Wednesday 31 January 2024

Would’ve, Could’ve, Should’ve: Preliminary Reflections on the EU’s New Corporate Sustainability Due Diligence Directive


 


Tara Van Ho, Senior Lecturer in Law, University of Essex

 

Photo credit: Infrogmation of New Orleans, via Wikimedia commons

 

The European Union’s Council and Parliament have agreed to a provisional text for a new directive that would require certain large corporations to undertake human rights and environmental due diligence.

 

I was reminiscing just the other day while having coffee all alone, and Lord, it took me away, back to a first-glance feeling during my first UN Forum. My hope was mixed with equal levels of scepticism about the likelihood that laws like this would be adopted let alone be effective. Over the past twelve years, the hopes and scepticism have been met in equal measure, but never more so than with this law.

 

While the final text is not yet public, a press release indicates the key expectations and components of the agreed text. MEP Axel Voss has posted the side-by-side comparator of the various drafts, including the new draft agreement. This draft confirms:

 

-          The directive will apply to large EU companies with a worldwide net turnover of €150million and 500+ employees;

-          It will eventually capture non-EU companies with €300 million net turnover generated in the EU and the Commission will publish a list of applicable non-EU companies the law;

-          Affected businesses will need to address actual and potential adverse human rights and environmental impacts in their “business chain of activities” which covers their own operations, their subsidiaries, and “the upstream business partners of the company and partially the downstream activities, such as distribution or recycling”;

-          The financial sector is (temporarily?) excluded pending a review and “a sufficient impact assessment;

-          There is a specific list of human rights and environmental protections that businesses will be expected to respect and address, and a list of obligations the breach of which will constitute “an adverse human rights impact”;

-          That list excludes from application certain ILO core conventions because not all EU member states have ratified them; 

-          Large companies will have an obligation of means to develop and implement an effective plan to mitigate their impact on climate change;

-          Those who are negatively affected (including civil society or trade unions) can bring claims for civil liability within a five-year period; and

-          At times, as a matter of last resort, businesses may need to end their business relationships where negative impacts cannot be prevented or ended.

 

This law represents progress for many in the world. If implemented in good faith, it could provide better access to remedies for victims who are negatively impacted by business operations. It should also lead to the adoption of better and greater preventative measures, avoiding the need for remediation in the first place.

 

It is the first mandatory human rights due diligence legislation to address climate change, not just environmental damage. It anticipates civil liability for businesses that breach their responsibilities. It suggests compliance with the law as a criterion for public procurement, placing the power of Member States’ purses beyond the law. The recognition that at times business relationships will need to be terminated to ensure compliance is significant and can help fill in gaps the negotiation has otherwise left unaddressed, like the issue of conflict-affected and high-risk areas (which I’ll return to later in the post).

 

I’d like to express my appreciation to the NGOs and Parliamentarians who have gotten us to this point: it is clear from the Council’s approach during negotiations that if you would’ve blinked then they would’ve looked away at the first chance. I particularly appreciate those who fought for the inclusion of international humanitarian law and specific language on conflict-affected and high-risk areas. This was needed and I was shocked by early rumours that the draft agreement excluded this issue. I’m happy those were wrong.

 

The long-awaited human rights requirements are intended to implement the 2011 United Nations Guiding Principles on Business and Human Rights (UNGPs). I remember it all too well how the EU celebrated the adoption of the UNGPs and how, together with the US and other capital-exporting states, promoted the UNGPs as the standard for businesses when addressing human rights. The EU long opposed proposals for an international treaty on business responsibility for human rights because they felt that it was unnecessary in light of the UNGPs’ existence and could distract states from implementing the UNGPs.

 

Only recently, and only because Parliament required it, the EU has joined the negotiations with all the enthusiasm of a 6-year-old child called to dinner when they’re playing with their dinosaurs (meaning: none). The new directive evidences strong disconnects from the EU’s demand that the UNGPs lead is pretty and what the EU advocates for in the binding treaty and what the directive now requires for reasons I set out below.

 

In this post, I provide a list of things the EU would’ve, could’ve, and should’ve done had the Council been as serious as Parliament about implementing the UNGPs. The would’ves apply to an ideal application of the UNGPs: applying to all businesses and with a more robust and comprehensive understanding of human rights. The could’ves represent those areas in need of greater development: consulting with rightsholders abroad; and clarifying that contractual clauses are not enough. Finally, the “should’ve” is applying the law to the financial and arms sectors, a bare minimum expectation under the UNGPs, the exclusion of which should embarrass Council members for decades to come (I would have said generations but that felt a tad bit dramatic).

 

Would’ve: Applied to all businesses

 

First, the UNGPs are explicit that the responsibility to respect human rights applies to all businesses at all times including small and medium-sized enterprises (SMEs). In the Geneva treaty negotiations the EU has always walked a very thin line, insisting that the treaty, like the UNGPs, should apply to all businesses, not just transnational corporations. The initial Parliamentary proposal for a directive would’ve (largely) continued this approach and complied with the UNGPs. Yet, it was clear from the Commission’s proposal and the Council’s response that we were never going to get a UNGP-compliant directive. The Directive will now only apply to large companies (and not in the financial sector, an issue I’ll return to). The press release does not indicate an intention to expand the scope of the Directive in the future.

 

Including SMEs is admittedly difficult. In the transnational context, large European companies have long forced SMEs in places like Bangladesh and Pakistan to absorb the cost of social auditing processes while insisting on contracts that limit the legal liability of European buyers and parents. This often leads to corrupt practices for certifications or in redirecting revenue for the certification away from protections or living wages for employees. That would defeat the purpose of the law.

 

EU SMEs, on the other hand, often already have a language of human rights, practices that facilitate due diligence, and networks that can support their efforts to develop in this area. A graduated expansion coupled with clauses aimed at protecting SMEs from the abusive practices we’ve seen elsewhere could’ve provided an important example of how SMEs can be included in mandatory human rights due diligence legislation. It also would’ve strengthened the EU’s position in the Geneva-based negotiations.

 

Instead, whenever the EU pushes for an expansion of the treaty, I hope states like Pakistan and Bangladesh point out the hypocrisy.

 

Would’ve: Taken a broader approach to human and labour rights

 

The UNGPs also call for businesses to account for all human rights. In Principle 12, it states that businesses should account for, “at a minimum,” the International Bill of Human Rights (the Universal Declaration of Human Rights, the International Covenant on Civil and Political Rights, and the International Covenant on Economic, Social and Cultural Rights) and the ILO Core Conventions. Where relevant, businesses need to rely on other standards as well.

 

The EU’s press release suggests that the directive will only invoke treaties that are universally ratified by EU member states. That would mean most of the major UN treaties are addressed but there are some disturbing omissions, including the International Convention on the Protection of All Migrant Workers and of their Families and the ILO Core Conventions. Those are rather significant omissions given issues of modern slavery in EU food supplies, and more broadly problems with the treatment of migrant workers throughout EU corporate supply chains.

 

The list also prioritises EU commitments over relevant obligations where the law has extraterritorial impacts. There should have been a recognition that at times the Inter-American and African systems on human rights can be applicable. This recognition is important as the Inter-American and African systems have produced stronger jurisprudence on various issues, including indigenous rights and community rights than Europe (significantly stronger in the Inter-American system) while the Inter-American system also produces more progressive jurisprudence on the definition and nature of reparations, and the direct responsibility of businesses. While the African system has more limited jurisprudence, its jurisprudence on land rights and community rights is similarly more advanced than the European system’s.

