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2016   |   Book 1

Case

E-4/15

Icelandic Financial Services AssociationVEFTA Surveillance Authority

(Action for annulment of a decision of the EFTA Surveillance Authority – State aid – Admissibility – Locus standi – Status of an association)

Table of contents


SummaryPage
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of the Judgment

1 Article 62(1) EEA provides that all existing systems of State aid in the EEA/EFTA States shall be subject to constant review by ESA as to their compatibility with Article 61 EEA, in accordance with the rules set out in Protocol 26 to the EEA Agreement on the powers and functions of the EFTA Surveillance Authority in the field of State aid.

2 Article 1 of Part I of Protocol 3 SCA provides that ESA shall, in cooperation with the EFTA States, keep all systems of aid under constant review. As part of that review, ESA is to propose to the EFTA States any appropriate measures required by the progressive development or by the functioning of the EEA Agreement. Paragraph 2 of the same Article provides that if, after giving notice to the parties concerned to submit their comments, ESA finds that aid is not compatible with the EEA Agreement having regard to Article 61 EEA, or that such aid is being misused, it shall decide that the EFTA State concerned must abolish or alter such aid within a period of time to be determined by ESA.

3 According to Article 19(1) of Part II of Protocol 3 SCA, where the EFTA State concerned accepts the proposed measures and informs ESA thereof, ESA shall record that finding and inform the Member State thereof. The EFTA State shall be bound by its acceptance to implement the appropriate measures.

4 In such case, ESA and the EFTA State may discuss the proposed appropriate measures. But it is only where ESA decides, in the exercise of its exclusive power to assess the compatibility of State aid with the functioning of the EEA Agreement, to accept the EFTA State’s commitments as answering its concerns that the investigation procedure is brought to an end by the decision of ESA. The procedure under Article 19(1) of Part II of Protocol 3 SCA is not a quasi-contractual procedure.

5 ActionsPage
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by an association of undertakings may be admissible in three situations where that association is not the addressee of the contested measure at issue: first, where the association acts in place of one or more of its members who could themselves have brought an admissible action; second, if the association can prove an interest of its own, in altogether special or indeed exceptional circumstances because its position as a negotiator has been affected by the measure of which annulment is sought; and, third, where a legal provision expressly confers on professional associations a number of procedural rights.

6 In State aid law, an applicant who challenges the merits of a decision appraising aid taken on the basis of Article 1(3) of Part I of Protocol 3 SCA or at the end of the formal investigation procedure is considered to be individually concerned by that decision if its market position is substantially affected by the aid, or, as in the present circumstances, in the context of a challenge to an Article 19(1) decision, by the existing aid following implementation of the appropriate measures, to which the contested decision relates.

OrderPage
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of the Court

31 March 2016

(Action for annulment of a decision of the EFTA Surveillance Authority – State aid –Admissibility – Locus standi – Status of an association)

In Case E-4/15,

Icelandic Financial Services Association, represented by Dr Hans-Jörg Niemeyer, Rechtsanwalt, Brussels, Belgium, and Dr Christian Kovács, Rechtsanwalt, Brussels, Belgium, acting as Counsel,

— applicant,

V

EFTA Surveillance Authority, represented by Xavier Lewis, Director, Maria Moustakali and Clémence Perrin, Officers, subsequently by Markus Schneider, Deputy Director, Maria Moustakali and Clémence Perrin, Officers, Department of Legal & Executive Affairs, acting as Agents, and subsequently by Carsten Zatschler, Director, Markus Schneider, Deputy Director, Maria Moustakali and Clémence Perrin, Senior Officers, Department of Legal & Executive Affairs, acting as Agents,

— defendant,

supported by the Government of Iceland, represented by Ambassador Kristján Andri Stefánsson, Director General at the Ministry for Foreign Affairs, acting as Agent, Supreme Court Attorney Jóhannes Karl Sveinsson, acting as Counsel, and District Court Attorney Bjarnveig Eiríksdóttir, acting as Co-Counsel,

— intervener,

APPLICATIONPage
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for the annulment of EFTA Surveillance Authority Decision No 298/14/COL of 16 July 2014, notified in OJ 2014 C 400, p. 13, (“the contested decision”), to close the case concerning existing aid to the Icelandic Housing Financing Fund (Íbúðalánasjóður).

The Court

composed of: Carl Baudenbacher, President and Judge-Rapporteur, Per Christiansen and Páll Hreinsson, Judges,

Registrar: Gunnar Selvik,

having regard to the written pleadings of the applicant, the defendant and the intervener, and the written observations of the European Commission (“the Commission”), represented by Leo Flynn, Legal Adviser, and Lorna Armati and Paul-John Loewenthal, Members of its Legal Service, acting as Agents,

having regard to the Report for the Hearing,

having heard oral argument of the applicant, represented by Hans-Jörg Niemeyer, Christian Kovács and Thore Neumann, the defendant, represented by Clémence Perrin and Maria Moustakali, the intervener, represented by Jóhannes Karl Sveinsson, and the Commission, represented by Leo Flynn, Lorna Armati and Paul-John Loewenthal, at the hearing on 12 November 2015,

makes the following

OrderPage
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I Introduction

1 The applicant, Icelandic Financial Services Association (“IFSA”), is an association governed by Icelandic law, which represents all registered financial undertakings in Iceland. These include universal, investment and savings banks as well as insurance, leasing, securities and card companies.

2 For the past 60 years, public intervention in the Icelandic housing market has aimed at encouraging private home ownership. In 1955, a basis for a systematic State involvement, both as regards policy making in the field of housing affairs and the provision of loans for private housing, was created. The State Housing Agency (Húsnæðisstofnun ríkisins) was established by Act No 51/1980 and provided, inter alia, loans to the general public of Iceland, thereby fostering private home ownership.

3 The Act on Housing Affairs No 44/1998 (“the Housing Act”) entered into force on 1 January 1999 and established the Housing Financing Fund (“HFF”) (Íbúðalánasjóður). It took over all assets and obligations of the State Housing Agency, including the tasks of issuing housing bonds and providing housing loans through a bond-swap system. The HFF is an independent State-owned institution.

4 The Housing Act was amended by Act No 57/2004, which entered into force on 1 July 2004. A number of changes were made to the housing loan system but the general purpose and structure of the system remained the same.

5 The HFF’s activities have been scrutinised by ESA on six separate occasions in the years 2004 to 2012.

6 OnPage
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11 August 2004, by Decision No 213/04/COL (notified: OJ 2005 C 112, p. 8; EEA Supplement 2005 No 23, p. 3) (“the 2004 Decision”), ESA declared the HFF’s house financing mechanisms compatible with the EEA Agreement. At the time of the 2004 Decision the HFF provided three categories of loans. First, it provided general loans to individuals for the purchase, renovation or construction of residential housing. Second, the HFF provided supplementary loans awarded to individuals with low income and limited assets upon referral from the housing committee of a municipality. Finally, the HFF provided loans for rental housing to municipalities, associations and companies for the construction or purchase of residential housing for rent. The supplementary loans were later abolished by Act No 120/2004, which entered into force on 3 December 2004 (see Case E-9/04 The Bankers’ and Securities Dealers’ Association of Iceland v ESA [2006] EFTA Ct. Rep. 42, paragraph 8).

7 On 7 April 2006, following an application by the Bankers’ and Securities’ Dealers Association, the predecessor of IFSA, the 2004 Decision was annulled by the Court in Case E-9/04 The Bankers’ and Securities Dealers’ Association of Iceland v ESA, cited above.

8 On 21 June 2006, in response to the Court’s judgment, by Decision No 185/06/COL (OJ 2006 C 314, p. 90; EEA Supplement 2006 No 63, p. 3), ESA decided to initiate a formal investigation into the HFF, considering the aid scheme to be new aid.

9 On 28 February 2007, the HFF submitted comments on ESA Decision No 185/06/COL.

10 On 27 June 2008, by Decision No 405/08/COL (OJ 2010 L 79, p. 40; EEA Supplement 2010 No 14, p. 20), ESA decided to close the formal investigation procedure applicable to new aid. On the same day, ESA opened new proceedings under Article 1(1) of Part I and Articles 17 to 19 of Part II of Protocol 3 to the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court ofPage
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Justice (“SCA”) regarding existing aid. Following this reconsideration, also on 27 June 2008, ESA sent a letter to the Icelandic Government pursuant to Article 17(2) of Part II of Protocol 3 SCA.

11 On 1 September 2008, IFSA submitted comments on ESA’s letter of 27 June 2008.

12 On 8 September 2008, the Icelandic Government replied to ESA’s letter of 27 June 2008.

13 On 18 July 2011, by Decision No 247/11/COL (“the 2011 Decision”), ESA decided that the HFF scheme in the form of state guarantee, income tax exemption, interest support and lack of adequate rate of return/lack of dividend payments constituted existing aid incompatible with the EEA Agreement, and proposed appropriate measures for the financing of the HFF.

14 On 6 October 2011, the Icelandic Government replied, stating that it was willing to accept ESA’s proposal for appropriate measures.

15 On 11 November 2011, IFSA submitted comments on the 2011 Decision, maintaining the position that the response of the Icelandic Government did not constitute proper acceptance of that Decision.

16 On 10 February 2012, ESA requested further information from IFSA regarding its previous submissions.

17 On 1 June 2012, IFSA replied and supplied further information.

18 On 5 June 2012 and 27 April 2013, IFSA participated in two meetings with ESA.

19 On 27 May 2013, IFSA submitted further updated information regarding the Icelandic banking sector and the problems faced by HFF.

20 OnPage
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16 July 2014, by Decision No 298/14/COL, ESA recorded Iceland’s acceptance of the appropriate measures proposed in the 2011 Decision and noted further commitments entered into by Iceland. ESA then closed the case concerning the review of existing aid to the HFF. The contested decision was notified in the Official Journal of the European Union on 13 November 2014.

21 By an application lodged at the Court on 28 January 2015, IFSA brought an action under the second paragraph of Article 36 SCA seeking the annulment of the contested decision.

II Legal background

22 Article 59 EEA reads:

(1) In the case of public undertakings and undertakings to which EC Member States or EFTA States grant special or exclusive rights, the Contracting Parties shall ensure that there is neither enacted nor maintained in force any measure contrary to the rules contained in this Agreement, in particular to those rules provided for in Articles 4 and 53 to 63.

(2) Undertakings entrusted with the operation of services of general economic interest or having the character of a revenue-producing monopoly shall be subject to the rules contained in this Agreement, in particular to the rules on competition, in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them. The development of trade must not be affected to such an extent as would be contrary to the interests of the Contracting Parties.

23 ArticlePage
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61(1) EEA reads:

Save as otherwise provided in this Agreement, any aid granted by EC Member States, EFTA States or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Contracting Parties, be incompatible with the functioning of this Agreement.

24 Article 62(1) EEA reads:

All existing systems of State aid in the territory of the Contracting Parties, as well as any plans to grant or alter State aid, shall be subject to constant review as to their compatibility with Article 61. …

25 Article 16 SCA reads:

Decisions of the EFTA Surveillance Authority shall state the reasons on which they are based.

26 Article 36 SCA reads:

The EFTA Court shall have jurisdiction in actions brought by an EFTA State against a decision of the EFTA Surveillance Authority on grounds of lack of competence, infringement of an essential procedural requirement, or infringement of this Agreement, of the EEA Agreement or of any rule of law relating to their application, or misuse of powers.

Any natural or legal person may, under the same conditions, institute proceedings before the EFTA Court against a decision of the EFTA Surveillance Authority addressed to that person or against a decision addressed to another person, if it is of direct and individual concern to the former.

27 ArticlePage
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1(1) of Part I of Protocol 3 SCA reads:

The EFTA Surveillance Authority shall, in cooperation with the EFTA States, keep under constant review all systems of aid existing in those States. It shall propose to the latter any appropriate measures required by the progressive development or by the functioning of the EEA Agreement.

28 Article 18 of Part II of Protocol 3 SCA reads:

Where the EFTA Surveillance Authority, in the light of the information submitted by the EFTA State pursuant to Article 17 of this Chapter, concludes that the existing aid scheme is not, or is not longer, compatible with the functioning of the EEA Agreement, it shall issue a recommendation proposing appropriate measures to the EFTA State concerned. The recommendations may propose, in particular

(a) substantive amendments of the aid scheme,

or

(b) introduction of procedural requirements,

or

(c) abolition of the aid scheme.

29 Article 19(1) of Part II of Protocol 3 SCA reads:

Where the EFTA State concerned accepts the proposed measures and informs the EFTA Surveillance Authority thereof, the EFTA Surveillance Authority shall record that finding and inform the EFTA State thereof. The EFTA State shall be bound by its acceptance to implement the appropriate measures.

ThePage
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contested decision

30 On 16 July 2014, ESA adopted Decision No 298/14/COL. Pursuant to Article 19(1) of Part II of Protocol 3 SCA, Iceland’s acceptance of the appropriate measures proposed in the 2011 Decision on the financing of the HFF was recorded. Further commitments entered into by Iceland were noted and the case concerning the review of existing aid to the HFF was closed. The contested decision was notified in the Official Journal of the European Union on 13 November 2014.

III Procedure and forms of order sought

31 On 28 January 2015, IFSA lodged an application pursuant to the second paragraph of Article 36 SCA seeking the annulment of the contested decision.

32 The Applicant requests the Court to:

(i) annul the EFTA Surveillance Authority’s decision 298/14/COL of 16 July 2014 (OJ 2014 of 13 November 2014, No C 400, p. 13) to close the case concerning existing aid to the Icelandic Housing Financing Fund (Íbúðalánasjóður), and

(ii) order the EFTA Surveillance Authority to bear the costs of the proceedings.

33 On 26 February 2015, ESA requested an extension of the deadline to lodge a defence. On 27 February 2015, the President, pursuant to Article 35(2) of the Rules of Procedure (“RoP”), granted ESA’s request and set the deadline for the defence to 27 April 2015.

34 On 27 April 2015, ESA submitted its defence. The defendant, the EFTA Surveillance Authority, requests the Court to:

(i) dismiss the application, or, in the alternative, declare the application inadmissible in whole or in part;

(ii) orderPage
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the applicant to bear the costs.

35 On 8 May 2015, IFSA requested an extension of the deadline to lodge a reply to the defence. On 11 May 2015, the President, pursuant to Article 78 RoP, granted IFSA’s request and set the deadline for the reply to 19 June 2015.

36 On 10 June 2015, the Government of Iceland sought leave to intervene in support of the form of order sought by ESA, pursuant to Article 36(1) of the Statute and Article 89 RoP. On 19 June 2015, IFSA submitted its reply. On 25 and 26 June 2015, ESA and IFSA, respectively, lodged their written observations on the application to intervene.

37 On 3 July 2015, the European Commission submitted written observations. On 8 July 2015, ESA requested an extension of the deadline to submit its rejoinder. On 9 July 2015, the President, pursuant to Article 78 RoP, granted an extension until 17 August 2015. On 13 July 2015, the President by order granted the Government of Iceland leave to intervene pursuant to Article 89(3) RoP.

38 On 4 August 2015, the Government of Iceland requested an extension of the deadline to submit its statement in intervention. On 5 August 2015, the President, pursuant to Article 78 RoP, granted an extension until 1 September 2015. On 17 August 2015, ESA submitted its rejoinder.

39 On 1 September 2015, the Government of Iceland lodged its statement in intervention at the Court’s Registry.

40 The intervener, the Government of Iceland, requests the Court to:

(i) dismiss the application, or, in the alternative, declare the application inadmissible in whole or in part,

(ii) order the applicant to bear the costs of the intervener.

41 OnPage
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8 September 2015, IFSA requested an extension of the deadline to submit its comments on the statement in intervention. On 9 September 2015, the President, pursuant to Article 78 RoP, granted an extension until 25 September 2015. On 9 September 2015, ESA requested an extension of the deadline to submit comments on Iceland’s statement in intervention. On 10 September 2015, the President, pursuant to Article 78 RoP, granted an extension until 25 September 2015. On 25 September 2015, both IFSA and ESA submitted comments on the statement in intervention.

42 The parties presented oral argument and answered questions put to them by the Court at the hearing on 12 November 2015.

43 Reference is made to the Report for the Hearing for a fuller account of the facts, the procedure and the pleas and arguments of the parties, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court.

IV Law

Admissibility

Arguments of the parties

IFSA

44 IFSA submits that it has standing to challenge the contested decision pursuant to the second paragraph of Article 36 SCA, as the contested decision entails a legally binding effect by terminating a “decision making procedure” under Article 19(1) of Part II of Protocol 3 SCA capable of affecting the interests of IFSA. Further, IFSA claims to have locus standi as it is directly and individually concerned by the contested decision. The standing of IFSA’s predecessor, the Bankers’ and Securities Dealers’ Association of Iceland, was recognised by the CourtPage
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in Case E9/04 Bankers’ and Securities Dealers’ Association of Iceland v EFTA Surveillance Authority [2006] EFTA Ct. Rep. 42, which, in substance, assessed the same aid scheme addressed by the contested decision.

45 In the alternative, IFSA maintains that it has standing in its own right as an association representing the interests of undertakings, which themselves have locus standi. According to Article 2 of its Articles of Association, IFSA is entitled to “promote the interests of companies providing financial services” which includes the representation of the Icelandic financial institutions’ interests in legal proceedings. Moreover, IFSA has played not only a decisive role, at ESA’s express invitation, throughout the administrative proceedings; IFSA and its predecessor have assisted ESA for over ten years. It has also played a significant role in the legislative processes relating to the reform of the HFF.

46 According to IFSA, the commercial banks would be entitled to bring an action for annulment individually, as they are directly and individually concerned by the contested decision. Individual concern may arise from the beneficiary’s important and substantial position on the relevant market. The commercial banks and the HFF are competitors on the housing loan market in Iceland, on which the HFF has a dominant market position that is expressly recognised by ESA. Due to benefits from manifold aid measures, in particular the state guarantee ruling out the bankruptcy of the HFF, the company’s income tax exemption, the lack of a requirement for the HFF to pay dividends, and the interest support mechanism, the HFF’s refinancing costs are significantly reduced, enabling it to offer housing loans at a lower price than commercial banks. In its reply, IFSA submits that direct and individual concern must be inferred not only from factors such as a significant decline in turnover, appreciable financial losses or a significant reduction in market share following the grant of the aid in question. It can also be established byPage
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other factors, such as the loss of an opportunity to make a profit or the less favourable development of a company’s market share than would have been the case without such aid.

47 In its reply, IFSA submits that the locus standi of an association has to be assumed if the association’s membership accounts for a significant share in a tight market, which is significantly disturbed by the state measure in question. Consequently, this principle is applicable a fortiori where IFSA’s members account for the overwhelming majority of the market share held by commercial banks in the market for mortgage loans for residential housing in Iceland.

48 Moreover, IFSA emphasises the relevance of its role as an originator of the complaint leading to the opening of the formal examination procedure and its subsequent active role throughout the proceedings.

49 In IFSA’s view, commercial banks offer mortgage loans on the basis of regular market conditions, whereas the conditions offered by the HFF are distorted by State aid and the HFF has used its State funding to deliberately undercut the interest rates at market conditions between 2006 and 2011 by approximately 1%, even as far as operating at a loss. This led to a loss of business opportunities. The increase in the market share held by commercial banks since 2010 does not contradict these adverse effects. Rather, it demonstrates their ability to regain market shares lost during the financial crisis. Moreover, the requirement of a first priority collateral for maximum HFF funding automatically leaves commercial banks’ mortgage loans secured with second priority with higher borrowing costs and puts them at a further competitive disadvantage.

