1.

Estonian law provides that road transport undertakings must transport certain categories of passenger (in short, children of pre-school age and persons with disabilities) free of charge.

2.

The Tallinna Halduskohus (Administrative Court, Tallinn, Estonia) asks, essentially, whether that legal duty comes within the concept of ‘public service obligation’, as defined by Regulation (EC) No 1370/2007,  ( 2 ) and, if so, whether the undertakings concerned are entitled to receive compensation for the associated loss of revenue.

I.

Legal framework

A.

European Union law. Regulation No 1370/2007

3.

Pursuant to Article 1 (‘Purpose and scope’):

4.

Article 2 (‘Definitions’) reads:

5.

In accordance with Article 3 (‘Public service contracts and general rules’):

6.

Article 4 (‘Mandatory content of public service contracts and general rules’) reads:

7.

Article 6 (‘Public service compensation’) provides:

8.

In accordance with the annex (‘Rules applicable to compensation in the cases referred to in Article 6(1)’):

B.

Estonian law. Ühistranspordiseadus,  ( 3 )

9.

Paragraph 34 provides:

II.

Facts, dispute and questions referred for a preliminary ruling

10.

On 5 June 2019, Eesti Buss OÜ and AS Lux Express Estonia, undertakings providing road passenger transport on a commercial basis,  ( 4 ) applied to the Estonian Minister for Economic Affairs and Infrastructure for compensation for lost revenue of ticket sales under Paragraph 34 of the ÜTS.

11.

On 10 July 2019, the Minister for Economic Affairs and Infrastructure rejected the applications arguing that, in accordance with Paragraph 34 of the ÜTS, the undertakings were not entitled to any compensation for providing transport free of charge for passengers belonging to the categories defined therein.

12.

On 12 August 2019, Lux Express Estonia brought an action before the Tallinna Halduskohus (Administrative Court, Tallinn, Estonia), in which it sought, principally, damages  ( 5 ) and, in the alternative, an order for the payment of financial compensation in a reasonable amount, as set by the court, together with interest.

13.

According to the referring court:

14.

The referring court also asks whether, in the event that Regulation No 1370/2007 is not applicable, the basis for compensation may be found in another EU act (for example, the Charter of Fundamental Rights of the European Union (‘the Charter’)) or whether the dispute must be settled under national law alone.

15.

Lastly, if the transport operator must be awarded compensation, the national court’s uncertainties also extend to the conditions for calculating the amount of that compensation in a way that is compatible with the EU rules on State aid.

16.

Against that background, the Tallinna Halduskohus (Administrative Court, Tallinn) has referred the following questions to the Court of Justice for a preliminary ruling:

III.

Procedure before the Court of Justice

17.

The request for a preliminary ruling was received at the Registry of the Court of Justice on 18 November 2020.

18.

Written observations were lodged by Lux Express Estonia, the Estonian Government and the European Commission.

19.

It was not considered necessary to hold a hearing.

IV.

Assessment

A.

Question 1

20.

In the Republic of Estonia, the organisation of public passenger transport is governed by the ÜTS. Its scope includes passenger transport by road, which may be in the form of regular or occasional services and taxi services.

21.

Regular services, which include means of public transport by road, are provided either under public service contracts or in the form of commercial services.  ( 6 )

22.

The tariff applicable to regular commercial services is set by the transport operator. For regular services provided under a public service contract, the maximum tariff per kilometre or the maximum ticket price is set by the competent authority.

23.

Under Paragraph 34 of the ÜTS, any operator which provides a regular domestic service has a duty to transport free of charge certain categories of passenger, such as children of pre-school age and persons with disabilities, as set out above.  ( 7 ) The operator receives no compensation for transporting those passengers free of charge.

24.

By its first question, the referring court asks whether the duty to provide free transport laid down by Estonian law is covered by the concept of public service obligation within the meaning of Regulation No 1370/2007.

25.

Regulation No 1370/2007 defines ‘public service obligation’ as ‘a requirement defined or determined by a competent authority in order to ensure public passenger transport services in the general interest that an operator, if it were considering its own commercial interests, would not assume or would not assume to the same extent or under the same conditions without reward’.  ( 8 )

26.

The imposition of public service obligations is a method whereby the competent authorities may intervene in the passenger transport sector, which Regulation No 1370/2007 classifies as a service of general economic interest (Article 2(a)). The aim of this is ‘… to guarantee the provision of services of general interest which are among other things more numerous, safer, of a higher quality or provided at lower cost than those that market forces alone would have allowed’.  ( 9 )

27.

