Friday 9 October 2020

Action for damages in relation to CFSP decisions pertaining to restrictive measures: A revolutionary move by the Court of Justice in Bank Refah Kargaran?


Professor Dr. Peter Van Elsuwege and Joyce De Coninck (PhD Researcher), Ghent European Law Institute

The Grand Chamber judgment in Bank Refah Kargaran v Council, delivered on 6 October 2020, unveiled yet another piece of the puzzle of the  jurisdiction of the Court of Justice of the European Union (CJEU) in relation to the EU’s Common Foreign and Security Policy (CFSP). Building upon the logic which was developed in previous judgments such as Elitaliana, H v. Council (discussed here and here), Rosneft (discussed here) and SatCen vs. KF, the Court of Justice has now concluded that the EU courts  have jurisdiction to hear and determine an action for damages for the harm allegedly caused by the adoption of CFSP decisions under Article 29 TEU. Accordingly, it revokes the approach of the General Court which had so far rejected this option in view of the CJEU’s limited jurisdiction in matters concerning CFSP. Whether the judgment in Bank Refah Kargaran has further implications beyond the specific situation of restrictive measures remains to be seen. In any event, it confirms once again that the role of the CJEU in the field of CFSP is not as limited as a cursory reading of the Treaties might suggest (see also G. Butler).


Background to the Grand Chamber Ruling

Restrictive measures are effectuated by the adoption of Council Decisions on the basis of Article 29 TEU. To ensure that such CFSP Council Decisions are applied in a uniform manner, the Council typically adopts additional regulations in parallel with said decisions upon the basis of Article 215 TFEU, which generally replicate the content of the underlying Council Decision. The CJEU has repeatedly held that as concerns the content of regulations founded upon Article 215 TFEU, it retains jurisdiction, including in actions for damages. Whether such actions for damages are possible against the underlying CFSP Council Decision concerning the restrictive measures, remained up in the air until now.

In this case Bank Refah Kargaran had already successfully obtained the annulment of restrictive measures against it, taken on the basis of Council Decisions 2010/664 and 2011/783, as well as the subsequent Council Regulations 961/2010 and 1245/2011, for failure to state reasons (judgment in Case T-24/11; note that the Bank was then subjected to sanctions on the basis  of a new decision, and its legal challenge to that later decision was unsuccessful). Having obtained the annulment of said decisions and regulations, Bank Refah Kargaran initiated an action for damages before the General Court, for the damages incurred by both the underlying Council Decisions, as well as Council Regulations 961/2010 and 1245/2011, without distinction between the measures or the legal basis upon which they are founded.

In its judgment, the General Court noted that this distinction between the Council Decisions adopted on the basis of a CFSP legal basis, and the Council Regulations 961/2010 and 1245/2011, adopted upon the basis of Article 215 TFEU , had not been raised. With this distinction in mind, the General Court held that it did not have jurisdiction to rule on an action for damages concerning the aforementioned Council Decisions. In so doing, it recalled that it enjoys only limited jurisdiction in the realm of CFSP measures, namely where the Court is called upon to monitor compliance with Article 40 TEU (on the ‘boundary’ between the CFSP and other areas of EU law) and secondly, concerning the legality of measures which provide for restrictive measures in accordance with Article 275(2) TFEU. As this latter provision does not (explicitly) provide jurisdiction for an action for damages against restrictive measures, the General Court concluded that the action brought for damages against the Council Decisions escapes its jurisdiction. However, concerning Council Regulations 961/2010 and 1245/2011, the General Court held that it retained jurisdiction, as these measures were adopted upon the basis of Article 215 TFEU. The General Court subsequently embarked on an assessment of the conditions for a successful claim for damages, underlining the cumulative nature thereof, to ultimately conclude that these conditions had not been met.

The CJEU’s Grand Chamber ruling concerns the appeal against the aforementioned case before the General Court, and sparked much interest as it presented the CJEU with the opportunity to elaborate on the contours and limitations of its jurisdiction in CFSP measures and more specifically, whether Article 275(2) TFEU is to be read teleologically – in line with its Rosneft ruling – or rather, textually and in line with the opinions presented by AG Wahl in H v Council, and AG Kokott in Opinion 2/13.


