EU sanctions against non-EU countries: the CJEU will soon address some key legal issues

Stian Øby Johansen, PhD fellow at the University of Oslo Faculty of Law*

This week I attended the hearing at the Court of Justice of the European Union (CJEU) in case C-71/15 (Rosneft). This is one of several cases brought by the Russian energy company Rosneft against the EU sanctions regime established following the Russian military intervention in Crimea. The case has its basis in a request for preliminary ruling by the High Court of Justice (England & Wales), Queen’s Bench Division. In the reference, the High Court of Justice asks the CJEU to determine the validity of several provisions of the EU economic sanctions against Russia.

As the legal issues in play in this case are very closely connected with the precise legal nature of the sanctions challenged, it is necessary to first describe the contested parts of the EU sanctions regime in some detail. Then I will go through the submissions of the parties, and offer some preliminary analysis of the arguments presented. My focus is the same as that of the oral hearing; on the issue of the jurisdiction of the CJEU to review sanctions adopted under the EU’s Common Foreign and Security Policy (CFSP). Before we start I must also add a small disclaimer: this report is based on my own notes and recollections, and there may thus be inaccuracies, misunderstandings, or plain errors.

THE CONTESTED PARTS OF THE EU SANCTIONS REGIME

The contested parts of the EU sanctions regime in this case are the measures “targeting sectoral cooperation and exchanges with Russia” – which I will refer to as the sectoral measures. These sectoral measures are laid down in Council decision 2014/512/CFSP and Council regulation 2014/833/EU (links to latest consolidated versions). Essentially, these provisions prohibit EU persons, natural or legal, from engaging in contractual relations with certain Russian state-owned companies and banks, and from providing such companies and banks access to financial markets.

Sectoral measures may be contrasted with the targeted sanctions laid down in Council decision 2014/145/CFSP and Council regulation 2014/269/EU (links to latest consolidated versions). Such targeted sanctions directly affect named Russian natural and legal persons (not including Rosneft) by inter alia obliging European financial institutions to freeze their assets. With regard to the sectoral measures, on the other hand, Rosneft primarily feels the sting of them through the lack of access to European suppliers, consultants, credit institutions, etc.

This distinction between targeted and sectoral sanctions is also reflected in TFEU Article 215. According to that provision the Union may in the form of a regulation adopt measures providing for ” the interruption or reduction, in part or completely, of economic and financial relations with one or more third countries” (i.e. sectoral measures) or “restrictive measures […] against natural or legal persons” (i.e. targeted sanctions). Since sectoral measures are formulated as prohibitions on EU citizens and undertakings from engaging in such activities, they only seems to affect Rosneft indirectly; it is their EU partners that are now prohibited from doing business with Rosneft. Note the use of the word seems in the previous sentence. Rosneft argues that it is also directly affected by the sectoral measures, and that they should be regarded as targeted sanctions. Still, the following summary of the hearing more or less presupposes that the sanctions are sectoral measures – which was also generally presupposed during the hearing.

A final peculiarity concerning CFSP sanctions regimes is that they are enacted through the use of two separate legal instruments. First, by a Council foreign policy (CFSP) decision under TEU Article 29. Second, and following such a decision, the sanctions are implemented within the internal market by means of a Council regulation under just-mentioned TFEU Article 215. In the present case the relevant instruments are Council decision 2014/512/CFSP and Council regulation 2014/833/EU, which I will refer to in the following as “the CFSP decision” and “the regulation”, respectively. The relationship between the regulation and the CFSP decision was a key factor in relation to many of the issues discussed during the oral hearing in Rosneft.

The CFSP decision is adopted under a provision in the CFSP chapter of the TEU, namely Article 29. This has certain consequences. First, legislative acts are precluded under the CFSP: see TEU Article 31(1). Second, being adopted under the CFSP chapter the jurisdiction of the CJEU to review the decision is generally excluded according to TFEU Article 275(1). Third, while the EU member states “shall ensure that their national policies conform to” the CFSP decision, the decision is not binding upon persons (natural or legal).

The regulation adopted under TFEU Article 215 implements the CFSP decision within the internal market. That regulation is not a CFSP measure. This means that it is binding in its entirety, also on natural or legal persons, and directly applicable within the legal system of the EU member states (TFEU Article 288(2)). Moreover, the general jurisdiction of the CJEU to review acts of the Union institution should therefore apply. (But see the Commission’s arguments to the contrary discussed below.)

What kind of provisions the two instruments should contain when the Union imposes sanctions is less clear. The only guidance we seem to get from the constituent treaties is that (a) legislative acts cannot be enacted in the form of CFSP decisions, and that (b) when a CFSP decision “provides for the interruption or reduction, in part or completely, of economic and financial relations with one or more third countries” the Council shall adopt “the necessary measures” in the form of a regulation under TFEU Article 215. In practice, the wording of the CFSP decision and the regulation is more or less identical. This is also the case here. The provisions Rosneft is challenging are almost word-for-word identical in the CFSP decision and the regulation.

Having mapped out the legal context of the dispute, I will now proceed to the case itself and the main arguments presented at the oral hearing.

PARTIES AND KEY MEMBERS OF THE COURT

The parties to the case before the CJEU are, on the one hand, Rosneft, and on the other, the United Kingdom and the UK’s Financial Conduct Authority – all of which submitted written pleadings and participated in the oral hearing. The Council and the Commission also submitted written pleadings and participated in the oral hearing. In addition, the following states also participated in the oral hearing: the Czech Republic, Germany, Estonia, France, and France. Most of the intervening states had submitted written pleadings as well, with Poland being the only exception I am aware of.

