge of express mail before La Poste became an independent entity) to Chronopost did not amount to a State aid.
The outcome of the recent judgment is important because it shows that the CFI believes it is entitled to verify in detail the rationale put forward by the Commission to justify its decision, even in technical and economic matters. In this respect, the judgment confirms that the Commission cannot act with total discretion, and that its reasoning must be sufficiently clear to allow the Judiciary to verify whether or not the law has been correctly applied to the facts of a given case. It further shows that even if the EU has been quite tolerant vis à vis Member states' former monopolies (which, for example, have not complied for years with their obligations regarding the transparency and quality of their accounts), there are limits that must be respected. Furthermore, and more importantly, this judgment could require Chronopost to reimburse the French Republic sizeable amounts of money deemed to have constituted unnotified State aid (i.e., aid given in violation of the obligations laid down in article 88 of the EC Treaty). It also could lead Chronopost's competitors (i.e., the UFEX members) to file claims in French courts that monetary damages were caused by the distortion of competition linked to the aid given to Chronopost.