Dialogue or disobedience between the European Court of Justice and the Danish Constitutional Court? The Danish Supreme Court challenges the Mangold-principle

Sune Klinge, PhD Fellow, Centre for Comparative and European Consitutional Studies, Faculty of Law, University of Copenhagen

Following the Court of Justice’s judgment in Case C-441/14 in the Ajos-case earlier this year, the Supreme Court of Denmark has handed down its judgment in the main proceedings. Despite the fact that the preliminary ruling left the Supreme Court with only two options; (1) apply national law in a manner that is consistent with the directive or (2) disapply any provision of national law that is contrary to EU law the Danish Supreme Court did neither. The Danish Supreme Court found that an interpretation consistent with EU law was not possible nor could the Supreme Court set aside national law since the Danish EU Accession Act did not confer sovereignty to the extent required for the unwritten EU principle prohibiting discrimination on the grounds of age to take precedence over national law. If the courts were to set aside national law they would be acting outside their constitutional limits to their competences as judicial power. Thereby the Supreme Court chose a third option and set aside the judgement from the CJEU.

This case from the Danish Supreme Court no. 15/2014 deals with the scope of Directive 2000/78 (the EU employment equality Directive) and the general principle of non-discrimination on grounds of age, adding another case to the ECJ’s Mangold and Kücükdeveci case law (on the requirement for national courts to suspend national law which breaches the principle of age discrimination) under Danish law.

The CJEU’s ruling in the Ajos-case has previously been discussed here. Consequently, only the main conclusions needed to fully understand the judgment in the main proceedings under Danish law will be revisited.

The Danish Supreme Court referred the following questions to the CJEU: The first question was related to the compliance of the national rules implementing the Directive and the application of the principle of non-discrimination on grounds of age. The second question formulated by the Danish Supreme Court referred to the balancing of rights and principles, and will be cited in full, since it contributes to the understanding of the judgment from the Danish Supreme Court last week:

“Is it consistent with EU law for a Danish court hearing an action in which an employee seeks from a private-sector employer payment of a severance allowance which, under the Danish law described in question 1, the employer is not bound to pay, even though that is contrary to the general EU principle prohibiting discrimination on grounds of age, to weigh that principle and the issue of its direct effect against the principle of legal certainty and the related principle of the protection of legitimate expectations and to conclude on that basis that the principle of legal certainty must take precedence over the principle prohibiting discrimination on grounds of age, such that the employer is, in accordance with national law, relieved of its obligation to pay the severance allowance and, in order to determine whether such a balancing exercise may be carried out, is it necessary to take into consideration the fact that the employee may, in appropriate cases, claim compensation from the Danish State on account of the incompatibility of Danish law with EU law?” (my underlining)

The CJEU openly rejected the solution offered by the Supreme Court, leaving it for the national courts to balance the EU principles against each other, and gave clear guidance on how the Supreme Court were to settle the case:

“EU law is to be interpreted as meaning that a national court adjudicating in a dispute between private persons falling within the scope of Directive 2000/78 is required, when applying provisions of national law, to interpret those provisions in such a way that they may be applied in a manner that is consistent with the directive or, if such an interpretation is not possible, to disapply, where necessary, any provision of national law that is contrary to the general principle prohibiting discrimination on grounds of age. Neither the principles of legal certainty and the protection of legitimate expectations nor the fact that it is possible for the private person who considers that he has been wronged by the application of a provision of national law that is at odds with EU law to bring proceedings to establish the liability of the Member State concerned for breach of EU law can alter that obligation” (my underlining)

On this basis the hearing before the Supreme Court took place 11 and 14 November 2016, and bearing the CJEU’s guidance in mind, the Supreme Court had to decide whether the private employer could rely on the Danish rules and not pay severance allowance to the employee.

As emphasized above in the quotation, the preliminary ruling left the Supreme Court with only two options; (1) applying national law in a manner that was consistent with the Directive or (2) disapplying any provision of national law that was contrary to EU law. The Danish Supreme Court did neither. The Supreme Court came to the conclusion that the national constitutional reservation had to take precedence over EU law according to the EU Accession Act.

Before entering into the extensive argumentation leading to this controversial conclusion, it is worth considering the circumstances and the dilemma of the Supreme Court leading to the decision to make a preliminary reference to the CJEU.

In the Danish case Ole Andersen from 12 October 2012 the CJEU found, that the Directive precluded national rules (same national rules as in the Ajos-case) regarding payment of severance allowance. Paragraph 2a(3) of the Danish Law on salaried employees held that:

No severance allowance shall be payable, if the employee will – on termination of the employment relationship – receive an old age pension from the employer and the employee has joined the pension scheme in question before attaining the age of 50 years.

The CJEU found that the Directive must be interpreted as precluding national legislation pursuant to which workers who are eligible for an old-age pension from their employer under a pension scheme which they have joined before attaining the age of 50 years cannot, on that ground alone, claim a severance allowance aimed at assisting workers with more than 12 years of service in the undertaking in finding new employment, and thereby overruling the national rule. 

In the national proceedings the Western High Court (the case was not tried at the Supreme Court) ruled in favor of the employee against a public authority as the employer – a vertical EU law relationship.

The question before the Supreme Court in the Ajos-case was if the same approach could be applied in a horizontal EU law relationship between two private individuals.

By referring the case to the CJEU, the Supreme Court highlighted a discussion carried out by the Advocates-General of the CJEU about the doctrinal basis of horizontal application of general EU principles.

Advocate General Kokott had in her opinion to the Ole Andersen-case questioned that the CJEU had relied directly on the general legal principle of the prohibition of age discrimination, stating that it was for the national court to set aside any provision of national law, which may conflict with that prohibition. She found in paragraph 22 that it appeared:

“to be a makeshift arrangement  for the purposes of resolving issues of discrimination in legal relationships between individuals, in which Directive 2000/78 is not as such directly applicable and cannot therefore replace national civil or employment law.”

The Advocate General also emphasized that the idea of an in-depth reappraisal and examination of the doctrinal basis of the controversial horizontal direct effect of general legal principles or fundamental rights between individuals were certainly appealing, but not necessary to resolve the case at hand.