For the purpose of creating a public service obligation, Regulation No 1370/2007 provides that two types of legal tool may be used: public service contracts and general rules.  ( 10 )

28.

Included among the public service obligations which Regulation No 1370/2007 cites by way of example are, specifically, those ‘which aim at establishing maximum tariffs for … certain categories of passenger’ by means of general rules (Article 3(2) of Regulation No 1370/2007).

29.

The Estonian Government acknowledges that Paragraph 34 of the ÜTS  ( 11 ) imposes the disputed obligation on commercial transport operators, with a view to ‘enabling families with young children and persons with disabilities to use public transport by making it more affordable and accessible for them’.  ( 12 )

30.

That assertion by the Estonian Government makes it quite clear that the establishment of a ‘zero’ tariff for certain social groups on commercial bus routes pursues a public interest aim, in accordance with social criteria.

31.

That social interest would not be covered free of charge by an operator which cared only about the profits deriving from its commercial operation. The provision of a service without remuneration is alien to the logic of the market and, therefore, the law converts the duty to provide free transport into a mandatory public service obligation (imposed by a ‘general rule’ in this case).

32.

Thus, Paragraph 34 of the ÜTS reflects a genuine public service obligation, imposed on operators providing a regular domestic service, which consists of transporting certain categories of passenger free of charge.  ( 13 )

33.

Since the ÜTS takes the tariff limitation to its limits (‘zero’ amount), the outcome is that, by means of a general rule, transport operators are made subject to a genuine public service obligation aimed at favouring ‘certain categories of passenger’.

34.

A separate issue is whether, under Regulation No 1370/2007, that obligation must be accompanied by compensation  ( 14 ) payable to the transport operator, which is the subject of question 2.

B.

Question 2

35.

The referring court rightly takes the view that, if the ÜTS lays down a public service obligation within the meaning of Regulation No 1370/2007, any transport operator fulfilling that obligation must, in principle, be compensated under Articles 3(2) and 4 of that regulation.

36.

However, the referring court is uncertain whether, under Article 4(1)(b)(i) of Regulation No 1370/2007, a Member State is entitled, by virtue of a national law, to avoid the payment of such compensation to a transport operator and, if so, under what conditions.

37.

The examination of this question must deal, first of all, with the issue of compensation and, second, with the possible exclusion of that compensation under Article 4(1)(b)(i) of Regulation No 1370/2007.

1.

Consideration for public service obligations

38.

Regulation No 1370/2007 provides for consideration  ( 15 ) in return for compliance with public service obligations that are costly for the undertakings concerned. Any transport operator which assumes those obligations is entitled to compensation  ( 16 ) or to the grant of an exclusive right.  ( 17 )

39.

The concept of ‘public service compensation’ creates a link between a benefit, particularly financial, and the implementation of a public service obligation which involves the provision of services of no commercial interest.

40.

The precursors to Regulation No 1370/2007 took the same approach, which may be termed ‘remunerative’:

41.

The principle of paying compensation for the costs deriving from public service obligations is now reflected in a number of provisions of Regulation No 1370/2007:

42.

This has the effect of ensuring that, where public service obligations are costly, those obligations are not financially detrimental to the operators who have to discharge them: those operators are, I repeat, either compensated for the costs incurred as a result of the obligations or granted exclusive rights.

43.

Therefore, Regulation No 1370/2007 does not provide that the costs incurred as a result of public service obligations laid down for the benefit of certain categories of passenger are to be borne solely by transport operators (if that were the case, as the referring court states, it is unlikely that anyone would agree to provide the service, which is of no commercial interest in itself).

44.

In summary, those obligations, which may be reflected in a public service contract or, as occurs here, in a general rule, must be accompanied by appropriate financial compensation or by the grant of an exclusive right.

45.

It is important to note that general rules relating to tariffs such as those at issue in these proceedings are not of the same nature as rules relating to passenger safety, environmental and employment protection and transport service quality standards.  ( 23 ) Compliance with those standards, in so far as they shape the regulatory – as opposed to the tariff – framework in which the activity is performed, does not qualify for compensation.

2.

Is it possible to exclude consideration?

46.

Article 4(1)(b)(i) of Regulation No 1370/2007 refers to ‘the parameters on the basis of which the compensation payment, if any, is to be calculated’.  ( 24 )

47.