The CJEU is composed as a grand chamber, with President Koen Lenaerts as the presiding judge. The judge-rapporteur is Judge Allan Rosas. I did not make proper notes on who the Advocate General (AG) assigned to the case is, but judging from the pictures on the CJEU’s website I believe it is Melchior Wathelet. The AG promised to deliver his opinion by May 31st, 2016.

CFSP JURISDICTION OF THE CJEU – THE REGULATION

The first question referred to the CJEU is whether the latter is competent to review (a) the regulation and/or (b) the CFSP decision. While the CJEU has general jurisdiction over all matters of EU law under TEU Article 19(1), one significant exception is laid down in the TFEU Article 275(1). According to the latter provision the CJEU “shall not have jurisdiction with respect to the provisions relating to the common foreign and security policy nor with respect to acts adopted on the basis of those provisions”.

This carve-out from the otherwise general jurisdiction of the CJEU is, according to the text of TFEU Article 275(2), subject to a couple of exceptions. First, the CJEU shall have jurisdiction to monitor compliance with TEU article 40 (the dividing line between foreign policy and other EU measures). Second, the CJEU shall have jurisdiction to, “in accordance with the conditions laid down in TFEU Article 263(4)”, review “the legality of decisions providing for restrictive measures against natural or legal persons adopted by the Council”. In the cases where these two “exceptions from the exception” apply we are thus back to the default rule; the CJEU has jurisdiction.

There was a general agreement at the hearing that the CJEU generally has jurisdiction to review the regulation. This is not surprising. As described above, the regulation is not a CFSP measure and the CJEU should consequently have jurisdiction under TEU Article 19(1). So far, the participants at the oral hearing agreed.

There were, however, significant disagreements as to the extent of the CJEU’s jurisdiction to review the regulation. First, there were disagreement on whether the CJEU’s jurisdiction extended to preliminary ruling proceedings – an issue which I come back to later. Second, the Commission seemed to want to limit the CJEU’s jurisdiction to review CFSP regulations slightly, by introducing a “political questions” or “act of state” (french: “acte de gouvernement“) doctrine into EU law. The latter, highly unusual move by the Commission was the object of much debate during the oral hearing.

What the Commission essentially proposed was a way of delimiting the CJEU’s jurisdiction over CFSP measures that would focus on substance rather than form. According to the Commission TFEU Article 275(2) must be read as a clarification of the general principle that the CJEU will always have jurisdiction in connection with restrictive measures affecting individuals. While this should be the guiding principle, the CJEU should not have jurisdiction to review the “political choices” (Commission’s phrasing) underlying the restrictive measures.

In the present case the Commission considered that the CJEU would be precluded to review, inter alia, the choice to impose a trade embargo on Russia, the choice of targeting the petroleum sector, and whether the measures were necessary (proportionality). The Commission also provided some example of what the CJEU would have competences to do; to interpret the impugned regulation, and to consider its validity in light of other provisions of EU primary law.

Despite the apparent novelty of this argument, the Commission insisted that its use of the term “act of state” was merely a label it attached to the political choices that cannot be the object of CJEU review. It argued that it did not invite the court to reinvent the law, but rather to recognize the general principles upon which TFEU Article 275 is based.

The Council, Rosneft, and the member states strongly opposed the Commission’s “act of state” doctrine. They accused the Commission of going beyond both the text of the treaties, context, and purpose of the constituent treaties of the Union in an attempt to expand and reshape the CJEU’s jurisdiction. Several of them explicitly pointed to the fact that the text of the jurisdictional carve-out in TFEU article 275(1) makes no distinction among CFSP acts, and that it lacks any reference to an “act of state”/”political questions” doctrine. Some pointed to the1989 opinion of AG Darmond in Case C-241/87 Maclaine Watson (case later settled), where the existence of an “act of state doctrine” within EU law was discussed at length and rejected. France argued that the recently decided Elitaliana case (C-439/13 P) contained an implicit rejection of the Commission’s suggested general jurisdiction over CFSP measures (with only an “act of state” exception). Poland reminded the CJEU that under TEU article 40 it was only competent to draw a dividing line between what is and what is not a CFSP measure. This should be taken to imply, a contratio, that the CJEU is precluded from drawing distinctions within the CFSP. Rosneft supported the Council and the member states on this point, stating that it would be “dangerous to introduce such an imprecise and vague doctrine” into Union law. Rosneft also referred to AG Maduro’s Opinion in the Kadi case (paras 41-45).

Several members of the court seemed to have similar problems with the Commission’s “act of state” doctrine. President Lenaerts repeatedly questioned the Commission’s agent on the matter. He was particularly puzzled by the argument that the CJEU’s review of the regulation would be limited by the “act of state” doctrine. When the Commission’s agent confirmed that to be their argument, Lenaerts suggested that they should “think about that” and come back to it in its closing submission.