Also Advocate General Trstenjak had in her opinion in the Dominguez-case reservations regarding legal certainty for private individuals and the risk of mixing sources of law as regard to directives as secondary law and general principles as primary EU law.

About the absence of legal certainty for private individuals she emphasized in paragraph 164, that

“the principle of legal certainty requires that rules involving negative consequences for individuals should be clear and precise and their application predictable for those subject to them. However, as it will never be possible for a private individual to be certain when an unwritten general principle given specific expression by a directive will gain acceptance over written national law there would, from his point of view, be uncertainty as to the application of national law similar to that experienced where a directive is directly applied in a relationship between private individuals”

The Danish Supreme Court raised the same concerns and by referring the Ajos-case to the CJEU aimed to find a solution by balancing the conflicting principles. By rejecting the solution by the Danish Supreme Court the CJEU offered no way out for the Danish Supreme Court, but to turn on a plate and apply EU law as told by the CJEU if compliance were to be secured.

The Danish Supreme Court did not act as expected; instead, they found their own way of solving the problem and securing legal certainty under Danish law.

The reasoning of The Supreme Court

Interpretation consistent with EU law

The Supreme Court held – in line with the formulation of its question to the CJEU in 2014 – that the legal position under Danish law was clear, and that it would not be possible to arrive at an interpretation of the national law that was consistent with the Directive as interpreted by the judgment of the CJEU in the Ole Andersen-case by using the methods of interpretation recognized under Danish law.

Reflecting on the application of the contra legem assessment made by the Supreme Court it is worth relating it to the harshly formulated paragraph 34 of the CJEU’s Ajos-judgment, where the CJEU stipulated, that:

“the national court [the Danish Supreme Court] cannot validly claim that it is impossible for it to interpret the national provision at issue in a manner that is consistent with EU law by mere reason of the fact that it has consistently interpreted that provision in a manner that is incompatible with EU law.”

This seems to reflect a different understanding by the CJEU of the concept of “contra legem”, and therefore the reasoning on that matter is given a strong voice in the Danish Supreme Court’s judgement. The Supreme Court explains in details that the legal position under Danish law was clear and was not only relying on the interpretation made by the Supreme Court itself. The position had been reaffirmed over the years since the Danish Parliament introduced the rule in 1971 and the Parliament kept the same wording of the provision in the later amendment in 1996. Consequently, the Supreme Court found that it could not change the legal position as the CJEU suggested by using the methods of interpretation recognized under Danish law.

Therefore, the Supreme Court found that it would be “contra legem” to interpret the national law in conformity with the Directive since the national legal position was clear. In this reasoning the Supreme Court and the nine judges acted unanimously.

The general principle of non-discrimination on grounds of age

In the second part of the judgement’s reasoning the majority of eight out of the nine judges came to the conclusion that the Supreme Court could not set aside national law since the Danish EU Accession Act did not confer sovereignty to the extent required for the unwritten EU principle prohibiting discrimination on the grounds of age to take precedence over national law.

The reasoning focuses on the lack of legal basis in the Danish EU Accession Act which is the Act that sets the limits of the conferred sovereignty to the EU in line with paragraph 20 of the Danish Constitution.

The Supreme Court went on to perform an in-depth analysis of the preparatory works of the Accession Act (travaux préparatoire) leading to Denmark joining the EU in 1972 and the subsequent amendments to the Accession Act.

The Supreme Court found that the Danish Parliament did not explicitly refer to the Mangold and Kücükdeveci case law in the preparatory works to the Lisbon Accession Act amendment. On this basis the Supreme Court arrived at the conclusion, that the CJEU did not have the competence or legal basis to give precedence to the unwritten principle prohibiting discrimination on grounds of age in a case where this was contrary to national law.

Reflecting further on the Mangold case of 2005, the Supreme Court also noted that the CJEU in the Mangold case law did not balance the legal certainty and the protection of legitimate expectations against the prohibition of discrimination on grounds of age. It is not clear if the Supreme Court finds that the result in the Mangold case would have been different if the CJEU had reflected on this balancing. By revisiting the finding in the CJEU’s Ajos case one could make the argument, that it would not have changed the result. 

The facts of the case – the dismissal of the employee - were before the Lisbon treaty entered into force the 1 December 2009. Consequently, the Supreme Court stressed that the application of any Charter provision since it was not legally binding and thereby disregarded the argument that the employee could rely on the Charter provisions.

After concluding that the Danish Accession Act does not provide legal basis in a horizontal relationship to give precedence to an unwritten EU law principle the Supreme Court adds:  

“If the Supreme Court in a situation like this were to set aside national law the Court would be acting outside their limits to their competences as judicial power.” (Translation made by the author)

And thereby, not only referring to the Accession Act and sovereignty but also to the separation of power in the Danish Constitution section 3 as it would require an act of parliament to amend the national rules and reassure compliance with EU law.

In the end it should be noted that one judge found that the EU law should take precedence over national law, and that there was no conflict with the Danish EU Accession Act following the Supreme Courts judgments in the Maastricht and Lisbon cases on sovereignty. The minority judge voted to follow the directions made by the CJEU.

Reflection and follow-up litigation

Last week’s judgement from The Danish Supreme Court can definitely be seen as disobedience as the CJEU’s guidance in the Ajos-case was very precise and gave the Supreme Court only two options, but the Supreme Court choose a third. Or it can be seen as contributing to the debate about the dialogue between the courts; it depends on the eyes of the beholder.

It surely adds a chapter to discussion on where the contra legem test is best performed; in the national law regimes or by the CJEU and it sets out the limits of the Danish Supreme Courts constitutional mandate in order to reassure compliance with EU law.

The likely aftermath of the case is also fascinating since the employee has brought an action against the Danish state claiming that the state is liable for the loss of severance pay. The liability case has been suspended on the decision from the Supreme Court.

Another possible outcome could be follow-up litigation from the EU Commission by launching infringement proceedings against Denmark as a Member State on the lack of effective legal protection under article 19 TEU or the duty of sincere cooperation under article 4 (3) TEU. In any case the Ajos-case will be revisited and have a major impact on the relationship between the EU and Denmark.