 

Sometimes, I miss who I used to be when I could naively believe the absence of reference to the other human rights systems was an oversight, but I fear this strengthens the case for the laws as a form of neo-coloniality by suggesting a hierarchy of rights and systems that centres European expectations in legislation that is supposed to reflect broader standards.

 

Could’ve: Undertaken Direct Consultations with Foreign Rightsholders

 

The failure to recognise the relevance of Inter-American and African jurisprudence reflects a broader procedural failure by the Commission to consult foreign rightsholders who will be affected the law. I cannot do greater justice to this criticism than Caroline Omari Lichuma has done already in her TWAIL critique of European human rights due diligence laws.

 

While my experience suggests that many victims groups and rightsholders want mandatory laws, what they want in those mandatory laws matters just as much as the desire for a law. They had a right not just to voice their support for (or criticism of) the law but to make substantive demands for the law itself. What would the additional demands of rightsholders look like? Well, sometimes you just don't know the answer ‘til someone's on their knees and asks you for a particular legislative proposal, but a very recent study suggests that consultation might have led to different approaches to remediation, particularly for climate-related harms.

 

I often find that memories feel like weapons. In this field, we have often seen European businesses and states undertake “new” initiatives they claim are for the benefit of others without actually talking to the “others.” For example, studies suggest “social auditing” and certification schemes do not deliver on the promises European companies and social initiatives claim. This is unsurprising. Writing in the U.S., the founding father of critical race theory, Derek Bell, has explained that many “anti-racist” developments really represent interest convergence of White and Black leaders. As such, the concessions are less radical or responsive than what racialised communities would seek themselves. These additional demands, however, are often dismissed or ignored. When Dr Lichuma provided an overview of her critique at the 2022 UN Forum on Business and Human Rights, one European delegate infamously responded that Europe’s position wasn’t a matter of imperialism but of “leadership.” Real leadership, however, would reflect the results of consultations with rights-holders not just the political interests and concessions of European leaders.

 

Could’ve: Clarified that Contractual Clauses are not Enough

 

Recital 34, para 43 in the table contains an extensive discussion of the kinds of measures companies can take to comply with their human rights responsibilities. One of those is the development of contractual clauses with business partners. I worry that I've seen this film before and I didn't like the ending.

 

I’ve now mentioned twice that social auditing is a sham. There will be exceptions to this rule and I can point people to a few of my favourite exceptions, but let me reiterate what existing research indicates: social auditing is generally ineffective and often detrimental for rights-holders, providing a veneer of respectability for disrespectful practices.

 

Increasingly, it is clear that this is equally true of index listings meant to advise institutional investors on their human rights risks. Last year, the US advisory company Morningstar adopted rules aimed at exempting Israel that so fundamentally misunderstand the UNGPs that it renders all its human rights reporting questionable (short story: Morningstar concluded Israel isn’t a conflict-affected area…). More recently, index provider MSCI accepted audits from Xinjiang, China, as evidence that the car company Volkswagen was seriously addressing the issue of Uyghur forced labour. No company can adequately address the issue of Uyghur forced labour when operating in Xinjiang and (again, I cannot emphasise this enough) it is irresponsible to rely on a social audit in this context. Because these indexes set their own rules, and have no professional board standards, I can’t actually accuse them of professional malfeasance but these responses are shockingly inept.

 

Human rights due diligence is not supposed to be the same as an audit, but often businesses looking for a quick and dirty misdirection will use social audits and contractual clauses as a substitution for due diligence. I fear that if contractual clauses are allowed, due diligence will start to look more and more like social auditing and indexing and less like the robust and circular mechanism of assessment, responsiveness, and reparations than it is supposed to be.  

 

The directive could and should clarify that while contractual clauses can be important they cannot transfer legal liability. 

 

Should’ve: Applied to the Financial and Arms Sectors

 

At Recital 18, para 27, and  Recital 19, para 28, we find an effective exemption from the law for the arms and financial sectors, respectively. In Recital 19, the CSDDD excludes “downstream business partners” from the scope of due diligence obligations. I knew this was true from the press release, but seeing the blatant language was surreal. I’m laughin', but the joke's not funny at all.

 

I’m going to set aside the arms sector for now (because I’m working on a lot regarding that sector right now), but the exemption for the financial sector is gross (gross being a legal term of art, just ask anyone…). The draft agreement says that “as regards regulated financial undertakings, only the upstream but not the downstream part of their chain of activities is covered by this Directive.” In other words: the bank is not responsible for breaches caused by its financing of another’s activities no matter how much the bank should have known how its financing would be used for human rights violations.

 

Out of every group you’re concerned with protecting, out of every business and industry, it is the banks you the Council thinks can’t do due diligence?

 

Really?

 

The banks that kept looted Nazi material from their rightful Jewish owners for decades?

 

The banks that repeatedly financed South Africa’s apartheid regime, saving it when it was on the brink of collapsing?

 

The banks accused of facilitating money laundering for drug lords and terrorists?

 

The ones who facilitate tax evasion? 

 

The banks that finance dam projects in indigenous lands with such disregard for human rights that many of their logos should just be “Hi, it’s me, I’m the problem. It’s me.”

 

The banks that know how to do extensive due diligence on operational impacts when it’s in their financial interests?

 

Those banks? That’s who needs protecting with this law?

 

You cannot be serious about human rights if you are not serious about tackling the responsibility of the financial sector. When it comes to the Council members who betrayed the rights-holders with this clause, I got a list of names and yours is in red, underlined, France and Austria. France was the first to indicate resistance to the application to the financial sector, but it is Austria’s recent pressure on Ukraine, in which it leveraged international assistance for the war on the removal of Austrian Raiffiesen Bank from the list of international sponsors of war, that is perhaps the worst development in this area. People need to know this, so they know where to put pressure moving forward.

 

It appears there will be an “impact assessment” to determine if the law should apply to this industry, but that will be too little and far too late.

 

It’s also wholly unnecessary.

 

There is nothing particularly special about banks or the financial industry that makes human rights due diligence hard. They just don’t want to pay for it to be done properly. That’s not surprising. No company wants to pay for it. Disney once complained about reporting requirements before we even had any human rights due diligence laws because they didn’t way to cut into CEO bonuses or shareholder profits. The desire to not spend money on human rights due diligence is not an adequate reason for allowing those complicit in the Nazi genocide or South African apartheid or Russia’s unlawful war of aggression in Ukraine to continue to evade human rights responsibilities. If anything, their focus on profits and finances over people is exactly why this law is needed.

 

Concluding note

 

So that’s it: my would’ves, could’ves, should’ve for the EU. At times, the CSDDD provides me with hope about the direction of travel for this field, but in other areas it represents a crisis of my faith.

 

 

 

PS, Taylor Swift’s birthday was on the same day as the final trilogue. As a fun Easter Egg hunt for my fellow Swifties, I’ve sprinkled her lyrics throughout this post (13 times, obviously). I’ll send a friendship bracelet to the first Swiftie who emails me a list of all the hidden gems. Please use the subject line “T-Swift Easter Egg Hunt” in your email. My email address can be found on my Essex profile.