50 IFSA submits further that the commercial banks are a limited class of traders identifiable prior to the adoption of the contested decision. While the three major banks, Íslandsbanki, Landsbankinn, and ArionPage
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Bank, were restructured in the aftermath of the financial crisis, they remain identical to their predecessors as regards the provision of mortgage loans. In IFSA’s view, the question whether a group’s members can be identified at a given moment in time is in no way linked to the fact that the composition of a specific group of individual companies may have not remained stable for more than a decade.

ESA

51 According to ESA, IFSA has not established that it has sufficient standing to challenge the contested decision, which is addressed to Iceland, is legally binding and constitutes a final decision. To the extent that the provisions governing locus standi are substantively the same in the EU and the EEA, the principle of homogeneity applies. In State aid law, the Plaumann test has been applied with regard to locus standi and applicants who challenge the merits of a decision appraising aid are considered to be individually concerned by that decision if their market position is substantially affected by the aid to which the contested decision relates.

52 A professional association that is responsible for protecting the collective interests of its members is entitled to bring an action for the annulment of a final decision on State aid only in two sets of circumstances. First, it may bring an action where the undertakings that it represents or some of those undertakings themselves are sufficiently affected (and are themselves in a position to bring an admissible action). Second, the association may bring an action if it can prove an interest of its own, in particular because its position as a negotiator has been affected by the measure, the annulment of which is sought.

53 In relation to the first limb of the test, ESA contends that IFSA’s reference to the fact that it was found to have locus standi in Case E-9/04Page
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The Bankers’ and Securities Dealers’ Association of Iceland v ESA and that the judgment and the contested decision concern the same aid scheme is insufficient to meet the test.

54 According to ESA, in the context of actions brought by associations, an applicant can be individually concerned as a result of it having played a significant role in the procedure leading to the adoption of the challenged decision if it occupied a clearly circumscribed position as negotiator that was intimately linked to the actual subject matter of the decision, thus placing it in a factual situation which distinguishes it from all other persons. IFSA cannot be considered to have played such a role considering that it had no procedural right to submit comments in the context of a procedure pursuant to Article 19(1) of Part II of Protocol 3 SCA. It only did so at ESA’s invitation and its role did not go further than providing comments on behalf of its members, while the actual negotiations were bilateral between Iceland and ESA. Further, the procedure for review of existing aid is not challengeable in the same way as an assessment by ESA of a new aid scheme.

55 In relation to the second limb of the test, ESA contends that IFSA’s statements are insufficient to demonstrate the substantial adverse effect the aid scheme allegedly has on the market position of the commercial banks. IFSA has not demonstrated the extent of the impact of the aid scheme on the economic situation of its members. It has also failed to demonstrate that the market position of any of its members was affected more than that of any competitor in the market and its arguments do not distinguish the situation of one or more of its members.

56 Moreover, the allegation concerning the dominance of the HFF should be rejected as completely unfounded. IFSA’s assertion that the commercial banks have regained market share since 2010 contradicts the existence of substantial adverse effects of the aid scheme.

57 IFSA’sPage
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members cannot be individually concerned because they belong to a group of persons that were identified or identifiable by reason of criteria specific to the members of the group. The number and identity of the commercial banks on the housing loan market were not precisely determined at any point in time whether through a system of approval by decree or by the fact that those banks were granted any sort of exclusive rights before the aid scheme was adopted. Rather, housing loans were also offered by other financial undertakings such as savings banks, pension funds and mortgage companies. Moreover, the membership of IFSA changed in the aftermath of the financial crisis due to the winding up of some of its members.

58 With regard to the applicant’s claim to have locus standi in its own right as an association, ESA emphasises that the mere fact that the applicant represents all the commercial and savings banks present on the mortgage market in Iceland does not create a “special or exceptional situation”. It is further questionable whether IFSA could at all be intimately linked to negotiations in the housing loan sector considering that it represents all registered financial undertakings in Iceland some of which are active in sectors in which the HFF does not operate.

59 ESA submits that banks are not competitors of the HFF, whose role is to promote security and equal rights as regards housing in Iceland by providing loans on manageable terms to the general public. Thus, the aid cannot be considered to benefit one competitor over others active on the same market.

60 In relation to the alleged standing of the applicant as a representative of its member banks which themselves have locus standi, ESA notes that the graph relied on as evidence of the HFF’s alleged market dominance shows outstanding mortgage credits, which cannot establish a meaningful picture of the market as it currently stands.

61 ESAPage
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further contests IFSA’s reasoning that commercial banks lost opportunities to make profits and increase their activities in the mortgage loan market due to the HFF’s alleged undercutting of interest rates, its operational structure and its regulatory competitive advantages. The lending rates of the HFF are calculated on the basis of its funding costs, with an added margin set by the Ministry of Social Affairs, and are thus not aligned with those of the commercial banks. The other measures may not be considered advantages, but, instead, measures aimed at compensating the HFF for the provision of a service of general economic interest. The commercial banks’ loss of opportunities may also be due to the financial crisis.

Government of Iceland

62 The Government of Iceland submits that nothing in IFSA’s submissions indicates that the applicant’s situation falls within any of the three grounds required by case law for instituting proceedings. It is for IFSA to establish both the extent to which the aid has been detrimental to its market position and a link between the measure, which is the subject of the contested decision, and the alleged substantial effect on its position on the relevant market. IFSA needs to demonstrate a loss of opportunity to make a profit or less favourable development than would have been the case without such aid. The evidence submitted by IFSA concerning the market relates primarily to the period before changes based on the appropriate measures proposed by ESA were made and is, thus, not relevant.

63 The Government of Iceland contends that, according to data from the Central Bank of Iceland, commercial banks secure most of the market. The Icelandic Competition Authority considers the three major banks to be collectively dominant on the financial market in Iceland and that the HFF’s operations have not limited competition inPage
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the market. In contrast to banks, the HFF is under the universal obligation to promote security and equal rights and has to offer the same interest rates throughout the country even though loan impairments have been considerably higher in the rural areas. Therefore, it has not competed and does not compete on price.

64 The Government of Iceland adds that the HFF’s status as the only mortgage provider in Iceland that is required to finance mortgages for their full term together with its universal service obligation puts it at a considerable disadvantage. Interest rates for indexed housing loans offered by the HFF have been higher than those offered by commercial banks since 2012.

European Commission

65 The Commission submits that, in the context of annulment actions directed against State aid decisions, to be considered individually concerned it suffices for an applicant to show that it is an “interested party” pursuant to Article 1(h) of Part II of Protocol 3 SCA if that applicant is seeking to vindicate its procedural rights arising when interested parties are invited to participate in a formal investigation procedure. However, unlike the situation in Case E-9/04 The Bankers’ and Securities Dealers’ Association of Iceland v ESA, there is no possibility under Protocol 3 SCA for ESA to open a formal investigation procedure once the EFTA State concerned accepts the appropriate measures proposed by ESA to modify the existing aid scheme.

66 It is for the applicant to demonstrate individual concern by showing that the decision it challenges affects them by reason of certain attributes which are peculiar to them or by reason of a circumstance in which they are differentiated from all other persons and by virtue of those factors distinguishes them individually just as in the case of the person addressed. There must be a real competitive relationship betweenPage
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the applicant and the beneficiary, and the market position of the applicant must be substantially affected by the measures. It is for the applicant to show a causal link between the factual elements it invokes and the prejudice to its market position by reference to a number of concrete factors and not simply speculation. Moreover, participation in the administrative proceedings leading to the adoption of a decision after a formal investigation procedure is neither necessary nor sufficient to be individually concerned, as only a significant effect on its market position will suffice.

67 According to the Commission, associations of undertakings can be individually concerned, for Plaumann purposes, by State aid decisions on two main grounds: either because the decision affects directly and individually the association in its own rights or because its members are directly and individually concerned. Whereas the latter situation does not apply here, had the association shown that it had a role as a negotiator with the Commission or ESA that is affected by the contested decision, this could have demonstrated individual concern.

Findings of the Court

68 IFSA seeks the annulment of the contested decision “to close the case concerning existing aid to the Icelandic Housing Financing Fund (Íbúðalánasjóður)”.

69 Paragraph three of the contested decision lays out ESA’s proposals made in its 2011 Decision; a decision taken pursuant to Article 18 of Part II of Protocol 3 SCA. The contested decision then sets out that “[t]he Icelandic authorities informed the Authority of their acceptance of the appropriate measures in a letter dated 6 October 2011 (Event No. 610792), completed by further information submitted in particular on 5 June 2012 (Event No. 637062), 7 October 2012 (Event No. 648980), 7 January 2013 (Event No. 658858) and 22 May 2014Page
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(Event No. 709426)”. ESA also noted that it had “consulted with the complainant, the Icelandic Financial Services Association, who provided extensive comments on the proposed Icelandic measures, notably on 11 November 2011 (Event No. 713194), 1 June 2012 (Event No. 639998) and 27 May 2013 (Event No. 673674), as well as in various meetings”.

70 In paragraphs 24 and 25 of the contested decision, ESA found that “the Icelandic authorities have accepted the appropriate measures set out in Decision No. 247/11/COL” and recorded that finding. Further, ESA recorded that “pursuant to Article 19(1) of Part II of Protocol 3, Iceland is bound by its acceptance to fully implement the appropriate measures”. Finally, ESA reminded the Icelandic authorities of its obligation to keep all systems of existing aid under constant review, in cooperation with the EFTA State concerned and that the Icelandic authorities should therefore provide ESA with detailed information on any changes in the definition of public service entrusted to the HFF, including with regard to the operation of the review mechanism.

71 The present case concerns existing aid. Article 62(1) EEA provides that all existing systems of State aid in the EEA/EFTA States shall be subject to constant review by ESA as to their compatibility with Article 61 EEA in accordance with the rules set out in Protocol 26 to the EEA Agreement on the powers and functions of the EFTA Surveillance Authority in the field of State aid.

72 Article 1 of Part I of Protocol 3 SCA provides that ESA shall, in cooperation with the EFTA States, keep all systems of aid under constant review. As part of that review, ESA is to propose to the EFTA States any appropriate measures required by the progressive development or by the functioning of the EEA Agreement. Paragraph 2 of the same Article provides that if, after giving notice to the parties concerned to submit their comments, ESA finds that aid is not compatible with the EEA Agreement having regard to Article 61 EEA,Page
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or that such aid is being misused, it shall decide that the EFTA State concerned must abolish or alter such aid within a period of time to be determined by ESA (compare judgments in Italy v Commission, C47/91, EU:C:1994:358, paragraph 23; Namur-Les assurances du credit, C44/93, EU:C:1994:311, paragraph 11; and TF1 v Commission, T354/05, EU:T:2009:66, paragraph 63 and case law cited).

73 According to Article 17(2) of Part II of Protocol 3 SCA, if ESA considers that an existing aid scheme is not, or is no longer, compatible with the EEA Agreement, it shall inform the EFTA State concerned of its preliminary view and give it the opportunity to submit its comments within a period of one month. Only in duly justified cases may ESA extend this period.

74 According to Article 18 of Part II of Protocol 3 SCA, if, in the light of the information submitted by the EFTA State under Article 17, ESA concludes that an existing aid scheme is not, or is no longer, compatible with the functioning of the EEA Agreement, it is to issue a recommendation proposing appropriate measures to the EFTA State concerned. It is incontestable that such a recommendation, which is no more than a proposal, is not, taken in isolation, a challengeable act (compare TF1 v Commission, cited above, paragraph 65 and case law cited).

75 According to Article 19(2) of Part II of Protocol 3 SCA, where the EFTA State concerned does not accept the proposed measures and ESA, having taken into account the arguments of the EFTA State concerned, still considers that those measures are necessary, it shall initiate proceedings pursuant to Article 4(4) of Part II of Protocol 3 SCA, with Articles 6, 7 and 9 of that Chapter applying mutatis mutandis.

76 According to Article 19(1) of Part II of Protocol 3 SCA, where the EFTA State concerned accepts the proposed measures and informs ESAPage
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thereof, ESA shall record that finding and inform the Member State thereof. The EFTA State shall be bound by its acceptance to implement the appropriate measures (in addition, compare judgment in Commission v Council, C118/10, EU:C:2013:787, paragraph 55 and case law cited).

77 The present case concerns Article 19(1) of Part II of Protocol 3 SCA. In such a case, ESA and the EFTA State may discuss the proposed appropriate measures. But it is only where ESA decides, in the exercise of its exclusive power to assess the compatibility of State aid with the functioning of the EEA Agreement, to accept the EFTA State’s commitments as answering its concerns that the investigation procedure is brought to an end by the decision of ESA. The procedure under Article 19(1) of Part II of Protocol 3 SCA is not a quasi-contractual procedure (compare TF1 v Commission, cited above, paragraphs 68 to 70).

78 In the context of the constant review of existing aid, and where the EFTA State continues to fulfil its commitments, ESA no longer has to adopt a further decision after its Article 19(1) decision is published in accordance with Article 26(1) of Part II of Protocol 3 SCA. The only measure then available to interested third parties – in this case the applicant – to challenge is the Article 19(1) decision, a decision which has binding legal effect (compare TF1 v Commission, cited above, paragraphs 73 and 76). Thus, the contested decision is challengeable.

79 The applicant is the trade association of registered financial undertakings in Iceland including universal, investment and savings banks as well as insurance, leasing, securities and card companies.

80 Pursuant to the second paragraph of Article 36 SCA, a natural or legal person may institute proceedings against a decision addressed to another person only if the decision is of direct and individual concern to them. Since the contested decision was addressed to Iceland,Page
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it must be considered whether it is of individual and direct concern to the applicant (see, inter alia, order of the Court of 20 March 2015 in Case E-19/13 Konkurrenten v ESA, not yet reported, paragraph 93 and case law cited).

81 Persons other than those to whom a decision is addressed may claim to be individually concerned within the meaning of the second paragraph of Article 36 SCA only if the decision affects them by reason of certain attributes that are peculiar to them or if they are differentiated by circumstances from all other persons and those circumstances distinguish them individually just as the person addressed by the decision (see, inter alia, Konkurrenten v ESA, cited above, paragraph 94 and case law cited).

82 IFSA contends that it has locus standi on the basis of three alternatives. First, that its predecessor, the Bankers’ and Securities Dealers’ Association of Iceland, had locus standi in the Case The Bankers’ and Securities Dealers’ Association of Iceland v ESA, cited above. Second, that IFSA has locus standi as a trade association as some of the undertakings that it represents have locus standi. Third, IFSA contends that that it has locus standi having played not only a decisive role, at ESA’s express invitation, throughout the administrative proceedings but also a significant role in the legislative processes relating to the reform of the HFF. IFSA maintains that its role as an originator of the complaint leading to the opening of the formal examination procedure as well as its subsequent active role throughout the proceedings is relevant.

83 That IFSA’s predecessor, the Bankers’ and Securities Dealers’ Association of Iceland, had locus standi in Case E9/04 is immaterial to the determination of standing in the present case.

84 The Court recalls that actions brought by an association of undertakings may be admissible in three situations where that association is not the addressee of the contested measure at issue: first,Page
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where the association acts in place of one or more of its members who could themselves have brought an admissible action (see Case E-8/13 Abelia v ESA [2014] EFTA Ct. Rep. 638, paragraph 86; compare also the judgment in British Aggregates v Commission, C-487/06 P, EU:C:2008:757, paragraph 39); second, if the association can prove an interest of its own, in altogether special or indeed exceptional circumstances because its position as a negotiator has been affected by the measure of which annulment is sought (compare the judgment in 3F v Commission, C-319/07 P, EU:C:2009:435, paragraphs 87 to 95 and case law cited); and, third, where a legal provision expressly confers on professional associations a number of procedural rights (compare the order in Sdružení nájemníků BytyOKD.cz v Commission, T559/11, EU:T:2013:255, paragraph 29 and case law cited).

85 With regard to the first of the possibilities detailed in the previous paragraph, Article 2 of IFSA’s Articles of Association provides that the association is empowered to represent its members’ interests in proceedings before the Court. It must thus be ascertained whether one or more of IFSA’s members could have brought an admissible action themselves.

86 The Court notes that IFSA’s member financial institutions, “comprising the commercial banks and savings banks”, are described as “commercial banks” in the application.

87 IFSA contends that the commercial banks that form part of its membership are directly and individually concerned by the contested decision because those banks’ market position is significantly adversely affected by the contested decision. IFSA states that “[t]his widespread availability of subsidized HFF loans continues to constrain the commercial banks’ mortgage loan business in Iceland. It deprives the commercial banks’ chances to earn risk-adequate margins.” IFSA summarises its position in the application stating that “[i]t follows from these observations that the benefits enjoyed by thePage
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HFF significantly reduce its refinancing costs, and, at least in the past, enabled the HFF to offer housing loans at a lower price than the commercial banks”.

88 IFSA seeks to evidence harm suffered by way of figures 4 and 5 included in the application. Figure 4 is a graph showing “interest rate on indexed mortgage loans ‘Banks and HFF’” from 1 January 2004 to 1 July 2014. The graph shows that the interest rate of “banks” was higher than the “mortgage rate of HFF” between spring 2006 and spring 2011. Figure 5, which is also a graph, shows the “interest rate margin on mortgages loans based on HFF44 bond yield, %” from 1 January 2004 to 1 July 2014. This graph shows that between late spring 2006 and late spring 2011 the “banks margin” was higher than the HFF’s margin although the two margins were virtually identical at two points in late spring and early summer 2010. No evidence has been submitted indicating the bank or banks referred to in the graphs.

89 Annex 23 to the Application which is an “Overview of Financial Accounts of Financial Institutions for 2013” published by the Icelandic Financial Supervisory Authority notes that, as of 31 December 2013, there were four commercial banks and eight savings banks operating in Iceland: (commercial banks) Arion banki hf., Íslandsbanki hf., Landsbankinn hf., MP banki hf.; (savings banks) AFL sparisjóður ses., Sparisjóður Bolungarvíkur, Sparisjóður Höfðhverfinga, Sparisjóður Norðfjarðar, Sparisjóður Norðurlands, Sparisjóður Strandamanna, Sparisjóður Suður-Þingeyinga and Sparisjóður Vestmannaeyja.

90 IFSA has provided the Court also with a list of its Members as of 18 June 2015, printed from its website, as Annex 2 to its Reply, and with a detailed list from the Icelandic Financial Supervisory Authority of “supervised entities” dated 28 May 2015, as Annex 3 to its Reply. Annex 3 lists the commercial banks supervised by the Icelandic Financial Supervisory Authority as Landsbankinn hf., ÍslandsbankiPage
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hf., Arion banki hf., and MP banki hf. The savings banks listed are: AFL – sparisjóður ses., Sparisjóður Austurlands hf., Sparisjóður Höfðhverfinga ses., Sparisjóður Norðurlands ses., Sparisjóður Strandamanna ses., and Sparisjóður Suður-Þingeyinga ses.

91 However, IFSA has failed to provide the Court with evidence of which of its members were allegedly deprived of the chance “to earn risk-adequate margins” at the material times alleged between spring 2006 and spring 2011.

92 Moreover, during the 2008 financial crisis, Kaupþing, Glitnir and Landsbanki, the three largest banks in Iceland, collapsed with their assets being transferred to newly established banks: Arion banki hf., Íslandsbanki hf., and Landsbankinn hf. respectively (see Cases E-16/11 ESA v Iceland (“Icesave”) [2013] EFTA Ct. Rep. 4, paragraphs 38 and 211; and E-18/11 Irish Bank Resolution Corporation Ltd v Kaupþing hf [2012] EFTA Ct. Rep. 592). As confirmed by IFSA’s attorney at the hearing, Kaupþing, Glitnir and Landsbanki could therefore no longer be members of IFSA. Nevertheless, in its Reply, IFSA submitted that Arion banki hf., Íslandsbanki hf., and Landsbankinn hf. “provid[e] jointly approx. 99% of all mortgage loans within the commercial banks [and] have been active on the market for mortgage loans for many years”. This renders IFSA’s submissions concerning admissibility inconsistent and unclear.