---ooOoo---

Please feel free to contact me if you want more information about the case or the related issues from a national Danish perspective. I am doing a PhD project about the horizontal effect of EU law and member state liability from a national Danish perspective. Before I joined Academia I was practicing lawyer at one of the leading law firms in Denmark working extensively with EU law.

Photo credit: wikipedia

Barnard & Peers: chapter 6; chapter 8; chapter 9; chapter 20

Human Rights and the European Arrest Warrant: Has the ECJ turned from poacher to gamekeeper?

Steve Peers*

From its panicked conception in the febrile months following the 9/11 terrorist attacks, the European Arrest Warrant (EAW) has been the flagship of EU criminal law. Replacing traditional extradition law with a fast-track system which scraps most of the traditional restrictions on extradition, it has alarmed critics concerned by miscarriages of justice, but thrilled supporters who welcomed the speedier return to justice of a greater number of fugitives.

Despite qualms by national constitutional courts, the ECJ has long been insouciant about the human rights critique of the EAW. It dismissed a challenge to the validity of the EAW law on human rights grounds, and (in effect) ridiculed a national court which asked if it was possible to refuse to execute an EAW due to human rights concerns, answering a ‘straw man’ argument the ECJ invented instead of the serious questions sent by the other court. In its Melloni judgment, the ECJ placed a ceiling on the application of national human rights protection to resist execution of an EAW; but it never enforced a corresponding floor for those rights. Again and again, the Court ruled that national courts could only refuse to execute EAWs on the limited grounds expressly mentioned in the EAW law, instead focussing exclusively on the need to make the EAW system as effective as possible.

However, since the entry into force of the Lisbon Treaty, this staunch approach has been mitigated by the adoption of six new EU laws on various aspects of fair trial rights – five of which also confer procedural rights on fugitives challenging the application of an EAW. (On the implementation of the first two of these laws, see the report just adopted by the EU’s Fundamental Rights Agency). In the last year, the ECJ has begun to interpret these laws (see the judgments in Covaci, Balogh and Milev).

But even apart from these fair trials laws, the ECJ in the last eighteen months has begun to show a striking concern for ensuring at least some protection for human rights within the EAW system. Last year, in Lanigan (discussed here), the Court ruled that if a fugitive was kept in detention in the executing State while contesting an EAW there, the limits on the length of detention in extradition cases set out in the case law of the European Court of Human Rights (ECtHR) apply, by virtue of the EU Charter of Fundamental Rights.

This spring, the ECJ turned its attention to detention conditions in the Member State which issued the EAW. Following soon after concerns expressed by the German constitutional court on these issues (discussed here), the ECJ ruled in Aranyosi and Caldaruru that the German authorities, when executing EAWs issued by Hungary and Romania, had to consider concerns raised by the fugitives about prison overcrowding in those countries, which had led to ECtHR rulings finding violations of Article 3 ECHR (freedom from torture or other inhuman or degrading treatment or punishment). The national court had to apply a two-step procedure in such cases, assessing whether there was a) a systemic failure to ensure decent prison conditions in those States, and b) a ‘real risk’ that the individual fugitive would be subject to such conditions if the EAW was executed.

What if these tests were satisfied? The ECJ was unwilling to backtrack from its position that the list of grounds to refuse to execute an EAW set out in the EAW law is exhaustive. Instead, it ruled that the executing State’s authorities had to postpone execution of the EAW until the situation in the issuing State had improved. (The EAW law is vague about grounds for postponing the execution of an EAW, and the ECJ had already ruled in Lanigan that the deadlines to execute an EAW set out in the law could, in effect, be ignored if necessary). If the fugitive was detained in the executing State in the meantime, the limits on detention set out in Lanigan applied, with the additional proviso that a fugitive could not be detained indefinitely pending execution of an EAW. (In the later case of JZ, the ECJ aligned the definition of ‘detention’ in the EAW with the ECtHR case law on this issue).

This was only the beginning of the ECJ’s scrutiny of issuing States’ laws and practice in the EAW context. In Bob-Dogi, the Court ruled that Hungary could not simply issue EAWs as a stand-alone measure, with no underlying national arrest warrant, inter alia because the purpose of requiring the prior issue of a national arrest warrant was to ensure the protection of the suspect’s fundamental rights. The previously paramount objective of efficiency of the EAW system – which would obviously have dictated the opposite conclusion – was mentioned only in passing. Moreover, the Court side-stepped its prior refusal to accept additional grounds for refusal to execute an EAW, concluding that the EAW had not been validly issued in the first place.

Next, in Dworzecki, the ECJ insisted that a Member State issuing an EAW following a trial held in absentia had to have made proper efforts to find the fugitive before the trial. In this case, the law expressly allows for non-execution of the EAW.

Finally, in a trilogy of cases decided last week, the Court ruled that issuing Member States don’t have full discretion to decide what a 'judicial authority' is, for the purpose of issuing EAWs. The concept extended beyond judges to include those administering the justice system, such as Hungarian prosecutors (Ozcelik). However, it does not extend to the Swedish police (Poltorak), or to officials in the Lithuanian justice ministry (Kovalkovas). (British readers may wish to compare these rulings to the Supreme Court’s ruling in the Assange case).

Again, as in the Bob-Dogi judgment, the Court side-stepped the ‘exhaustive grounds for non-execution’ problem which it had previously created for itself, by ruling (in Poltorak and Kovalkovas) that the relevant EAWs had never been validly issued at all. Also, in an interesting use of ‘soft law’, the Court ruled that Sweden and Lithuania could not argue that those invalid EAWs should remain valid for a limited period until they changed their laws, since the Council had warned them back in 2007 in an evaluation report that these practices infringed the EAW law. Criminal defence lawyers – and justice ministry officials – may want to look at the Council evaluations of all Member States in detail in this light, since they contain many other criticisms of national implementation of the EAW.

Comments

Has the Court turned from poacher to gamekeeper of human rights in the EAW context? Certainly there are still many concerns about miscarriages of justice as regards the EAW (see the Fair Trials website, for instance). But the rulings suggest a significant change of direction, which addresses some concerns and may have opened up the door to addressing others. What might explain this turn-around?