That provision, the interpretation of which the referring court seeks, should not be read as though it gives Member States the power to grant or refuse compensation. Rather, it reflects the possibility that, where a public service contract is entered into pursuant to Article 3(1) of Regulation No 1370/2007, ‘a competent authority [may decide] to grant the operator of its choice an exclusive right’, as an alternative to financial compensation.

48.

While the consideration ‘in return for the discharge of public service obligations’, as required by Article 3(1), has to be recorded in a public contract,  ( 25 ) that will not be the case where the obligation consisting of setting maximum tariffs is imposed by ‘general rules’ (Article 3(2) of Regulation No 1370/2007).

49.

As I have already observed, in the latter situation (which is the situation in this case), in accordance with Article 3(2) of Regulation No 1370/2007, ‘the competent authority shall compensate the public service operators for the net financial effect, positive or negative, on costs incurred and revenues generated in complying with the tariff obligations established through general rules in a way that prevents overcompensation.’

50.

It could be counter-argued that, since the public service obligation affects all transport operators equally, there is no reason why compensation should be payable in respect of it, since it does not involve competitive disadvantages for some to the benefit of others.

51.

However, I do not believe that Regulation No 1370/2007 supports that view.

52.

The Court ruled that Regulation No 1191/69, the precursor to the current regulation, authorised ‘the Member States to impose public service obligations on a public undertaking entrusted with the provision of public passenger transport in a municipality and that it [provided] for compensation to be granted in respect of the financial burdens resulting therefrom; the amount of such compensation is to be determined in accordance with the provisions of that regulation.’  ( 26 )

53.

Regulation No 1370/2007 provides an equivalent basis for maintaining that position. The fact that, in the case giving rise to the judgment in Antrop, the operator was a public undertaking while in this case it is a private undertaking does not create an obstacle.  ( 27 ) Rather, the imposition of a costly public service obligation on private entities of a commercial nature, which are deprived of some of the remuneration inherent in their activity,  ( 28 ) justifies the introduction of compensation payments to balance the negative effects which may have an impact on their competitiveness in the market.

54.

It is true that Regulation No 1370/2007 ensures that overcompensation, which would constitute State aid, to which I shall refer below, does not occur. It therefore lays down a number of containment mechanisms,  ( 29 ) but does not permit the imposition of public service obligations, such as that at issue here, without compensation.

55.

The Court has dealt with the scale of compensation payments and their compatibility with the State aid rules.  ( 30 ) Unless I am mistaken, the Court has not given a ruling on national legislation which simply excludes the payment of compensation in the passenger transport sector for the discharge of public service obligations such as that under examination now.

56.

In the judgment in Altmark,  ( 31 ) the Court examined the lawfulness of certain public subsidies which were intended to enable the operation of regular transport services. When determining whether those subsidies were subject to Article 107 TFEU, the Court had to assess whether they were to be ‘regarded as compensation for the services provided by the recipient undertakings in order to discharge public service obligations’.  ( 32 )

57.

The judgment in Altmark thus presupposed that an undertaking responsible for the discharge of clearly defined public service obligations was entitled to consideration (reimbursement), the calculation of which was not to exceed what was necessary to cover all or part of the costs incurred in discharging the public service obligations.  ( 33 )

58.

Accordingly, the judgment in Altmark confirmed the general principle (that a transport operator should be compensated for a public transport obligation that is costly for it), and also dealt with setting out the conditions ‘for such compensation to escape classification as State aid in a particular case’.  ( 34 )

59.

The particular feature of this dispute is, as I have noted, the fact that the national law excludes compensation. Against that background, it must be established whether Regulation No 1370/2007 can be used as a basis for the service provider to demand compensation from the authorities of the Member State.

60.

In my view, the right to receive payment for the provision of the services supplied to users is inseparable from the pursuit of a commercial activity in the road passenger transport sector, where the transport undertaking has no revenue other than fare revenue.  ( 35 ) Payment for those services is met either by users or by the authorities which impose the obligation to transport users free of charge.

61.

Moreover, the limitation imposed does not affect ‘mere commercial interests or opportunities, the uncertainties of which are part of the very essence of economic activity, but applies to rights with an asset value creating, under the legal system, an established legal position enabling the holder to exercise those rights autonomously and for his benefit’.  ( 36 )

62.

