In two recent decisions, the European Commission and the European
Court of Justice (the "ECJ") have found against state bodies in Finland
and Spain which were considered to have taken actions which had the
effect of favouring local companies, contrary to EU law.

Firstly, the Commission held that the purchase by the city of
Karkkila (a Finnish state body) of 50% of a real estate joint venture
from Componenta Corporation represented illegal state aid. The purchase
price of 2.4 million euros was found to be more than a private investor
would have paid, and as such, the surplus represented state aid. The
valuation of the joint venture had been carried out incorrectly. It had
been based only on the joint venture's assets and had failed to take
account of its debts.

The fact that the purchase was conditional upon the creation of new
jobs in Karkkila was considered to provide further strong indication
that the purchase price was not market based but was instead a form of
compensation for Componenta's new investment in the area. Accordingly,
the Commission has ordered repayment of the illegal aid plus interest.

Secondly, the ECJ (on a reference from the Spanish courts) made a
preliminary ruling that the inclusion of an admission condition in a
tender that bidders must, at the time of submitting their tender, have
a local office, breached the principles of freedom of establishment and
freedom to provide services. Equally, the inclusion of evaluation
criteria which awarded additional points to bidders who had 'nearby'
production facilities (within 1000km) breached the same principles.

The tender concerned related to the provision of home respiratory
treatment services. It was contended by the Spanish authorities that it
was necessary to include the admission condition and evaluation
criteria in order to provide the essential healthcare services to an
acceptable standard. The ECJ held, however, that the requirement to
have a local office and nearby production facilities, at the time of
submitting tender responses, was disproportionate and as such, breached
the free movement principles. If the conditions had required bidders to
have a local office if they won the tender then this was more likely to
be considered justifiable.

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