Saturday, 14 May 2011

Direct Effect

Direct effect
Some of the most difficult and controversial questions in Union law concern the relationship between Union law and the law of the Member States. There are ways in which Union law is applied and enforced within the national courts and the ways in which individual EU citizens can enforce their Union law rights. In this respect, doctrine of direct effect is relevant here. Direct effect means that, subject to certain conditions, Union law creates rights and obligations which individuals may rely on and enforce in their national courts. The principle of direct effect is not found in the Treaty but has been created and developed by the European Court in a series of judgments.

Arguably the most important case in Union law is Case 26/62 van Gend en Loos v Nederlandse Administratie der Belastingen [1963] ECR I. In this case, the Court decided that an individual could rely directly on a Treaty Article and enforce it in his own national court although the Treaty Article had not been legislated into the Member State’s legal system. This is called the principle of ‘direct effect’. Normally the question of the operation of an international treaty in the domestic legal system is determined by the constitutional law of the individual country concerned. In this case, the Court of Justice decided that it had jurisdiction to decide the effect of the Treaty of Rome on a Dutch citizen. Nothing is said in the Treaty about the effect of Treaty Articles on individuals, and it looked as if the only way that individuals could use EU law to enforce their rights was by leaving it to the Commission and the Member States to do so. However, in van Gend en Loos the Court addressed this problem and at one stroke transformed the legal status of the Treaty from a conventional, if far-reaching, Treaty governed apparently by the normal rules of international law, into the foundation of a sui generis ‘new legal order’ that would operate directly for the benefit of the citizens of the signatory states.

The facts of the case took place in the first stage of the establishment of the EEC when customs duties had not yet been abolished but where there was a clear prohibition in Article 12 of the EEC Treaty (now Article 30 TFEU) of any increase in customs duties. Van Gend en Loos was a company importing urea formaldehyde (a kind of glue) from Germany into the Netherlands, where a customs duty was imposed. In 1958, when the EEC Treaty came into force, the duty on this product was fixed at 3 per cent under an existing Benelux Customs agreement. Despite the prohibition on increases of customs duties, the Dutch government in 1959 entered into an additional Protocol which re-classified the product, which had the effect of increasing the duty on it to 8 per cent. The company, van Gend en Loos, forced to pay this increased duty, brought an action challenging the legality of the increase under Community law in the Amsterdam Customs Court, the Tariefcommissie. The Dutch court made a preliminary reference to the Court of Justice.

The first (and most important) question asked by the Tariefcommissie was whether Article 12 EEC had an effect within the territory of a Member State. On the basis of this Article, could citizens of the Member States enforce individual rights which courts of the Member States must protect?

The Belgian and Dutch government argued forcefully that this was a matter of national constitutional law. The Netherlands government claimed in these proceedings that ‘the EEC Treaty does not differ from a standard international Treaty’ and that international treaties were really just a compact between states and did not give rise to rights that individual could enforce in their national courts. The Advocate General gave an Opinion much along those lines, stating that the individual was afforded sufficient protection in Articles 258, 259 and 261 TFEU.

The Court, however, disagreed with the Advocate General and in a groundbreaking judgment stated that, according to the spirit, the general scheme and the wording of the Treaty, Article 12 must be interpreted as producing direct effects and creating individual rights, which national courts must protect.

The reasons behind this groundbreaking decision are that the objective of the EEC treaty, which is to establish a common market, the functioning of which is of direct concern to interested parties in the community, implies that this treaty is more than an agreement which merely creates mutual obligations between the contracting states. This view is confirmed by the preamble to the treaty, which refers not only to government but also to peoples. It is confirmed more specifically by the establishment of institutions endowed with sovereign rights, the exercise of which affects member states and also their citizens.

Moreover, it was also argued that the preamble of EU which refers to citizens as well as to states, and the preliminary ruling procedure establishes in what is now under Article 267 of TFEU envisaged that parties before national court or tribunal  could plead and rely on points of EC law.

Furthermore, the ECJ rejected the argument of the member states and opinion of the Advocate general. It held that public enforcement of EEC law through the commission via Article 258 did not preclude private enforcement via direct effect. Thus the court developed the concept of direct effect principally in view of the kind of legal system which it considered necessary to carry through the ambitious economic and political program outlined in the treaties. The ECJ considered a strong enforcement method was needed to ensure that member states complied with the provisions to which they had agreed. Automatic internalization of treaty rules within national legal system would clearly strengthen the effectiveness of community norms as well as aiding the commission in its Article 258 enforcement function by involving individuals and all levels of the national court system directly in their implementation.