Opinion of AG Hogan: advocating a ‘holistic and harmonious’ interpretation of the Treaties

AG Hogan’s opinion unpacks the CJEU’s case law on the jurisdiction on CFSP related matters, with as a departing point, the general jurisdiction of the CJEU in Article 19 TEU and the exceptional and limited nature of jurisdiction in CFSP on account of Article 24 TEU and Article 275(1) TFEU. AG Hogan proffers that the raison d’être for this limited jurisdiction is that the drafters of the Treaties acknowledged that decisions of a purely political nature should be exempted from judicial scrutiny (§47). He underlines however, that this is not the case for all matters of foreign policy – solely for questions of “high-level politics and diplomacy, which by their very nature are inapt for judicial resolution”.

In line with this finding, A.G Hogan identifies three factors to be taken into account when assessing whether the CJEU retains jurisdiction in matters of foreign policy. Firstly, AG Hogan notes that only acts adopted on the basis of Articles 23 – 46 TEU are shielded from judicial scrutiny. Secondly, certain acts on account of their nature will not be shielded from judicial scrutiny (such as staff management for example – see H v. Council). Thirdly, the exclusion from jurisdiction in Article 24 TEU and Article 275(1) TFEU constitute an exception to the more general rule of jurisdiction in Article 19 TEU, and accordingly must be interpreted narrowly.

Against this background, AG Hogan arrives at the most contentious point of the case, the treaty-based “claw-back” exceptions to the limited jurisdiction of the CJEU embedded in Article 40 TEU and Article 275(2) TFEU. Article 275(2) TFEU grants the CJEU jurisdiction to assess the legality of restrictive measures adopted under the CFSP-framework “…in accordance with the conditions laid down in the fourth paragraph of Article 263 [TFEU]”, thus linking the limited CFSP jurisdiction to the legality review inherent to the annulment proceedings. Two different approaches can be distinguished in this respect: while it may be argued that the reference to annulment proceedings must be read strictly and implies that the CJEU is granted jurisdiction to assess only the legality of restrictive measures in the context of the annulment procedure, this provision may also be read teleologically.

Following this latter perspective, the reference to Article 263(4) TFEU in Article 275 TFEU is nothing more than a reference to the “…types of decisions which may be subject to judicial review by the EU judicature and not to a particular procedure of judicial review” (§ 69). The infamous Rosneft judgment drawing from Article 19 TEU along with Article 47 of the EU Charter of Fundamental Rights, follows this second strand of opinion, holding that Article 275(2) TFEU cannot be read in such a restrictive manner that the reference to Article 263 TFEU would rule out interpretative indirect jurisdiction of the CJEU via the means of a preliminary reference procedure.

AG Hogan concludes that excluding an action for damages against successfully annulled CFSP-decisions on restrictive measures, is nonsensical, as decisions taken on the basis of Article 215 TFEU are - for all intents and purpose no more than a reproduction of the original CFSP-based restrictive measures. Any other reading of Article 275(2) TFEU – according to AG Hogan – would result in indefensible anomalies, as well as impair the effectiveness and coherence of the judicial remedies established in the Treaties. On jurisdiction, the AG concludes that the  Treaties  must be read in a “holistic and harmonious manner” and that it was never the intention of the drafters of the Treaties to exclude an action for damages (closely related to an action for annulment) against CFSP-adopted restrictive measures.


The Court judgment: confirming the unity of the EU legal order based on respect for the rule of law

The CJEU tackles the issue headfirst, and while acknowledging that Article 275(2) TFEU does not explicitly endow the Court with jurisdiction to rule on an action for damages against CFSP-based restrictive measures, lays out the groundwork as to why this jurisdiction is nevertheless implied. True to its approach in Rosneft, the CJEU first recalls that the limited jurisdiction in CFSP matters constitutes an exception to its general jurisdiction under Article 19 TEU and must, therefore, be interpreted narrowly. Second, the CJEU recalls that while an action for damages is conceptually distinct from legality review, it remains an integral component of the EU system of legal remedies, as well as the right to an effective remedy. Finally, the CJEU recalls the rule of law upon which the Union is founded, as well as the right to an effective remedy enshrined in Article 47 CFR, which require that affected parties have access to effective judicial protection. Applying these observations, the Court agrees explicitly with AG Hogan, in concluding that the coherence and effectiveness of the Union system of remedies, as well as the need to avoid legal lacuna in this system of remedies, requires that Article 275(2) TFEU is to be read as providing jurisdiction to rule on an action for damages against an annulled CFSP-adopted restrictive measure.