Tuesday 30 January 2024

The Council must swiftly implement a legal framework akin to the CEOS for staff employed in CSDP missions: Reflections on the Jenkinson litigation (Case C-46/22 P)

 


Antje Kunst*

Photo credit: Jan-Tore Egge, via Wikimedia Commons

Introduction

The Court of Justice of the European Union in its judgment in Jenkinson v Council and others ( Case C-46/22 P) of 18 January 2024 dismissed the appeal brought by Mr. Jenkinson, an Irish national, which has implications for thousands of staff serving in international missions of the EU (EU missions) under the EU’s Common Foreign and Security Policy (CFSP) in third states.

Mr. Jenkinson’s defeat before the Court of Justice is not a victory for the defendants: the Council, the Commission, the European External Action Service, and Eulex Kosovo. It is clearly not in their interest that the General Court’s findings in the judgement under appeal, Case T‑602/15 RENV have been upheld. Also, it is a shame that the Court of Justice did not express any views on one of the main claims in this litigation regarding the Council’s failure to introduce a legal regime comparable to the Conditions of Employment of Other Servants of the European Union ("CEOS").

Instead, the Court of Justice held the related arguments were inadmissible or unsubstantiated, without offering any views by passing on the merits of those arguments. This is a missed opportunity, also taking into account that the General Court in Stockdale v Council and Others (including the European Union’s Special Representative in Bosnia and Herzegovina) (T‑776/20), has already made certain findings in this regard.

Applicability of Private International Law (Rome I Regulation)

Jenkinson’s claim was that the EU did not envisage that private international law, i.e., an EU Regulation on the law applicable to contractual obligations (the Rome I Regulation) would be applicable to public law contracts such as those at issue in the case. (para. 79 of the Judgment) The Court of Justice disagreed: ‘since the General Court was seised pursuant to an arbitration clause under Article 272 TFEU’, it was necessary in the absence of any choice of the parties of the applicable national substantive law for the Court to identify it (para. 88 of the Judgment).

The Court of Justice held that the General Court was correct in taking recourse to the Rome I Regulation, to do so. It did not interfere with the General Court’s determination that Irish law was the applicable national substantive law governing Mr. Jenkinson’s claim for a requalification of the series of fixed-term contracts, and that based on Irish law, Mr. Jenkinson’s claim was dismissed (see paras. 123 -163 pp. of the Judgment)

Application of various national laws to staff working for the same employer

Only towards the end of the Judgment the Court of Justice acknowledged that the application of various national laws might, in practice, result for members of Eulex Kosovo’s contract staff being treated differently as regards the rights conferred on them and the obligations imposed on them in a given situation. (para. 262 of the Judgment)

However, it followed from the contractual nature of the relationships that, in the absence of a common European regime applicable to the members of Eulex Kosovo’s staff, the substantive rules intended to supplement the contractual terms are derived from a national law which will have been identified under the rules of private international law. (para. 267 of the Judgment)

It concluded that Mr Jenkinson had failed to show that, in the circumstances of the present case, the application of different substantive rules of national law to the members of Eulex Kosovo’s international staff constituted a breach of the principle of non-discrimination. (para. 271 of the Judgment)

It is surprising that the Court of Justice, unlike the General Court, expressed concerns about that similar disputes of contract staff working in EU missions will be decided differently depending on what the identified national law prescribes but then did not draw any consequences from this.

In this respect Stephan Marquardt, Eszter Orgovan (Counsels for the EEAS in Case C-46/22) and Emmanuelle Raoult (Counsel for Eulex Kosovo in Case C-46/22) stated, albeit in their personal capacity, in a recent academic contribution on the Jenkinson case:

“Having recourse to the applicable national law … carries the risk of diverging outcomes of similar disputes, notably regarding possible claims for damages, where the conditions for such claims may differ from one legislation to the other.”

(See Stephan Marquardt, Eszter Orgovan and Emmanuelle Raoult, in The European Union's Contribution to International Peace and Security, Chapter 6: ‘The Legal and Institutional Nature of EU Civilian Crisis Management Missions in the Light of the Case Law of the Court of Justice of the European Union’).

This is a legitimate concern that the defendants have, and here, was to the detriment of Mr. Jenkinson. Had the national law of another state (e.g., another Member State, or third state) applied, the requalification claim of a series of fixed-term contracts to a permanent contract might have succeeded, and the outcome in a similar action would be different. Not only that, a claim for damages might have succeeded too.

Other similar cases pending

Different outcomes could happen in future case, including pending cases, which are currently stayed and concern similar actions involving members of the international staff of Eulex Kosovo: BL and BM v Council and Others (T‑204/19); QP and Others v Council and Others (T‑183/21); and RI and Others v Council and Others (T‑190/21). In relation to a different mission there is the case of Stockdale v Council and Others (including the European Union’s Special Representative in Bosnia and Herzegovina) (T‑776/20). Different outcomes could also occur in future similar litigation, given that it is likely not Irish law will apply in those cases. This could also lead to irreconcilable judgments.

Claim of failure to adopt a legal regime comparable to the CEOS

In his initial application stretching back to 2017, Mr. Jenkinson sought compensation on the basis that the Council, Commission, and the EEAS failed to comply with their obligations, including to recruit him under a legal regime comparable to the CEOS. 

In his appeal in Case C-46/22 Jenkinson argued that the General Court infringed Article 336 TFEU by holding that the Council had lawfully delegated to the Head of Eulex Kosovo the power to adopt the conditions of employment of international civilian staff. (Article 336 TFEU provides ‘The European Parliament and the Council shall, acting by means of regulations in accordance with the ordinary legislative procedure and after consulting the other institutions concerned, lay down the Staff Regulations of Officials of the European Union and the Conditions of Employment of other servants of the Union.’)

The infringement of Article 336 TFEU also resulted from the fact, that the conditions of employment of international civilian staff were laid down in the contracts between the Head of Eulex Kosovo and the members of that mission's staff, whereas they ought to and should have, instead, been decided by the Council. According to Mr. Jenkinson, it was for the Council to adopt conditions of employment for international civilian staff similar to those contained in the CEOS (para. 65 of the Judgment)

The Court of Justice noted that Mr. Jenkinson, before the General Court, had made submissions regarding the non-existence of a framework similar to the CEOS for hiring staff for those missions. The Court of Justice then took issue with the fact that Mr. Jenkinson had not sought a declaration from the General Court that there had been an infringement of Article 336 TFEU through the failure to adopt, on the basis of that article, a legal regime applicable to employment situations such as that of Mr Jenkinson (para. 71 of the Judgement). Arguably, he should have.

In this context, the Court of Justice rejected Mr. Jenkinson’s complaint in the appeal, that the application of the substantive national law applicable to his contractual relationship constituted an infringement of Article 336 TFEU by reason of the absence of a legal framework adopted on the basis of that article. According to the Court of Justice, because the complaint was not raised before the General Court, it was consequently found both inadmissible and unfounded (paras. 72, 73 and 90 of the Judgment).

This is significant, as any contract staff working in an EU mission in a similar future action could make submissions the Court of Justice considered were missing and seek such declarations.

Plea of Illegality regarding Joint Action 2008/124 establishing the Eulex Kosovo

The Court of Justice also rejected Mr. Jenkinson’s arguments regarding a plea of Illegality pursuant to Article 277 TFEU, specifically that Article 9 (3) and Article 10(3) of Joint Action 2008/124 infringes Article 336 TFEU (paras. 38, 46 and 47 of the Judgment). Those provisions state that Eulex Kosovo may also recruit international civilian staff, as required, on a contractual basis and that the conditions of employment and the rights and obligations of such staff are to be laid down in the contracts between Eulex Kosovo and the members of staff.