The attempt by the Commission to introduce an “act of state” doctrine is a really surprising move. It seems to directly contradict the wording of the treaties, as is particularly evident when it comes to the jurisdiction of the CJEU over the regulation. It also seems strange for the Commission, who has generally been welcoming judicial review in the CFSP field, to invite the CJEU to limit its jurisdiction. But its view on the CJEU’s jurisdiction to review the regulation is only half the story…

CFSP JURISDICTION OF THE CJEU – THE CFSP DECISION

Since it is the regulation that actually implements the sectoral measures, and everyone seem to agree that the CJEU in principle has jurisdiction over it, one might wonder why discuss the jurisdiction to review the CFSP decision at all? According to Rosneft it was necessary for the CJEU to also review the CFSP decision because even if the regulation was struck down the “member states would still be obliged to implement the decision” under TEU Article 29.

The legal basis for conducting such a review was, according to Rosneft, to be found in the general principles of EU law and the Charter of Fundamental Rights (CFR) Article 47. Rosneft submitted that the CJEU had jurisdiction to review any measure with legal effect for third parties.

Given the slightly restrictive stance on jurisdiction taken by the Commission with regard to the regulation, it might surprise some that the Commission argued that the CJEU does have jurisdiction to review the CFSP decision. However, this is actually a logical consequence of the “act of state” doctrine the Commission proposed: jurisdiction should be delimited according to substance, not form.

What matters is thus not whether the impugned provisions are contained in a CFSP decision or in a regulation implementing that decision, but whether the impugned provisions can be said to be “acts of state”. If they cannot be regarded as “acts of state”, then the CJEU will have jurisdiction to review them. Since the CFSP decision in the present case is almost word-for-word identical to the regulation, the Commission submitted that the CJEU would have jurisdiction to review significant parts of the CFSP decision.

The opposition to the “act of state” doctrine by the other parties applies equally to this context: neither the text, context, intention, or drafting history supports it. Compare to the limits on the Court’s jurisdiction on national police operations in Article 276 TFEU, and more clearly the limits on its review of sanctions against Member States in Article 269 TFEU, which indicate that where the drafters of the Treaties wanted to limit the Court’s jurisdiction to review the merits of measures, they did so expressly. Notably, TFEU Article 275(2) explicitly limits the review of restrictive measures “against natural or legal persons” – identical language to that found in TFEU Article 215(2), but not in 215(1). Sectoral measures, which are not against specific natural or legal persons, therefore seem to lie outside the ambit of CJEU jurisdiction. At least according to the treaty text. The Commission sought to get around this by arguing that TFEU Article 275(2) is only a reflection of a more general principle of EU law on access to justice.

While I personally agree that the Commission’s proposal is of a de lege ferenda nature, and should not be acted on by the CJEU, the idea of delimiting jurisdiction according to substance and not form is intriguing. It would alleviate the problem that is the (seemingly) very limited jurisdiction of the CJEU in CFSP matters, but at the same time give the member states something; a new doctrine to shield them from judicial scrutiny of the most sensitive foreign policy decisions. I think such a development should be considered when the constituent treaties of the Union are again revised (which might not be so far away, considering the recent #UKinEU deal). Although an “act of state” or “political questions” doctrine might be criticized for being vague, I am not sure whether the current delimitation of the CJEU’s jurisdiction is much clearer.

Finally, it is worth mentioning that the Commission also advanced an alternative argument, which it has also put forward in earlier, notably in its submissions in Opinion 2/13. There it suggested that the term “restrictive measures” must be read expansively, so as to cover all potential cases of human rights violations (similarly to what Rosneft argues in the present case). However, the CJEU might be read as rejecting that argument in Opinion 2/13, by stating that “it is sufficient to declare that, as EU law now stands, certain acts adopted in the context of the CFSP fall outside the ambit of judicial review” (para 252). In Rosneft the Commission is therefore presenting a new approach that leads to essentially the same result. It seems as if the Commission’s strategy is to argue for an expansion of the CJEU’s power over CFSP measures at every opportunity.

MAY THE CJEU REVIEW CFSP MEASURES IN PRELIMINARY RULING PROCEEDINGS?

If it is concluded that the CJEU has jurisdiction to review the CFSP decision, another jurisdiction snag appears. TFEU Article 275(2) – the Article one would presume that need to be interpreted expansively as to its field of application to cover CFSP decisions – only envisages actions for annulment, and makes explicit reference to the conditions laid down in TFEU Article 263(4). Textually this seems to preclude jurisdiction to give preliminary rulings. Rosneft argued that a “strained literal interpretation” was not necessary, and that the CJEU should take account of the underlying intention: to bestow upon it jurisdiction for (some) CFSP measures.

The Commission agreed with Rosneft as to the result, while also pushing its “act of state”-based theory of CFSP jurisdiction. Under the Commission’s theory the form of the proceedings does not matter. According to it TFEU Article 275(2) is merely an expression of (part of) a general principle of EU law. The consequence is that the CJEU also has jurisdiction to give preliminary rulings.

The Council and the member states disagreed firmly, and argued that the CJEU did not have jurisdiction to review CFSP measures in preliminary ruling proceedings. In doing so they mainly invoked the clear language of TFEU Article 275(2), and its unequivocal reference to TFEU Article 263(4).

Another question on the margins of this is the question of standing for Rosneft. If it brings an action for annulment under TFEU Article 263(4) it will probably be dismissed since the sectoral measures are not “of direct or individual concern” to Rosneft. This might sound strange, but EU lawyers will recognize that this language has been applied very restrictively by the CJEU since the judgment in Case 25/62 Plaumann v. Commission [1963]. While the Treaty of Lisbon introduced another ground of standing (regulatory acts of general application, if they were of direct concern and do not entail implementing measures), the CJEU has interpreted this narrowly too.