93 The main body of evidence to which IFSA refers, relating to the period between spring 2006 and spring 2011, pre-dates ESA’s 2011 Decision. The 2011 Decision laid down a deadline of 1 January 2012 for the Icelandic authorities to take the recommended legislative, administrative and other relevant actions. An annulment of the contested decision would require ESA to reconsider whether Iceland’s substantive amendments of the aid scheme, or the introduction of procedural requirements, or the abolition of the aid scheme satisfy the requirements of the appropriate measures proposed by ESA in its ArticlePage
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18 decision – here the 2011 Decision, taking into account any additional relevant facts that may have occurred and impacted upon the relevant market following the deadline in the Article 18 decision, including whether it is appropriate to propose other appropriate measures for the future or to initiate the formal investigation procedure under Article 19(2) of Part II of Protocol 3 SCA (see paragraph 75 above, and compare, to that effect, TF1 v Commission, cited above, paragraphs 72 and 91).

94 Therefore, irrespective of the source of the data displayed in figures 4 and 5, as well as its reliability, and the insufficient clarity of the applicant’s submissions and evidence as to which of its members it seeks to represent, which are alternatively described as “banks”, “commercial banks”, defined in the application as comprising both “commercial banks and savings banks”, and “commercial and savings banks”, as well as the manifestly inadequate information provided as to the applicant’s membership, the present action is devoid of purpose in so far as it relates to the situation prior to the deadline in the 2011 Decision.

95 As regards the circumstances subsequent to the deadline in the 2011 Decision, IFSA may claim to be individually concerned, on behalf of its members, within the meaning of the second paragraph of Article 36 SCA only if the decision affects them by reason of certain attributes that are peculiar to them or if they are differentiated by circumstances from all other persons and those circumstances distinguish them individually just as the person addressed by the decision (see paragraph 80 above).

96 In State aid law, an applicant who challenges the merits of a decision appraising aid taken on the basis of Article 1(3) of Part I of Protocol 3 SCA or at the end of the formal investigation procedure is considered to be individually concerned by that decision if its market position is substantially affected by the aid, or, as in the present circumstances, in the context of a challenge to an Article 19(1) decision, by the existingPage
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aid following implementation of the appropriate measures, to which the contested decision relates (compare Konkurrenten v ESA, cited above, paragraph 95 and case law cited).

97 Accordingly, IFSA must demonstrate that its members’ positions on the market are substantially affected. That the decision at issue may have some influence on competitive relationships on the relevant market and that the undertaking concerned is in some sort of competitive relationship with the beneficiary of the decision cannot suffice for that undertaking to be regarded as individually concerned by that measure. Therefore, an undertaking cannot rely solely on its status as a competitor of the undertaking in receipt of aid but must additionally show that its circumstances distinguish it in a similar way to the undertaking in receipt of the aid (see Konkurrenten v ESA, cited above, paragraph 96 and case law cited).

98 However, the mere fact that the contested decision may have some impact on the competitive relationships existing on the relevant market and that IFSA’s members were in a competitive relationship with the HFF does not mean that the applicant’s members’ competitive position is substantially affected. IFSA must also demonstrate the extent of the detriment to its members’ market position (see Konkurrenten v ESA, cited above, paragraph 99 and case law cited). However, demonstrating a substantial adverse effect on its members’ position on the market cannot simply be a matter of the existence of certain factors indicating a decline in its members’ commercial or financial performance, but may be made by demonstrating the loss of an opportunity to make a profit or a less favourable development than would have been the case without such aid, or, in the context of Article 19(1) of Part II of Protocol 3 SCA, such existing aid following implementation of the appropriate measures, to which the contested decision relates (compare Konkurrenten v ESA, cited above, paragraph 100 and case law cited).

99 InPage
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that regard, IFSA submits in its Application that housing loans “create a long standing relationship with the customer and may be used as a tool to combine them with additional banking services to that respective customer including savings accounts, consumer loans, asset management, etc. Furthermore, mortgage loans constitute the most secure loans in a financial institution’s loan portfolio. The HFF securing a major part of this business leads the commercial banks into engaging in more risky commercial loans, resulting in a lower rating and higher cost for re-financing” (see also paragraph 87 above). In its Reply, IFSA elaborates substantially as to why the “commercial banks lost and are still losing opportunities to make profits and increase their activities in the market for mortgage loans in Iceland”.

100 On the basis of the findings in paragraph 93 above, it is only necessary to consider the evidence relating to the period following the expiry of the deadline in the 2011 Decision. On that basis, it can be seen from the table provided at paragraph 15 of the Reply that the “banks and sav. Banks” have increased their percentage shares of “outstanding mortgage credit by issuers” annually, from approximately 24% in 2011 to approximately 38% in 2014, while the HFF’s percentage share has declined annually from its peak in 2011 of approximately 60% to approximately 49% in 2014. Moreover, the graphs discussed at paragraph 88 above illustrate that, from spring 2011 to 1 July 2014, the “commercial banks’” mortgage rates were lower, i.e. cheaper for the consumer, than those of the HFF. Similarly, figure 5 illustrates that from late spring 2011 onwards until 1 July 2014 the “banks’” interest rate margins “on mortgages loans based on HFF44 bond yield” were lower than the HFF’s margin.

101 Without it being necessary to make any further assessment on this point, it follows from all of the foregoing, in particular the inconsistent and unclear information provided by IFSA, that IFSA has not established that its members’ market position was substantiallyPage
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affected by the existing aid following the implementation of the appropriate measures, which is the subject of the contested decision. Consequently, IFSA, on behalf of its members, lacks standing to challenge the contested decision pursuant to the second paragraph of Article 36 SCA.

102 In relation to the second possibility in which an association may be granted standing detailed in paragraph 84 above, IFSA submits that it played a proactive role throughout the entire administrative proceedings before ESA and notes that the contested decision states that it provided “extensive comments on the proposed Icelandic measures, notably on 11 November 2011, 1 June 2012 and 27 May 2013”.

103 In its Reply, IFSA adds that it has also played a significant role in the ongoing legislative processes in Iceland relating to the reform of the HFF and that its role as an originator of the complaint leading to the opening of the formal examination procedure as well as its subsequent active role throughout the proceedings are relevant for the determination of its locus standi.

104 In assessing an applicant’s locus standi it is, of course, relevant to take into account the role it has played before ESA during the existing aid scheme procedure (compare Konkurrenten v ESA, cited above, paragraphs 97 and 98 and case law cited). In the present case, IFSA submitted comments on the 2011 Decision on 11 November 2011, supplying further information at ESA’s request on 10 February 2012, participating in two meetings with ESA on 5 June 2012 and 27 April 2013, and submitting further updated information on 27 May 2013. It is clear that IFSA played a significant, active role in the administrative proceedings in this case.

105 However, its role in the administrative proceedings was that of a concerned third party that sought to further the commercial interests of constituent members on the Icelandic mortgage loans market.Page
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Thus, IFSA’s position was not comparable to that of one of the applicants, the Landbouwschap, in Van der Kooy and Others v Commission, 67/85, 68/85 and 70/85, EU:C:1988:38, which had negotiated with the supplier of gas the preferential tariff challenged by the Commission and was also one of the signatories to the agreement establishing that tariff which had been obliged also to engage in new tariff negotiations with the supplier and to sign a new agreement in order to put into effect the Commission’s decision (compare 3F v Commission, cited above, paragraph 85).

106 Nor did IFSA occupy a clearly circumscribed position as negotiator which was intimately linked to the actual subject-matter of the decision, thus placing it in a factual situation which distinguished it from all other persons (compare the judgment in Comité d’entreprise de la Société française de production and Others, C106/98 P, EU:C:2000:277, paragraph 45).

107 Consequently, IFSA cannot prove an interest of its own, namely, that its position as a negotiator has been affected by the contested decision in altogether special or indeed exceptional circumstances (see paragraph 83 above).

108 Finally, as regards the third possibility in which an association may be granted standing detailed in paragraph 84 above, there is, in the present case, no legal provision that expressly confers on professional associations a series of procedural powers.

109 Consequently, it must be held that the action brought against the contested decision is inadmissible.

V Costs

110 Under Article 66(2) RoP, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party’s pleadings. Since the defendant has requested that the applicant be orderedPage
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to pay the costs and the latter has been unsuccessful, it must be ordered to pay its costs and those of the defendant. The intervener shall bear its own costs. The costs incurred by the Commission are not recoverable.

On those grounds,

The Court

Hereby orders:

1. The application is dismissed as inadmissible;

2. Icelandic Financial Services Association is to bear its own costs and the costs incurred by the EFTA Surveillance Authority;

3. The Government of Iceland is to bear its own costs.

Carl Baudenbacher

Per Christiansen

Páll Hreinsson

Luxembourg,
31 March 2016.

Gunnar Selvik
Registrar

Carl Baudenbacher
President

OrderPage
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of the President

13 July 2015

(Intervention – Application by the Government of Iceland)

In Case E-4/15,

Icelandic Financial Services Association, represented by Dr Hans-Jörg Niemeyer, Rechtsanwalt, Brussels, Belgium, and Dr Christian Kovács, Rechtsanwalt, Brussels, Belgium, acting as Counsel,

— applicant,

V

EFTA Surveillance Authority, represented by Xavier Lewis, Director, Clémence Perrin and Maria Moustakali, Officers, and subsequently by Markus Schneider, Acting Director, Clémence Perrin and Maria Moustakali, Officers, Department of Legal & Executive Affairs, acting as Agents,

— defendant,

APPLICATION seeking the annulment of EFTA Surveillance Authority (“ESA”) Decision No 298/14/COL of 16 July 2014 (notified: OJ 2014 C 400, p. 13) to close the case concerning existing aid to the Icelandic Housing Financing Fund (Íbtrðahnasjóður) (“HFF”),

ThePage
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President

makes the following

Order

I Main proceedings

1 The applicant, Icelandic Financial Services Association (“IFSA” or “SFF”), is an association governed by Icelandic law which represents all registered financial undertakings in Iceland. These include universal, investment and savings banks as well as insurance, leasing, securities and card companies.

2 For the past 60 years, public intervention in the Icelandic housing market has been aimed at encouraging private home ownership. In 1955, a basis for a systematic State involvement, both as regards policy making in the field of housing affairs and the provision of loans for private housing, was laid. The State Housing Agency (Húsnæðisstofnun ríkisins) was established by Act No 51/1980 and provided, inter alia, loans to the general public of Iceland, thereby fostering private home ownership.

3 The Act on Housing Affairs No 44/1998 (the “Housing Act”) entered into force on 1 January 1999 and established the Housing Financing Fund (“HFF”) (Íbúðalánasjóður). It took over all assets and obligations of the State Housing Agency, including the tasks of issuing housing bonds and providing housing loans through a bond-swap system. The HFF is an independent State-owned institution.

4 The Housing Act was amended by Act No 57/2004, which entered into force on 1 July 2004. A number of changes were made to the housing loan system but the general purpose and structure of the system remained the same.

5 HFF’sPage
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activities have been scrutinised by ESA on six separate occasions in the years 2004 to 2012.

6 On 11 August 2004, by Decision No 213/04/COL (notified: OJ 2005 C 112, p. 8; EEA Supplement 2005 No 23, p. 3) (“2004 Decision”), ESA declared the HFF’s house financing mechanisms compatible with the EEA Agreement. At the time of the 2004 Decision the HFF provided three categories of loans. First, it provided general loans to individuals for the purchase, renovation or construction of residential housing. Second, the HFF provided supplementary loans awarded to individuals with low income and limited assets upon referral from the housing committee of a municipality. Finally, the HFF provided loans for rental housing to municipalities, associations and companies for the construction or purchase of residential housing for rent. The supplementary loans were later abolished by Act No 120/2004, which entered into force on 3 December 2004 (see Case E-9/04 The Bankers’ and Securities Dealers’ Association of Iceland v ESA [2006] EFTA Ct. Rep. 42, paragraph 8).

7 On 7 April 2006, following an application by the Bankers’ and Securities’ Dealers Association, the predecessor of IFSA, the 2004 Decision was annulled by the EFTA Court in Case E-9/04 The Bankers’ and Securities Dealers’ Association of Iceland v ESA, cited above.

8 On 21 June 2006, in response to the Court’s judgment in Case E-9/04, by Decision No 185/06/COL (OJ 2006 C 314, p. 90; EEA Supplement 2006 No 63, p. 3), ESA decided to initiate a formal investigation into HFF, considering the aid scheme to be new aid.

9 On 28 February 2007, HFF submitted comments on ESA Decision No 185/06/COL.

10 On 27 June 2008, by Decision No 405/08/COL (OJ 2010 L 79, p. 40; EEA Supplement 2010 No 14, p. 20), ESA decided to close the formal investigation procedure applicable to new aid. On the same day, ESA openedPage
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new proceedings under Article 1(1) of Part I and Articles 17 to 19 of Part II of Protocol 3 to the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice (“SCA”) regarding existing aid. Following this reconsideration, also on 27 June 2008, ESA sent a letter to the Icelandic Government pursuant to Article 17(2) of Part II of Protocol 3 SCA.

11 On 1 September 2008, IFSA submitted comments on ESA’s letter of 27 June 2008.

12 On 8 September 2008, the Icelandic Government replied to ESA’s letter of 27 June 2008.

13 On 18 July 2011, by Decision No 247/11/COL (“the 2011 Decision”), ESA decided that the HFF scheme in the form of state guarantee, income tax exemption, interest support and lack of adequate rate of return/lack of dividend payments constituted existing aid incompatible with the EEA Agreement, and proposed appropriate measures for the financing of the HFF.

14 On 6 October 2011, the Icelandic Government replied, stating that it was willing to accept ESA’s proposal for appropriate measures.

15 On 11 November 2011, IFSA submitted comments on the 2011 Decision, maintaining the position that the response of the Icelandic Government did not constitute proper acceptance of that Decision.

16 On 10 February 2012, ESA requested further information from IFSA regarding its previous submissions.

17 On 1 June 2012, IFSA replied and supplied further information.

18 On 5 June 2012 and 27 April 2013, IFSA participated in two meetings with ESA.

19 OnPage
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27 May 2013, IFSA submitted further updated information regarding the Icelandic banking sector and the problems faced by HFF.

20 On 16 July 2014, by Decision No 298/14/COL (“the Contested Decision”), ESA recorded Iceland’s acceptance of the appropriate measures proposed in the 2011 Decision and noted further commitments entered into by Iceland. ESA then closed the case concerning the review of existing aid to HFF. The contested decision was notified in the Official Journal of the European Union on 13 November 2014.

21 By an application lodged at the Court on 28 January 2015, IFSA brought an action under the second paragraph of Article 36 SCA seeking the annulment of ESA Decision No 298/14/COL of 16 July 2014, in which ESA declared the housing financing mechanisms provided for by the Icelandic authorities in favour of HFF to be compatible with State aid rules in accordance with the requirements of Article 59(2) EEA. IFSA challenges the contested decision by three main pleas. It contends that the support for HFF must be qualified as new aid, that the contested decision is insufficiently reasoned and that the notion of “services of general economic interest” specified in Article 59(2) EEA has been incorrectly interpreted.

22 On 26 February 2015, ESA requested an extension of the period in which to submit its defence. That request was granted by the President on 27 February 2015 pursuant to Article 35(2) of the Court’s Rules of Procedure (“RoP”), setting a time limit for the submission of a defence of 27 April 2015.

23 In its defence, lodged at the Court’s Registry on 27 April 2015, ESA submits that the Court should dismiss the application or, in the alternative, declare the application inadmissible in whole or in part, and order the applicant to pay the costs.

24 OnPage
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8 May 2015, IFSA requested an extension of the period in which to submit its reply. That request was granted by the President on 11 May 2015 pursuant to Article 78 RoP, setting a time limit for the submission of a reply of 19 June 2015.

25 On 19 June 2015, IFSA’s reply was received at the Court Registry.

26 On 3 July 2015, the Court Registry received written observations from the European Commission.

II Application to intervene

27 By a document lodged at the Court’s Registry on 10 June 2015, the Government of Iceland seeks leave to intervene pursuant to Article 36 SCA in support of the form of order sought by ESA. The application to intervene was served on the parties in accordance with Article 89(2) RoP.

28 In written observations on the application to intervene, lodged at the Court’s Registry on 25 June 2015, ESA asserts that the Government of Iceland’s application was timely and is admissible under the first paragraph of Article 36 of the Court’s Statute.

29 ESA submits that, although the Government of Iceland is not required to show any specific interest under the first paragraph of Article 36 of the Court’s Statute, the fact that the Government of Iceland has been supporting private home ownership through public intervention means that the outcome of the application for annulment is of significant importance to the applicant intervener.

30 ESA contends that the facts of this case are complex and, as the addressee of the contested decision, the Government of Iceland should be in a position to assist the Court in understanding the relevance of those facts for the proceedings.

31 ESAPage
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further notes that the Government of Iceland was granted leave to intervene in support of ESA in Case E-9/04 The Bankers’ and Securities Dealers’ Association of Iceland v ESA, cited above, brought by the predecessor of the applicant and concerning an earlier ESA decision regarding the Icelandic Housing Financing Fund.

32 By a document lodged at the Court’s Registry on 26 June 2015, IFSA stated that it takes notice of the Government of Iceland’s application to intervene. IFSA further requested, pursuant to Article 89(3) RoP, that the EFTA Court grant it ample time to omit secret and confidential information from the application and the reply.

III Law

33 Pursuant to the first paragraph of Article 36 of the Court’s Statute, any EFTA State, ESA, the European Union and the Commission may intervene in cases before the Court.

34 Article 89(1) RoP provides that an application to intervene must be made within six weeks of the publication of the notice referred to in Article 14(6) RoP. Notice of the action was given, pursuant to Article 14(6) RoP, in the EEA Section of the Official Journal of the European Union on 30 April 2015. Accordingly, the time limit for submission of an application to intervene was 11 June 2015.

35 The present application to intervene was lodged at the Court’s Registry on 10 June 2015, and is therefore timely.

36 In light of the above, Iceland is granted leave to intervene in the case in support of the form of order sought by ESA.

OnPage
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those grounds,

The President

Hereby orders:

1. Iceland is granted leave to intervene in Case E-4/15 in support of the form of order sought by ESA and shall receive a copy of every document served on the parties subject to any decision of the President following an application by one of the parties to omit secret or confidential information.

2. Costs are reserved.

Luxembourg,
13 July 2015.

Gunnar Selvik
Registrar

Carl Baudenbacher
President

ReportPage
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for the Hearing

in Case E-4/15

APPLICATION to the Court pursuant to Article 36 of the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice in the case between

Icelandic Financial Services Association

and

EFTA Surveillance Authority,

supported by the Government of Iceland,

seeking the annulment of EFTA Surveillance Authority Decision No 298/14/COL of 16 July 2014, notified in OJ 2014 C 400, p. 13, (the “contested decision”), to close the case concerning existing aid to the Icelandic Housing Financing Fund (Íbuðalánasjóður).

I Introduction

1 This case concerns Decision No 298/14/COL of the EFTA Surveillance Authority (“ESA”) of 16 July 2014. The contested decision records Iceland’s acceptance of the appropriate measures proposed, pursuant to Article 18 of Part II of Protocol 3 of the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice (“SCA”), by ESA in its Decision of 18 July 2011 and that the case concerning existing aid to the Icelandic Housing Financing Fund (“HFF”) was therefore closed.

2 The applicant, Icelandic Financial Services Association (Samtök fjármálafyrirtækja, or “IFSA”), contends that ESA wrongly qualified thePage
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support granted to HFF as existing aid and that it should have been qualified as new aid; that ESA failed to provide adequate reasons as regards the existence of a service of general economic interest (“SGEI”); and that ESA made an error of assessment as regards the existence of an SGEI, the presence of a market failure, the proportionality of the aid, and the effect of the aid on trade within the EEA.