The Court of Justice referred to the General Court’s finding, that, even supposing that the appellant had in fact raised a plea of illegality against Joint Action 2008/124, on the basis of Article 277 TFEU, it had to be held that that plea was not substantiated. The Court of Justice did not interfere with the General Court’s finding.

The plea of illegality regarding Joint Action 2008/124 could be further substantiated in future litigation before the General Court in a similar action with the consequence that the Court of Justice would have to examine the alleged unlawfulness and whether there is an infringement of Article 336 TFEU.

National law vs EU staff law resolving the dispute

Mr. Jenkinson further argued that the application of national law by the General Court would be contrary to the principle of non-discrimination in that it entails three instances of unequal treatment:

-          first, Mr. Jenkinson being treated differently to the servants of the European Union whose conditions of employment are to be determined exclusively by the Council and the Parliament pursuant to Article 336 TFEU.

-          second, the servants of the European Union, such as Mr Jenkinson, and national workers governed by private law being treated the same,

-          third, international staff of different nationalities working for the same employer under the same conditions and circumstances being treated in a discriminatory manner.

 (see para.  95 of the Judgment).  

Again, this complaint was rejected by the Court of Justice as a new complaint and rejected as inadmissible as it was not raised before the General Court, and the Court of Justice did not make any findings on the substance in this regard (para. 106 of the Judgment).

Also, this very compelling discrimination argument, in particular regarding international staff working for the same employer (i.e., international staff to whom the EU Staff regulations apply and international staff to whom national law applies), could be raised by applicants in future litigation before the General Court.

Conclusion

The fact that the Court of Justice has not interfered with the General Court applying national substantive law to the dispute is highly problematic for the Council and the EEAS for the reasons set out in the above-mentioned academic publication. In the future therefore, it is wholly unpredictable how the national substantive law would govern other similar disputes for staff in EU missions. This bears considerable financial risks for the defendants. It also bears risks of future litigation in which fundamental rights concerns will be raised, in particular a breach of the principle of equal treatment and the prohibition of discrimination.

The Court of Justice refrained from ruling that the Council’s failure to adopt a legal regime for staff in the EU missions comparable to the CEOS is unlawful which would have obliged the Council to act. Notwithstanding, the ruling shows that it is no longer acceptable to keep the status quo. The financial risks associated with future similar litigation, and the related uncertainties of the outcomes under the case law of Jenkinson, should be compelling reasons for the Council, the decision-maker within the CFSP, to act.  Also, what the Council back in 2008 establishing Eulex Kosovo might not have been able to reach a consensus on might be acceptable,16 years later.

This would be in accordance with the view expressed in an academic article, the President of the General Court, Marc van der Woude recently:

In light of the cases that have appeared before the CJEU in this area, that, “the precise scope of the protection to which employees are entitled in a community of law, still needs to be defined. Preferably, it should be aligned on the level of protection to which EU staff regularly employed by the EU institutions can already aspire.”

(See, M. van der Woude, ‘The European Union’s Engagement With Questions of Strategic Autonomy and Security: Do EU Courts Have a Role to Play?’, (2023), European Foreign Affairs Review, Volume 28, Issue 4, pp. 311–322).

 

*Antje Kunst is an international lawyer and a member of Pavocat Chambers advising and representing individuals in a wide range of matters in the field of the EU’s Common Foreign Security Policy (CFSP) and takes instructions from individuals challenging a wide range of decisions including EU employment cases to EU and UN sanctions before the EU courts and international bodies.

 

Thursday 18 January 2024

Foreign policy sanctions and criminal law harmonisation

 


Professor Steve Peers, Royal Holloway University of London

Photo credit: Pierre Blaché, via Wikicommons

*This blog post draws upon and updates research for the 5th edition of EU Justice and Home Affairs Law (OUP, 2023)

Late last year, the EU Member States and the European Parliament agreed upon a Directive to harmonise criminal law as regards EU foreign policy sanctions. This followed barely a year after the EU Council adopted a decision to extend EU criminal law competence to cover those sanctions. This blog post updates a previous post that discussed both the 2022 decision on competence and the initial Commission proposal for a Directive that has now been agreed in principle.

The Decision extending competence

As noted in the previous post – and discussed in more detail there – the 2022 Decision extending EU competence was the first use of the EU’s power to extend the list of crimes which it had competence to harmonise, as set out in Article 83 of the Treaty on the Functioning of the European Union (TFEU). The previous list of crimes was: ‘terrorism, trafficking in human beings and sexual exploitation of women and children, illicit drug trafficking, illicit arms trafficking, money laundering, corruption, counterfeiting of means of payment, computer crime and organised crime’.

That competence involves not only the ‘definition of criminal offences’ but also ‘sanctions’, ie the length of jail terms and/or other sanctions that can be imposed as part of the criminal law. However, these are ‘minimum rules’ – meaning that Member States can add to them as part of their criminal law.

Since the Treaty of Lisbon entered into force in 2009, the EU has adopted Directives regarding most of the ten Eurocrimes, in most cases replacing older forms of EU law adopted before the Treaty of Lisbon entered into force. The exceptions are arms trafficking, corruption, and organized crime – although there are pre-Lisbon EU laws concerning the latter two crimes, a proposal from 2023 to update the law regarding corruption, and other EU legislation concerning firearms that falls short of adopting criminal sanctions for arms trafficking. In any event, as we shall see, some arms trafficking will fall within the scope of the newly agreed EU Directive on criminal law and EU foreign policy sanctions.

The legal context: EU foreign policy sanctions

As discussed in more detail in the previous blog post, there is a body of EU law already in this field, based on the EU’s powers to adopt Decisions on foreign policy sanctions (along with other foreign policy issues) on the basis of Article 29 of the Treaty of European Union (TEU), alongside Article 215 TFEU, which provides for most of those foreign policy sanctions to be paralleled in the form of ordinary EU law (in practice, Regulations).

Although Article 215 provides for qualified majority voting of Member States in the Council, the effective rule is actually unanimity, for that is the rule which applies in the foreign policy provisions of the TEU (with marginal exceptions) to the adoption of the EU foreign policy measures which the Article 215 legislation gives effect to.  The Commission proposed a few years ago to drop unanimity here, but Member States didn’t bite. (They would have to agree unanimously to change the voting rule).

Over the years, there have been a lot of EU foreign policy sanctions and a lot of litigation – mostly direct challenges to the validity of the sanctions measures by the persons or companies (or even the States) concerned by them in the EU General Court. That Court’s judgments can be appealed to the CJEU; and national courts have occasionally asked the CJEU about the interpretation or validity of sanctions decisions too. (Although in general the CJEU has no jurisdiction over EU foreign policy measures – an exception which the Court has been slowly eroding for awhile – as an exception to the exception, the CJEU has its normal jurisdiction over foreign policy sanctions: see Article 275 TFEU).

The details of the Decision

A key point about the Decision extending EU competence is that it applies only to the breach of EU foreign policy sanctions. So the Decision does not give the EU power to harmonize criminal law as regards the breach of purely national foreign policy sanctions. The recently agreed Directive respects this distinction, applying only to EU sanctions.