One factor may be the ruling of the German constitutional court on detention conditions in the EAW context, although it’s notable that the ECJ was never previously receptive to constitutional courts’ concerns about the EAW. Another factor may be a willingness to compromise after the ECJ’s controversial ruling on EU accession to the ECHR, in which it lambasted the draft accession treaty for (among other things) not taking sufficient account of the ECJ’s case law on mutual recognition in Justice and Home Affairs matters, which only allowed for human rights to trump mutual recognition in ‘exceptional’ cases. It’s possible that having marked its territory in that judgment, the ECJ felt it could relax and adopt a more flexible approach of its own volition (and under its own control), which might facilitate discussions on renegotiation of the accession agreement.

Another aspect of the background to this case law may be concerns about the adequate protection of human rights and the rule of law in a number of Member States. The formal process for sanctioning or warning Member States about such concerns is set out in Article 7 TEU, but the EU is unwilling to use it at the moment. The preamble to the EAW law says that the EAW system can only be fully suspended as regards an entire Member State if Article 7 is invoked. The ECJ clocked that provision in Aranyosi and Caldaruru, but then concocted the compromise position of postponing execution of EAWs in individual cases until concerns about detention conditions could be addressed: a measured, individualised solution for these particular human rights problems with the EAW.

Furthermore, the guarantee of judicial control of the issue of EAWs in recent judgments is expressly justified by reference to ‘the separation of powers which characterises the operation of the rule of law’. Despite the reluctance of the EU to chastise Member States for systematic concerns about the rule of law, the CJEU’s rulings at least ensure that any general human rights concerns are addressed at the level of application of EU legislation.

Indeed, these recent judgments might not be the end of the story: they can fuel arguments for the postponement or invalidity or EAWs due to other human rights concerns too. In particular, fugitives could argue that the prospect of long pre-trial detention in another Member State is also a reason to postpone execution of an EAW – although this argument is only coherent if the fugitive is not being detained in the executing State in the meantime. Already the Aranyosi and Caldaruru judgment raises awkward questions about how to judge what happens in another Member State’s prisons – so much so that the German courts have referred the Aranyosi case back to the CJEU with further questions.  Postponing the execution of an EAW does not, by itself, tackle the underlying problem of prison overcrowding, and it leads to the risk that those who have committed crimes may consider moving to another Member State to increase their odds of enjoying de facto impunity for them.

This strengthens the case for EU legislative intervention as regards prison conditions and length of pre-trial detention in the EAW context. The Commission issued a Green Paper on this issue back in 2011, and Member States were not enthusiastic. But the Commission has indicated in light of the recent rulings that it may make a proposal in future. (See also the new report of the EU Fundamental Rights Agency on these issues). This would be a good opportunity to make further reforms to the EAW system, to require a proportionality check before issuing EAWs in the first place – so that no one is subject to an EAW for the theft of a piglet, or someone else’s beer at a house party – and to build in more frequent use of European Supervision Orders (a form of ‘Euro-bail’), the EU laws on transfer of prisoners and sentences, and the use of modern technology to conduct more criminal proceedings with the virtual (but not the physical) presence of the suspect (see generally the Ludford report on possible reforms of the EAW system). There is a better balance between effective prosecutions and human rights concerns waiting to be struck.

Barnard & Peers: chapter 9, chapter 25

JHA4: chapter II:3, chapter II:4

Photo credit: picture – alliance/Horst Galuch

* This post is based on a keynote speech I gave on 10^th November 2016, at a conference on criminal justice and human rights organised by the EU Fundamental Rights Agency in Bratislava

Brexit: can the ECJ get involved?

Steve Peers

Today’s ruling by the High Court requires the government to obtain approval from Parliament if it wishes to trigger ‘Article 50’, ie the process of withdrawing from the European Union. This short post won’t focus on the national constitutional law issues, but on the process of possible involvement of the EU courts in Brexit disputes.

The government has announced its intention to appeal today’s ruling to the Supreme Court. Some have suggested that the case might then be ‘appealed’ to the ECJ, but this misunderstands the judicial system of the European Union. There is no ‘appeal’ from national courts to the ECJ. Rather a national court may suspend proceedings and ask the ECJ some questions relating to EU law that the national court believes it needs the answers to. After the ECJ gives the answers to those questions, the national court resumes its proceedings and gives its judgment in light of them. The ECJ normally takes about 16 months to give a ruling, although it could (and probably would) fast-track a case raising fundamental questions about Brexit.

What EU law questions arise in this case? The obvious one is whether a notification to leave the EU under Article 50 of the TEU can be revoked once it is given. This is relevant because at the heart of the UK case is a dispute about the ‘royal prerogative’, ie the underlying powers of the UK executive. The royal prerogative allows the executive to conduct international relations, including decisions relating to international treaties. But prior case law makes clear that the prerogative cannot extend to taking away rights conferred by Parliament. The High Court has ruled today that this is what would happen if the executive invoked Article 50, since rights are conferred by the European Communities Act.  

Yet logically if an Article 50 notification is revocable, then the decision would arguably not as such necessarily lead to the removal of rights conferred by Parliament. Only the subsequent failure to revoke it would. The High Court assumed in its judgment that the notification was not revocable, but that’s only because the parties agreed on this. The claimants agreed that an Article 50 notification was irrevocable because otherwise it would have weakened their case. The government agreed, perhaps because it would have been politically awkward to argue the opposite.

But it’s not up to parties in a national proceeding to decide on what the correct interpretation of EU law is. Article 267 TFEU says that final national courts must send questions of EU law to the ECJ if necessary to give judgment. So the Supreme Court may decide that it wants to have this question answered.

The revocability of Article 50 is not just an issue in this litigation. It’s a broader political issue, since some politicians would like there to be another referendum before the UK fully leaves the EU, once the public knows the terms of exit. That’s only a feasible suggestion if it is possible to revoke an Article 50 notification once it’s made, given that the EU refuses to discuss the terms of exit with the UK until that notification is made.