Accordingly, Article 4(1)(b)(i) of Regulation No 1370/2007 does not authorise the exclusion of appropriate compensation in a situation such as that at issue.

C.

Question 3

63.

By the third question, the referring court seeks to ascertain whether Article 3(3) of Regulation No 1370/2007 provides a basis for excluding from the scope of that regulation general rules for establishing maximum tariffs for categories of passenger other than those referred to in that provision.  ( 37 )

64.

Pursuant to Article 3(3) of Regulation No 1370/2007, Member States may exclude from the scope of the regulation ‘general rules on financial compensation for public service obligations which establish maximum tariffs for pupils, students, apprentices and persons with reduced mobility.’

65.

That option is conditional on the Member State notifying the Commission of those general rules, providing ‘complete information on the measure and, in particular, details on the calculation method.’

66.

The previous rules, contained in Regulation No 1191/69,  ( 38 ) also laid down a similar option, applicable to undertakings whose activities are confined exclusively to the operation of urban, suburban or regional services.

67.

As in other cases already examined by the Court,  ( 39 ) the conditions laid down in Article 3(3) of Regulation No 1370/2007 are not satisfied in this case either, in the light of the information provided in the order for reference and the observations of the parties who have participated in the preliminary ruling proceedings.

68.

There is nothing in the information and observations concerned to indicate that the Republic of Estonia expressed the intention to exclude its general rules (on maximum tariffs applicable to certain categories of person) from the scope of Regulation No 1370/2007, or that it notified any such rules to the Commission.

69.

In those circumstances, the third question is rather hypothetical in nature (and, therefore, inadmissible), since the factual condition to which the application of Article 3(3) of Regulation No 1370/2007 is linked is not fulfilled in the dispute.

70.

In any event, the power to exclude those general rules from the scope of Regulation No 1370/2007 does not authorise Member States to disregard the requirements derived from other rules and principles of EU law. I do not believe there is any need for me to expand on this point, for, as I have already noted, the Republic of Estonia has not made use of that option.

D.

Question 4

71.

The fourth question is raised in the event that ‘Regulation No 1370/2007 is not applicable in the present case’. In those circumstances, the referring court asks whether the grant of compensation may be based on another legal act of the Union, such as the Charter.

72.

It is not necessary to reply to that question, in view of the fact that Regulation No 1370/2007 applies to the dispute and that it sets out the rules applicable to compensation inherent in public service obligations which are laid down by general rules.

73.

There is therefore no need to refer to the Charter in order to provide legal cover for the compensation payments with which these proceedings are concerned.

74.

The Charter may be used as an interpretation tool in view of the fact that, as the Estonian Government acknowledges, Paragraph 34 of the ÜTS entails a limitation of the fundamental rights of transport operators. The Estonian Government repeats more than once  ( 40 ) that Paragraph 34 does not excessively limit the freedom to conduct a business  ( 41 ) and the right to property, thus agreeing that such a limitation exists.

75.

Limitations of fundamental rights may be permissible if regard is had to Article 52(1) of the Charter.  ( 42 ) For the sectors in which the European Union exercises its powers, such as the road passenger transport sector, the balance between the recognition of a fundamental right and permissible limitations (based on legitimate objectives of general interest) under that article of the Charter, is struck by the Union.  ( 43 )

76.

As far as compensation payable for public service obligations in the road passenger transport sector is concerned, that balance is struck by the provisions of Regulation No 1370/2007.

E.

Question 5

77.

The referring court asks ‘what conditions must the compensation, if any, to be granted to the carrier meet in order to comply with the State aid rules’.

78.

Worded thus, the question resembles an enquiry rather than a genuine question referred for a preliminary ruling which seeks the interpretation of specific provisions of EU law that have a bearing on the dispute.

79.

Inevitably, the reply must be equally abstract and confined to pointing out that:

80.

The function of applying those criteria to the dispute goes beyond the role of interpreting EU law, which Article 267 TFEU assigns to the Court. It is, therefore, for the referring court to determine whether, in this case, the amount of compensation should be estimated as any loss of profits suffered by the transport undertaking, calculated by reference to the basic ticket price or such other criteria as the referring court may consider appropriate. The provisions of the annex to Regulation No 1370/2007, to which the referring court refers in the final part of the order for reference, will provide it with guidance for that task.

V.

Conclusion

81.

In the light of the foregoing considerations, I propose that the Court of Justice reply as follows to the Tallinna Halduskohus (Administrative Court, Tallinn, Estonia):