However, the competence – and the recently agreed Directive – are not limited to breach of EU foreign policy sanctions relating to the Russian invasion of Ukraine, even though that invasion was the reason why the Decision and the Directive were adopted and agreed. In fact, the Commission proposal for the Decision noted that the EU has forty sanctions regimes, applying not only to countries but also ‘targeting proliferation and use of chemical weapons, cyberattacks, human rights violations and terrorism’. (For more details, see the Council website, especially its sanctions map). The anti-terrorism sanctions have been around for awhile, attracting high profile litigation such as cases involving Mr Kadi or Hamas; the human rights sanctions are fairly new, but will sometimes cross over with other sanctions – see, for instance, the sanctions against Putin’s erstwhile allies, the Wagner Group, for human rights breaches (along with links to other EU sanction measures).

In terms of the type of sanctions covered, the preamble to the Decision, as well as the recently agreed Directive, also makes clear that this is broad, applying not only to economic sanctions such as restrictions on trade or financial relations, but to bans on entry into the territory (which are also already given effect to by listing the sanctioned people in the Schengen Information System) and to arms embargoes. 

The agreed Directive

Basic rules

The recently agreed Directive has similarities to other Directives in this area – see, for instance, the Directive on harmonization of criminal law as regards terrorism. But there are also some new elements compared to other Directives; and in any event, it is the EU’s first foray into adopting criminal law relating to EU foreign policy sanctions.

It should be stressed that (as the preamble to the Decision confirms) the Directive will not make breaches of EU foreign policy sanctions criminal for the first time in most Member States. Just as with issues like terrorism and drug trafficking, these were already crimes in most national laws before EU law came along. But the details of the national laws probably differed more before the EU got involved; the point of the EU’s involvement is to harmonize the national laws somewhat. 

Member States will have to apply the Directive one year after its formal adoption (likely in spring 2024) – so by spring 2025. This is longer than the six months proposed by the Commission, but less than the two year deadline usually applicable to Member States applying Directives.  

As noted already, just like the Decision on competence, the Directive will not be limited just to sanctions against Russia, but will apply to EU foreign policy sanctions across the board.

Denmark has an opt out of EU criminal law adopted after the Treaty of Lisbon, while Ireland opted in.

Definition of crimes

The agreed Directive will require Member States to criminalize nine types of breach of EU sanctions, which can be summarised as: making funds available to sanctioned persons; failing to freeze funds of sanctioned persons; enabling the entry or transit of a person covered by an entry ban deriving from EU sanctions (in effect, an immigration law offence that might overlap with the pre-existing EU law on facilitation of illegal entry and residence – itself subject to a recent proposed replacement); entering into transactions with sanctioned entities; trading in goods or services covered by EU sanctions; providing financial services despite an EU law sanction; providing other services banned by sanctions law; circumvention of sanctions; or abusing exceptions to the sanctions laws.

Member States will have an option (not in the Commission proposal) to exempt from criminalisation breaches involving sums less than €10k, although where multiple such minor breaches are linked, Member States must accumulate them so that they might reach the €10k threshold that way. (This threshold does not apply to entry bans, presumably because a financial threshold is irrelevant)

In every case, an intentional breach will have to be criminalized; and in one case (trade in arms or dual use goods subject to sanctions), ‘serious negligence’ resulting in the breach will have to be criminalized too. The Commission had proposed that ‘serious negligence’ should be criminalised in most cases.   

There is a novel clause on the position of lawyers advising those accused of sanctions breaches, which differs somewhat from the Commission’s proposal:

Nothing in paragraph 1 shall be understood as imposing an obligation on legal professionals to report information that they receive from, or obtain on, one of their clients, in the course of ascertaining the legal position of their client, or performing the task of defending or representing that client in, or concerning, judicial proceedings, including providing advice on instituting or avoiding such proceedings

There is also an exemption for goods or services provided for persons in need or humanitarian aid, although usually EU sanctions law has its own exceptions for those cases anyway.

Inchoate offences of incitement and (in most cases) attempts are also criminalized, as is aiding and abetting.

Penalties

Member States will have to provide for a maximum possible penalty of at least five years for most of the main offences (not the inchoate offences), and one year for most of the rest of the main offences – subject to a threshold of €100,000 being involved (which can again be satisfied by a linked series of offences). No financial threshold will apply in two cases: breaches of entry bans and trade in sanctioned arms or dual use goods. Furthermore, a three year maximum possible penalty applies to breaches of entry bans.

More generally, as regards the commission of any of the offences defined by the Directive, Member States will be obliged to provide for additional penalties, such as fines, withdrawal of permits, and even (a novelty for EU criminal law) a temporary ban on running for office.

Legal persons are subject to liability, too, and must be subject to penalties such as shutting down the business or withdrawal of its licences. This is a longer list than usually provided for in EU criminal law Directives. The Directive will go further than usual in specifying the amount of possible fines, including basing them on annual turnover (a method previously applied in non-criminal areas of EU law, such as competition law and the GDPR).

Criminal liability must be aggravated in certain cases (such as organized crime, breach of duty by a public official or a professional, obstruction of justice, or prior convictions in this field), and mitigated in others (where the offender ‘flips’ on his or her criminal associates).

Other provisions

Criminal jurisdiction would apply, as usual under EU criminal law Directives, to acts committed on the territory, on a ship or aircraft with a national flag, or by nationals. Member States will have an option to apply liability to habitual residents.

Unusually, there will be rules on limitation periods, ie when Member States would be out of time to bring a prosecution or enforce a sentence. In most cases the limitation period would be five years, with a possibility for derogation to at least three years where the period can be interrupted by specified acts. Previously Member States have only agreed to regulate this issue via EU law as regards fraud against the EU budget (although the agreed Directive on environmental crime contains limitation rules, and the proposal on violence against women would also address this point).

Finally, there would be links to other EU law (besides, obviously, the sanctions laws themselves). The proposal would link up with EU criminal law on money laundering and confiscation (the latter now also being amended), plus there is a novel link to the EU legislation on whistleblowers: that law must also apply to protect those in a company or organization who tip off the authorities about breaches of sanctions. Conversely, there is no proposed amendment of the law on the European Arrest Warrant – even though breach of EU foreign policy sanctions is not on the list of crimes where the dual criminality condition for extradition must be waived. However, prosecution or sentences for sanctions breaches will sometimes fall within areas where dual criminality has to be waived (like terrorism or organized crime); and the dual criminality condition is more likely to be met as a result of the harmonization Directive anyway (it may even be met already, simply by virtue of the foreign policy sanctions measures themselves). 

Comments

It is hard to assess the likely impact of the Directive, for several reasons.

First of all, it is difficult to see what impact the Directive will have in practice without more detail on what changes would be made to national law as a consequence of its adoption. As noted already, while the Directive will bring about some harmonisation, Member States already have some criminal laws on the books in this field.

Secondly, a key issue with criminal law – just as with non-criminal forms of regulation of conduct – is that its effectiveness depends upon the resources and expertise necessary to investigate and bring prosecutions. On this point, the prospect of extending competence to the European Public Prosecutor’s Office (EPPO) to include breaches of EU foreign policy sanctions was raised by the German and French justice ministers. This would be important but has not been raised again since the Directive was proposed. (Extensions of EPPO competence need unanimous agreement of Member States, although some Member States have opted out of the EPPO; the Commission’s proposal to extend its competence to terrorism has not been agreed so far).