But one might question whether the standing rules in TFEU Article 263(4) actually do apply. Normally, litigants do not need to fulfill standing requirements in preliminary ruling proceedings, since the requests for a preliminary rulings are submitted by the domestic courts. Rosneft therefore argued that the standing requirements did not apply, while the member states and the Council argued that they did apply. I will not discuss this further here.

HOW SHOULD THE CJEU CONDUCT ITS JUDICIAL REVIEW?

If the CJEU finds that it has jurisdiction, whether to just review the regulation or also the CFSP decision, there are uncertainty as to how it should conduct its judicial review. Notably, the issue of judicial restraint was brought up by several parties, and also from the bench. The issue of judicial restraint is, conceptually speaking, clearly distinct from the issue of jurisdiction. Judicial restraint doctrines come into play when a court has decided that it has jurisdiction to conduct judicial review. It is a doctrine within substantive (usually administrative or constitutional) law laying down limitations on the intensity of the judicial review.

During the hearing this materialized in the form of a discussion of the scope of the CJEU’s review of the regulation, under the assumption that it lacks jurisdiction to review the CFSP decision. President Lenaerts and the AG pointed to the fact that under TFEU Article 215 it is a precondition for enacting sanctions regulations that a prior CFSP decision exists. They therefore wanted to know whether this meant that the CJEU could review the regulation in light of the CFSP decision – even if jurisdiction over the latter is lacking.

The Council at first did not provide a satisfactory answer, and only stated that there must be a “valid CFSP decision” before a regulation could be enacted. After much back and forth the Council finally admitted that its argument was that the CJEU should not conduct such a review, and that it understood TFEU Article 215 as only requiring a CFSP decision. The United Kingdom took a similar position, explicitly referring to the doctrine of judicial restraint as it has been developed in EU (case-)law. It should also be added that the Commission’s submission on jurisdiction – the “act of state” doctrine – could equally well function at the substantive level, as a norm of judicial restraint.

WHAT IS THE ROLE OF THE COURTS OF THE EU MEMBER STATES?

The role of the courts of the EU member states was a recurring topic throughout the hearing. That is because, if the CJEU lacks jurisdiction to review the CFSP decision, the relevant courts for settling such disputes are those of the Member States. This follows from TFEU Article 274, according to which the Union loses its jurisdictional immunity in cases where the CJEU lacks jurisdiction. A slew of issues may be, and was, raised in this regard. I will only touch upon a couple of them.

First, the Commission argued that its proposed “act of state” doctrine had to extend to Member State courts reviewing e.g. CFSP decisions. This was opposed by all the other parties that commented on the issue.

A second issue was the risk of diverging results in different member states’ courts. Most parties acknowledged this risk, but pointed out that this was a natural consequence of the system of jurisdiction laid down in the Treaties. Some also noted that it might be alleviated through judicial dialogue between the national courts. In addition, Germany made the surprising argument that the Commission could police diverging practices by initiating infringement proceedings. President Lenaerts reacted strongly to this suggestion, asking the German agent whether he “was serious” in suggesting this, and urged him to reconsider whether Germany really intended to make that argument. The agent for Germany promised to get back to the issue in his reply, but according to my notes he did not do so.

A third, interesting submission under this heading came from France. Despite being opposed to the Commission’s EU-level “act of state” doctrine, it suggested that domestic courts should be able to apply the “act of state” doctrine applicable within their jurisdiction when reviewing e.g. CFSP decisions. Such a doctrine does exist in French law (“acte de gouvernement“). Judge Rosas asked what the consequence of this argument would have for the right to effective legal protection, since it seems to suggest that a litigant may neither be able to challenge a CFSP decision before Union courts nor domestic courts of (some) member states. France replied that the ECtHR has accepted such restrictions in its case-law. The United Kingdom, on the other hand, submitted that domestic doctrines limiting legal protection must be set aside. When questioned on the matter, the Council took a stance in between these two extremes, stating that it was “reluctant to give direction to domestic courts” while at the same time pointing to the fact that Article 47 of the EU Charter requires access to a court.

As I was not aware of the French “acte de gouvernement” doctrine before this week’s hearing, some pieces of another puzzle clicked together for me. During the negotiations of the EU accession to the ECHR France was one of the key proponents of a rule in the accession agreement that would attribute all conduct in Common Security and Defence Policy (CSDP) missions to the troop-contributing countries – while excluding responsibility for the Union as an organization. At the time I found it a bit strange that France wanted to, essentially, increase its own responsibility in this manner. But this all makes more sense when one considers that the attribution of all conduct to French troops would make it possible for France to avoid judicial scrutiny of (military) CSDP missions altogether.

SUBSTANTIVE ISSUES

The hearing focused on questions of jurisdiction, standing, and the standard of review. This was because the CJEU had emphasized these points in its written questions to the parties before the hearing. Although the discussion of substantive issues was limited, two arguments presented by Rosneft deserve mention.

First, Rosneft submitted that the CFSP decision was legislative in nature, due to its detailed provisions that were generally identical to the regulation implementing the sanctions. As the adoption of legislative CFSP acts is prohibited under TEU Article 31(1) i.f., this would render the CFSP decision invalid. And since a valid CFSP decision is needed to enact a regulation under TFEU Article 215, the regulation would also be invalid. Against this it was argued that TEU Article 31(1) i.f. must be understood as dictating that no CFSP decision can be considered to be legislative. Consequently, even if it appears to be so, it is not a legislative act, and does not have the effects of a legislative act.

