Case C-76/13, Commission v. Portugal

Court taking into account financial crisis when setting amount penalty payment Portugal

>> Portugal Telecom (PTC, HQ pictured) is the largest telecommunications operator in Portugal and
also operates in numerous other countries such as  Brazil. In 1995 the Portuguese Government granted it the exclusive right to operate the public telecommunications service. In principle, it was granted that right until that activity was liberalised in accordance with EU law.

The Universal Service Directive (Directive 2002/22) adopted in 2002, provides that every Member State is to designate the undertakings that are to provide the universal service while observing the principles of objectivity, transparency, non-discrimination and proportionality. That directive was to be transposed by the Member States by 24 July 2003. However, after 2003 PTC continued to be the exclusive provider, reason for which the European Commission in  2005 initiated the pre-litigation procedure and in 2009, brought infringement proceedings against Portugal before the Court of Justice. In 2010, the Court held that Portugal had failed to transpose correctly the provisions of the Universal Service Directive and to ensure that those provisions were in practice applied.

In 2013, the Commission decided to  bring new infringement proceedings, since the concession contract concluded with PTC was still in force. In fact, it was not until October 2012 that Portugal had launched the tendering procedure for the selection of the universal service providers. Furthermore, the new legislation to repeal the legislation incompatible with EU law would not enter into force until 1 June 2014. Moreoever, termination of the contract concluded with PTC was not provided for before 2025.

The Commission argued that Portugal should be ordered to make a penalty payment of €43 500 for every day of delay in complying with the judgment of 2010 and to pay a fixed-rate sum of €5 000 for every day from the date of delivery of the judgment of 2010 until the date of Portugal’s compliance with that judgment or the date on which the Court delivers judgment in the new infringement proceedings.

The Court agreed that it was appropriate to order Portugal to pay a lump sum and to make a penalty payment. The Court also found that the duration of the infringement, which was nearly three and a half years, including 28 months’ delay in complying with the 2010 judgment, was excessive.The Court stressed the seriousness of the infringement, emphasising not only that the failure to transpose  a Directive was an obstacle to the proper functioning of the internal market, but also that  the failure to comply with the judgment of 2010 had adverse consequences for both private interests - the competitors of PTC -  and public interests - those of  the end-users.

With regard to the lump sum, the Court observed that the failure to comply with the judgment of 2010 has prejudiced private and public interests. In addition, it emphasised that the concession contract under which PTC was to be the provider of the universal service until 2025 was approved on 17 February 2003, after the directive had entered into force, and that the Member States were required to transpose that directive into national law by 24 July 2003 at the latest. The Court has found that these matters make it necessary to adopt a deterrent measure, such as an order to pay a lump sum.

Nevertheless, the Court also found that - next to the fact that  tendering procedures were launched in October 2012  - Portugal’s ability to pay  had been reduced in the context of the economic crisis.  The Court stressed that  a penalty payment had to be an appropriate financial means of ensuring full compliance with the judgment concerned. However,  it found that the sum proposed by the Commission would not be proportionate.

The Court found that it was proportionate to order Portugal to pay a lump sum of €3 million and also to make a penalty payment of €10 000 for every day of delay in implementing the measures necessary in order to comply with the 2010 judgment.

Text of Judgment