An extension of EU competence might be seen as an EU power-grab, but it is notable that it is an exception: over fourteen years after the Lisbon Treaty came into force, it is the only such extension of competence to date. By contrast, as noted above, Member States have not yet agreed an earlier proposal to extend the list of Eurocrimes to cover hate speech and hate crimes, or agreed the proposal to drop unanimous voting for some foreign policy measures; nor have they agreed to drop unanimity in a number of other areas which the Commission proposed years ago.  

It is striking to see some novel points (for EU criminal law) in this Directive: the specific rule on lawyers; the penalty of a ban on running for office (obviously relevant because politicians might be tempted to, and be in a position to, breach the sanctions); the more detailed regulation of financial penalties a la other areas of (non-criminal) EU law; the obstruction of justice point; and the link with the whistleblowers law. It is only the second time that the EU has agreed to regulate limitation periods (although the revised environmental crime directive, also including similar provisions, was agreed essentially simultaneously).

It is also significance to see the singling out of arms trade in breach of sanctions for stricter treatment in several respects, given the EU’s reluctance to regulate this issue as a Eurocrime to date. In the context of foreign policy sanctions, it makes sense to treat the arms trade more seriously, given its more direct contribution to the death and injury which the EU sanctions aim to end.

The extension of competence is also best understood as part of the EU’s response to the Russian invasion of Ukraine – which has also prompted developments as regards the start (in principle) of accession negotiations, the use of EU defence powers, and the first-ever use of the long-dormant temporary protection Directive. By itself, the extension of EU competence and the use of those criminal law powers will not end the invasion – and, as noted already, the agreed Directive applies to other EU sanctions too. Nor does it address the criticism that that those sanctions are too little and too late. But it may make some contribution to the effective implementation of those sanctions which have been established to oppose the invasion, and in any event it sends a political message that the EU is stepping up their enforcement.


Thursday 4 January 2024

Football Revolution: how do the Court’s rulings of 21 December 2023 affect UEFA’s role as a ‘gatekeeper’?




Steve Weatherill, Somerville College and Faculty of Law, University of Oxford

Photo credit: Werner100359, via Wikimedia Commons

 

Summary

The Court of Justice’s rulings of 21 December 2023 found practices associated with prior approval of new sporting competitions organised by third parties to be incompatible with EU law. The most prominent reason for this finding was the absence of transparent, non-discriminatory, clear and precise substantive criteria and procedures. So – of course – governing bodies in sport must amend their practices. But what remains, if anything, of their legitimate role as a ‘gatekeeper’? Assume a prior approval system is based on transparent, non-discriminatory, clear and precise substantive criteria and procedures: when may a governing body – I will focus on football and on UEFA - refuse to authorise a new competition?

I have three questions to address in order to elucidate the legal principles set out by the Court on 21 December. First could UEFA refuse to authorise a closed League (and could it penalise participants)? I think, yes. Second could UEFA refuse to authorise a second Champions League (and penalise participants) – i.e. in a format identical to its own, except owned by third parties? I think, no. Third could UEFA refuse to authorise a new competition (and penalise participants) where the format is not identical to its own, but similar (and not closed), except owned by third parties? I think, no, unless UEFA can demonstrate its own competitions are superior according to the (predominantly economic criteria) recognised by EU law. It seems to me that UEFA is entitled to defend the European Model of Sport, most conspicuously by legitimately using its power to forestall the creation of a ‘closed’ competition, but UEFA is not entitled to protect its monopoly over the supply of competitions which comply with the European Model of Sport. Therefore the Court has opened the door as a matter of law to those who would wish to revolutionise football in Europe.

 

The treatment of governing bodies in sport as ‘gatekeepers’

What is the status of governing bodies in sport – UEFA in particular - as ‘gatekeepers’ in the light of the three momentous and lengthy rulings of 21 December 2023 - Case C-333/21 European Superleague Company SL v FIFA, UEFA; Case C-680/21 UL, SA Royal Antwerp Football Club v URBSFA, UEFA; Case C-124/21 P International Skating Union v Commission. The three rulings, all delivered by the Grand Chamber, will be referred to hereafter as ESL, Royal Antwerp and ISU.

The Court went out of its way in ESL to insist that its ruling mainly addresses the compatibility with EU law of FIFA and UEFA rules governing the prior approval of competitions and participation therein by professional football clubs or players. The Court was not being asked to rule on the compatibility of the Super League project itself with EU law (ESL para 80). The rulings, though important, do not answer every question and in fact they ask several new ones. Sometimes the Court issues rulings which are relatively concrete and have a quasi-legislative feel – not on this occasion.

Plainly, however, the Court on 21 December 2023 has done much to develop our understanding of the legal framework which surrounds UEFA’s power of prior approval. Consequently it has also done much to provide those who would wish to challenge the existence and/ or exercise of that power in order to offer new competitions on the market for football in Europe with fresh ammunition. The original version of the Superleague – a ‘closed’ competition to which in any event only two of the original twelve participating clubs continue to express fidelity – may be dead, but the incentives to challenge UEFA’s monopoly and to introduce new competitions have not vanished. This power struggle has only just begun.

The ‘gatekeeping’ power or the power of prior approval claimed by UEFA is a power to authorise new events (or not). It is, then, the power to determine the conditions under which potentially competing undertakings may enter the market for the supply of football competitions. This is a market which is well known to be immensely lucrative, but it is also, as recent trends in club ownership reveal, of increasing political salience. The world covets European football.

This gatekeeping power is capable of falling within the scope of EU law – of course. The rulings of 21 December 2023 are clear on this, unsurprisingly so. The ‘rules on a sporting association’s exercise of powers governing prior approval for sporting competitions, the organisation and marketing of which constitute an economic activity for the undertakings involved or planning to be involved therein, come, in that capacity, within the scope of the …  Treaty provisions on competition law’ (ESL para 90). In support of this proposition the Court is able to cite its previous ruling of 1 July 2008, MOTOE, C‑49/07, which also found the gatekeeping practices of a governing body in sport (in casu motorcycling) to fall foul of EU competition law. And it added that for the same reason the rules also come within the scope of the Treaty provisions on freedom of movement (ESL para 90).

The Court tells us that EU law is violated where that power of prior approval is not governed by transparent, clear and precise substantive criteria, which make it possible to prevent it from being used arbitrarily. Those criteria must be appropriate to ensure the non-discriminatory exercise of such a power and to enable effective review. Moreover there shall be transparent and non-discriminatory procedural rules. The rulings, most of all ESL, are larded with insistence on these features as a condition of legality (ESL paras 88, 134-136, 147-8, 151-152, 175, 177, 178, 179, 203, 254, 255; Royal Antwerp para 57; ISU paras 127, 133). It applies across the board in internal market law too – the same principles are applicable to review pursuant to Article 102, Article 101 and Article 56 (on abuses of a dominant position, cartels, and free movement of services) too, so competition and free movement law are aligned on this point.

This is general EU internal market law. As the Court takes care to point out, this is consistent with existing internal market case law in a wide range of economic sectors. Case law cited ranges across several areas of activity. ESL para 133, and ISU para 125 cite GB-Inno-BM, C‑18/88, which concerns telecommunications and Raso and Others, C‑163/96, which concerns the management of ports, alongside MOTOE from the world of sport.

We can understand this as EU law requiring good governance standards (transparency, non-discrimination etc) as a pre-condition to finding regulatory practices to be lawful. This is not specific to sport, but rather to any situation in which a body exercises a power of, in short, gatekeeping.