What if the Supreme Court decides not to refer to the ECJ – is that the end of the matter? Not quite. Since the ECJ judgment in Kobler, it’s established that a Member State can be liable in damages if its supreme court gets EU law wrong without asking the ECJ questions about it. So individuals could go to a lower UK court claiming damages on this basis, and the lower court might deem it necessary to clarify the point by asking the ECJ about revocability, perhaps ordering the government not to make the Article 50 notification in the meantime.

There are several other possibilities for Brexit issues to come before the CJEU. It might be disputed what could be included within the scope of an Article 50 withdrawal agreement, and in particular whether this must be separate from a treaty on the post-Brexit EU/UK relationship. There might be other issues about that latter treaty; some say that the EU legally cannot negotiate one until the UK has fully left. Many say that the UK cannot negotiate trade deals with non-EU countries until it has left.

How could such issues reach the Court? Article 218 TFEU allows it to rule on future treaties between the EU and non-EU states, so in principle could be used. Any Member State, or the EU Commission, Council or Parliament, could invoke it. A lot of issues arise here, though. Does Article 218 apply to Article 50 at all – since the UK hasn’t left yet, and Article 50 only refers to some parts of Article 218? Is it too soon (for now) to ask about future treaties between the UK and EU, given that notification and negotiations haven’t happened yet?

Alternatively, Article 273 TFEU allows Member States to bring a dispute with each other about issues related to EU law to the CJEU by special agreement. However, the UK would have to be willing to use this provision, and it would have to find another Member State to agree to do so, in order to bring issues before the ECJ.

Other issues may arise about Brexit, even in other Member States’ national courts. An Irish court has already ruled that European Arrest Warrants issued by the UK are still valid in light of Brexit. But this issue is likely to keep arising. UK citizens living in the EU (and vice versa) might want to litigate the argument that they cannot lose their EU citizenship.

In any event, the status of British goods, services and citizens in the remaining EU will doubtless be raised in the EU courts after Brexit, either by means of interpreting EU/UK treaties and/or autonomous EU laws (governing non-EU migration, for instance).

It’s probably only a matter of time before some aspect of the Brexit issue gets decided by the EU courts; and there’s no small irony in that prospect.

Barnard & Peers: chapter 27

Photo credit: Daily Express :)

National Courts and EU Trade Policy Powers: the EU/Canada trade deal and the German Constitutional Court

Douwe Korff, Emeritus Professor of International Law, London Metropolitan University; Associate, Oxford Martin School, University of Oxford

One of the big issues on the EU’s agenda at present is whether to sign and provisionally apply the Canada/EU free trade agreement, known as ‘CETA’. The division of power between the EU and its Member States determines whether Member States can veto some or all of this deal, potentially complicating this process – frustrating supporters of the deal, but emboldening its critics.

Moreover, the dispute over CETA has broader implications, most notably for the controversial EU/US trade deal under negotiation (‘TTIP’) and any trade deal between the EU and UK after Brexit. While the EU’s Court of Justice will soon rule on the division of powers between the EU and its Member States as regards the EU/Singapore free trade agreement (for the background to that case, see here; for the CJEU hearing, see here), the immediate question is signing and provisionally applying CETA.

For the moment, the parliament in the Belgian region of Wallonia has held up the EU/Canada deal, but my focus here is the legal angle. While we await the CJEU’s ruling on the similar EU/Singapore deal, national courts have got involved in this issue. Last week, the German Constitutional Court refused to issue an interim order prohibiting the German Government from signing the CETA Agreement (BVerfGE of 13 October 2016; English summary here). The judgment sets a precedent for the legal issues that might arise with TTIP and Brexit, and so is worth further examination.

The decision

The decision was not about the issue of whether CETA (as initialled by Canada and the EU) was compatible with the German Constitution, but about whether the German Constitutional Court (“the Court”) should issue an interim order or injunction (einstweilige Anordnung) prohibiting the German Government (“the Government”) from even signing the Agreement. The Court emphasised that it was the Court’s standing practice to only issue such an injunction in relation to a proposed treaty if it was obvious that the treaty would irreversibly violate the Constitution (or constitutionally-protected rights of individuals) and if it was imperative that this be stopped immediately. On the other hand, possible but as-yet-not-materialised or reversible risks to such rights should be balanced against the importance of the matters to be covered by the treaty; and the Government in principle had a very wide margin of discretion in such matters. (Paras. 34 – 36)

The Court refused to issue the injunction for the following reasons in particular (my selection):

- The signing of CETA by Canada, the EU and the Member States would only result in the provisional application of the Agreement; it would only come into full force upon ratification by the parties – and crucially, the German Government (like any other Member State Government) could, until and unless the Agreement was ratified by all parties, terminate the application of the Agreement at any time, by means of a simple declaration to that effect to the other parties. The signing of CETA by the Government therefore did not irreparably risk any violation of constitutional rights. (Para. 38; cf. the last bullet-point under the last indent, below)

- The Court clearly has serious doubts as to whether the EU has competence in relation to investor protection in various areas, in particular also as concerns workers’ health and safety regulations. (Para. 54 – 57)

- The Court clearly also has serious doubts as to whether the EU can lawfully transfer “sovereign rights [Hoheitsrechte] in relation to judicial and quasi-judicial dispute resolution systems [Gerichts- und … Ausschusssystem]” to other systems (i.e., to the proposed investor-state dispute settlement (ISDS) “court” mechanism). (Para. 58) It was “not completely inconceivable” that the proposed (revised) ISDS mechanism could be held to violate the principle of democratic legitimacy (das Demokratieprinzip). (idem; see also para. 65)

- However, according to the Court, the above risks can be prevented in practice by various means (which, the Court implies, the German Government therefore must employ), i.e.:

· According to the Court, some of the risks can be prevented by means of the declarations already issued by the European Council, which (the Court tentatively accepts) ensure that with the signing of the Agreement only parts of that agreement will enter into (even provisional) force. The Court held that in many respects “reservations” (Vorbehalte) are already in place as concerns the application of certain parts of the Agreement. (Para. 69: see there for a list of these areas).