Second, Rosneft argued that the CFSP decision (and the regulation) violated international law – specifically the EU-Russia Partnership and Cooperation Agreement. In opposition to this argument the other parties submitted that the “essential security interests” exception in Article 99 of the agreement was triggered by the “serious international tension” following the situation in Ukraine. Indeed, the Council in its opening statement described the sanctions regime as “between words and war” and pointed out that Russia had chosen to enact its own restrictive measures instead of invoking Article 99 of the agreement.

Rosneft in turn attempted to counter this argument by pointing out that the Council did not state the reasons for why “essential security interests” exception applied, either in its original CFSP decision nor in any of the later amendments. In fact, even when questioned by the AG on this matter the Council failed to provide any real answer to why the Council found the provision to be triggered. The agent for Rosneft did a good job of pointing this out in his reply, and I think that there is a real chance that the failure to provide proper reasons may come back to haunt the Council when the judgment is announced.

CONCLUSION

As I have shown above, this case raises an array of interesting and important questions of EU law. That being said, it is usually so that a court confines itself to do what it is mandated to do: solve the dispute. A court generally avoids dealing with unnecessary, albeit interesting, questions. Particularly if they are difficult or disputed, as is the case here.

Still, I think the Rosneft case might provide a good opportunity for the CJEU to clarify some aspects of its CFSP jurisdiction. The way Rosneft has framed the case, and given the explicit question of CJEU jurisdiction over CFSP decisions in the referral from the High Court, the CJEU is left with little choice. As I see it the CJEU has three basic options: (1) to come out and say it has (some) jurisdiction over CFSP decisions; (2) review the regulation only, and in case of it being found invalid note that a CFSP decision cannot be legislative and thus need not be implemented in domestic law; or (3) reject jurisdiction over CFSP decisions altogether, only review the regulation, and say nothing about the consequences of its invalidity or the legal effects of the CFSP decision.

*Reblogged from: https://obykanalen.wordpress.com/2016/02/25/a-report-from-the-oral-hearing-in-case-c-7215-rosneft/

Barnard & Peers: chapter 5, chapter 25

Photo credit: carnegieeurope.eu

The Fake Client: The case that bamboozled the CJEU

Steve Peers

A plucky young lawyer, fighting impossible odds. A big corporation, shamelessly manipulating the system. A vulnerable client, screwed by that same corporation. A slick corporate law firm, smugly carrying out that company’s instructions. And a quirky judge, trying to his or her best to keep order in the courtroom regardless of any shenanigans.

For over twenty years, these have been the core elements of many of John Grisham’s best-selling novels. His characters rarely leave the Southern United States – unless the plot demands a quick, sleazy journey to a Caribbean island. Could they be transplanted to Europe?

Grisham’s book Playing for Pizza is indeed set in Europe. But it’s a sports story, about a disgraced American footballer eating his way through Italy. Instead, we have the recent real life case of ‘Chain’, documented by Irish journalists Liam O’Brien and Frank Shouldice (radio version here; online story here). It contains many of the key elements of a Grisham page-turner – but with some twists worthy of his best books. (Please note that some of the allegations in their story have been disputed).

The story begins with Mr Bogdan Chain, our vulnerable client. In 2009, he began several years’ work for Atlanco Ltd, a Cypriot subsidiary of an Irish recruitment company, Atlanco Rimec – our big corporation. He was posted to several EU countries, as well as Norway, outside the EU but applying EU free movement laws. Working in different EU countries is liable to create complications from the point of view of social security, and there is complex EU legislation intended to address this issue. But it did not apply as intended in Mr. Chain’s case.

His troubles began when the Norwegian government pursued him for unpaid contributions, even though his payslips indicated that those contributions had been deducted from his pay. Then they got worse: he had a heart attack, and became unable to work. He applied to the Polish government for disability pay, which he believed he had qualified for based on his contributions. But like the Norwegians, the Polish authorities said he hadn’t made sufficient contributions – and so denied him benefits.  

So did Mr. Chain go to court to challenge this? Well, he did – and he didn’t. The real Mr. Chain insists that he did not go to court. But a lawsuit against Atlanco Ltd was nonetheless instigated in his name, without his consent or knowledge. Would the case have benefited him, if he had “won” it? It’s hard to know, but in any event it’s not appropriate to bring cases without the “plaintiff’s” consent.

The so-called “Chain” case, concerning the period he worked in Romania, went first to the Cypriot courts, and was then referred to the CJEU. According to the press story, this case was indirectly related to another case then pending in Cyprus, in which Atlanco sued the Cypriot government to let it pay social insurance for its staff in Cyprus, rather than in other EU countries. Companies would prefer to pay social insurance in Cyprus because rates are low. But as a consequence, the contributions into the social security systems in other Member States are reduced; and there’s a risk (manifest in this case) that as a result of such disputes, a company’s employees end up on the hook for contributions which they thought they had made, and are denied benefits which they thought they were entitled to, just when they need them most.  

We don’t have any plucky lawyers in this case, since (according to the press story), documents disclosed to a criminal investigation in Cyprus show that the same law firm was linked to both sides of the “Chain v Atlanco” case (acting for the corporate parent; that law firm denies this). But we do have plucky journalists: O’Brien and Shouldice, who came across the real Mr. Chain when researching the fake case.