II Legal background

EEA law

3 Article 59 EEA reads:

(1) In the case of public undertakings and undertakings to which EC Member States or EFTA States grant special or exclusive rights, the Contracting Parties shall ensure that there is neither enacted nor maintained in force any measure contrary to the rules contained in this Agreement, in particular to those rules provided for in Articles 4 and 53 to 63.

(2) Undertakings entrusted with the operation of services of general economic interest or having the character of a revenue-producing monopoly shall be subject to the rules contained in this Agreement, in particular to the rules on competition, in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them. The development of trade must not be affected to such an extent as would be contrary to the interests of the Contracting Parties.

4 ArticlePage
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61(1) EEA reads:

Save as otherwise provided in this Agreement, any aid granted by EC Member States, EFTA States or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Contracting Parties, be incompatible with the functioning of this Agreement.

5 Article 62(1) EEA reads:

All existing systems of State aid in the territory of the Contracting Parties, as well as any plans to grant or alter State aid, shall be subject to constant review as to their compatibility with Article 61. …

6 Article 16 SCA reads:

Decisions of the EFTA Surveillance Authority shall state the reasons on which they are based.

7 Article 36 SCA reads:

The EFTA Court shall have jurisdiction in actions brought by an EFTA State against a decision of the EFTA Surveillance Authority on grounds of lack of competence, infringement of an essential procedural requirement, or infringement of this Agreement, of the EEA Agreement or of any rule of law relating to their application, or misuse of powers.

Any natural or legal person may, under the same conditions, institute proceedings before the EFTA Court against a decision of the EFTA Surveillance Authority addressed to that person or against a decision addressed to another person, if it is of direct and individual concern to the former.

8 ArticlePage
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1(1) of Part I of Protocol 3 SCA reads:

The EFTA Surveillance Authority shall, in cooperation with the EFTA States, keep under constant review all systems of aid existing in those States. It shall propose to the latter any appropriate measures required by the progressive development or by the functioning of the EEA Agreement.

9 Article 18 of Part II of Protocol 3 SCA reads:

Where the EFTA Surveillance Authority, in the light of the information submitted by the EFTA State pursuant to Article 17 of this Chapter, concludes that the existing aid scheme is not, or is not longer, compatible with the functioning of the EEA Agreement, it shall issue a recommendation proposing appropriate measures to the EFTA State concerned. The recommendations may propose, in particular

(a) substantive amendments of the aid scheme,

or

(b) introduction of procedural requirements,

or

(c) abolition of the aid scheme.

10 Article 19(1) of Part II of Protocol 3 SCA reads:

Where the EFTA State concerned accepts the proposed measures and informs the EFTA Surveillance Authority thereof, the EFTA Surveillance Authority shall record that finding and inform the EFTA State thereof. The EFTA State shall be bound by its acceptance to implement the appropriate measures.

III FactualPage
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background and pre-litigation procedure

11 The applicant is an association, governed by Icelandic law, that represents all registered financial undertakings in Iceland including universal, investment, and savings banks, as well as insurance, leasing, securities, and credit card companies.

12 In 1955 the Icelandic State began to provide loans for private housing. The State Housing Agency (Húsnæðisstofnun ríkisins) was established by Act No 51/1980 and provided, inter alia, loans to the general public of Iceland, intended to foster private home ownership. The Act on Housing Affairs No 44/1998 (the “Housing Act”) entered into force on 1 January 1999 and established the HFF. It took over all assets and obligations of the State Housing Agency, including the tasks of issuing housing bonds and providing housing loans through a bond-swap system. The HFF is an independent State-owned institution. The Housing Act was amended by Act No 57/2004, which entered into force on 1 July 2004. A number of changes were made to the housing loan system but the general purpose and structure of the system remained the same.

13 The HFF’s activities have been scrutinised by ESA on six separate occasions in the years 2004 to 2012.

14 On 11 August 2004, by Decision No 213/04/COL (the “2004 Decision”), ESA declared the HFF’s house financing mechanisms compatible with the EEA Agreement. At the time of the 2004 Decision the HFF provided three categories of loans. First, it provided general loans to individuals for the purchase, renovation or construction of residential housing. Second, the HFF provided supplementary loans awarded, upon referral from the housing committee of a municipality, to individuals with a low income and limited assets. Finally, the HFF provided loans for rental housing to municipalities, associations, and companies for the construction or purchase of residential housing for rent. The supplementary loans werePage
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later abolished by Act No 120/2004, which entered into force on 3 December 2004.

15 On 7 April 2006, following an application by the Bankers’ and Securities Dealers’ Association, the predecessor of IFSA, the 2004 Decision was annulled by the EFTA Court in Case E-9/04 The Bankers’ and Securities Dealers’ Association of Iceland v ESA [2006] EFTA Ct. Rep. 42. On 21 June 2006, in response to the Court’s judgment in Case E-9/04, by Decision No 185/06/COL (the “2006 Decision”), ESA decided to initiate a formal investigation into the HFF, considering the aid scheme to be new aid. On 28 February 2007, the HFF submitted comments on ESA’s 2006 Decision.

16 On 27 June 2008, by Decision No 405/08/COL (the “2008 Decision”), ESA decided to close the formal investigation procedure applicable to new aid. On the same day, ESA opened new proceedings under Article 1(1) of Part I and Articles 17 to 19 of Part II of Protocol 3 SCA and sent Iceland a letter pursuant to Article 17(2) of Part II of Protocol 3 SCA.

17 On 1 September 2008, IFSA submitted comments on ESA’s letter of 27 June 2008. On 8 September 2008, the Icelandic Government replied to ESA’s letter of 27 June 2008.

18 On 18 July 2011, by Decision No 247/11/COL (the “2011 Decision”), ESA decided that the HFF scheme was incompatible with the EEA Agreement, and proposed appropriate measures for the financing of the HFF. On 6 October 2011, the Icelandic Government replied, stating that it was willing to accept ESA’s proposal for appropriate measures. On 11 November 2011, IFSA submitted comments on the 2011 Decision, maintaining the position that the response of the Icelandic Government did not constitute proper acceptance of that Decision.

19 On 10 February 2012, ESA requested further information from IFSA. On 1 June 2012, IFSA replied and supplied further information. On 5Page
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 June 2012 and 27 April 2013, IFSA participated in two meetings with ESA. On 18 June 2012, the Housing Act was amended by Act No 84/2012, which entered into force on 5 July 2012. In particular, the Act limited the grant of loans to finance the purchase, construction or renovation of residential housing to individuals, increased the maximum allowed loan amount to ISK 24 million and the minimum loan-to-value ratio to 60%, introduced a review system in order to annually assess whether, and, if so, to what extent, a market failure still exists, limited loans in the field of rental housing, and made the operation of the HFF subject to accounting and supervision rules similar to financial undertakings.

20 On 27 May 2013, IFSA submitted further updated information regarding the Icelandic banking sector and the problems faced by the HFF.

IV The contested decision

21 On 16 July 2014, ESA adopted Decision No 298/14/COL. ESA recorded, pursuant to Article 19(1) of Part II of Protocol 3 SCA, Iceland’s acceptance of the appropriate measures proposed in the 2011 Decision on the financing of the HFF, noted further commitments entered into by Iceland, and closed the case concerning the review of existing aid to the HFF. The contested decision was notified in the Official Journal of the European Union on 13 November 2014.

V Procedure and forms of order sought by the parties

22 On 28 January 2015, IFSA lodged an application pursuant to the second paragraph of Article 36 SCA seeking the annulment of ESA Decision No 289/14/COL of 16 July 2014 closing the case concerning existing aid to the HFF.

23 ThePage
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Applicant requests the Court to:

(i) annul the EFTA Surveillance Authority’s decision 298/14/COL of 16 July 2014 (OJ 2014 of 13 November 2014, No C 400, p. 13) to close the case concerning existing aid to the Icelandic Housing Financing Fund (Íbuðalánasjóður), and

(ii) order the EFTA Surveillance Authority to bear the costs of the proceedings.

24 On 26 February 2015, ESA requested an extension of the deadline to lodge a defence. On 27 February 2015, the President, pursuant to Article 35(2) of the Rules of Procedure (“RoP”), granted ESA’s request and set the deadline for the defence to 27 April 2015.

25 On 27 April 2015, ESA submitted its defence, pursuant to Article 35 RoP. The defendant, the EFTA Surveillance Authority, requests the Court to:

(i) dismiss the application, or, in the alternative, declare the application inadmissible in whole or in part;

(ii) order the applicant to bear the costs.

26 On 8 May 2015, IFSA requested an extension of the deadline to lodge a reply to the defence. On 11 May 2015, the President, pursuant to Article 78 RoP, granted IFSA’s request and set the deadline for the reply to 19 June 2015.

27 On 10 June 2015, the Government of Iceland sought leave to intervene, pursuant to Article 36(1) of the Statute and Article 89 RoP, in support of the form of order sought by ESA. On 19 June 2015, IFSA submitted its reply. On 25 and 26 June 2015, ESA and IFSA, respectively, lodged their written observations on the application to intervene.

28 On 3 July 2015, the European Commission (“Commission”) submitted written observations. On 8 July 2015, ESA requested an extension of thePage
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deadline to submit its rejoinder. On 9 July 2015, the President, pursuant to Article 78 RoP, granted an extension until 17 August 2015. On 13 July 2015, the President by order, pursuant to Article 89(3) RoP, granted the Government of Iceland leave to intervene.

29 On 4 August 2015, the Government of Iceland requested an extension of the deadline to submit its statement in intervention. On 5 August 2015, the President, pursuant to Article 78 RoP, granted an extension until 1 September 2015. On 17 August 2015, ESA submitted its rejoinder.

30 On 1 September 2015, the Government of Iceland lodged its statement in intervention at the Court’s Registry.

31 The intervener, the Government of Iceland, requests the Court to:

(i) dismiss the application, or, in the alternative, declare the application inadmissible in whole or in part,

(ii) order the applicant to bear the costs of the intervener.

32 On 8 September 2015, IFSA requested an extension of the deadline to submit its comments on the statement in intervention. On 9 September 2015, the President, pursuant to Article 78 RoP, granted an extension until 25 September 2015. On 9 September 2015, ESA requested an extension of the deadline to submit comments on Iceland’s statement in intervention. On 10 September 2015, the President, pursuant to Article 78 RoP, granted an extension until 25 September 2015. On 25 September 2015, both IFSA and ESA submitted comments on the statement in intervention.

VI Written observations

33 Pleadings have been received from:

thePage
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applicant, represented by Dr Hans-Jörg Niemeyer, Rechtsanwalt, and Dr Christian Kovács, Rechtsanwalt;

the defendant, represented by Xavier Lewis, Director, Maria Moustakali and Clémence Perrin, Officers, subsequently by Markus Schneider, Deputy Director, Maria Moustakali and Clémence Perrin, Officers, Department of Legal & Executive Affairs, acting as Agents, and subsequently by Carsten Zatschler, Director, Markus Schneider, Deputy Director, Maria Moustakali, and Clémence Perrin, Senior Officers, Department of Legal & Executive Affairs, acting as Agents;

the intervener, represented by Ambassador Kristján Andri Stefánsson, Director General at the Ministry for Foreign Affairs, acting as Agent, Supreme Court Attorney Jóhannes Karl Sveinsson, acting as Counsel, and District Court Attorney Bjarnveig Eiríksdóttir, acting as Co-Counsel.

34 Pursuant to Article 20 of the Statute of the Court, written observations have been received from:

the European Commission (the “Commission”), represented by Leo Flynn, Legal Adviser, and Lorna Armati and Paul-John Loewenthal, Members of its Legal Service, acting as Agents.

Icelandic Financial Services Association

Admissibility

35 IFSA submits that it has standing to challenge the contested decision pursuant to the second paragraph of Article 36 SCA, as the contested decision is of legally binding effect capable of affecting the interests of IFSA. Further, IFSA has locus standi as it is directly and individually concerned by the contested decision.

36 IFSAPage
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contends, first, that the contested decision entails binding legal effects by terminating a “decision making procedure” under Article 19(1) of Part II of Protocol 3 SCA. Iceland is be bound by its acceptance to implement the appropriate measures and neither ESA nor Iceland can release themselves from the content of the contested decision. As long as Iceland fulfils the measures agreed upon, ESA cannot adopt a further decision on the same subject matter.1

1 Reference is made to Case T-354/05 TF1 v Commission [2009] ECR II-471, paragraph 73 et seq., Case C-311/94 Ijssel Vliet Combinatie BV v Commission [1996] ECR I-5023, paragraph 41 et seq., and Case C-117/10 Commission v Council, judgment of 4 December 2013, reported electronically, paragraph 63.

37 Second, it notes that the standing of IFSA’s predecessor, the Bankers’ and Securities Dealers’ Association of Iceland, was recognised by the Court in Case E9/04, which, in substance, assessed the same aid scheme addressed by the contested decision.2

2 Reference is made to Case E-9/04 Bankers’ and Securities Dealers’ Association of Iceland v EFTA Surveillance Authority [2006] EFTA Ct. Rep. 42, paragraph 52.

38 In the alternative, IFSA maintains that it has standing in its own right as an association representing the interests of undertakings, which themselves have locus standi.3 According to Article 2 of its Articles of Association, IFSA is entitled to “promote the interests of companies providing financial services” and “to redound the competitiveness of the environment that Icelandic financial companies participate in” which includes the representation of the Icelandic financial institutions’ interests in proceedings before the Court. Moreover, IFSA played a proactive role throughout the administrative proceedings.

3 Reference is made to Case T-292/02 Confederazione nazionale del Servizi v Commission [2009] ECR II1659, paragraph 52 with further references, and Case E-4/97 Norwegian Bankers’ Association v EFTA Surveillance Authority [1998] EFTA Ct. Rep. 38, paragraph 27 et seq.

39 According to IFSA, the commercial banks would be entitled to bring an action for annulment individually, as they are directly and individuallyPage
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concerned by the contested decision. Individual concern may arise from the beneficiary’s important and substantial position on the relevant market and the fact that the State aid enables the beneficiary to sell its products in the EU at prices below competitors’ average prices.4 The commercial banks and the HFF are competitors on the housing loan market in Iceland, on which the HFF has a dominant market position that is explicitly recognised by ESA. Due to benefits from manifold aid measures, in particular the state guarantee ruling out the bankruptcy of the HFF, the company’s income tax exemption, the lack of a requirement for the HFF to pay dividends, and the interest support mechanism, the HFF’s refinancing costs are significantly reduced, enabling it to offer housing loans at a lower price than commercial banks. In its reply, IFSA submits that direct and individual concern must not only be inferred from factors such as a significant decline in turnover, appreciable financial losses or a significant reduction in market share following the grant of the aid in question, but could be established by other factors, such as the loss of an opportunity to make a profit or a less favourable development of a company’s market share than would have been the case without such aid.5

4 Reference is made to Case T-36/99 Lenzing AG v Commission [2004] ECR II-3597, paragraph 81 et seq., Case C-525/04 P Spain v Commission [2007] ECR I-9947, paragraph 37, and Case C487/06 P British Aggregates Association v Commission [2008] ECR I-10515, paragraph 53.

5 Reference is made to British Aggregates v Commission, cited above, paragraph 53, Spain v Commission, cited above, paragraph 34 et seq., and Case E19/13 Konkurrenten.no v EFTA Surveillance Authority, order of 20 March 2015, not yet reported, paragraph 100.

40 In its reply, IFSA submits that ESA oversimplifies the role of IFSA as the representative of its member institutions and its role in the proceedings.6 The locus standi of an association has to be assumed if the association’s membership accounts for a significant share in a tight market, which is significantly disturbed by the state measure in question.7Page
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Consequently, this principle is applicable a fortiori where IFSA’s members account for the overwhelming majority of the market share held by commercial banks in the market for mortgage loans for residential housing in Iceland.

6 Reference is made to paragraph 38 et seq. of the defence.

7 Reference is made to Case T-435/93 ASPEC and Others v Commission [1995] ECR II-1281, paragraph 64 et seq.

41 Moreover, IFSA emphasises that it has played not only a decisive role, at ESA’s express invitation, throughout the administrative proceedings; IFSA and its predecessor have assisted for over ten years. It has also played a significant role in the legislative processes relating to the reform of the HFF. IFSA maintains that its role as an originator of the complaint leading to the opening of the formal examination procedure as well as its subsequent active role throughout the proceedings are relevant.8

8 Reference is made to Konkurrenten.no v ESA, cited above, paragraph 97.

42 In IFSA’s view, commercial banks offer mortgage loans on the basis of regular market conditions, whereas the conditions offered by the HFF are distorted by State aid and the HFF has used its State funding to deliberately undercut the interest rates at market conditions between 2006 and 2011 by approximately 1%, even as far as operating at a loss. This led to a loss of business opportunities.9 The increase in the market share held by commercial banks since 2010 does not contradict these adverse effects. Rather, it demonstrates their ability to regain market shares lost during the financial crisis. Moreover, the requirement of a first priority collateral for maximum HFF funding automatically leaves commercial banks’ mortgage loans secured with second priority with higher borrowing costs and puts them at a further competitive disadvantage. The resulting dominance of the HFF becomes particularly apparent when it is compared to similarly structured housing funds in Scandinavia.

9 Reference is made to paragraph 188 et seq. of the application.

43 IFSAPage
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submits further that, contrary to ESA’s claim, the commercial banks are a limited class of traders identifiable prior to the adoption of the contested decision.10 While the three major banks, Íslandsbanki, Landbankinn, and Arion Bank, were restructured in the aftermath of the financial crisis, they remain identical to their predecessors as regards the provision of mortgage loans. In IFSA’s view, the question whether a group’s members can be identified at a given moment in time is in no way linked to the fact that the composition of a specific group of individual companies may have not remained stable for more than a decade. IFSA disagrees with ESA’s reading of Case C-132/12 P Stichting Woonpunt and Others as requiring the contested decision to mark a turning point entailing a “before and after” scenario. Instead, the conditions for the applicant must be “less favourable” than they would have been without the contested decision.11

10 Reference is made to Case C-132/12 P Stichting Woonpunt and Others v Commission, judgment of 27 February 2014, published electronically, paragraph 59 et seq., and Case C-133/12 P Stichting Woonlinie and Others v Commission, judgment of 27 February 2014, published electronically, paragraph 46 et seq.

11 Reference is made to Stichting Woonpunt and Others v Commission, cited above, paragraph 69.

44 In its comments on Iceland’s statement in intervention, IFSA contests Iceland’s allegation that the data it relies on were outdated. Whilst it accepts that commercial banks do not finance their mortgage operations through HFF bonds, those bonds are a benchmark in the bond market and a fairly stable ratio exists between HFF bond yields and yields on covered bonds making them a good reference value. It notes that the HFF alone has a market share of approximately 50% in the relevant market for mortgage loans and thus is automatically presumed to be dominant.12 IFSA contests Iceland’s allegation that the HFF is not and has never competedPage
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on price with commercial banks and maintains that, in any event, the HFF should have been able to cover its own costs by its funding activities, which it did not.

12 Reference is made to Case C62/86 AKZO Chemie BV v Commission [1991] ECR I-3359, paragraph 60.

Substance

First plea: support for the HFF must be qualified as new aid

45 IFSA contends that the HFF aid scheme should be qualified as new and not existing aid. ESA noted in its 2008 Decision that specific changes introduced by the 2004 amendments to the Housing Act led to an expansion of potential new beneficiaries of HFF mortgage loans but concluded that this alteration was not significant.13 In contrast, IFSA alleges that the raising of the ceiling for HFF funding from 70% to 90% of the appraised value of real estate was significant, as it allowed the HFF to access a completely new group of customers who were previously not able to enter the property market because of the cost of bridge financing for the amount in excess of 70%. In its view, such changes, which are severable from the initial measure, must be treated as new aid within the meaning of Article 1(c) of Part II of Protocol 3 SCA.14 This holds in particular for an increase in the number of potential beneficiaries under an existing aid scheme.15

13 Reference is made to page 28 of the 2008 Decision and Case T-35/99 Keller and Keller Meccanica v Commission [2002] ECR II-261, cited therein.