· The Court “assumes” (read: effectively demands) that the German Government will ensure, by these same means, that certain parts of CETA “in particular” “will not be included in the provisional application [of CETA, upon signature by the parties]”. In these not-to-be-applied matters, the Court expressly includes “the rules on investment protection, including the [investment dispute resolution] court system.” (Para. 70)

· The Court suggests that, at least while CETA would be only provisionally in force, Germany can demand that any decisions by the investment dispute resolution “court” will have to have the unanimous agreement of the EU Council – i.e., that Germany is given a right of veto over any such decisions. (Para. 71)

· If those measures were to not suffice, Germany can “as a last resort” use its right to terminate the Agreement (see the first indent, above). However, the Court feels that the interpretation of the Agreement to the effect that a State Party has this right (to terminate it in respect of that state while it is still only provisionally in force) “is not binding”, even though the Government has made a convincing case for it.

The Court therefore demands of the Government that it (the Government) “must clarify this interpretation of the Agreement in an international-legally appropriate way” and “inform its Treaty Partners of this [interpretation].” (Para. 73)

Comments

It would seem to me that the signing of CETA subject to the conditions imposed by the German Constitutional Court, would address many of the issues raised by activists:

- The contentious investment dispute resolution “court” would not become operational;

- If it ever were to become operational, Germany (and if other Member States were to adopt the same approach, those other Member States too) would have a veto over any decisions of that (quasi-) “court” that would impinge on rights and interests protected by its (their) constitution(s); and

– If in spite of these safeguards, those constitutionally-protected rights and interests were to still be unduly affected by the dispute resolution system (or any other aspect of the Agreement), Germany (and any such other Member State) could still exit the Agreement (even if that meant it would altogether have to end functioning).

Perhaps current opponents of CETA could live with it operating forever on such a “provisional” and conditional basis?

Barnard & Peers: chapter 24

Photo credit: misttoronto.com

Pulling the rug from under Mario’s feet: the BVerfG and the ECB’s OMT programme

Ioannis Glinavos (@iGlinavos), Senior Lecturer, University of Westminster

A key decision relating to EU economic and monetary union will be delivered by the German Constitutional Court (Bundesverfassungsgericht, “BVerfG”) next week (Tuesday June 21). That court will be deciding on the case of Gauweiler (C-62/14), where it had asked the European Court of Justice (CJEU) for an opinion (preliminary reference) on the legality of the European Central Bank’s (ECB) Outright Monetary Transactions (OMT) programme after 37,000 plaintiffs questioned the legal basis of the ECB’s scheme. It is notable that Jens Weidmann, Bundesbank president, had voted against the OMT programme and Eurozone Quantitative Easing (QE). The Court referred two questions to the CJEU in what it classified as an ultra vires review of acts of the European Union.

In summary, the BVerfG wanted to check whether the ECB had transgressed the limits of its powers derived from the EU Treaties. If the ECB had, this would have consequences for the constitutional identity of Germany. Therefore, the BVerfG asked for clarification on whether the OMT programme was an economic rather than a monetary measure and whether the ECB had as a consequence exceeded its powers by establishing it.  Second, the BVerfG raised the question whether the OMT programme was not violating the prohibition of monetary financing of Member States.

The BVerfG set out the following specific conditions that could render OMT compatible with the German constitution: (1) OMT should not undermine the conditionality of the EFSF and ESM (‘bail-out’) programmes; (2) OMT should only be of a supportive nature to other economic policies; (3) any debt restructuring must be excluded (no pari passu for the ECB) (4) no unlimited purchases of government bonds and (5) avoidance of interference with the price formation on the market where possible.

Indeed, the ECB is not allowed to engage in economic policy, neither is it allowed to finance member states, as articles 120, 123, 127 TFEU (primarily) set out. On the face of it, the concerns of the claimants at the BVerfG seem justified. Let us therefore examine the nature of the complaint in some more detail. The OMT, announced in September 2012, is an initiative aimed to help struggling Eurozone economies by buying short-term government bonds on secondary markets. It is widely perceived as an important tool to calm markets. The way in which OMT offers relief to states experiencing funding difficulties is by opening an avenue to short term affordable liquidity. In a way, it allows funds to reach governments by creating demand for sovereign debts in secondary markets, therefore lowering the costs of borrowing overall. Its critics, however, have argued that OMT exceeds the ECB’s mandate and undermines the rules that keep the Eurozone from becoming a ‘transfer union’ where stronger members are constantly bailing out weaker ones.

These transfers are supposedly prevented by the fact that the OMT operates in conjunction with fiscal discipline measures in the affected countries. The ECB insists that a necessary condition for OMT is strict and effective conditionality attached to an appropriate European Financial Stability Facility/European Stability Mechanism (EFSF/ESM) programme. Such programmes can take the form of a full macroeconomic adjustment programme or a precautionary programme, provided that they include the possibility of EFSF/ESM primary market purchases. The ECB Governing Council considers OMTs to the extent that they are warranted from a monetary policy perspective as long as programme conditionality is fully respected (which is why Greek government bonds are not included in the OMT shopping list), and terminate them once their objectives are achieved or when there is non-compliance with the macroeconomic adjustment or precautionary programme. As to the transactions themselves, they are focused on the shorter part of the yield curve, and in particular on sovereign bonds with a maturity of between one and three years. No ex ante quantitative limits are set on the size of transactions. In purchasing these bonds, which is likely to be a sticking point for the BVerfG, the ECB accepts the same (pari passu) treatment as private or other creditors with respect to bonds issued by euro area countries and purchased by the Eurosystem through OMT, in accordance with the terms of such bonds.

But how can the above transactions avoid violating the monetary financing prohibition? Benoît Cœuré (of the ECB) offers the following explanation for the actions of the ECB. He argues that the economic rationale of the monetary financing prohibition is clear, as central banks cannot ensure price stability if they have to permanently make up for weak performance in other policy domains. This is why Article 123 TFEU is central to the architecture of EMU. In the view of the ECB, the aim and design of OMTs fully respect this economic requirement, via the link to conditionality. As presented above, the link to policy conditionality of an EFSF/ESM programme ensures that central bank intervention via OMTs does not replace reform efforts in other policy domains. Rather, OMTs can only be complementary to national reform efforts. This is designed to prevent a scenario of harmful central bank support, or fiscal dominance over the central bank. 