That was the first Mr. Chain knew of the case brought in his name. He then informed the CJEU that he had not authorised that legal action. But the quirky judges in the Court went ahead and held a hearing anyway. There was even an Advocate-General’s opinion. By that point, however, the Cypriot authorities, after Mr. Chain had contacted them, had ensured that the case was withdrawn back in Cyprus, and therefore the CJEU too.

Recent Grisham novels have ended ambiguously, with key plot points not resolved. As things stand, that’s the case here too. According to the press story, the Atlanco group of companies has gone bust; the Irish founder of the parent company is counting his money; and the Cypriot government has opened a criminal investigation. To my knowledge, the Belgian authorities have not asked the law firm to clarify its position. And Mr. Chain still has no disability benefits.

Comments

First of all, congratulations to the journalists in this case, for an excellent work of investigative journalism. It’s fortunate that due to their efforts, the dubious nature of these proceedings came to light before the CJEU could give a judgment. But how did this case get so far in the first place?  

My main focus here is the position of the Court of Justice. Was its behaviour in this case appropriate? (I should note that the Court appears to have issued no formal statement. I have asked the press office if it will do so, along with some detailed questions, but so far have had no reply. Suffice it to say that I think it’s a mistake for the Court not to comment when serious questions are raised about the conduct of its proceedings).

In my view, the Court can’t be expected to systematically check the bona fides of the parties in each case referred from national courts. The Court does not have the institutional capacity to do this, and any move to change that would subvert the nature of the preliminary ruling system, which is essentially a national procedure which is temporarily interrupted to ask the CJEU some EU law questions.  It’s the national court’s job to check that proceedings are genuine, and should remain so. Here there was obviously a slip-up in allowing the case to proceed in Cyprus, although it was corrected once the alleged impersonation came to light.

According to the journalists (in private correspondence), the CJEU and the national court had no knowledge of the documents suggesting links between the “opposing” parties in this case, until the criminal proceedings were opened recently. So neither court can be criticised on that score. But should the Court have terminated proceedings once Mr. Chain told them that he didn’t authorise the case to be brought in his name?

In my view, no, for two reasons. First of all, again we have to recall the nature of these proceedings. It’s for the national court to determine whether a case is admissible before it. Mr. Chain was effectively alleging a flaw in the national proceedings, and so the Court was right to refer him to bring a complaint at the national level instead. (The EuObserver story doesn’t mention that the Court suggested he do this, but the journalists have confirmed in private correspondence that it did). 

Secondly, withdrawing the case straight away on the basis of Mr. Chain’s letter would give rise to another type of impersonation risk. To see what I mean by this, take a look at the Philip Morris case pending before the CJEU, in which the big cigarette company is challenging EU legislation on cigarette packaging and composition. An Advocate-General’s opinion in this case is due tomorrow.

It probably wouldn’t take much effort for me to find out the names of the lawyers representing Philip Morris, and to mock up some fake letterhead with a bogus signature at the bottom informing the Court of Justice that “my” client is no longer interested in pursuing this case. Someone might even have tried a stunt like this before. In light of this, it’s quite understandable that the Court would not simply dismiss the case, but wait to hear what the national court had to say.

So was the Court’s response flawless? Not at all. Mr. Chain is clearly not a huge international corporation, with the resources to pay slick corporate law firms who are fully aware of the nuances of the EU judicial system. It’s understandable that he went to the CJEU since the case had been lodged there, and was confused about how to proceed when it referred him to the national court. Keep in mind that this case was not even brought in his own legal system.

Therefore, while the CJEU should not have withdrawn the case immediately after hearing from Mr. Chain, it could have done more than just refer him to the national court. In particular, it should have told the representatives of the parties of his allegations and asked them to comment. Perhaps one or both parties would then have run for the hills, and the Court could have drawn the obvious conclusions from that. The Court of Justice should also have informed the national court of the allegations, since (as I have said already) that court was best placed to examine them, while Mr. Chain was not well placed to contact that court himself. As far as I know, it didn’t do this (this is one of the questions I asked the Court to answer).

Instead, the Court of Justice ploughed full speed ahead with a bogus case, embarrassing itself and wasting time and money. Some might even have darker suspicions about the Court’s integrity. For those reasons, the Court should swiftly issue a public admission and apology, and make the simple reforms I have suggested above.

Unlike the journalists who uncovered this fake case, I wouldn’t say that the Court was ‘complicit’ in this dubious litigation. But I believe the word ‘complacent’ is richly deserved. The EU’s citizens rightly expect better from the Court.

Barnard & Peers: chapter 10

Photo credit: mission-impossible-tom-cruise-disguise-e1285873148814.jpg

The reform of the General Court: unleashing the forces of change

Daniel Sarmiento, Professor of EU Law at the University Complutense de Madrid*

The reform of the General Court (doubling to two judges per Member State in three stages by 2019, with the parallel abolition of the seven-judge Civil Service Tribunal) is a reality now. The Council and the European Parliament have green-lighted a reform (taking effect from Christmas Day) that is destined to become a landmark in the history of the EU’s judiciary. For good or for worse, the new General Court, the product of a constitutional reform under the cover of a reform of the Court’s Statute, is here to stay. (For the background to the change, see comments by Steve Peers here).