14 Reference is made to Joined Cases T-254/00, T-272/00 and T-277/00 Hotel Cipriani v Commission [2008] ECR II-3269, paragraphs 358 and 362, and Joined Cases T-195/01 and T-207/01 Gibraltar v Commission [2002] ECR II-2309, paragraph 111.

15 Reference is made to Case T-301/02 AEM v Commission [2009] ECR II-1757, paragraph 126, and Joined Cases T-227/01 to T-229/01, T-265/01, T-266/01 and T-270/01 Territorio Histórico de Álava [2009] ECR II-3029, paragraph 232 et seq.

SecondPage
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plea: Insufficient reasoning

46 By its second plea, IFSA alleges that ESA infringed essential procedural requirements by not providing adequate reasons as required by Article 16 SCA. A decision by ESA must disclose in a clear and unequivocal fashion the principal issues of law and fact upon which it is based, so that the reasoning which led ESA to its decision may be understood and that the Court is able to exercise its power of review.16

16 Reference is made to Case E-2/94 Scottish Salmon Growers Association v ESA [1994-1995] EFTA Ct. Rep. 59, paragraph 26.

47 IFSA submits that ESA’s reasoning does not satisfy those requirements, as the actual reasoning of the contested decision, which seeks to end a legal dispute spanning more than ten years, consists of a mere eight paragraphs.17 In addition, the modest reasoning fails to assess why the general loans system of the HFF has to be considered an SGEI (first branch) and why it must be regarded as proportionate (second branch).

17 Reference is made to paragraphs 16 to 24 of the contested decision.

48 In its reply, IFSA contests ESA’s argument that the contested decision has to be read in the light of the 2011 Decision. First, the 2011 Decision is largely critical of the HFF and its compatibility with State aid law, whereas the contested decision argues exactly the opposite. Against such a highly contradictory background, IFSA maintains that ESA was under an obligation to set out the facts and the legal considerations which had decisive importance in the context of the decision, identifying why ESA’s critical assessment in the 2011 Decision had changed. The reasoning has to be of sufficient detail as to allow IFSA to examine whether an infringement of its rightsPage
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has occurred.18 It notes that since 2011 the market itself and market shares have changed, the HFF had to be restructured and IFSA made three major submissions. Therefore, ESA was under a legal obligation to base the contested decision on the facts of the case and the law as it stood at the time of the decision.19 While EFTA States have a wide margin of appreciation in defining the scope of an SGEI, this scope is unrelated to ESA’s legal obligation to provide sufficient reasoning.

18 Reference is made to Joined Cases E-4/10, E-6/10 and E-7/10 Liechtenstein and Others v ESA [2011] EFTA Ct. Rep. 16, paragraph 173 and the case-law cited, and Case C367/95 P Commission v Sytraval and Brink’s France [1998] ECR I-1752, paragraph 63.

19 Reference is made to Case C-334/07 P Commission v Freistaat Sachsen [2008] ECR I-9465, paragraph 50 and the case-law cited.

First branch of the second plea: Insufficient reasoning on the classification as an SGEI

49 IFSA contends that ESA confines itself to the assertion that the Member State claiming the existence of an SGEI has a wide margin of discretion. Whereas in the 2011 Decision ESA expressly stated that the qualification of the HFF loan system as an SGEI was highly doubtful, the contested decision does not provide any justification why these doubts have been removed by Iceland’s acceptance of the appropriate measures.20

20 Reference is made to page 17 of the 2011 Decision.

50 IFSA submits that ESA simply assumed that there is an “alleged market failure”. Further, ESA provides no reasoning for its assertion that the amended maximum value cap “has the effect of excluding the higher price segment of the housing market”.21 Moreover, ESA simply adopts Iceland’s definition of an SGEI, assuming that the HFF’s objective as an SGEI is in “assisting an average citizen in financing his or her housing”.22 None of IFSA’s arguments on this issuePage
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have been addressed nor has ESA given any reasoning for sharing Iceland’s view. Furthermore, the contested decision lacks any assessment whether the changes to the HFF system meet the requirements set out in the 2011 Decision as it only lists the various amendments to the Housing Act, asserting that the measures suffice to restrict the HFF’s activities as required in the 2011 Decision. The question why the requirements for loans in the field of residential housing differ from those set out for rental housing is not addressed.23

21 Reference is made to paragraph 18 of the contested decision.

22 Reference is made to paragraph 19 of the contested decision.

23 In addition reference is made to Liechtenstein and Others v ESA, cited above, paragraph 173.

51 In its reply, IFSA challenges ESA’s allegation that it was bound by the Court’s analysis in Case E-9/04 The Bankers’ and Securities Dealers’ Association of Iceland v ESA with regard to the qualification of the HFF as an SGEI. The Court conducted merely a prima facie examination of the contested aid.24 The obligation on ESA flowing from that judgment was thus limited to a re-examination of the conditions for opening the formal investigations procedure. Moreover, in relation to ESA’s explanations in the defence concerning the introduction of the cost limitation, together with the absence of a size limitation, and the eligibility of certain rental housing projects, IFSA submits that reasoning cannot be introduced retroactively in the proceedings before the Court.25

24 Reference is made to Norwegian Bankers Association v ESA, cited above, paragraph 47.

25 Reference is made to Case 195/80 Michel v Commission [1981] ECR 2861, paragraph 21 et seq., and Case C-521/09 P Elf Aquitaine v Commission [2011] ECR I-8947, paragraph 149 and the case-law cited.

Second branch of the second plea: Insufficient reasoning on the proportionality of the aid scheme

52 IFSA submits that the contested decision does not assess whether the amount of compensation is limited to what is necessary. ESA merely confinesPage
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itself to a general remark that “the HFF operates efficiently and that there is no overcompensation”,26 in referring generally to the HFF’s business plan. Such a short explanation is insufficient, considering the doubts concerning proportionality raised in the 2011 Decision.27

26 Reference is made to paragraph 22 of the contested decision.

27 Reference is made to page 24 of the 2011 Decision.

53 Article 59(2) EEA requires the balancing of the two competing objectives: the performance of the SGEI on the one hand and the requirement to protect the interest of the Contracting Parties in open markets on the other. Such balancing calls for complex analyses and assessments.28 However, the contested decision lacks any definition of the relevant market and of what is meant by “manageable terms” and “average resident” within the SGEI’s objective of “assistance to the average resident of Iceland in buying a property on manageable terms while at the same time gradually withdrawing HFF lending in order not to hinder the entry of other mortgage providers into the market”.29 In its reply, IFSA submits that ESA attempts to correct the omission to provide adequate reasoning for the concepts of “manageable terms” and “average citizen” by providing an explanation retroactively.

28 Reference is made to Bankers’ and Securities Dealers’ Association of Iceland v ESA, cited above, paragraph 81.

29 Reference is made to paragraph 7 of the contested decision.

Third plea: Wrongful interpretation of the notion of an SGEI pursuant to Article 59(2) EEA

54 By its third plea, IFSA alleges that ESA wrongfully interpreted Article 59(2) EEA in assuming that the HFF’s general loans scheme constitutes an SGEI. First, the HFF’s general loans scheme is not restricted to social housing as required by the SGEI decision. Second, ESAPage
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was barred from applying Article 59(2) EEA since the Icelandic market for mortgage loans for residential housing has not suffered and does not suffer from market failure. Further, ESA failed to take account of the fact that the compensation of the HFF is disproportionate and has an adverse effect on trade between EEA Contracting Parties.

First branch of the third plea: no service of general economic interest

55 IFSA submits that the concept of SGEI in Article 59(2) EEA must be interpreted narrowly. However, ESA failed to apply such an interpretation.

56 According to IFSA, an authoritative interpretation of the term SGEI exists. Recital 11 of Commission Decision 2012/12/EU (the “SGEI Decision”) on State aid, rendered applicable by the EEA Joint Committee’s Decision No 66/2012 of 30 March 2012 amending Annex XV to the EEA, defines social housing as a social service for “disadvantaged citizens or socially less advantaged groups, who due to solvency constraints are unable to obtain housing at market conditions”. This interpretation is authoritative and has become binding for ESA and Iceland.30

30 In addition reference is made to Commission Decision of 3 July 2001 – Ireland, N 209/2001, OJ 2002 C 67, p. 33, paragraphs 2 and 3; Commission Decision of 15 December 2009 – The Netherlands, E 2/2005 and N 642/2009, OJ 2010 C 31, p. 6, paragraphs 54 et seq.; Commission Decision of 13 July 2009 – Hungary, N 358/2009, OJ 2009 C 174, p. 4, paragraph 42; and a letter of 5 July 2012 from the Commission to France (submitted as Annex 14).

57 IFSA submits that this binding interpretation with regard to social housing can be reconciled with the judgment in Case E-9/04 The Bankers’ and Securities Dealers’ Association of Iceland v ESA, in which the Court limited the scope of the HFF’s operations to the provision of housing finance that “goes beyond the normal economic interest ofPage
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operators in the financial sector”.31 The SGEI, for which the HFF may receive compensation, must therefore be limited to the financing of social housing within the meaning of the SGEI Decision. It is for ESA to ensure in this context that the measures adopted by Iceland do not “pursue other goals than those defined by Icelandic law or exceed what is necessary to achieve the defined goal”.32

31 Reference is made to Bankers’ and Securities Dealers’ Association of Iceland v ESA, cited above, paragraph 68.

32 Ibid, paragraph 76.

58 IFSA alleges that the HFF’s general loans scheme does not meet the required standard and that ESA committed a manifest error of assessment in qualifying the HFF as an SGEI.33 Prior to the contested decision, ESA consistently expressed serious doubts with regard to the qualification of the HFF’s general loans scheme as an SGEI.34

33 Reference is made to Case C-179/90 Merci Convenzionali Porto di Genova v Siderurgica Gabrielli [1991] ECR I-5889, paragraph 27, and Bankers’ and Securities Dealers’ Association of Iceland v ESA, cited above, paragraph 67.

34 Reference is made to ESA’s Article 17(2) letter of 27 June 2008, p. 11 et seq., ESA Decision No 69/11/COL of 16 March 2011 authorizing rescue aid to the HFF, p. 15, and the 2011 Decision, p. 17.

59 According to IFSA, the changes to the scheme introduced by Iceland by July 2014 are insufficient to alleviate the concerns raised concerning the qualification of the scheme as an SGEI. First, the maximum allowed loan amount of ISK 24 million as well as the maximum value cap of ISK 40 million must both be deemed excessive, as they imply that a total of 86.9% of all residential properties in Iceland are eligible for funding under the HFF’s general loans scheme. In rural areas, it covers between 98.8% to 100% of all residential properties and in the capital area over 80%. Such a scheme can hardly be qualified as having the effect of excluding the higher price segment of the housing market. Second, the ratio of residential property eligible for funding by HFF is, in reality, even higher, as the cost limitation on eligible dwellings is calculated on thePage
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basis of the taxation value of the respective property, which does not reveal the actual property value. The taxation value of a property effective from 1 December of a given year reflects the market price of a property discounted to the present value in February of that year and, thus, lags behind actual market developments. In rural areas, the value of a property is estimated based on factors such as the income from the property, building costs, age, and location. These estimations tend to be conservative and significantly lower than the actual market value. Third, the HFF’s general loans scheme is open to a much wider range of potential beneficiaries than the average resident of Iceland. Despite the EEA States’ margin of interpretation to define an SGEI, this must not be exercised arbitrarily to remove a particular sector from the application of the competition rules.35 The margin of appreciation has to stay within the limits of Article 59(2) EEA drawn by the SGEI Decision and its interpretation of the notion of social housing. However, ESA failed to scrutinise carefully the group of citizens that are eligible for HFF funding.

35 Reference is made to Case T-289/03 BUPA and Others v Commission [2008] ECR II-81, paragraph 168.

60 IFSA adds, moreover, that two major criticisms of the HFF’s general loans scheme36 have not been remedied by Iceland. First, it did not introduce changes to ensure compliance with the “one person, one property” rule set out by ESA, even though the Court expressly criticised the possibility to acquire HFF funded property for investment purposes.37 Existing exemptions under the “one person, one property” rule include the acquisition of residential property for children studying away from their parents’ home. As the studies are, by definition, of limited duration, the property funded by HFF will, at some point, be vacated and remain at the disposal of the acquirer forPage
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genuine investment purposes. In its reply, IFSA stresses that such an exemption is not needed since there are approximately 1 600 apartments in Reykjavik offered at special rental conditions and students are entitled to student loans, which include an amount for housing costs. Second, no specific qualifications relating to the group eligible under the HFF’s general loans scheme have been introduced, as the only restriction on an application for funding by HFF is residency in Iceland. Moreover, Iceland did not introduce any limitation on the size of the property eligible for funding by the HFF.38

36 Reference is made to ESA’s Article 17(2) letter of 27 June 2008, p. 11.

37 Reference is made to Bankers’ and Securities Dealers’ Association of Iceland v ESA, cited above, paragraph 78 et seq.

38 Reference is made to the 2011 Decision, p. 25, point 5, paragraph 1; Bankers’ and Securities Dealers’ Association of Iceland v ESA, cited above, paragraph 77, and Norwegian Bankers’ Association v ESA, cited above, paragraph 49.

61 IFSA contends that even if the substance of the changes to the HFF’s general loans scheme were sufficient to make it an SGEI, which is denied, the procedural implementation of these changes is inadequate. ESA provides no information on the deadline by which the appropriate measures will have to be implemented and on how it intends to verify the actual status of the implementation, which is in stark contrast to its decisional practice. Whereas Iceland has given a commitment that an independent institution such as Statistics Iceland will carry out a yearly review to assess the developments on the property market, no amendment has yet been made to the Housing Act to replace the biannual survey by an annual assessment. Further, Iceland’s commitment to entrust the National Audit Office with the task of carrying out regular cost analyses with regard to the HFF cannot be properly implemented, since such an assessment is the traditional domain of the Competition Authority and, in addition, the credibility and objectivity of the annual audits of the HFF would be at risk were the same body to be responsible for both these analyses and the audits.

62 InPage
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its reply, IFSA submits that it cannot be inferred that the HFF is entrusted with an SGEI.39 Rather, as is conceded in the defence, the Court only stated that it did not rule out that such a service could, in principle, legitimately qualify as an SGEI.40 Moreover, IFSA contests ESA’s argument that the HFF’s loan scheme qualified as an SGEI as “an activity in the extended field of social housing”. Such a distinction has not been made previously and is inconsistent with ESA’s statement that the task of the HFF is to provide loans for low income families facing social difficulties.41 In fact, SGEIs as defined in Article 59(2) EEA are designed to be an exception to the general prohibition of Article 59(1) EEA and must be interpreted narrowly.42

39 Reference is made to Bankers’ and Securities Dealers’ Association of Iceland v ESA, cited above, paragraph 68.

40 Reference is made to paragraph 124 of the defence.

41 Reference is made to paragraph 195 of the defence.

42 Reference is made to Case 127/73 Belgische Radio en Televisie v SABAM [1974] ECR 313, paragraph 19.

63 IFSA submits that the HFF is in a position to provide funding for nearly all the residential property market in Iceland.43 ESA’s contention to the contrary, illustrated by the market for single family homes in Reykjavik, where funding is available for only 46.7% of the market, must be contrasted with the fact that 80.2 % of all residential properties in the capital area can be financed by HFF loans. In fact, only the top end segment of the market, in the form of single family homes in Reykjavik, is partly excluded from the HFF funding.44 Further, IFSA contests ESA’s allegation that the possibility of providing “top up” loans is a welcome opportunity to the banks. This is hardly the case, since these loans run a higher risk of loss in the event of default. The fact that the commercial banks nonetheless provide “top up” loans shows that they would be willing a fortiori to providePage
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regular mortgage loans, in particular with a first priority mortgage.

43 Reference is made to paragraph 17 of the contested decision.

44 Reference is made to average prices in real estate transactions in 2014, provided by Þjóðskrá Íslands, Registers Iceland, shown in Figure 2 of the reply.

64 With regard to its criticism that the scheme cap is based on the taxation value of the property, IFSA notes that in relation to dwellings in the capital market prices are on average 27% higher than the property’s taxation value. Further, it rejects ESA’s argument that the taxation value is not open to manipulation, as it follows the market value. If the latter is open to manipulation then so too is the former. As to the notion of the scheme beneficiary as the average resident of Iceland, IFSA contends that this term has to be interpreted narrowly. Consequently, ESA has committed a manifest error in accepting an SGEI where high income families receive subsidized assistance in acquiring real estate. There is no need for an SGEI if the market itself can cater to the demands for a particular service,45 which is the case in Iceland, as any citizen is, in principle, eligible for a mortgage loan from commercial banks on the same terms as from the HFF.

45 Reference is made to Case T-79/10 Colt Télécommunications France v Commission, judgment of 16 September 2013, published electronically, paragraph 154.

65 IFSA submits that ESA did not provide any meaningful explanation of why it did not introduce any limitations relating to the size of property eligible for funding.

66 In its comments on Iceland’s statement in intervention, IFSA submits that Iceland appears to focus on the authoritative nature of the Court’s judgment in Case E-9/04 The Bankers’ and Securities Dealers’ Association of Iceland v ESA even though the Court did not provide any sort of binding qualification of the HFF as an SGEI.46 As to Iceland’s allegation that the HFF can only offer one kind of product, IFSA submits that initially HFF mortgage loans could be provided for 20,Page
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30 or 40 years. However, the pertinent provisions were changed in July 2015 and now provide that new mortgage loans can be granted with a maturity of anywhere between five and 35 years. That fact and the possibility to introduce non-indexed loans strengthen the HFF in its competition for new mortgage loans. In this connection, IFSA stresses that loans provided by the commercial banks are not exclusively deposit funded. In addition, banks also offer fixed-rate mortgage loans with a maturity of usually three to five but even up to 40 years.

46 Reference is made to Bankers’ and Securities Dealers’ Association of Iceland v ESA, cited above, paragraph 68.

67 IFSA submits that, contrary to Iceland’s allegation, legislative change in 2012 led to an increase in properties eligible for funding by the HFF. Moreover, IFSA stresses that the examples provided in the application regarding rural mortgage lending should serve as an example to demonstrate that the commercial banks have remained active in providing mortgage loans in rural areas during the financial crisis. It cannot be inferred, however, that they were only active in the areas for which examples were provided. Further, as regards the suitability of the taxation value as a reliable reference value, IFSA observes that Iceland refers to a case in which Iceland itself argued against the use of the taxation value.47

47 Reference is made to Case E-9/12 Iceland v ESA [2013] EFTA Ct. Rep. 49, paragraph 75.

Second branch of the third plea: inapplicability due to lack of market failure

68 IFSA submits that there is only room for an SGEI in the case of market failure and, thus, possible market failure has to be analysed as a preliminary question.48 EFTA States cannot attach specific public service obligations to services that are already provided or can be provided satisfactorily and under conditions, such as price, objective quality characteristics, continuity and access to the service, consistentPage
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with the public interest, as defined by the State, by undertakings operating under normal market conditions.49 This was reiterated by ESA in its letter of 27 June 2008. ESA has merely assumed a market failure on the Icelandic market for housing loans and referred only to an “alleged” market failure in rural areas.50 Hence, ESA did not carry out a proper assessment of a possible market failure at the time of the contested decision in July 2014.51

48 Reference is made to Colt Télécommunications France v Commission, cited above, paragraph 154.

49 Reference is made to paragraph 13 of the 2012 Framework for State aid in the form of public service compensation, published as Annex II to ESA Decision No 12/12/COL, OJ 2013 L 161, p. 12.