Cœuré continues by arguing that OMTs would never be used to indiscriminately push down government bond spreads. By contrast, spreads should continue to reflect the underlying country-specific economic fundamentals, fiscal positions and market risk perceptions that incentivise governments to engage in sustainable fiscal spending and competitiveness-enhancing structural reforms. The aim of OMT is therefore not to reduce yields below the fundamentally justified level so as to preserve debt sustainability despite weak policy performance, but to aim at that portion of the bond yield spreads that is not fundamentally justified and based on undue risks of a euro area break-up. In other words OMT deals with market anxiety over Eurozone wide systemic risks not linked to the underlying fundamentals of Member State economies (at least as those are understood by the ECB). This is perhaps because central bank independence and a clear focus on price stability are deemed necessary but not sufficient to ensure monetary dominance. The ECB maintains the position that by creating the right environment and providing appropriate incentives for governments to take action to ensure fiscal solvency, OMTs create the conditions to affirm the monetary dominance regime, which is at the heart of the Treaty.

The European Court of Justice seems to be largely in agreement with the above. In its 2015 judgment in Gauweiler, it ruled that a plan by monetary policy makers to buy government bonds, even in potentially unlimited quantities, was legal. The court found that Mario Draghi’s pledge in the summer of 2012 to do “whatever it takes” to save the region from economic ruin through OMT, complied with EU law. “The programme for the purchase of bonds on secondary markets does not exceed the powers of the ECB in relation to monetary policy and does not contravene the prohibition of monetary financing in member states,” the ECJ declared, offering an important win to Draghi against German opposition to ECB attempts to stave off a Eurozone financial crisis. This decision is also perceived as shielding monetary policy makers from legal attacks on their landmark €1.1tn QE package, unleashed in 2015.

Alicia Hinarejos writes that the CJEU has recognized the broad discretion of the ECB to make complex economic assessments and technical choices, while at the same time striving to discharge a meaningful and necessary role. The Court clearly does not want to be seen to be second-guessing the other institution’s policy choices, so it focuses on procedural requirements and applies a light-touch review when it comes to assessing the proportionality of the scheme. This is most evident in the final part of the judgment, where the court assesses the compatibility of the OMT programme with the ban on monetary financing. Here the Court seeks to apply (and be seen to be applying) a coherent, rigorous-enough-yet-within-judicial-boundaries compatibility test. 

The CJEU found (para 103-5) that the ESCB is entitled to purchase government bonds — not directly, from public authorities or bodies of the Member States — but only indirectly, on secondary markets. Intervention by the ESCB of the kind provided for by a programme such as OMT thus cannot be treated as equivalent to a measure granting financial assistance to a Member State. The Court recognised however that the ESCB’s intervention could, in practice, have an effect equivalent to that of a direct purchase of government bonds from public authorities and bodies of the Member States. This could happen if the potential purchasers of government bonds on the primary market knew for certain that the ESCB was going to purchase those bonds within a certain period and under conditions allowing those market operators to act, de facto, as intermediaries for the ESCB for the direct purchase of those bonds from the public authorities and bodies of the Member State concerned. However, the ECB convinced the Court that the implementation of a programme such as that announced in September 2012 must be subject to conditions intended to ensure that the ESCB’s intervention on secondary markets does not have an effect equivalent to that of a direct purchase of government bonds on the primary market.

The decision can be said to continue in the Pringle vein of ratifying a move away from a rules-based EMU to a policy-based one in the wake of the crisis, with the CJEU limiting its role of review to a strictly formalist position. This can be seen in the fact that the discussion (like the AG’s Opinion before it) does turn on the specific features of the OMT programme rather than on more abstract questions such as the nature of EMU, its evolution, and the role of solidarity within its constitutional framework. 

Will the BVerfG decide along the same lines? Analysts at Société Générale model three possible outcomes. In the best case scenario, the BVerfG will simply find the OMT in line with the German Constitution based on the ECJ preliminary ruling. At the opposite end of possibility, the BVerfG could find the participation of the Bundesbank in OMT incompatible with German constitutional law or even declare German participation in ESM programmes that are supported by OMT incompatible. Such a ruling would then require German primary law to be changed to allow the Bundesbank to participate in an eventual OMT programme. A middle position is in effect more likely, with the BVerfG tinkering with some aspects of the programme (such as pari-passu for instance) and linking the operation of the OMT with ECB’s QE by highlighting the issue limits of QE as an important feature to respect under OMT. Such a move would address the concerns of Germany at being pushed under OMT to take on uncapped risks towards other euro area sovereigns, and assuage the fears of other EU members as to violations of Article 123 TFEU. At the same time, the BVerfG seems keen to avoid becoming an instrument of politics and is unlikely to allow itself to be used as a tool for the transmission of political concerns over ECB decision-making onto the constitutional law domain.

Will Mario find himself on the floor on June 21st? This is unlikely to happen, but considering the British are holding the Brexit referendum on the 23rd of the month, anything other than total support from the BVerfG to the architecture of Eurozone rescues is likely to cause a noticeable wobble.

Art credit: David Simonds

Barnard & Peers: chapter 19 

EU Consumers’ Actions for Damages: Quo Vadis?

By Sonsoles Prieto, EU competition law practitioner, London*

By the end of this year, the EU Damages Directive (“the Directive”) - designed to encourage consumers and small businesses to claim for damages against competition law offenders - must be implemented by the Member States.

Thirteen years ago, in 2003 Wouter P.J. Wils, member of the Legal Service of the European Commission, when answering the question whether private enforcement of EU Antitrust Law should be encouraged, concluded that there did not appear to be a clear social need for such action.  The overall perception seems to have changed significantly since.  However, we are not yet fully adjusted to this new challenge.

Background

Adopted in December 2014, the Directive requires all EU Member States – and all EEA states – to “ensure that any natural or legal person who has suffered harm caused by an infringement of competition law is able to claim and to obtain full compensation for that harm”. Even if the Commission has already fined offending parties, every person who has suffered losses as a result of competition violations i.e. being priced out of the market, is entitled to bring damages claims before national courts.