However, in van Gend the Court prescribed conditions which must be satisfied in order to get direct effect. These conditions are:
a)     clear and precise
b)     unconditional
c)      Its operation did not require a legislative implementing measure on the part of the State.
d)     The Article must lay down a negative prohibition rather than a positive obligation

The fourth condition imposed in van Gend en Loos is no longer necessary. This is because in critical analysis it is possible to find out both positive and negative obligation in any article. So this condition was dropped in case: 57/65 Alfons L├╝tticke GmbH [1966] ECR 205.

Even the remaining three conditions, which suggest that provisions with direct effect will be the exception rather than the rule, have been whittled away. A provision which is ‘conditional’ on some objective circumstance or factor, for example, can be applied by a court because the court can determine whether or not that circumstance or factor is present. Only provisions which are conditional in the sense that they confer a discretionary power on a third party (e.g. on the Member States or the Commission) would be excluded from having direct effect – because the national court cannot usurp that discretion. Similarly, the requirement that a measure must not be dependent on further action is not the obstacle that it, at first, appears. This is because, whenever the Treaty includes a time-limit within which such further action should take place, the Court has held that, once that time-limit has expired, the measure has direct effect: Case 43/75 Defrenne v SABENA [1976] ECR 455.

The central idea, then, is whether a provision is capable of being applied by a national court. Even a lack of clarity will not necessarily prevent direct effect – because the national court can seek clarification from the Court of Justice through the Article 267 TFEU preliminary reference procedure if necessary. As a result, direct effect of Treaty provisions has become the norm, rather than the exception.

EC treaty can be contrasted with other international treaty. The position with regard to other international agreements is more complex and controversial. In Cases 21–24/72 International Fruit Company v Produktschap voor Groenten en Fruit (No 3) [1972], ECR I-219 the question was posed whether the GATT (General Agreement on Tariffs and Trade) provisions could have direct effect. The Court concluded that ‘the spirit, the general scheme and the terms’ of the provisions were different from those in the EEC Treaty and that its provisions not sufficiently precise and unconditional for direct effect to apply. Free trade agreements were also held not to be capable of creating direct effect, as their aim was not to create a single market (Case 270/80 Polydor and RSO Records Inc v Harlequin Record Shops and Simons Records Ltd [1982] ECR 329. However in Case 104/81 Hauptzollamt Mainz v Kupferberg [1982] ECR 3641 another provision of the same agreement was found to have direct effect, as it did fulfill the conditions and fell within the purpose of the agreement. More recently, the Court ruled in Case C-280/93 Germany v Council [1994] ECRI-4973 that under very limited circumstances a GATT provision could prevail over an EC provision, but only if the relevant EC provision expressly referred to the GATT provision.

Direct effect of Treaty Articles
In van Gend, it is established that Treaty Article will get direct effect if the relevant treaty satisfies three conditions as discussed above. In same case, the parties were in a ‘vertical’ relationship: that is, the case was between an individual and a Member State. The question of whether an individual could rely on an Article of the EEC Treaty in an action against another individual (horizontal relationship between the parties) was dealt with in Case 43/75 Defrenne v SABENA [1976] ECR 445. It was held that Ms Defrenne could bring an action against her employer for breach of a Treaty Article requiring equal pay for men and women.

Direct effect of Regulations
Article 288 TFEU states that a Regulation is ‘directly applicable’ in all the Member States. Regulations, therefore, become automatically part of national law and this will normally mean that they can be relied on by individuals in their national courts and thus also have direct effect. The European Court has nonetheless recognised that in order to have direct effect, Regulations must satisfy the three standard conditions. The provision must be sufficiently clear and precise to be enforced by a court: Case 403/98 Azienda Agricola Monte Arcosu v Regione Autonoma della Sardegna [2001] ECR I-103. Sometimes Regulations need further legislation: Case 39/72 Commission v Italy (Slaughtered Cows) [1973] ECR I-01.

Direct effect of Decisions
Although Article 288 TFEU does not state that Decisions are directly applicable, they are ‘binding in their entirety on those to whom they are addressed’. The Court of Justice has held that they can have direct effect. A national of a Member State to which a Decision had been addressed could invoke that Decision in the national court: Case 9/70 Grad v Finanzamt Traunstein [1970] ECR 825. In reaching this conclusion, the Court emphasised that this would increase the effectiveness (‘effet utile’) of the Community measure.