Significantly, the Court also expressly rejects the arguments put forward by the Council on the basis of the pre-Lisbon judgments of Segi and Gestorias Pro Amnestia. The introduction of a single legal personality for the EU, laid down in Article 47 TEU, implies that the CFSP is no longer to be regarded as a separate pillar but as an integral part of the EU legal order. The logical consequence is that the EU Treaty provisions relating to the CFSP – including the part on the limits to the Court’s jurisdiction –  cannot be interpreted in isolation from the general structure and logic of the Treaties. The Grand Chamber judgment in Bank Refah Kargaran confirms this approach, which was already present in previous judgments, most notably in Rosneft, to conclude that the General Court erred in law when it excluded its jurisdiction to hear and determine an action for damages in relation to CFSP decisions imposing restrictive measures.

Finally, with respect to the substance of the action, the Court of Justice dismissed the appeal of Bank Refah Kargaran. As correctly observed by the General Court, the inadequacy of the statement of reasons for the annulled legal acts imposing restrictive measures does not in itself provide a ground for triggering the non-contractual liability of the EU. The obligation to state reasons is merely an essential procedural requirement, which must be distinguished from the question whether the reasons are well founded. Hence, the EU may only be found liable when the substantive legality of the measure is at stake.  


Understanding the intention of the drafters of the Treaty

Taking into account the fundamental importance of the rule of law as a cornerstone of the EU legal order, the Court’s deliberate choice for a broad interpretation of its general jurisdiction does not come as a surprise. It builds upon the tradition of Les Verts to ensure, in so far as possible, an effective system of judicial protection in a Union which is based on respect for the rule of law. In its post-Lisbon case law, the CJEU consistently applied the same logic with respect to questions concerning the scope of its jurisdiction in the area of CFSP. Of course, the question remains how far this approach can be stretched, taking into account the limitations imposed under Article 24 TEU. As observed by AG Wahl in H v. Council, the system of judicial review in relation to the CFSP is “the result of a conscious choice made by the drafters of the Treaties”, implying that the Court may not broaden its jurisdiction beyond the limits laid down in the Treaties.

In other words, the entire discussion about the precise limitations to the jurisdiction of the CJEU relates to the intention of the drafters of the Treaties. Did they intend to retain an separate constitutional status for the CFSP, which is shielded from judicial review by the EU courts with certain exceptions as defined in Article 24 (1) TEU and 275 (2) TFEU, or did they essentially aim to exclude CJEU jurisdiction in view of the highly political nature of CFSP decisions? The latter approach largely corresponds with the established practice at the national level of EU Member States where foreign policy decisions traditionally escape judicial review. This is the view defended by AG Hogan in his opinion to the Bank Refah Kargaran judgment when he points at the intention to exclude CJEU jurisdiction for CFSP decisions that are in essence of a purely political nature without excluding particular types of foreign policy decisions that can be the subject of judicial review. A largely similar approach was previously developed by AG Bobek in SatCen v. KF when he observed that “the fact that an act is formally based on CFSP provisions or adopted in that context simply is not enough to trigger the CFSP derogation. The act must also have genuine CFSP content.”(§79).

The Court judgment in Bank Refah Kargaran again confirms that not the form of a measure is decisive to determine its jurisdiction. As observed by AG Hogan and expressly upheld by the Court (§39), such a formalistic approach would lead to indefensible anomalies in a Union based on the rule of law. The case at stake concerned the specific situation of CFSP decisions pertaining to restrictive measures. For such acts, an action for damages is possible with respect to measures adopted under Article 215 TFEU and it would be rather artificial if this option would then be precluded with respect to the underlying CFSP decision based on Article 29 TEU.

Unresolved Issues

Although the current case constitutes a significant clarification in an increasingly momentous strand of case law on CJEU jurisdiction in CFSP, a number of questions remain unresolved in this jurisdictional enigma, and not in the least the larger implications of the current judgment. While on the one hand, it could be argued that by building upon the reasoning adopted in Rosneft and the underlying principles of the rule of law and the right to an effective remedy, the Court has opened the door to significantly more jurisdiction in the realm of CFSP, it could also be argued on the other hand, that the implications of the current judgment are in fact, relatively limited.