The EU Member States are must implement the new Directive by December 2016.  National legislators must incorporate several eye-catching changes, such as files disclosure, class actions, liability in solidum (not for leniency recipients), and an unfettered presumption that a cartel causes loss or passing-on effects.

The new regulation arrives almost parallel to US Courts’ abatement of their extraterritorial jurisdiction in antitrust cases, as evidenced by Motorola Mobility v. AU Optronics.  The signal has been sent:  US anti-trust leadership is clearly over.

Class actions

Parallel to the Directive, the Commission adopted a Recommendation inviting the Member States to facilitate, by the end of July 2015, effective collective redress for victims of antitrust wrongdoers that facilitate compensatory relief.  If required, new harmonised measures will be “mis en place” by summer 2017.

While opt-out damages actions are already a commonplace in the UK, thanks to the Consumer Rights Act 2015, the threat of a shift towards the US style, may apparently have had a bearing on the Commission’s recommendation of opt-in actions as preferred procedure. (Note that  in an opt-in system, claimants must communicate their acceptance in order to be bound by the result; in an opt-out scenario the action is brought on behalf of all claimants except those who have actively chosen not to participate).

The choice between an opt-in or opt-out system is particularly relevant. Whether a potential claim merits or not the time and high costs, including lawyers and economic experts, is the first consideration to be aware of.  And here, two points are raised: (i) the Directive is addressed to consumers and small businesses to obtain compensation for losses suffered, and (ii) an Opt-out system has proved crucial to class actions where the individual claim is small.  Why, then, not choose opt-out proceedings?  Could a claims aggregator cover this gap?

The phantom menace of US class actions

The greatest difference between the EU and US class action system is the aim pursued by private enforcement: corrective justice through law or preventing infringements from taking place.  Bearing this in mind, the US has a longstanding practice on deterring companies from infringing anti-trust rules, therefore, going beyond compensation for loss.

On the contrary, the Commission holds private damages enforcement as a compensation for loss, focussing on corrective justice, but not exclusively.  It is also underlined that private enforcement should coexist with public enforcement, but preserving the attractiveness of tools used by competition authorities, in particular, leniency and settlement programmes to pursue infringements.  Neither the Directive, nor the earlier Green Paper prioritises one of these divergent goals, adding unnecessary confusion to the already complex structure of EU legislation.

Once again, the phantom menace of US style class actions excesses seems have lead the EU legislator to ban contingency fees, and to limit damages to the harm caused.  The Commission choice for harm caused (including lost profit and pre-judgment interest but not treble damages: Art. 3 of the Directive), also refrains from following the USA model.

Is the Commission scared of US class actions’ excesses?  Is there another reason?  Could the desire to maintain a strong public enforcement be behind all this?  Not everything is as bad in the US system and as good in the EU system as the picture painted by some voices inside the Commission.  Anti-trust/competition Law is in constant development, and the US damages approach has been refined over the years.  By way of example, higher accuracy in the evaluation of standing and pleading requirements, mandatory causal link rules, and the latest amendments, which grant parties to immediately review class action certification orders, in order to avoid unfair settlement practices regardless of the merits of the claim.

Therefore, the Commission’s safeguards, such as protection of leniency program and files disclosure, are aimed at protecting a public monopoly on competition enforcement over private, rather than trying to avoid US class actions’ excesses.  It is right to do so, but, - and this is the major criticism of the Directive - it fails on its compensation objective, and, hence, consumer protection.

Are damages claims assets?  

The right to buy claims from victims of competition law infringements is observed under Article 2.4 of the Directive.  Thus, new pooling players, driven by private profit motives (already well known in US), are allowed to settle in our judicial system.  These third-parties (claims aggregators) acquire the rights of multiple consumers harmed by one infringement to bring a lawsuit.

How are these new players funded?  How different is this alternative way of financing from US contingency fees?  The underlying reason could be (awfully for some European civil servants) too similar:  the need to identify suitable sources of financing litigation.

The Commission is unswerving in its determination to encourage consumers to bring damages claims before national courts for competition violations.  Without a third-party, there is absolutely nothing that consumers and small businesses can do due to the high amount of legal expenses and risks.  Claims aggregators will buy damages actions for a fixed price plus a variable amount in case of success.  However, is this not the same as contingency fees?

Practical significance

Notably, the European market is becoming an attractive field for third-parties specialised in the collection of follow-on actions in antitrust litigation.  Every single competition infringement, if suitable, could potentially bring a class action.  However, litigation is always risky, and despite some early enthusiasm, a mandatory caution should be applied in any class action case selection.

Third-parties will need significant amounts of money. Recent rulings, such CDC’s multimillionaire claim on the German cement cartel case, where the Higher Regional Court of Dusseldorf dismissed the class action as the proposed financial vehicle had insufficient funding, have shown the need of a strong economic foundation.

Thus, international outsourcing entities offering solutions to victims of competition infringements have emerged in the European market: the Joint Venture between Buford’s and Hausfeld or, Buford’s biggest competitor, Bentham[16], who is financially supporting class actions against Volkswagen AG and Tesco.  These examples are just the beginning of a predictable intense activity – see the UK pensioners’ class action seeking compensation from Pride Mobility Products for breaches of competition law – and will be potentially followed by actions for damages on Libor submissions (Royal Bank of Scotland among other banks), FX manipulations, as well as against Melco and Hitachi car parts’ cartel.

Conclusion

Although it is recognised that the EU’s anti-trust goal is to prevent, curb or end violations of competition rules, the main goal has always been to ensure consumer protection, without which, the whole orchestra is clearly deficient. The new law will, in all likelihood, increase private competition class claims in Europe.  Rulings on these initial cases will certainly pave the way and could bring new cases to light.

Let us hope, however, that concessions granted by the Commission to public enforcement – leniency or files disclosure among others – will not prevent the Directive reaching its main objective:  to motivate consumers and small businesses to sue and to be compensated.  Irrefutably, it is a warning against antitrust law offenders who will see higher negative financial consequences of potential infringements, even if deterrence is not the main objective.

*Reblogged from the Anti-Trust and Competition Law blog

Barnard & Peers: chapter 17

Meme: by Clemens Kaupa on pinterest