Direct effect of Directives
More controversial was whether a Directive could have direct effect. Directives are meant to be implemented, that is brought into effect by national legislation within a certain time period. Article 288 TFEU provides: A Directive is to be binding, as to the result to be achieved, upon each Member State to which it is addressed… The plain interpretation of these words is that a Directive is addressed to the Member States. To say that it requires national implementing measures. It was thought that Directives could never fulfill the Van Gend conditions for direct effect because, by their nature, they require ‘further implementing measures’.

However, a Directive can only be directly effective after the expiry of the time limit given for its implementation since, until that time the Member State is not in breach of any obligation which was given to it to implement the directive. This was confirmed in the Case 148/78 Pubblico Ministero v Ratti [1979] ECR I-629.

Moreover, in Case 41/74 van Duyn v Home Office [1974] ECR I-337, the Court held that Ms van Duyn could rely on a clause in a directive, which the UK had not introduced into national law. It means directive have direct effect upon the expiration of time limit.

Now it is well established that directive will have direct effect. There are several reasons like behind this view. Firstly, the key reasoning given by the court for the direct effect of treaty provisions was that the fundamental aims of the Treaty and the nature of the system it was designed to create would be seriously hampered if its clear provisions could not be domestically enforced by those they affected.

Secondly, Article 177 (now Article 267 TFEU) allows national courts to refer questions concerning any community measure to the ECJ, including directives, and this implied that such acts could be invoked by the individual before national courts.

The third rational, articulated in Ratti case, is the estoppels argument. This principle is one borrowed from English law, but for our purpose, it means that the state cannot rely on its own wrongdoing to frustrate the rights of individuals under Directives. Where the Member State is at fault, (either because it has not transposed the Directive into national law at all or because it has done so inaccurately) an individual can claim against that state the rights he or she should have had if the Directive had been correctly implemented.

Moreover, Article 288 TFEU (ex Article 249 EC) says that directives are “binding as to the result to be achieved”. The court says this provision would be frustrated if member states’ failure to implement them were to deprive Directives of effect. So directive will be more effective if individuals can enforce them in national courts.
Vertical but not horizontal direct effect
Now an important question arises as to whether direct effect of directive will get both vertical and horizontal effect or not? In Case 152/84 Marshall v Southampton & Southwest Hampshire Area Health Authority (Teaching) [1986] ECR 723 the court held that a Directive can only be invoked vertically, by an individual against the state, and not horizontally, by one individual against another.

Several reasons behind this decision like- firstly, a directive may not of itself impose an obligation on an individual rather than member state and that a provision of a directive may not be relied upon as such against a person. Failure to implement of a directive is a fault of member state not individual person. Therefore, for states failure, way an individual person will be liable against another individual person.
A counter argument is put forward against this reasoning is that this argument is also applicable for regulation and as regulation is given both vertical and horizontal effect, so that directive should be given both effects.

Secondly, a rule of law argument has also been put against the horizontal effect of directives. The condition of rule of law is that law should be clear and unambiguous and should not be conditional and secret. As directive requires implementation measure by member state so that it is conditional. Moreover, prior to 1992, directives were not published. Therefore, it was violation of rule of law, as directives were secret. Furthermore, in directive a direction is given to a member state to achieve the results, as such, like law- the provisions of directive are not dealt in depth. As a result, the content is not sufficiently clear, which is required to be law.

However, a counter argument may be put forward that as from 1992 the directives are published officially. So that now a days the directive are not secret though the other problems still in exist.

The third argument is that horizontal direct effect of directive will erode the distinction between regulations and directives. This is, so the argument goes, because directives would thereby have legal impact even though they had not been implemented in the member states, thereby eroding the distinction between regulation, which are directly applicable, and directives which are not.

However this argument is problematic because the key distinction between regulation and directive is that member states are intended to have choice as to form and methods of implementation for directives. Giving direct effect of directives, whether vertical or horizontal, is not intended to undermine this. It is not intended to take away this choice.

Fourthly, argument adduced against horizontal direct effect is legal certainty. Directives, even where their core aim or principle is clear and subject to judicial enforcement, often leave much to be fleshed out in national implementing measures.

However, the counter argument is that this may equally be true of the “vertical” direct effect of directives, so why not in case horizontal direct effect.