The case at hand concerned restrictive measures that had already been the subject of a successful annulment proceeding as concerns both the Article 215 TFEU-based regulations, as well as the underlying Council Decisions to include Bank Refah Kargaran on the EU’s list of restrictive measures. However, for the right to an effective remedy under Article 47 CFR to be discharged, the mere declaratory nature of an annulment proceeding will not suffice, and additional remedial action is needed. Within this line of reasoning, it is not surprising that the CJEU found that an action for damages for an already annulled CFSP-based restrictive measure is inherent to the system of remedies encapsulated in Article 275(2) TFEU. In other words, as Article 275(2) TFEU already embodies one aspect of the right to an effective remedy, it is not surprising that the CJEU confirmed in casu that this legality review for CFSP-based restrictive measures includes also the complementary right to damages as a result of the unlawfulness of the measures. Following this reasoning, the impact of the ruling on CJEU jurisdiction in CFSP can be construed as limited exclusively to matters concerning restrictive measures that in any event, were already subject to legality review by the Court.

However, by increasingly building its reasoning in the present case and in its predecessors such as Rosneft, on the overarching and foundational value of the rule of law, as well as the coherence and effectiveness of the system of remedies in the Union, the question remains whether the Court’s judgment may have broader implications, going beyond the specific situation of CFSP decisions concerning restrictive measures. In particular, if the intention of the drafters of the Treaty was to solely exclude CFSP decisions of a political nature, it implies that such decisions that are not of a political nature, would thus fall within the purview of CJEU jurisdiction.

The reference to the overarching right to an effective remedy in the EU legal order, including the right to damages where the conditionality has been met, could arguably be invoked within the context of EU Common Security and Defence Policy (CSDP) military missions for purported human rights violations occurring in the context thereof. In fact, the increased reference to such overarching principles inherent to the rule of law, make it increasingly difficult to contend that the CSDP nature of the mission in itself prevents any judicial scrutiny by the CJEU. Given the increased appropriation of jurisdiction in CFSP-matters of a cross-policy nature (the Mauritius case concerning criminal cooperation, discussed here; the Elitaliana case concerning the Financial Regulation, H. v. Council and SatCen v. KF concerning staff management), as well as the increasingly established jurisdiction in differing procedures on restrictive measures (the Rosneft case and now Bank Refah Kargaran) it appears that the CJEU is taking definitive steps in determining the contours of its jurisdiction in CFSP. In turn, this evolution in the case law of the Court could prove to be instrumental in the currently recommenced negotiations on the accession of the EU to the European Convention on Human Rights (ECHR), in which (the absence of CJEU) jurisdiction in CFSP had proven to be a significant obstacle. Whereas the Court held in Opinion 2/13 (discussed here) that it did not yet had the opportunity to define the exact scope to which its jurisdiction is limited in CFSP matters (§251), the increasingly long list of recent judgments reveals that its role is less limited than what a literal interpretation of Article 24 TEU may suggest.


Concluding remarks

The Court judgment in Bank Refah Kargaran v Council is another important contribution to the ongoing discussion about the precise scope of CJEU jurisdiction in relation to the area of CFSP. It makes an end to the existing practice of the General Court to reject the option of an action for damages in relation to restrictive measures adopted on the basis of Article 29 TEU. In combination with previous judgments, most notably Rosneft, it implies that the entire system of EU legal remedies is now available with respect to the adoption of restrictive measures against natural or legal persons, meaning that, for this issue, there is no difference in comparison to other areas of EU law.

Whereas the case at stake is confined to the specific situation of restrictive measures, the Court’s reasoning on the basis of the integration of the CFSP in the post-Lisbon EU legal order – and its concomitant application of the general principles of EU law – has to be put in the broader perspective of EU constitutional law. Once again, the Court stressed the fundamental importance of respect for the rule of law and its concomitant right to an effective judicial remedy in order to allow for a broad interpretation of its own jurisdiction. Whereas the precise limitations with respect to matters adopted in the field of CFSP are still not entirely defined, the judgment in Bank Refah Kargaran thus forms part of a broader tendency in the Court’s post-Lisbon case law to ensure as much as possible that non-political questions adopted in the field of CFSP are subject to judicial review.

Barnard & Peers: chapter 24

Photo credit: Business Traveller

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