50 Reference is made to paragraphs 7 and 18 of the contested decision.

51 Reference is made to Colt Télécommunications France v Commission, cited above, paragraph 158.

69 First, IFSA alleges that the commercial banks have been consistently providing mortgage loans that compete with the HFF’s loans and thus no shortage of mortgage loan supply to the average resident in Iceland would occur if the HFF withdrew from the market. Data on the number of housing transactions and mortgage loans issued by the HFF and the three major banks between 2004 and 2014 reveals that the commercial banks have constantly been active in the market for new mortgage loans. The commercial banks also maintained an ever-increasing market share, never falling below 20%, in the market for existing and new mortgage loans. From 2004 to mid-2007, banks increased their market share in new mortgages sharply, as the difference in interest rates between the commercial banks and the HFF was slight. No market failure occurred during the financial crisis as the three large banks that experienced difficulty were taken over by three new banks, which were operational within a few days. The sharp decline in new mortgage loans by commercial banks between 2008 and 2009 is not related to any withdrawal from the market for mortgage lending, but due to the sharp decline in the number of housing transactions and the fact that property sales during the financial crisis were limited to low-value real property. After the crisis,Page
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the commercial banks’ overall market share in the mortgage loan lending market almost doubled from 2010 until 2014, a trend which has been fuelled by the introduction of non-indexed loans, interest rates for mortgage loans slightly lower than the HFF’s, and a general market recovery. The HFF was not permitted to issue non-indexed loans until a legislative amendment in September 2011.

70 Second, IFSA submits that the mortgage loans offered by the commercial banks are offered on regular market conditions.52 Analysing the interest rates for mortgage loans at 1 July 2014 reveals that not only do the three major banks offer a much wider range of mortgage loan products than the HFF but also some banks charge rates of interest for directly comparable products that are even lower than the HFF’s.

52 Reference is made to Bankers’ and Securities Dealers’ Association of Iceland v ESA, cited above, paragraph 74.

71 Third, IFSA highlights the fact that the commercial banks provide their entire portfolio of mortgage loans products on the basis of the same criteria in every region of the country. While the HFF has a physical branch only in Reykjavik, the commercial banks’ branches are present in all geographic regions of the country. The capital area accounts for slightly more than 70% of the three major commercial banks’ loan portfolio, which is due to the low population density in other parts of the country and the higher costs of residential property in the capital area. This must not be mistaken as a sign of market failure. IFSA adds that, just like the HFF, the commercial banks decide each individual case, independently of the location of a property, on its merits. Moreover, in its reply, IFSA criticises the fact that ESA did not base any of its assessment on the information provided by IFSA and contends that ESA erred in its view that case lawPage
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entitled it to base its assessment exclusively on information from the Icelandic Government.53

53 Reference is made to T-318/00 Freistaat Thüringen v Commission [2005] ECR II-4179, paragraphs 73 to 90.

72 In its reply, IFSA contends that ESA largely confines itself to reiterating the views of the Icelandic Government. IFSA further affirms, contrary to suggestions in the defence, that commercial banks have indeed offered mortgage loans for over a hundred years but, due to legal restraints and the introduction of the HFF’s predecessor in 1955, the commercial sector was unable provide competitive offers for mortgage loans as an alternative to the HFF. The process of liberalising the financial markets, which started in 1987, made it possible for the commercial banks in 2004 to offer first priority mortgages on similar terms to the HFF. IFSA notes further that, prior to 2004, two of the three major banks were State-owned and thus reluctant to compete with the HFF. Therefore, the data provided for the period from 2004 until today should be sufficient proof of the uninterrupted service of mortgage loans by commercial banks.

73 As to the sudden drop in market shares in new mortgage lending by the end of 2007 highlighted by ESA, IFSA notes that this does not serve as a proof of a market failure during the financial crisis, as it can easily be explained by the drop of transactions in the housing market during the financial crisis, which declined by over 60% between 2007 and 2008 and consequently had an immediate effect on the mortgage loan market. Moreover, the decline of market share between 2008 and 2011 was caused by the HFF’s aggressive interest rate policy, which remained unresponsive to the increase in bond market interest rates in 2008. As the latter’s interest rates were 1% lower than those of the commercial banks, customers, being price-sensitive, resorted to the HFF. IFSA further contests ESA’s assertion thatPage
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the State interventions in the financial sector have created a sheltered environment. Capital controls have not had any impact on the supply of mortgage loans by commercial banks (though their lifting may improve the access to international funding), nor has the guarantee on banking deposits, which, in fact, has never been enacted into law. IFSA stresses that mortgage loans provided by commercial banks are exclusively for the purpose of financing or refinancing mortgages. As regards the HFF’s possibility to grant non-indexed loans, IFSA concedes that the implementing regulation has not yet been amended. However, such an amendment does not require consultation or parliamentary approval and the HFF has already expressed interest in offering such products.

74 In relation to the letter from the Icelandic Government on which ESA relies, IFSA observes that this letter simply notes that a certain fraction of housing was paid with capital in 2012 and 2013. According to IFSA, this high capital ratio can easily be explained by the capital controls, leading to high cash deposits and subsequently to a higher fraction of a real estate purchase price being paid in cash.

Third branch of the third plea: disproportionality of the aid scheme

75 IFSA submits that the State aid granted to the HFF to ensure an average resident of Iceland the stability and assistance to acquire a property on “manageable terms” is not proportionate even if the HFF general loan scheme constitutes an SGEI. This test of proportionality entails an assessment of whether the public intervention does not exceed what is necessary to achieve the defined goals.54

54 Reference is made to Bankers and Securities Dealers’ Association of Iceland v ESA, cited above, paragraph 76.

76 First, IFSA contends that the HFF general loan scheme is not the least intrusive way to provide for these manageable terms and exceedsPage
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what is necessary to achieve its goal. According to decisional practice of the Commission, an SGEI must not compete with the commercial market if the latter is able to provide “normal” financing at market terms.55 While the commercial banks have continuously been able to compete with the HFF, they are still placed at a disadvantage, as HFF’s funding costs remain artificially reduced. The HFF’s refinancing entails an implicit government guarantee which allows it to borrow at conditions close to Icelandic government debt, it is exempted from income tax and the special tax levied on financial institutions, and its capital adequacy ratio is specified at a lower level than that for commercial banks. These benefits result in a reduction of the HFF’s funding costs of approximately 1.339 to 1.421%. Moreover, the HFF general loan scheme is not needed as Icelandic tax law provides a tax rebate for mortgage interest payments to ensure that all sections of the population can manage their interest rate payment. This system is means tested by income, family type, and net wealth and open to mortgages loans of both the HFF and the commercial banks. Therefore, it would in itself be sufficient to cater for the demands of disadvantaged citizens were the commercial banks unable to do so.

55 Reference is made to Commission Decision of 16 June 2004 N 179/2004 – Finnish municipal guarantees, OJ 2005 C 131, p. 10, paragraph 21.

77 Second, IFSA alleges that the State aid in question led to the HFF’s aggressive interest rate policy. The HFF lowered the spread on its funding, resulting in periods of operating losses. While the HFF has maintained a stable interest rate irrespective of market developments since 2012, the threat remains that once the HFF is allowed to offer non-indexed loans it would again be in the position to undercut the offers by commercial banks. IFSA asserts that in several instances in 2004, the HFF responded to the lowering of interests rates by the commercial banks by successively undercutting theirPage
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offers, in an attempt to push the commercial banks out of the market.

78 Third, IFSA submits that the HFF has received capital injections of more than ISK 50 billion which amounted to additional compensation not necessary to finance the HFF’s SGEI objective. As regards the first capital injection of ISK 33 billion in 2011, IFSA notes that ESA had doubted whether the HFF had a viable business plan and had called for a clear definition of the SGEI in order to avoid overcompensation.56 However, no restructuring plan has ever been submitted by Iceland and several further capital injections have been made. Further, the HFF has struggled with a high ratio of loans in default leaving it with a weak financial structure. Experts have concluded that its current model is unsustainable and the Icelandic Government has estimated that further injections of ISK 9 billion may be required through 2015.

56 Reference is made to ESA Decision No 69/11/COL, p. 13, and the 2011 Decision, p. 5.

79 In response to ESA’s assertion that it assessed the three measures which are said to benefit the HFF, IFSA observes that the section of the 2011 Decision to which ESA refers is headed “Description of the state measures under investigation” and does not contain any form of assessment. Further, IFSA continues, ESA fails to provide any evidence for the alleged high volatility of the Icelandic housing market, used to justify the HFF, and the claim that, notwithstanding the tax rebate scheme for mortgage interest introduced in 1989, the rationale for a body such as the HFF continues to exist.

80 IFSA contends that ESA’s description of how the interest rates of the HFF are set is partially incorrect. Although they are determined by the Minister of Social Affairs on the basis of a recommendation by the HFF itself, this is, in reality, a rubber-stamp decision. ESA fails further to provide evidence for its hypothetical scenarios under whichPage
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the HFF would lower its interest rate and errs in stating that the rate of interest offered on HFF loans during the financial crisis was lower than that of the commercial banks because of the difficulties the latter faced in accessing the capital markets.

81 IFSA contends that losses which exceed the amount necessary to offset any losses which may be incurred in the operation of the SGEI fall outside the scope of Article 59(2) EEA.57

57 Reference is made to Case C-340/99 TNT Traco v Poste Italiane [2001] ECR I-4109, paragraph 57, and Case C-320/91 Corbeau [1993] ECR I-2533, paragraph 14.

82 IFSA notes further that the International Monetary Fund has clearly stated the unviability of the HFF model and required a new housing strategy. ESA cannot simply resort to the statement that all losses of the HFF, no matter to what extent and for what reason occurred, are automatically covered by the HFF’s alleged SGEI objective.

Fourth branch of the third plea: disproportionate effects on trade by the aid scheme

83 IFSA submits that the SGEI exception requires the right balance to be struck between the interest of the party invoking the exception and the overall effect of the SGEI on the trade between EEA Contracting Parties. These effects depend, to a considerable extent, on the definition of the relevant market.58 However, the contested decision does not contain any assessment of the relevant market or the scheme’s effects on trade. However, the HFF’s dominant presence on the market for mortgage loans means that potential market players from other EEA States refrain from penetrating the Icelandic market and that the domestic commercial banks are restricted from diversifying their lending portfolios as they become less attractive to foreign investors.

58 Reference is made to Bankers’ and Securities Dealers’ Association of Iceland v ESA, cited above, paragraphs 70 and 81.

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Admissibility

84 ESA submits that IFSA has not established that it has sufficient standing to challenge the contested decision, which is addressed to Iceland, is legally binding, and constitutes a final decision. IFSA must establish that its market position or that of its members (or a group of its members) is substantially affected by the alleged aid scheme in question.

85 The second paragraph of Article 36 SCA contains the same provisions on standing as those set out in the fourth paragraph of Article 263 TFEU. In ESA’s view, to the extent that the provisions governing locus standi are substantively the same, the principle of homogeneity applies. In State aid law, the Plaumann test59 has been specifically applied with regard to locus standi and applicants who challenge the merits of a decision appraising aid are considered to be individually concerned by that decision if their market position is substantially affected by the aid to which the contested decision relates.60

59 Reference is made to Case 25/62 Plaumann v Commission [1963] ECR 95, p. 107, and Case E1/13 Míla ehf. v EFTA Surveillance Authority [2014] EFTA Ct. Rep. 4, paragraph 40 and case law cited.

60 Reference is made to Case T-206/10 Vesteda Groep BV v Commission [2011] ECR I-3573, paragraph 35, which concerned an action for annulment of a Commission decision recording the acceptance by the State of the proposed appropriate measures, and Konkurrenten.no v ESA, cited above, paragraph 96 and case-law cited.

86 ESA maintains that a professional association which is responsible for protecting the collective interest of its members is entitled to bring an action for the annulment of a final decision on State aid only in two sets of circumstances. First, where the undertakings which it represents or some of those undertakings themselves are sufficiently affected (and are themselves in a position to bring an admissiblePage
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action). Second, if the association can prove interest of its own, in particular because its position as a negotiator has been affected by the measure, the annulment of which is sought.61

61 Reference is made to Case C-409/96 Sveriges Betodlares Centralförening and Henrikson v Commission [1997] ECR I-7531, paragraph 45.

87 In relation to the first limb of the test, ESA contends that IFSA’s reference62 to the fact that it was found to have locus standi in Case E-9/04 The Bankers’ and Securities Dealers’ Association of Iceland v ESA and that the judgment and the contested decision concern the same aid scheme are insufficient to meet the test. In Case E-9/04, IFSA’s predecessor sought to safeguard its procedural rights.63 However, in the current proceedings, IFSA is not making any procedural plea but calls into question the merits of the decision appraising the aid scheme. For this purpose, IFSA must demonstrate that it has a particular status within the meaning of the Plaumann test.

62 Reference is made to paragraph 35 of the application.

63 Reference is made to Bankers’ and Securities Dealers’ Association of Iceland v ESA, cited above, paragraph 52, and Case E-1/12 Den norske forleggerforening v ESA [2012] EFTA Ct. Rep. 1040, paragraph 66.

88 According to ESA, in the context of actions brought by associations, an applicant can be individually concerned as a result of it having played a significant role in the procedure leading to the adoption of the challenged decision, if it occupied a clearly circumscribed position as negotiator which was intimately linked to the actual subject matter of the decision, thus placing it in a factual situation which distinguishes it from all other persons.64 It thus has to prove that it is directly and individually concerned.65 IFSA cannot be consideredPage
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to have played any role which could have intimately linked it to the subject matter of the decision considering that it had no procedural right to submit comments in the context of a procedure pursuant to Article 19(1) of Part II of Protocol 3 SCA. It only did so at ESA’s invitation and its role did not go further than providing comments on behalf of its members.

64 Reference is made to Case C-319/07 P 3F v Commission [2009] ECR I-5963, paragraphs 85 to 95 and case-law cited.

65 Reference is made to Case C-78/03 P Aktionsgemeinschaft Recht und Eigentum v Commission [2005] ECR I-10737, paragraphs 56 to 57, and Case T-117/04 Werkgroep Commerciële Jachtshaven Zuidelijke Randmeren and Others v Commission [2006] ECR II-3861, paragraph 69.

89 In relation to the second limb of the test, ESA contends that IFSA’s statements66 are, as general statements, insufficient to demonstrate the substantial adverse effect the aid scheme allegedly has on the market position of the commercial banks. IFSA must demonstrate the extent of the detriment the aid has on its market position and must establish a link between the measure which was the subject of the contested decision and the alleged substantial effect on its position on the market concerned.67 IFSA has not demonstrated the extent of the impact of the aid scheme on the economic situation of its members. It has also failed to demonstrate that the market position of any of its members was affected more than that of any competitor in the market and its arguments do not distinguish the situation of one or more of its members.

66 Reference is made to paragraphs 39 to 43 of the application.

67 Reference is made to Konkurrenten.no v ESA, cited above, paragraphs 99 to 100 and case-law cited.

90 Moreover, ESA continues, the allegation concerning the dominance of the HFF should be rejected as completely unfounded, as IFSA neither defined the relevant market nor provided relevant evidence in that regard. Nor did IFSA show, on the basis of such a market definition, how the HFF is allegedly dominant. ESA submits that that the figures provided by IFSA cannot stand as evidence for the proposition that the HFF has a dominant position on the Icelandic housing loan market. This information only corresponds to the potential loads the HFF could offer bearing in mind that the commercialPage
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banks counld also offer a loan for the purchase of those residential properties. IFSA has also failed to explain how this alleged market dominance is linked to the aid and how it substantially affects the commercial banks’ market position. Rather, IFSA’s assertion that the commercial banks have regained market share since 2010 contradicts the existence of substantial adverse effects of the aid scheme.68

68 Reference is made to paragraph 139 of the application.

91 For the sake of completeness, ESA maintains that IFSA’s members cannot be individually concerned on the basis of the fact that they belong to a group of persons who were identified or identifiable by reason of criteria specific to the members of the group. The contested decision cannot be considered as a turning point for the commercial banks, as it cannot be argued that their situation has been altered further to the adoption of the contested decision.69 Moreover, the number and identity of the commercial banks on the housing loan market were not precisely determined at any point in time, either through a system of approval by decree or by the fact that those banks were granted any sort of exclusive rights before the aid scheme was adopted. Rather, housing loans were also offered by other financial undertakings such as saving banks, pension funds and mortgage companies and the membership of IFSA changed in the aftermath of the financial crisis due to the winding up of some of its members.70

69 Reference is made to Stichting Woonpunt et al. v Commission, cited above, paragraph 62.

70 Reference is made to Case C-125/06 Commission v Infront WM [2008] ECR I-1451, paragraphs 73 to 75.

92 In its rejoinder, ESA stresses that, if an action is to be admissible, in order to ensure legal certainty and the sound administration of justice the essential facts and law on which it is based must be apparent from the text of the application itself, even if only stated briefly,Page
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provided the statement is coherent and comprehensible.71 It therefore doubts whether the arguments and information provided at paragraphs 8, 9, 15, 16, 17, 20 and 21 of the reply should be taken into account to the extent IFSA has not referred to those elements in the application.

71 Reference is made to Case E-15/10 Posten Norge AS v ESA [2012] EFTA Ct. Rep. 246, paragraph 111, and Case T-87/05 Energias de Portugal v Commission [2005] ECR II-3745, paragraph 155 and case-law cited.

93 In relation to the failure to establish locus standi of the applicant as an association, ESA emphasises that the fact that the applicant represents all the commercial and saving banks present on the mortgage market in Iceland does not create a “special or exceptional situation” which could justify granting IFSA locus standi.72 The role of IFSA cannot be described as that of a negotiator which was intimately linked to the actual subject matter.73 ESA asserts that it merely requested IFSA’s comments on the appropriate measures proposed, as the actual negotiations were bilateral between Iceland and ESA.74 ESA questions further whether IFSA could at all be intimately linked to negotiations in the housing loan sector considering that it represents all registered financial undertakings in Iceland some of which are active in different sectors than the HFF. Moreover, it would be incorrect to argue that IFSA’s involvement in the national legislative process relating to the reform of the HFF made it particularly intimately linked to the actual subject matter of the contested decision. Further, the procedure for review of existing aidPage
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is not challengeable in the same way as it would be if ESA was assessing a new aid scheme.75

72 Reference is made to 3F v Commission, cited above, paragraphs 87 and 92 and the case-law cited.

73 Reference is made to Sveriges Betodlares Centralförening and Others v Commission, cited above, paragraphs 45 and 48. In addition, reference is made to Joined Cases 67/85, 68/85 and 70/85 Van der Kooy v Commission [1988] ECR 219, paragraph 23, and Case C-313/90 CIRFS and Others v Commission [1993] ECR I-1125, paragraph 29.

74 Reference is made to Sveriges Betodlares Centralförening and Others v Commission, cited above, paragraphs 45 and 48, Van der Kooy v Commission, cited above, paragraph 23, and CIRFS and Others v Commission, cited above, paragraph 29.

75 Reference is made to Case E-6/09 Magasin- og Ukepresseforeningen v ESA [2009-2010] EFTA Ct. Rep. 144, paragraphs 40 to 43.

94 Second, ESA submits that IFSA’s argument based on ASPEC and Others v Commission is incorrect.76 Banks are not competitors of the HFF, whose role is to promote security and equal rights as regard housing in Iceland by providing loans on manageable terms to the general public. Thus, the aid cannot be considered to benefit one competitor over others active on the same market. Further, the applicant failed to provide evidence that the market already suffered from overcapacity and that the HFF’s offer of mortgage loans represents an additional increase of capacity on the market which is capable of directly and seriously affecting the competitive situation of the commercial banks.