The Court is anxious to protect equality of opportunity as between undertakings, and to entrust an undertaking which exercises a given economic activity the power to determine which other undertakings are also authorised to engage in that activity and to determine the conditions in which that activity may be exercised, gives rise to a conflict of interests and puts that undertaking at an obvious advantage over its competitors, by enabling it to deny them entry to the market concerned or to favour its own activity.

The Court goes out of its way to note that it does not matter how this is created, whether by public law delegation or private market power (ESL paras 133, 137; ISU paras 125, 126). MOTOE, the motorcycling case, arose out of state regulation, but the principle that such a gatekeeper needs to be controlled is – it is now made clear by the Court - not limited to that, it applies to a gatekeeping power however created and in whichever economic sector, and in fact it is particularly important where the power is not derived from a grant made by a public authority (ESL para 137). But, even if the principle is of general application to any kind of ‘gatekeeper’, it might be of particular relevance to sport given the notoriously poor governance standards that plague some parts of it. And it is of particular relevance to the practices under scrutiny in the judgments, because at the time the process followed by UEFA and the ISU as gatekeepers was clearly deficient.

The absence of a framework providing for substantive criteria and detailed procedural rules suitable for ensuring that they are transparent, objective, non-discriminatory was fatal to the rules when they were put to the tests demanded by Articles 102, 101 and 56 TFEU. This is why the governing body practices were found to be unlawful on 21 December 2023 – just as fifteen years previously MOTOE had condemned the practices of a governing body in sport as contrary to EU competition law for want of restrictions, obligations and review within the prior approval process.

So governing bodies in sport and UEFA in particular must change. They must improve. Let us assume they do. Let us assume that a governing body has such a ‘gatekeeping’ power governed by transparent, clear and precise substantive criteria, which make it possible to prevent it from being used arbitrarily. They are appropriate to ensure the non-discriminatory exercise of the power and to enable effective review. There are transparent and non-discriminatory procedural rules.

Is that enough? What more does EU law have to say? Most of all, within the framework applicable to authorisation decisions, what criteria are legitimately applied to exclude third party organisers, and which are not? This is vital to understand just how far the Court on 21 December 2023 has shrunk UEFA’s powers as a gatekeeper.

The Court takes us a bit further. But the whole story is yet to be told.

Three questions serve to structure the analysis: First could UEFA refuse to authorise a closed League (and could it penalise participants)? Second could UEFA refuse to authorise a second Champions League (and penalise participants) – i.e. in a format identical to its own, except owned by third parties? Third could UEFA refuse to authorise a new competition (and penalise participants) where the format is not identical to its own, but similar (and not closed), except owned by third parties?

 

(i) First question

Could UEFA refuse to authorise a closed League (and could it penalise participants)? Obviously it could not when it had the inadequate framework which is the background to the rulings of 21 December, but if it has cleaned up its process and now follows a scheme that meets the Court’s requirements of transparency, objectivity etc, could it refuse to authorise a closed League (and could it penalise participants)?

I think, yes, UEFA could refuse to authorise a closed League.

ESL para 143 concerns Article 102. It tells us participation in and conduct of competitions is based on sporting merit, which can only be guaranteed if all the teams involved compete under homogeneous regulatory and technical conditions, ensuring a certain equality of opportunity. Para 144 tells us it is legitimate to make the organisation and conduct of international professional football competitions subject to common rules, and, more broadly, to promote competitions based on equal opportunities and merit. Compliance can legitimately be ensured by a scheme of prior authorisation and by accompanying sanctions in the case of violation of the rules. The same phrase appears at ISU para 132: the holding of sporting competitions based on equality of opportunity and merit.

ESL para 175 addresses Article 101. It begins by stating that ‘it follows from paragraphs 142 to 149’ – i.e. the Court explicitly wants to align Article 101 to Article 102 on this point - that the specific nature of international football competitions and the real conditions of the structure and functioning of the market for the organisation and marketing of those competitions on European Union territory lend credence to the idea that it is legitimate to have rules on prior approval – though they need to be objective, transparent etc. Para 176 states that rules on prior authorisation may be motivated by the pursuit of certain legitimate objectives, such as that of ensuring respect for the principles, values and rules of the game which underpin professional football.

Para 253 contains the same approach to Article 56 TFEU on the free movement of services.

So – provided always that the process meets the requirements of objectivity, transparency etc – the Court appears to accept that a prior authorisation system may be used to refuse a competition which is not based on sporting merit. So, most obviously, a ‘no’ to closed leagues (and penalties on participants) appears to be a legitimate exercise of the gatekeeping function.

The legal basis for this legitimate exclusion of closed Leagues is not made entirely clear by the Court. An important part of the package unwrapped on 21 December is to shrink the role played in the legal analysis by Wouters and Others, C‑309/99 and Meca-Medina and Majcen v Commission, C‑519/04 P. Conduct which ‘by its very nature infringes Article 102 TFEU’ cannot benefit from the Wouters/ Meca formula (ESL, para 185). Nor does it apply in situations involving conduct which, far from merely having the inherent effect of restricting competition, ‘reveals a degree of harm in relation to that competition that justifies a finding that it has as its very “object” the prevention, restriction or distortion of competition’ (ESL, para 186, Royal Antwerp, para 115). So only if conduct does not have as its object the prevention, restriction or distortion of competition and does not by its very nature infringe Article 102 does the Meca-Medina route open up, allowing a governing body in sport to show its practices to be necessary to achieve legitimate objectives and thereby to place its practices beyond the scope of the Treaty rules on competition.

All this comes later in the ruling in ESL than the acceptance that participation in and conduct of competitions shall be based on sporting merit and equal opportunities and merit and that rules on prior authorisation may be motivated by the pursuit of legitimate objectives including respect for the principles, values and rules of the game which underpin professional football - ESL paras 143, 144 re Article 102, para 176 re Article 101 and see also para 132 of ISU. Probably, then, the correct understanding is that action taken to defend sporting merit is not a restriction of competition by object at all within the (new) understanding of the scope of Article 101(1), and so benefits from application of the Meca-Medina formula.

The object of requiring that new competitions be open and based on sporting merit is not to restrict competition but rather ‘the pursuit of legitimate objectives, such as ensuring observance of the principles, values and rules of the game underpinning professional football’ (ESL para 176) - just as in Meca-Medina itself the Court found an inherent effect of restricting potential competition between athletes as a result of anti-doping but placed the matter outwith Article 101(1) because the rules had the objective to ‘to safeguard the fairness, integrity and objectivity of the conduct of competitive sport, ensure equal opportunities for athletes, protect their health and uphold the ethical values at the heart of sport, including merit’ (as explained, citing Meca-Medina and Majcen v Commission, C‑519/04 P, EU:C:2006:492, in ESL para 184, Royal Antwerp para 114, ISU para 112).

So, in sum: it is potentially lawful to act to suppress a competition not based on access via sporting merit, subject to showing transparent, objective, non-discriminatory (etc) criteria. This is clearly important, and it puts a shape on the legitimate objectives which UEFA may pursue in crafting pre-authorisation criteria. The Court in ESL is not opening the door to a free-for-all – certain types of sporting competition are, it seems, legitimately suppressed by UEFA as gatekeeper. In this sense the judgments put a shape on the European Sports Model. It may as a matter of law be defended: UEFA may legitimately act against ‘closed’ competitions and insist instead that only competitions which are merit-based may be approved. In December 2022 Advocate General Rantos wrote a wildly adventurous Opinion in ESL which claimed that Article 165 ‘constitutionalised’ the European Sports Model and that accordingly EU law granted a high level of protection to the sporting status quo. One year later the Court’s rulings of 21 December 2023 ignore Mr Rantos’s Opinion and prefer a much more restrained reading of the extent to which EU law respects the specificity of sport. But on this particular point – the distaste for competitions which are not based on sporting merit – the Court echoes Mr Rantos in its willingness to interpret EU internal market law in a way that gives constitutionalised (i.e. recognised in primary law) protection to open competitions.