There are many critics of the reform, including some Member States. The supporters seemed to be for a time a silent minority, but they have successfully convinced the sceptics and the European Parliament finally gave way to the many objections being brought by MEPs, academics and even some members of the General Court. (For criticism of the change, see Laurent Pech and Alberto Alemanno here and here; on the difficult negotiations, see Steve Peers here). As for me, I raised some objections as to the principles underlying this reform. In a previous post I argued that a transformation of the EU’s judiciary like the one we are about to see required a Treaty reform. However, my objection was (and is) not based on the legality of the reform, but on the means and procedures used, which, I believe, do not reflect the importance of the measures being taken.

But the reform is now part of our lives and we should start learning how to cope with it, as lawyers, as academics, as judges or as civil servants. The Court of Justice of the European Union will undergo a momentous change, so the quicker we get used to it, the better.

The change will start, of course, at the General Court itself. Fifty-six judges are a lot of people, and they will certainly not be your average Joe. Fifty-six highly competent lawyers, chosen through a very complex and demanding procedure, both political and technical, from which not everybody comes alive or in one piece. Fifty-six judges with their armies of référendaires, outnumbering by far the référendaires of the Court of Justice, thus becoming the most numerous professional community (together with jurist-linguists) inside the Institution. And despite the huge overall number, it is possible that the power, presence and authority of each individual judge will diminish. In a 56-judge jurisdiction, individual voice is a rarity. Authority and power will depend on the ability of each judge to act efficiently, not necessarily on their intellectual prestige. In very big houses, housekeepers, not charming armchair thinkers, reign supreme.

Specialised chambers at the General Court will become a reality, too. There are already plans to have a chamber for staff-cases, but soon it will be inevitable for specialised trademark chambers to appear too. The haunting myth of a specialised competition chamber will probably be postponed, but if staff and trademark specialised chambers become a success, then the door will be open for further experiments. IP lawyers will be happy to hear this, but only if the appointment process works correctly. If judges end up taking turns in order to have a say at both the “fun” chambers and the “boring” chambers, rotations will be lethal for coherence and expertise. If référendaires end up attached to specialised chambers (and not to judges) in order to ensure a certain stability in the case law, judges might end up questioning who is running the place. But if specialised chambers are not an option, who will trust a jurisdiction with, say, fifteen three-judge chambers, to ensure the coherence of the law?

A 56-judge General Court might finally push the Court into giving away its jurisdiction in preliminary references procedures in some specific areas, as provided by Article 256.3 TFEU (the new rules require a report on this issue in two years’ time). It could make sense to have a specialised Community trademark chamber also hearing references of interpretation concerning Directive 2008/95, on the approximation of laws of the Member States relating to trade marks. And why not VAT references? The Court of Justice is still bombarded with VAT references from national courts that can perfectly be handled by the General Court. The review procedure would not be dead after all, and it could be revived in order to guarantee a certain degree of supervision over the General Court’s preliminary rulings. The inertia and dynamics of an enlarged General Court might be too powerful to stop, and we could soon find ourselves with specialised chambers at the General Court hearing preliminary references. I have no objection to that, but we should be aware of the forces that are being awakened by the current reform.

On a different note, the new General Court will have (or it certainly should have) the tools and staff to rule swiftly on a very high number of cases every year. This means that the appeals on points of law will skyrocket in the years to come. The Court of Justice has taken measures to face this challenge, and in the recent years there is a clear tendency to make good use of Article 181 of the Rules of Procedure. This provision allows the Court of Justice to strike out an appeal by way of a reasoned order if it is manifestly inadmissible or unfounded. I have a feeling that this procedure will become the standard practice when the Court of Justice handles appeals against decisions of the General court, and its use will probably develop into a sophisticated type of discretionary remedy. The Court of Justice will not be able to process the amount of appeals being brought by unhappy parties against decisions of the General Court, and therefore its practice will become more and more principled-oriented. Appeals will not become a remedy for parties, but a sort of individually-brought review procedure with the purpose of guaranteeing the unity and coherence of EU Law. In an overburdened appellate court, appeals will not be a remedy to ensure the effective legal protection of individual litigants. Once again, I have no objection to this model (in fact, it exists in many Member States), but we should all be aware of its impact. Decisions of the General Court will need to be carefully made, because the parties will hardly have another shot before the Court of Justice.

This brings me to another related point: the need of external control of EU courts. If direct actions end up being dealt in a single-instance jurisdiction, with appeals left only for principled cases carefully chosen by the Court of Justice, it will be essential for the EU to accede to the European Convention of Human Rights. Private parties will not tolerate a judicial system in which crucial decisions for their lives, welfare or property, are solved by a sole jurisdiction against whom there is only a discretionary appeal. Strasbourg scrutiny will become crucial if the EU wants to prove that its judiciary is, as it self-proclaims itself, “a complete system of legal remedies and procedures”. However, the resistance of the Court of Justice to accept the conditions of accession to the ECHR will not help when, in the near future, its appeals become more and more principled, and the judgments of the General Court more and more crucial for litigants. In an ironic twist of fate, the reform of the General Court which was pushed so hard by the former President of the Court, Vassilios Skouris, might end up becoming the Union’s fast-speed train towards accession to the ECHR, which Skouris was so concerned about.