76 Reference is made to paragraphs 8 and 9 of the reply and to ASPEC and Others v Commission, cited above.

95 In relation to the alleged standing of the applicant as a representative of its member banks which themselves have locus standi, ESA notes that the graph relied on as evidence of the HFF’s alleged market dominance shows outstanding mortgage credits, which cannot establish a meaningful picture of the market as it currently stands. However, taking account of new mortgage loans provided by commercial and saving banks, the HFF, and pension funds, it cannot be concluded that HFF, should it be considered a competitor to commercial banks, has a market share of more than 50% on the mortgage loan market.

96 ESA further contests IFSA’s reasoning that commercial banks lost opportunities to make profits and increase their activities in the mortgage loan market due to the HFF’s alleged undercutting of interest rates, its operational structure and its regulatory competitivePage
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advantages. The lending rates of the HFF are calculated on the basis of its funding costs, with an added margin set by the Ministry of Social Affairs, and are thus not aligned to those of the commercial banks. The other measures are not to be considered advantages, but, instead, measures aimed at compensating the HFF for the provision of an SGEI. The commercial banks’ loss of opportunities may also be due to the financial crisis.

97 In its comments on Iceland’s statement in intervention, ESA concurs with Iceland that the application is inadmissible and stresses that the applicant failed to provide pertinent evidence to demonstrate that the market position of its members has been substantially affected and seriously jeopardised by the aid granted to the HFF.

Substance

First plea: support for the HFF must be qualified as new aid

98 ESA submits that the first plea is inadmissible. This plea relates to the 2008 Decision, which closed the formal investigation procedure based on Article 1(2) of Part I of Protocol 3 SCA on the basis that the aid scheme did not constitute new aid. Neither the contested decision nor the 2011 Decision deal with the issue of whether the aid should be considered as new aid. They are the procedural consequences of the 2008 Decision.

99 The finding in the 2008 Decision that the aid scheme did not constitute new aid was published in the Official Journal in 2010. The 2008 Decision has, therefore, become definitive and the qualification of the aid scheme as existing aid cannot be challenged in the current proceedings as the applicant did not challenge it within the period provided for by Article 36(3) SCA.

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plea: Insufficient reasoning

100 ESA submits that the statement of reasons required by Article 16 SCA must be appropriate to the measure at issue and must disclose in a clear and unequivocal fashion the reasoning followed by the institution which adopted the measure in question. However, it is not necessary for the reasoning to go into all the relevant facts and points of law, since the question whether the statement of reasons is adequate must be assessed with regard not only to its wording but also to its context and to all the legal rules governing the matter in question. Summary reasons may be given when the measure at issue is adopted in a context with which the persons concerned are familiar.77

77 Reference is made to Case E-21/13 FIFA v ESA [2014] EFTA Ct. Rep. 854, paragraphs 89 and 91, and Liechtenstein and Others v ESA, cited above, paragraphs 171 and 172.

101 The purpose of the contested decision was to record the acceptance by Iceland of the appropriate measures proposed in the 2011 Decision and to close the case. The contested decision should therefore be reviewed in association with the 2011 Decision and its reasoning must be read together with the reasoning provided by ESA in the preparatory measure adopted in the context of the existing aid procedure (the 2011 Decision) and the judgment in Case E-9/04 The Bankers’ and Securities Dealers’ Association of Iceland v ESA. ESA adds that its competence with regard to the assessment of the existence of an SGEI is limited to verifying whether the EFTA State has made a manifest error in defining the service as an SGEI.78

78 Reference is made to The Bankers’ and Securities Dealers Association of Iceland v ESA, cited above, paragraph 65.

102 In response to IFSA’s submission that ESA cannot link the 2011 Decision to the contested decision, in particular due to the fact that ESA adopted a different position in the two decisions, ESA maintains in its rejoinder that this argument is flawed having regard to the existingPage
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aid procedure. In its 2011 Decision, ESA raised doubts as to whether general loans offered by the HFF could qualify as an SGEI and therefore issued a recommendation proposing appropriate measures pursuant to Articles 17 and 18 of Part II of Protocol 3 SCA. There, ESA set out any doubts that it held, at that stage, as to the compatibility of the scheme under the EEA State aid rules. However, in the contested decision, ESA was not required to reassess the compatibility of the aid since Iceland had accepted the measures, which themselves were aimed at remedying such concerns.

103 ESA stresses that the argument that it did not take account of IFSA’s submissions following the 2011 Decision should be rejected, as the contested decision was not preceded by a formal investigation. The delay between the two decisions can be explained by the complexity of the case. ESA and Iceland discussed and negotiated the proposed appropriate measures. Furthermore, the new Icelandic Government considered revisiting housing policy in 2012.

104 ESA adds that, as its competence is limited to verifying whether the Icelandic authorities have made any manifest error in defining the scope of the HFF’s mission as an SGEI, its duty to provide reasoning is thus limited to the test of manifest error.

First branch of the second plea: Insufficient reasoning on the classification as an SGEI

105 ESA rejects the assertion that it assumed there was a market failure in rural areas and that it should have analysed whether the conditions for the existence of an SGEI are present. ESA was bound by the Court’s analysis and the delineation of the SGEI in Case E-9/04 The Bankers’ and Securities Dealers’ Association of Iceland v ESA. ESA’s task was to ensure that the concerns raised by the Court with regard to the nature of the SGEI were alleviated.

106 With regard to IFSA’s assertion that ESA had allegedly accepted the amended maximum value cap as part of the cost limitation without explainingPage
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why this has the effect of excluding the higher price segment of the housing market, ESA submits that this statement is merely a deduction made from the figures provided in the contested decision and therefore did not require any detailed reasoning. ESA has also explained how the annual review of such a cap ensures that the HFF’s activities are in line with the SGEI objective with which it has been entrusted.79

79 Reference is made to paragraphs 17 and 19 of the contested decision.

107 As regards the statement recording the acceptance of the appropriate measures by Iceland, ESA maintains that this does not require any reasoning since it is only a statement of facts. ESA submits that the aim of the procedure at issue in this case was to ensure that the concerns raised by the Court in Case E-9/04 The Bankers’ and Securities Dealers’ Association of Iceland v ESA relating to the limitation of eligible dwellings were addressed. ESA therefore assessed the cost limitation adopted by Iceland and whether it would lead to better targeting of the HFF’s lending activity.80 In relation to rental housing, it had proposed a limit on HFF funding in the field of rental housing and has addressed the issue in the contested decision.81 However, even though there are inherent differences between residential housing and rental housing, the logic behind the HFF funding in both fields is identical, namely the provision of housing on manageable terms.

80 Reference is made to paragraphs 7 and 17 of the contested decision.

81 Reference is made to paragraphs 8 and 20 of the contested decision.

108 In its rejoinder, ESA submits that its task with regard to the Court’s judgment in Case E-9/04 The Bankers’ and Securities Dealers’ Association of Iceland v ESA was not to challenge it by re-assessing the existence itself of the SGEI but rather to ensure that the concerns raised by the Court with regard to the nature of the SGEI were alleviated. However, the Court had already made findings on the naturePage
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of the activities of the HFF which provided a sufficiently clear and precise basis for ESA’s assessment.

Second branch of the second plea: Insufficient reasoning on the proportionality of the aid scheme

109 ESA argues that its doubts concerning proportionality in the 2011 Decision, principally referred to the importance of operating separate accounts for the services of the HFF that may be classified as an SGEI and for all other commercial lending activities, as the compensation must be limited to the coverage of the costs incurred in discharging the SGEI. Since Iceland notified ESA that the HFF will not engage in any economic activities other than the provision of SGEI, there was no need for a further assessment.82

82 Reference is made to paragraphs 12 and 23 of the contested decision.

110 As for the issue of ensuring efficiency, ESA submits that it listed the various commitments undertaken by Iceland which all aim at ensuring that the HFF operates efficiently.83 ESA provided sufficient reasoning with regard to the proportionality of those measures in its 2011 Decision proposing them.84 In response to the criticism that it had failed to provide reasoning on the notions of “manageable terms” and “average citizen” in the context of the HFF’s task, ESA maintains that the notion of manageable terms should be assessed in relation to the capacity for the general public to afford such products, as the HFF’s housing loans are not meant to be competitive. Finally, ESA emphasises that it did not breach its duty to provide reasoning in referring only to those arguments having decisive importance in the context of the decision.

83 Reference is made to paragraphs 12 and 22 of the contested decision.

84 Reference is made to section 4.4 starting on page 23 of the 2011 Decision.

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plea: Wrongful interpretation of the notion of an SGEI pursuant to Article 59(2) EEA

First branch of the third plea: no service of general economic interest

111 ESA emphasises that the Court did not rule out the possibility that the services provided by the HFF could, in principle, qualify as an SGEI under Article 59(2) EEA.85 It observes that the SGEI entrusted to the HFF is not that of social housing, as described in Recital 11 of the SGEI Decision (“social housing stricto sensu”), but relates to the grant of financing in order to have access to the housing market and might therefore be characterised as an activity in the extended field of social housing. The purpose of the SGEI Decision is not to limit in the abstract the scope of possible SGEIs and, consequently, the discretion of the EEA States to define their SGEIs, but aims to create safe harbours by laying down conditions under which SGEIs shall be exempt from the prior notification. IFSA’s reference to the Commission’s decision-making practice is not relevant for the assessment of the present case, since, first, they reflect cases of social housing stricto sensu, second, ESA is bound neither by its own previous decision-making practice nor by that of the Commission, and, third, the decisions mentioned concern SGEIs in different Member States which made a different use of their wide margin of discretion to define SGEIs. Moreover, the Court did not state that the SGEI provided by the HFF should be limited necessarily to what goes beyond the normal economic interest of operators in the financial sector, but rather, that it does go beyond this interest. The Court recognised the special characteristics of the HFF’s general loan system, that is how it provides housing loans at all times, on manageable terms, and throughout the territory of Iceland, which distinguishPage
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it from the economic activities of the commercial banks.86 Thus, ESA cannot be reproached for a manifest error of assessment as regards the definition of the SGEI. The proposed appropriate measures aimed at maintaining the SGEI, as recognised in principle by the Court, while making it compatible with the functioning of the EEA. ESA does not deny that it expressed certain doubts with regard to the qualification of the HFF general loans scheme as an SGEI during the administrative procedure. However, those doubts were alleviated by Iceland’s acceptance of the measures proposed.

85 Reference is made to Bankers’ and Securities Dealers’ Association of Iceland v ESA, cited above, paragraph 68.

86 Ibid.

112 ESA submits that IFSA’s claim that the maximum loan amount allowed and the maximum value cap are excessive should be dismissed as unfounded. First, merely 46.7% of single-family residential properties are eligible for loans from the HFF. Second, properties in the rural areas of Iceland, up to 98.8% of which can be financed through the HFF, are in principle not as valuable as properties of an equivalent size in the capital area and, thus, do not constitute properties in the higher market segment as such. In addition, the commercial banks have not always been present in the mortgage market in the rural areas. Third, the difference between the maximum amount of the loan and the maximum value cap is of importance as this funding gap still has to be financed through other means, frequently via a loan from a commercial bank.

113 ESA acknowledges that the taxation value of a property does not necessarily reflect its current market value. However, given the fluctuations of the Icelandic market it was important to ensure that the reference element is a reliable and useful official indicator, which is not open to manipulation and is widely known and recognised.

114 AsPage
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for inconsistencies in Iceland’s statements concerning the notion of an “average resident of Iceland”, ESA stresses that Iceland has a wide margin of discretion in defining an SGEI addressing the particularities of the Icelandic housing market and that the SGEI in question consists in the grant of financing in order to foster private home ownership. IFSA has misunderstood the basic rationale behind the SGEI offered by the HFF, which is to ensure stability and assistance to any resident buying a residential property. Hence, the mechanism is based on a cap on the value of the eligible residential property and a minimum loan-to-value ratio, thus leading to a maximum loan amount allowed, and on other limitations, such as the “one person, one property” rule. Depending on the market conditions at the time, the commercial banks might be able to make a better or a different offer. IFSA’s claims regarding the exceptions to the “one person, one property” rule and specific qualifications of eligible groups should be rejected. ESA requested Iceland to clarify those exemptions and concluded that there are very few and that they apply in exceptional circumstances only. The exemption referring to children studying away from home is due to the cultural fact that rental housing is rather uncommon or prohibitively expensive in Reykjavik and was thus adopted to cater for the lack of student accommodation available for rent. In relation to the criticism concerning the absence of specific eligibility criteria, ESA stresses that the HFF loan scheme is not based on a means test, but on a cost limitation test. An average resident is one who can afford an average residence, taking into account the link between the size of the dwelling and its value.

115 In response to the criticism that proper safeguards for ensuring the implementation of changes to the aid scheme are lacking, ESA maintains that it was not required to describe in detail in the contested decision how the national review mechanisms should operate or to monitor their implementation. In any event, Iceland is bound to implement the accepted appropriate measures. Compliance willPage
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be monitored as part of ESA’s ongoing duty to review existing aid schemes.

116 In its rejoinder, in response to criticism concerning the scope of the SGEI, ESA submits that the maximum price cap and the maximum loan amount have to be read together as they establish the necessary limitations on that scope. As regards IFSA’s submission that the commercial banks provide mortgage loans for housing in rural areas, ESA considers this claim unsubstantiated. Further, it stresses the fact that eligibility for a loan from the HFF does not exclude the option to request funding from commercial banks which, in contrast to HFF, can also make tailored offers. The issue is whether the banks are and will be able to provide, on a consistent basis, mortgage loans for housing on manageable terms. As to the higher risk involved in the “top up” loans, ESA adds that the higher risks borne by the banks come at higher interest rates for the borrower and, thus, a higher financial reward for the commercial banks.

117 In response to IFSA’s submission concerning the possibility that the taxation value of property may be manipulated, ESA maintains that the taxation value demonstrates the aggregate market price development as it is based on an aggregate of the value of all real estate contracts in a particular area. Therefore, it is more difficult to manipulate than individual real estate transactions. As for the notion of the average resident of Iceland, ESA notes that the rationale of the SGEI is that the average resident should be able to acquire a loan in order to finance an average residential property. For this purpose, no means test is necessary. The limitation by a cap on the value of the eligible property and a minimum loan-to-value ratio of 60% are sufficient to delineate the scope of the HFF’s activities.

118 In response to IFSA’s proposition that according to established case-law there is no need for an SGEI if the market itself can cater to thePage
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demands for a certain service,87 ESA contends that this is the key issue on which the two parties fundamentally differ. According to ESA, the commercial banks have not always been in a position to cater to the demand for mortgage loans, which justifies the existence of the HFF as an SGEI provider. As for the exception to the “one person, one property” rule, ESA contends that in August 2014 there were around 800 students on a waiting list for student housing in the capital and that rental prices in the capital area had increased by 41% from beginning of 2011 to February 2015. In its view, this confirms the shortage of supply and the high rental prices faced by students, notwithstanding the existence of student loans.

87 Reference is made to paragraph 69 of the reply.

Second branch of the third plea: inapplicability due to lack of market failure

119 ESA submits that in Case E-9/04 The Bankers’ and Securities Dealers’ Association of Iceland v ESA the Court acknowledged that the objective of the HFF goes beyond the normal economic interest of operators in the financial sector and that, thus, there was a gap in the market for the supply of such a service. The Icelandic authorities confirmed on several occasions, for example in a letter of 22 May 2014, the existence of a market failure in the mortgage market. ESA therefore based its conclusions on information it received from the Icelandic authorities covering the period from before 2008 until the first half of 2014. ESA avers that in its 2011 Decision it assessed the Icelandic market for mortgage lending and that it confirmed that assessment in the contested decision. Moreover, it notes that those banks which entered the housing finance market only in 2004 almost disappeared from it for the three to four years following the financial crisis and have, thus, been offering housing finance only for approximately eight years in total (2004 to 2008 and 2012 to the present date). This is considered too short in order to evidence stability,Page
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continuity and consistency in that market. In addition, mortgage loans for housing in rural areas have been offered by commercial banks mainly since their re-entry on the market 2012.

120 ESA submits that three major banks became insolvent in the aftermath of the financial crisis and were submitted to public control and liquidation, which resulted in a fundamental market failure as regards the provision of housing loans, notwithstanding the establishment of three new banks which took over the old banks’ mortgage portfolios. Commercial banks sharply reduced their offering of mortgage loans from late 2007 and hardly provided such loans until approximately late 2011. The recovery and the expansion of the market share held by the commercial banks is attributed to non-indexed loans which the HFF has not been in a position to issue. ESA stresses further that the smooth transition from the insolvent to the new banks during the crisis only took place thanks to the interventions of the Icelandic State. It reports that the Icelandic authorities queried the reason for the sharp upturn in late 2011 and early 2012 in the number of new mortgages. Such upturn could also be attributed to mortgage loans used for consumer spending, investments, motor vehicles etc.88 The Icelandic authorities also pointed out that the comparison of interest rates89 on which IFSA relies is incomplete as it lacks the rate of funding. The Icelandic authorities also provided information from the Central Bank of Iceland on the commercial banks’ lending activities from January 2005 until May 2012 which illustrates that these activities have been unstable. ESA acknowledges that the amended Housing Act 1998 includes the possibility for the HFF also to issue non-indexed bonds. However, the Regulation on HFF Mortgages and HFF Bonds, No 522/2004, has not yet been amended to implement the change.

88 Reference is made to page 8 of Annex D.1 to the defence.

89 Reference is made to data also submitted as Figure 4 of the application.

121 ESAPage
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submits that, contrary to the argument advanced by IFSA, data showing the credit terms for mortgages in 2014, as a snapshot of current market conditions, cannot be used demonstrate that the banks were able to continuously and consistently supply mortgage loans on manageable terms over the last decade. Moreover, it notes that, in the assessment of the Icelandic authorities, although market failure has subdued, there are still market distortions which need to be addressed with care.

122 Finally, ESA contends that the HFF’s lending activities were fairly stable in terms of the percentage of purchase agreements on the Icelandic housing market until 2011 and that the market presence of the banks has been limited on the mortgage market in the rural areas. According to the information provided by the Icelandic authorities, neither the market presence of commercial banks nor the distribution of their branches throughout the territory necessarily reflect the scope of their lending activities for the purchase of residential property. ESA avers that it based its assessment both on the information received from IFSA and the Icelandic authorities. However, it maintains that its decision cannot be annulled for manifest error of assessment when its findings are based on information received from the Icelandic authorities.90

90 Reference is made to Freistaat Thüringen v Commission, cited above, paragraph 88.

123 In its rejoinder, ESA submits that IFSA seeks to understate the extent and significance of the market failure in the Icelandic financial market.91 It observes that the commercial banks have failed to maintain their market share in the aftermath of the crisis. In relation to the allegation that the HFF pursues an aggressive interest rate policy, ESA stresses that the HFF cannot adopt a policy of that kind. It contends that the loss of customers experienced by the commercial banksPage
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can be explained by the market failure in this sector of activity when they failed to provide mortgage loans on reasonable terms. ESA further stresses that the unresponsiveness of the HFF to the increases in bond market interest rates in 2008 may be explained by the different funding mechanisms of the commercial banks and the HFF. Moreover, if the HFF did indeed offer lower interest rates during the crisis, in any event that would have been in line with its objective. Further, contrary to the interpretation that IFSA seeks to place on the effects of capital controls and the State guarantee on deposits, ESA stresses that the positive impact of the latter should not be underestimated.

91 Reference is made to Case E-16/11 ESA v Iceland [2013] EFTA Ct. Rep. 4, paragraphs 153 and 161.

124 In response to IFSA’s claim that ESA should have based its decision on the facts as they stood at the time of the contested decision and, thus, on the interest rates at that date, ESA contends that a snapshot of interest rates at the time of the decision does not suffice. Turning to the claim that ESA ignored IFSA’s arguments concerning the commercial banks’ activities in rural areas, ESA stresses that the Icelandic authorities and IFSA provided conflicting information in this regard.