This rule of Marshall has been criticized because it can lead to inequality: an individual’s ability to bring an action based on a Directive will depend on whether they are suing the state or a private person or company. The Advocate General’s Opinion in Case C-91/92 Faccini Dori v Recreb srl [1994] ECR I-3325 where he proposed that Directives should be given horizontal direct effect.

The Court, however, did not follow the Advocate General but confirmed the original rule that Directives can only have vertical direct effect. However, in recent years the Court has increasingly resorted to other measures to give effect to Union law in what would, at first sight, be purely horizontal cases.

Broad definition of State:
One the other hand, the Court has given a wide definition to ‘the state’ and thereby has extended the reach of the vertical direct effect of Directives. Now any body can be sued on the matter of EU law subject to some conditions even though there is no state. The four-part test prescribed in Case C-188/89- Foster v British Gas [1990] ECR I-3313 must be satisfied by that particular body in order to be sued. The test is used by national courts to decide whether a body was an ‘emanation of the state’:

a)     Does it perform a public service?
b)     Pursuant to a measure adopted by the state?
c)      Under the control of the state?
d)     Does it have special powers going beyond those of normal commercial undertakings?

The four conditions must all be fulfilled (they are cumulative, not alternative). An interesting example of how widely the definition can extend is the case of National Union of Teachers v Governing Body of St Mary’s Church of England Junior School [1997] 3 CMLR 360, in which the English Court of Appeal held that the definition of ‘an emanation of the state’ included the governing body of a Church of England state school.

Indirect effect of Directives
The starting point for this doctrine is Case 14/83 Von Colson v Land Nordrhein-Westfalen [1984] ECR I-891. Although this case concerned a vertical claim against the German prison service, the Directive in question did not have direct effect because the provision (concerning remedies for sex discrimination) was insufficiently precise to be enforced by a court. However, the European Court held that the national court is under a duty to interpret existing national law, so far as possible, to achieve the result laid down by the Directive. The doctrine is based on the idea that national courts are part of the state and, consequently, are bound by what is now Article 4(3) TEU (formerly Article 10 EC).

That Article requires Member States ‘pursuant to the principle of sincere cooperation’ to ‘take any appropriate measure… to ensure the fulfillment of their obligations’ under the Treaties. The effect of the ruling is to shift the responsibility for giving effect to Directives on to national courts in situations where their governments have failed to introduce adequate national implementing measures. The principle means that national courts are under a duty to interpret national legislation ‘in the light of the wording and purpose’ of Union law and directive is a part of it. In Von Colson, there was some national legislation which purported to implement the Community Directive but which did so inadequately. As a result, it was initially thought that the duty of harmonious interpretation only applied to national legislation which had been intended to implement the Directive in question. Whether the rule applied to the interpretation of national law, more generally was unclear. The European Court has since made clear that the duty applies in relation to all national legislation, whether passed before or after the relevant Union legislation, and whether intended to implement it or not; Case C-106/89 Marleasing SA v La Comercial Internacional de Alimentacion SA [1990] ECR I-4135. This is because it is a rule applicable to the court, rather than the parties, it applies irrespective of whether the action is ‘vertical’ or ‘horizontal’.

There are limits to the usefulness of this doctrine from the point of view of the individual, however, since it presupposes the existence of some relevant national legislation that is capable of being interpreted to mean what the Directive enquires. National courts are only required to carry out this duty ‘so far as possible’ – so if there is no relevant national law, or if the relevant national law is only capable of one interpretation, the doctrine cannot be used.  Moreover, debate also has continued over the question how strongly national courts are being encouraged to interpret otherwise clear provisions of national law to comply with the terms of a directive. Advocate General Van Gerven suggested in Marleasing, it remains essentially a matter for resolution in accordance with national principles of interpretation, the Treaty-derived obligation national courts to take all measures possible to comply with community law, clearly alters and constrains the interpretive discretion they would otherwise have under national law alone. After this decision, the ECJ did not noticeably retreat from its strong encouragement to interpret domestic law in conformity with directive.

The Coote ruling equally demonstrates the ECJ’s readiness to articulate a strong interpretation obligation and to provide firm guidance to the national court. In this case, the ECJ gave a clear indication that when interpreting a national law in the light of a Directive, the national court should read it in the light of the obligation imposed by the Directive.