Lastly, this reform will also force a revision of the Court of Justice of the European Union as an Institution. So far, it has been clear that the Institution and its President were one thing, and the Court of Justice, the General Court, the Civil Service Court and their respective Presidents quite a different one. The tensions between the Court of Justice and the General Court during the negotiations of the last reform have brought to the day of light the need to clear up who is in charge. A 56-judge General Court will be a very powerful player if it ever decides to act in unison. The President of the Institution, not of the Court of Justice, could have a tough time trying to find its own voice in such a crowded house. His colleagues at the Court of Justice are the ones who have elected him (and to whom he is accountable every three years), but he is the President of an Institution that also represents the 56 judges at the General Court. I can imagine the current President, a natural consensus-builder, managing successfully to represent both jurisdictions before other Institutions. However, future Presidents might not have the same abilities as the current one. If institutional malaise is to be avoided in future years, serious consideration should be given to the Court’s role as an Institution.

The reform of the General Court is the first step in the transformation of the EU’s judiciary. It will unleash the forces of change, whether we like it or not. But if those forces are wisely managed, it could be the Institution’s chance to become the judicial hegemon that many wish the Court to become. Wisdom and care, in very high doses, will be needed more than ever in the years to come.

*This post previously appeared on the Despite our Differences blog

Barnard & Peers: chapter 10

Photo credit: G. Fessy, CJEU

Schipani v Italy: When does the ECHR require national courts to refer questions to the CJEU?

Daniel Sarmiento, Professor of EU Law at the University Complutense of Madrid*

The ECHR’s judgment in Schipani vs. Italy, of 21 July 2015, has reopened a subject that is close to the heart of many EU lawyers: the breach of the ECHR by a national court for failing to make a preliminary reference. The ECHR made this judgment public shortly before the summer holidays, so it might have come a bit unnoticed.

In fact, Schipani vs. Italy is not revolutionary at all, because it confirms a line of reasoning that the ECHR started in In Dhahbi vs. Italy, not too long ago.

In Dhahbi vs Italy, the ECHR stated that a refusal by a national court of last instance to make a reference to the Court of Justice, providing no reasoning at all when justifying its decision, entails a breach of Article 6 ECHR (the right to a fair trial). So if a supreme court refuses to make use of Article 267 TFEU (the provision on references to the CJEU) for no reason whatsoever, despite the fact that the appellant has raised it in the appeal, such refusal will breach Article 6 ECHR.

Schipani vs. Italy follows the same track (regarding the same national court, by the way). In this case the Corte de Cassazione had considered the arguments of EU law, but it omitted all reference to whether the issue was an acte clair or an acte éclairé. According to the ECHR, and after considering the contents of the contested national judgment, “it is therefore not clear from the reasoning of the impugned judgment whether that question was considered not to be relevant or to relate to a provision which was clear or had already been interpreted by the CJEU, or whether it was simply ignored”. It therefore came to the conclusion that there had been a breach of Article 6 ECHR.

The interesting point in the case of Schipani is that, in contrast with Dhahbi, the judgment is not unanimous. The dissenting opinion of judge Wojtyczek is very thought-provoking and merits some attention.

According to Judge Wojtyczek, the decision on the breach of Article 6 ECHR for failure to make a reference should not rely on an objective and “automatic” criterion. On the contrary, the breach should be based on the gravity of the interference of the contested decision with the right of the applicant. In other words: not every unmotivated refusal to make a reference should automatically be considered to breach Article 6 ECHR, particularly when the lack of a reference might not necessarily entail a significant loss for the applicant.

The question of the gravity of the interference makes some sense, particularly for a court exclusively entrusted with the protection of human rights. Of course, the Court of Justice might have other policy considerations when interpreting the counterpart of article 6 ECHR under EU Law: Article 47 of the EU Charter of Fundamental Rights. After all, the Court of Justice must interpret Article 47 in the broader context of the EU legal order, which the Luxembourg court needs to ensure. The broader context of EU Law might demand the Court of Justice to pay due attention to its relation of cooperation with national courts, in light of the duty of sincere cooperation. However, it is clear that the duty of guaranteeing the uniform interpretation and application of EU Law rests on the authority of the Court of Justice.

Surprisingly, and when it comes to Article 267 TFEU, it seems as if things might be developing the other way around. The Strasbourg court is introducing a rather “objective” and strict system of review of national judgments from supreme courts subject to the duty to refer to the CJEU set out in Article 267.3 TFEU, whilst the Court of Justice seems quite happy to live with the Cilfit criteria, which in fact grant national supreme courts a very wide margin of action.

This leads us to a rather paradoxical situation, in which the Strasbourg court, entrusted with interpreting Article 6 ECHR, does so in a way that reinforces a strict interpretation of the duty enshrined in Article 267.3 TFEU, whilst the Court of Justice seems rather more deferent with its national counterparts when the time comes to make a reference, thus introducing in the said provision a peculiar variable of the “margin of appreciation” doctrine so close to Strasbourg’s heart.

The Court of Justice has been asked several times in the past by its Advocates General to interpret Article 267 TFEU in light of article 47 of the Charter. So far, to no avail. The developments in Strasbourg might prove that such way forward might not be a bad idea at all. Otherwise the Court of Justice might find itself having to reinterpret Article 267 in light of article 6 ECHR, pushed by the increasing pressure of the Strasbourg case-law in cases like Dhahbi, Schipani and others to come.

Seen in this light, I am not completely sure if judge Wojtyczek is correct in his interpretation of Article 6 ECHR, but I am quite certain that his argument deserves serious consideration.

Barnard & Peers: chapter 8, chapter 10

Photo credit: BBC News

*This post previously appeared on the 'Despite our Differences' blog