Third branch of the third plea: disproportionality of the aid scheme

125 ESA contends that the commercial banks have not provided housing loans on a consistent basis throughout the last decade, as evidenced in its argument on the other branches of the third plea, and that the HFF does not aim to compete with the commercial banks. The objective of the HFF is to act on the market as a safety net, providing loans consistently on manageable terms and throughout the territory of Iceland. In response to IFSA’s claim that the funding cost of the HFF remains artificially reduced, ESA argues that the exemption from income tax for all State institutions and State undertakings is a corollary of the State’s unlimited liability. The HFF was not created to generate any form of profit and this explains why it is not required toPage
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pay the same taxes as financial institutions. These tax measures, the lower capital adequacy ratio applied to the HFF and the unlimited State guarantee are all part of the public service compensation granted by the Icelandic State to the HFF as an SGEI provider. ESA asserts that the possibility remains that the commercial banks may again not be able to offer competitive housing loans, since the Icelandic housing market is very volatile and the current market conditions facing commercial banks are artificial due to the blanket State backing and capital restrictions.

126 As regards the alleged aggressive interest rate policy operated by the HFF, ESA stresses that the HFF lending rates are fixed by regulation with reference to the interest on securities issued by the HFF plus a specific margin. The HFF is therefore not in a position to adjust its interest rate with the aim of pursuing an aggressive interest rate policy or with a view to increasing its market share. The fact that the interest rate offered by the HFF was lower than that offered by the commercial banks during the financial crisis can be explained by the limited access of the latter to the capital markets and, consequently, their inability to offer housing loans on manageable terms. IFSA’s acknowledgment that the HFF has maintained a stable interest rate irrespective of market developments throughout the last three years is confirmation that the HFF does not seek to compete with commercial banks.

127 In relation to the capital injections received by the HFF and criticised by IFSA, ESA stresses that, as long as the service provided by the HFF amounts to an SGEI, the actual cost incurred as a result of such activity can lawfully be covered by State resources. The model of operation of the HFF does not have to mirror the business model of financial institutions and therefore the experts’ conclusions that the HFF’s current operational model is unsustainable are irrelevant. ESA adds that the reason why the HFF is no longer required to provide any restructuring aid plan is that the investigations were closed. Consequently,Page
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ESA maintains that the capital injections were proportionate as they covered, without overcompensating, the costs linked to the implementation of the SGEI.

128 In its rejoinder, ESA avers that in its 2011 Decision it described the measures from which the HFF benefits and also took account of them in its assessment.92 Further, ESA stresses that the HFF’s role in operating an SGEI and the tax rebate for mortgage loan interest fulfil different purposes. The former ensures that mortgages are made available, while the latter ensures that they are made more affordable. Moreover, it contends that IFSA has failed to substantiate its assertion that the minister basically rubber-stamps the HFF decision to change the interest rate. Nor has it provided any evidence to support its claim that the commercial banks had sufficient funds to finance their loan activities during the financial crisis. Moreover, ESA continues, it is evident that the concept of “manageable terms” must be construed as an evolving concept, since market conditions and considerations of what is affordable change over time.

92 Reference is made to Section 1.1 assessing the presence of State resources, Section 1.2 assessing the selectivity of the measures, and the operative part of the 2011 Decision.

129 On the question of the capital injections received by the HFF, ESA argues that IFSA fails to substantiate the amount of the capital injections used to compensate for the HFF’s alleged aggressive interest rate policy. According to the Report from the Working Group on the Financial Status and Outlook for the HFF, the losses incurred by the HFF are mainly (58%) due to the prepayment risk, while operational losses only amount to a mere 10%. The operational losses are thus much lower than the alleged ISK 50 billion said to have been required to cover the losses incurred by the HFF as a result of its interest rate policy. Moreover, operational losses can also have other underlying causes, such as unexpected operational costs in handlingPage
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the number of defaults, the timing mismatch between the increase in costs, and new ministerial decisions on the margin.

Fourth branch of the third plea: disproportionate effects on trade by the aid scheme

130 ESA submits that the plea is vague. It is unclear, for example, whether IFSA contends that, due to alleged disproportionate effects on trade, the HFF scheme is incompatible with Article 59(2) EEA. However, the question of compatibility was dealt with in the 2011 Decision and ESA was under no obligation to re-assess it in the contested decision. In any event, ESA continues, following the acceptance and implementation of the proposed appropriate measures, the effect on trade will not be disproportionate. Moreover, given the legal and economic constraints on the HFF general loan scheme, the HFF does not seek to compete with either the Icelandic commercial banks or those from other EEA States.

The Government of Iceland

Admissibility

131 The Government of Iceland submits that nothing in IFSA’s submissions indicates that the applicant’s situation falls within any of the three required by case law for instituting proceedings.93 The Government of Iceland notes that it is for IFSA to establish both the extent to which the aid has been detrimental to its market position and a link between the measure, which is the subject of the contested decision, and the alleged substantial effect on its position on the relevant market.94 IFSA needs to demonstrate a loss of opportunityPage
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to make a profit or less favourable development than would have been the case without such aid.95 The evidence submitted by IFSA concerning the market relates primarily to the period before changes based on the appropriate measures proposed by ESA were made and is, thus, not relevant.

93 Reference is made to Case T-189/08 Forum 187 v Commission [2010] ECR II-1039, paragraphs 58 to 89 and case law cited.

94 Reference is made to Spain v Commission, cited above, paragraph 41.

95 Reference is made Konkurrenten.no v ESA, cited above, paragraph 100.

132 The Government of Iceland submits that, according to data from the Central Bank of Iceland, commercial banks secure most of the market. The Icelandic Competition Authority considers the three major banks to be collectively dominant on the financial market in Iceland and that the HFF’s operations have not limited competition in the market, nor would competition increase if the HFF lending was left to the banks. It rejects IFSA’s comparison of the interest rate margin of the banks and the HFF on the basis of the HFF44 bond yield,96 as banks mainly finance their mortgage lending with callable deposits bearing low interest rates and thus securing a larger interest margin. In contrast to banks, the HFF is under the universal obligation to promote security and equal rights and has to offer the same interest rates throughout the country even though loan impairments have been considerably higher in the rural areas. Therefore it has not and does not compete on price.

96 Reference is made to the second figure in paragraph 17 of the reply.

133 The Government of Iceland adds that the fact that the HFF is the only mortgage provider in Iceland which is required to finance mortgages for their full term together with its universal service obligation puts it at a considerable disadvantage. Interest rates for indexed housing loans offered by the HFF have been higher than those offered by commercial banks since 2012. The allegation that the HFF offered lower interest rates in the past is not sufficient, as the alleged effect of the aid has to be evaluated at the time of the submission of the application. The Government of Iceland denies thatPage
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the requirement for HFF loans to be secured with first priority collateral is relevant or liable to have detrimental impact on the commercial banks’ market position, since data of the Central Bank of Iceland shows that increasing numbers of households are refinancing existing HFF mortgage loans with new loans from the commercial banks.

Substance

First plea: support for the HFF must be qualified as new aid

134 The Government of Iceland submits that this plea is completely unfounded and inadmissible, as no part of the contested decision concerned the question whether the HFF general loan scheme was to be qualified as existing aid and not new aid. Were the applicant to be allowed to challenge the operative part of the 2008 Decision this would circumenvent the time-limint prescribed by Article 36 SCA. Thus, any plea made by the applicant relating to new aid should be dismissed as inadmissible.

Third plea: Wrongful interpretation of the notion of an SGEI pursuant to Article 59(2) EEA

First branch of the third plea: no service of general economic interest

135 The Government of Iceland submits that the EFTA States enjoy a wide discretion in defining SGEIs and may take account of objectives pertaining to their national policy when defining the services entrusted to certain undertakings, while ESA’s competence is, in this respect, limited to verifying whether an EFTA State has made a manifest error in defining the service as an SGEI. The SGEI Decision only applies to certain undertakings, exempting aid to such undertakings from notification requirements. IFSA’s arguments that the SGEI Decision is intended to exhaustively regulate which services relatingPage
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to housing policies may be considered SGEIs contradicts the very terms of the SGEI Decision, as well as ESA’s framework for assessing State aid to SGEIs not falling within its scope. Further, the Court has acknowledged that the objective of security and equal housing by providing loans on manageable terms to the general public throughout the territory of Iceland goes beyond the normal economic interest of operators in the financial sector.97 There is no indication in the decisional practice of the Commission referred to by IFSA that market conditions comparable to those in Iceland prevail in the relevant EU countries.

97 Reference is made to Bankers’ and Securities Dealers’ Association of Iceland v ESA, cited above, paragraph 68.

136 The Government of Iceland stresses that there are fundamental differences between the lending of the HFF and the banks. First, the HFF’s lending is based on a universal service objective for the purchase of modest dwellings. Banks focus lending in the capital area. Second, the HFF is only permitted to offer one type of product, the indexed loan that, until July 2015, had a maturity of 40 years. Third, the HFF’s mortgage loans are restricted to the purchase or renovation of residential property. Fourth, HFF funding, through the issuance of long-term HFF bonds, ensures the same interest rates during the entire term of the loan.

137 According to the Government of Iceland, information from the Central Bank of Iceland indicates that market failure existed over four years from the start of 2008 and IFSA has failed to present any evidence leading to a different conclusion. Data submitted by IFSA is partly incomplete as it counts mortgage loans with no indication as to the purpose of the loan. Further, the information is from prior to 2008. Although in 2012 there was some increase in the commercial banks’ mortgage lending, it was not yet possible to assert that the market had stabilised. As it was considered that the market failure wouldPage
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not be permanent, a review mechanism was introduced and the first review took place in spring 2014. HFF lending has decreased considerably since 2012 and an increasing number of households are refinancing existing HFF mortgage loans with loans from commercial banks.

138 With regard to IFSA’s allegations concerning the unsuitability of using the taxation value for calculation of the value cap leading to residential property with a higher actual market value being eligible for HFF funding, the Government of Iceland submits that this has no bearing on the qualification of the HFF as a provider of an SGEI. The taxation value, moreover, offers predictability for home buyers as to which property may qualify for a loan from the HFF.

139 As regards the notion of the average resident of Iceland, the Government of Iceland contends that the objective of the HFF is to ensure lending on manageable terms to the average resident and ensure social and geographical cohesion, which has not been provided by the market in a sufficiently stable and consistent matter. In order to ensure availability of mortgage financing for the population at large, it was not considered logical to introduce any form of means testing to exclude the more affluent section of the population. As for the exception to the “one person, one property” rule criticised by IFSA, the Government of Iceland asserts that for such exception to apply an applicant has to sign a commitment to sell the property when it is no longer used for the relevant members of the family. Further, contrary to IFSA’s allegation, there is a serious shortage of supply for student housing in the capital area, with long waiting lists for university and college student housing provided by associations and no eligible student housing for upper secondary students.

140 Finally, the Government of Iceland submits that the applicant’s allegations regarding safeguards concerning the implementation of changes are unfounded, since a review resulting in reductions in the valuePage
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of eligible properties took place only four months prior to the lodging of the application. The applicant’s predictions regarding future reviews are speculative and the establishment of the review mechanism reflects the discretion enjoyed by the Government of Iceland.

Third branch of the third plea: disproportionality of the aid scheme

141 The Government of Iceland submits that, due to the State’s wide discretion to provide financing for housing in accordance with its policy, the form of the HFF is irrelevant. Moreover, IFSA’s claim that the commercial banks ensured a continuous provision of housing mortgage loans under manageable terms is unsubstantiated. Finally, no aggressive interest rate policy exists, as the rates are traditionally determined on the basis of long term funding plus a regulated margin to cover cost.

Fourth branch of the third plea: disproportionate effects on trade by the aid scheme

142 The Government of Iceland submits that the operations of the HFF do not have a disproportionate effect on trade, as facts show that HFF lending has steadily decreased and since the restructuring of the major commercial banks the HFF has only been a minor provider of loans in the household financing market. The State’s compensation to HFF had the aim to provide for losses of the past and prepayment losses and not to enhance its ability to enter the market.

European Commission

Admissibility

143 The Commission submits that, in the context of annulment actions directed against State aid decisions, to be considered individually concernedPage
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it suffices for an applicant to show that it is an “interested party” pursuant to Article 1(h) of Part II of Protocol 3 SCA if that applicant is seeking to vindicate its procedural rights arising when interested parties are invited to participate in a formal investigation procedure. However, unlike the situation in Case E-9/04 The Bankers’ and Securities Dealers’ Association of Iceland v ESA, there is no possibility under Protocol 3 SCA for ESA to open a formal investigation procedure once the EFTA State concerned accepts the appropriate measures proposed by ESA to modify the existing aid scheme.

144 It is for the applicant to demonstrate individual concern by showing that the decision it challenges affects them by reason of certain attributes which are peculiar to them or by reason of a circumstance in which they are differentiated from all other persons and by virtue of those factors distinguishes them individually just as in the case of the person addressed.98

98 Reference is made to Plaumann v Commission, cited above, p. 107.

145 It is not enough for an applicant to be an actual or potential competitor of the beneficiary of the measure examined in that decision. Rather, there must be a real competitive relationship between the applicant and the beneficiary, and the market position of the applicant must be substantially affected by the measures. Accordingly, an applicant must demonstrate the magnitude of the prejudice to its market position.99 That test must be conducted by reference to the beneficiary of the aid measure at issue.100 The fact that an annulment action is brought by an association bringing togetherPage
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the competitors of the aid beneficiary does not overcome that hurdle, unless it shows that one or more of its members is particularly affected by the aid measure in question.101

99 Reference is made to TF1 v Commission, cited above, paragraph 77, and Werkgroep Commerciële Jachtshaven Zuidelijke Randmeren and Others v Commission, cited above, paragraph 53.

100 Reference is made to TF1 v Commission, cited above, paragraphs 78 and 91, Case T54/07 Vtesse Networks v Commission [2011] ECR II6, and Case T-58/10 Phoenix-Reisen and DRV v Commission, order of 11 January 2012, published electronically, paragraphs 35, 44, 47 and 50.

101 Reference is made to Case T-601/11 Dansk Automat Brancheforening v Commission, judgment of 26 September 2014, published electronically, paragraph 52.

146 The Commission adds that it will not be sufficient for the applicant to invoke the fact that the beneficiary has a major market position, or that the applicant is the main competitor. Instead, the applicant will have to show a causal link between the factual elements it invokes and the prejudice to its market position102 by reference to a number of concrete factors and not simply speculation.103 Moreover, participation in the administrative proceedings leading to the adoption of a decision after a formal investigation procedure is neither necessary nor sufficient to be individually concerned, as only a significant effect on its market position will suffice.104

102 Reference is made to Vtesse Networks v Commission, cited above, paragraphs 98 and 101 to 104, and Case T-344/10 UPS Europe and United Parcel Service Deutschland v Commission, order of 4 May 2012, published electronically, paragraphs 55 and 56.

103 Reference is made to Case T-90/09 Mojo Concerts and Amsterdam Music Dome Exploitatie v Commission, order of 26 January 2012, published electronically, paragraphs 43, 50 and 51, and UPS Europe and United Parcel Service Deutschland v Commission, cited above, paragraphs 55 and 56.

104 Reference is made to Case T-88/01 Sniace v Commission [2005] ECR II-1165, paragraphs 56 and 57, Case C-260/05 P Sniace v Commission [2007] ECR I-10005, paragraphs 57 and 60, and Vtesse Networks v Commission, cited above, paragraphs 90 to 94.

147 According to the Commission, associations of undertakings can be individually concerned, for Plaumann purposes, by State aid decisions on two main grounds: either because the decision affects directly and individually the association in its own rights or because its members are directly and individually concerned. Whereas the latter situation does not apply here, had the association shown that it had a role as a negotiator with the Commission or ESA which is affectedPage
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by the contested decision, this could have demonstrated individual concern.105

105 Reference is made to Van der Kooy v Commission, cited above, and CIRFS and Others v Commission, cited above.

148 The Commission contends that IFSA has not demonstrated locus standi and, consequently, the application should be dismissed as inadmissible.

Substance

149 The Commission limits itself to setting out the elements regarding the concept of an SGEI, fully subscribing to ESA’s submissions for the remainder. There is no general definition in EU law of the notion of SGEIs and no established concept definitively fixing the conditions that must be satisfied before a Member State can invoke the existence of an SGEI. The concept is dynamic and evolves depending on, among other things, the needs of citizens, technological and market developments, and social and political preferences. SGEIs are services that exhibit special characteristics as compared with those of other economic activities.106 Member States have a wide discretion when defining an SGEI, which can be only called into question in the case of a manifest error.107 In spheres which do not fall within the powersPage
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of the Union or are based on only limited or shared Union competence the determination of the nature and the scope of an SGEI objective remains, in principle, within the competence of the Member States.108 However, the existence of a market failure at the moment of the entrustment of the SGEI and during the entire duration of the entrustment of the SGEI provider is a necessary condition.109 Where there are other, non-entrusted, undertakings operating under normal market conditions that already provide or could provide a service satisfactorily and under conditions such as price, objective quality characteristics, continuity and access to the service that are consistent with the public interest, there is no market failure. Hence, it is not appropriate to attach a public service obligation to such a service.110 In addition, universality and compulsory nature are necessary features of an SGEI. Universality does not mean that the service in question must respond to a need common to the whole population or be supplied throughout the country, nor does it require that the price be regulated, be subject to a cap or that the service be provided free of charge or without consideration of economic profitability. It is sufficient that the service in question is offered at a uniform price, at non-discriminatory rates, and on similar conditions for all customers.111 The compulsory nature has to be understood as meaning that the entrusted undertaking is, in principle, required to offer the service in questionPage
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and is obliged to contract, on consistent conditions, without being able to reject the other contracting party.112

106 Reference is made to Merci convenzionali porto di Genova, cited above, paragraph 27, Case C-242/95 GT-Link v De Danske Statsbaner [1997] ECR I-4449, paragraph 53, and Case C-266/96 Corsica Ferries France v Gruppo Antichi Ormeggiatori del porto di Genova and Others [1998] ECR I-3949, paragraph 45.

107 Reference is made to Merci convenzionali porto di Genova, cited above, paragraph 27; De Danske Statsbaner, cited above, paragraph 53; Joined Cases C-34/01 to C-38/01 Enrisorse [2003] ECR I-14243, paragraphs 33 and 34; and Case T-309/12 Zweckverband Tierkörperbeseitigung v Commission, judgment of 16 July 2014, published electronically. Additional reference is made to the Commission’s decision practice: Commission Decision C(2012) 1731 final of 21.03.2012 – State aid SA.31.550 (2012/C) (ex 2012/NN) – Germany – Nürburgring, OJ 2012 C 216, p. 14, recital 192, and Commission Decision 2014/19/EU of 19 June 2013 on State aid No SA.30753 (C 34/10) (ex N 140/10) which France is planning to implement for horse racing companies, OJ 2014 L 14, p. 17, recital 45.

108 Reference is made to BUPA and Others v Commission, cited above, paragraph 167.

109 Reference is made to Case T-325/10 Iliad and Others v Commission, judgment of 16 September 2013, published electronically, paragraphs 169, 185 and 187.

110 Reference is made to Case C-205/99 Analir [2001] ECR I-1271, and Communication from the Commission on the application of the European State aid rules to compensation granted for the provision of services of general economic interest, OJ 2012 C 8, p. 4, point 48.

111 Reference is made to BUPA and Others v Commission, cited above, paragraphs 202 and 203.

112 Ibid., paragraphs 188 to 190.

150 The Commission respectfully suggests that on the basis of those criteria the Court can review whether ESA made a manifest error in the contested decision in accepting that Iceland had not itself made a manifest error in designating the activities entrusted to the HFF as an SGEI.

Carl Baudenbacher
Judge-Rapporteur