Furthermore, ECJ in Connect Austria case stated that when it is impossible to construe the national implementing legislation in conformity with the directive, the directive should be directly enforced against the state by means of misapplying conflicting national law. In addition, “the principle of interpretation in conformity with community law thus requires the referring court to do whatever lies within its jurisdiction, having regard to the whole body of rules of national law to ensure that a directive is effective”: Pfeiffer case.   

The positive obligation of Harmonious interpretation applies only after the time limit for implementation of the directive has expired: Inter Environnement wallonie. Though, a number of Advocates General had argued that the obligation of harmonious interpretation should apply before expiration of the time limit for implementation and this also deemed to be implicit in the ECJ’s ruling in Pupino case. However, in Adeneler, the ECJ finally point directly and ruled that the general obligation owed by national courts to interpret domestic law in conformity with the directive exists only once the period for its transposition has expired.

The Court has also made clear that the application of the doctrine is subject to the general principles of law, such as legal certainty and non-retroactivity: Case 80/86 Kolpinghuis [1987] ECR 3969. Again, Case 168/95 Criminal Proceedings against Luciano Arcaro [1996] ECR I-4705 suggest that where an interpretation of national law in the light of a directive amounts to “the imposition on an individual of an obligation laid down in the directive” it goes too far and is neither permitted nor required by EC law. However, in Centrosteel, Advocate general Jacobs suggested tat the ruling in Arcaro should be read in the context of the criminal proceedings in which the case has arisen. Such a limitation does not appear to exist in relation to the imposition of civil liabilities on individuals. In Case 456/98 Centrosteel v Adipol [2000] ECR I-6007, the ECJ said that the duty to interpret national law in the light of the wording and purpose of Community law applied even when this would impose a civil liability on private parties.

Incidental horizontal direct effect of Directives
Thirdly, this development has lessened the impact of the Marshall/Dori and introduced a line of case laws which permit the use of unimplemented directives in certain case between private parties. This is known as “incidental horizontal effect”. It arises to give effect horizontally on Directives in exceptional triangular situations.

For example: in Case 194/94 CIA Security International v Signalson [1996] ECRI-2201 CIA security brought proceedings against the defendants before the Belgian commercial courts asking for orders requiring them to cease unfair trading practices. CIA argued that the two companies had libelled it by claiming that the alarm system which it marketed had not been approved as required under Belgian legislation. CIA agreed that it had not sought approval but argued that the Belgian legislation was in breach of Article 28 EC and had not been notified to the commission as required by Directive 83/189 on technical standards and regulations. The court held that those articles may be relied on by individuals be fore national court as it was unconditional and sufficiently precise in their content. Further, the court claimed that it did not of itself impose a legal obligation on the defendants; it removed from them the protection of the national technical regulation and exposed them to potential liability under other provisions of national law.

Other case on the ‘incidental’ horizontal direct effect of Directives is Case 444/98 Unilever Italia v Central Food SpA [2000] ECR I-7535. This case involved a contractual dispute where the referenced Directive was merely incidental to proving the breach of contract and had nothing to do with enforcing an EC right. The conflict was over the relevance of different labeling requirements and which should be complied with. Directive 83/189 was involved, since Italy had introduced labeling requirements for geographical origin on olive oil. Under the Directive, Italy should have notified the Commission of its intention to regulate this labeling. The Commission intended to regulate itself Community-wide and so under the Directive Italy should not have introduced any such regulation. Central Food was supplied by Unilever without the labeling required under the Italian regulation and was refusing to pay because the labeling did not conform to Italian law. Unilever argued that Italian law could not apply, since it was effectively in breach of the Directive. The ECJ agreed, holding that this did not conflict with the restriction on horizontal direct effect in the case of Directives because the relevant Directive in this matter did not involve rights on which any of the parties might rely. In essence, the ECJ held that a substantial procedural defect in implementing a Directive could nullify domestic law in the context of a contract and give domestic courts the power to interpret any legal dispute arising in this context based solely on their own contract law.
Unilever (2000) illustrates one of three strategies employed by the European Court of Justice for approximating the results of horizontal direct effect without expressly applying the concept. In this instance, the court sanctioned the use of an unimplemented Directive in a legal dispute between private parties. In so doing, it implicitly allowed for horizontal direct effect, provided no particular obligation was placed on the defendant.
Incidental horizontal effect applies only in a very few situations, and these seem mostly to be a ‘one-off’, where private parties were concerned on both sides, but where no particular obligation was put on the defendant.

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