This seems very helpful to UEFA. It is entitled to act as a gatekeeper charged with the responsibility to defend a model based on sporting merit. It means too that UEFA’s own competitions need to have access based on sporting merit.

 

(ii) Second question

Could UEFA refuse to authorise a second Champions League (and penalise participants) – i.e. in a format identical to its own, except owned by third parties?

I think, no.

This follows from ESL para 151 (concerning Article 102), on non-discrimination. This notes that UEFA itself is economically active in the market in which it has the power of pre-authorisation. So the criteria applicable must not favour UEFA over third parties. If UEFA is able to stage a competition, then it cannot prevent a third party from staging a similar competition.

It means too that UEFA may not place restrictions on third party organisers which have the effect of favouring its own competitions over others. It could not for example authorise clubs to participate in a new competition while also requiring them to participate in the UEFA Champions League.

UEFA’s rules on prior approval were overhauled after ESL was referred to the Court but before the rulings of 21 December 2023. So the rules and procedures governing prior approval condemned by the Court are not the rules and procedures which UEFA employs today. Its June 2022 renovated Regulations  may be found here: https://documents.uefa.com/v/u/_rmtminDpysQUj1VGB01HA.

However the rules, amended to clarify process and applicable criteria, seem to me to violate the non-discrimination rule on which the Court insists. They provide that third party organisers ‘shall provide confirmation that the clubs concerned can always comply with their obligation to field their strongest team throughout UEFA club competitions and national club competitions and any other International Club Competition authorised by UEFA’; also that ‘in order to protect the sporting merit of UEFA Champion Club Competitions’ and so that it ‘shall not adversely affect the good functioning of UEFA Champion Club Competitions’ particular conditions shall be met.

That seems to me to be unlawful. It seeks to protect the pre-eminence of UEFA’s competitions in the market.

The ruling in ESL seems to open up scope for competing football competitions. I have often wondered if UEFA could claim a need to have one and only one European competition for elite clubs, to produce the true champion – so football isn’t like boxing. There is no hint in the rulings of 21 December that this would be a legitimate exercise of UEFA’s gatekeeping role. Instead the Court seems to open the door to multiple competing versions of the Champions League. Whether that is economically sustainable is far from clear: I do not explore that here, I confine myself to exploring what shape EU law places on available opportunities.

 

(iii) Third question

Could UEFA refuse to authorise a new competition (and penalise participants) where the format is not identical to its own, but similar (and not closed), except owned by third parties?

I think, no, unless UEFA can demonstrate its own competitions are superior according to the (predominantly economic criteria) recognised by EU law.

The question here is whether the ruling in ESL restricts UEFA still further than merely a non-discrimination standard. If it does – it is dynamite!

I think it does, although there is room for argument about precisely what the Court’s rulings entail.

ESL para 176 ESL (addressing Article 101 TFEU) seems stronger still than a non-discrimination standard. It notes that the pre-authorisation rules limit the design and marketing of alternative or new competitions, even though they might offer an innovative format attractive to consumers. They ‘completely deprive spectators and television viewers of the opportunity to attend those competitions or to watch the broadcast thereof’ (see also ISU para 146). That suggests an even tighter control over UEFA than a mere non-discrimination standard. What is needed, it seems, is a calculation of the attractiveness of the competitions on offer (by national courts; maybe also by the Commission enforcing the Treaty competition rules). UEFA cannot simply say: this is our model, and we tolerate no other. This is explosive. It is here that the Court’s ruling could be revolutionary or, at least, that it opens the door as a matter of law to those who would wish to revolutionise football in Europe. The ruling’s treatment of media rights seems the same. UEFA cannot simply say this is the existing design and it cannot be changed. Its quality needs to be assessed (in a serious manner).

This is where/ why we appreciate the significance of the Court’s refusal to allow Meca-Medina to apply to practices which it considers by their very nature to infringe Article 102 TFEU (ESL para 185) or to conduct which does not merely having the inherent ‘effect’ of restricting competition but rather reveals a degree of harm in relation to that competition that justifies a finding that it has as its very ‘object’ the prevention, restriction or distortion of competition (ESL para 186, Royal Antwerp para 115, ISU para 113). The Meca-Medina test, which invites a relatively open-ended assessment of the necessity of practices to meet legitimate objectives in sport, is replaced by a narrower test. The pre-authorisation scheme used by UEFA to deal with new competitions (which are open and based on sporting merit) can survive only if it complies with Article 101(3) and 102.

Exemption pursuant to Article 101(3) is possible, but the Court in ESL chooses to spell out with some detailed care what is at stake under a clear concern to instruct a national court to make a careful assessment of the prevailing circumstances, and not to make easy assumptions about UEFA’s compliance with Article 101(3). (I take this to be part of the motivation for its choice to shrink the scope of the much looser Meca-Medina test). Efficiency gains must correspond not to any advantage enjoyed by UEFA but only to ‘the appreciable objective advantages’ that practice makes it possible to attain in the market(s) concerned (ESL para 152, Royal Antwerp para 121); those efficiency gains must have a positive impact on all users, be they traders, intermediate consumers or end consumers, which in football means inter alia, national football associations, professional or amateur clubs, professional or amateur players, young players and, more broadly, consumers, be they spectators or television viewers; the conduct at issue must be indispensable or necessary; and must not provide the opportunity to eliminate all actual competition for a substantial part of the products or services concerned (the large market share held by UEFA is here clearly relevant and causes the Court particular anxiety, ESL paras 199, 207).

The Court moves to Article 102, and expressly aligns its interpretation with that advanced under Article 101(3) (ESL, paras 201, 205). An undertaking holding a dominant position may escape a condemnation of abuse by showing that its conduct is objectively necessary, or that the exclusionary effect produced may be counterbalanced or even outweighed by advantages in terms of efficiency which also benefit the consumer: this is orthodox in the Court’s case law. In the circumstances under review, were UEFA to amend its rules to comply with the requirements of transparency, precision, non-discrimination proportionality etc, there would be room to show them objectively justified ‘by technical or commercial necessities’ (ESL para 203) or apt to allow efficiency gains which counteract the likely harmful effects on competition and consumer welfare on the market(s) concerned.

The Court’s hard-hitting point is this: for Article 101(3) as for Article 102, justification requires the demonstration of ‘convincing arguments and evidence’ (ESL para 205, Royal Antwerp para 120), involving ‘establishing the actual existence and extent of those [efficiency] gains’ (ESL para 204, Royal Antwerp para 121). That is an inquiry for the national court. It clearly must be a serious inquiry.  

The ruling in Royal Antwerp is similarly motivated by an insistence on the need for ‘specific arguments and evidence’ about the reality and extent of incentives and efficiency gains (para 129), as well as the attitude of spectators and television viewers (para 130), albeit in the different context of the claim that rules on home-grown players encourage training. So too under free movement, the national court must consider the factors ‘thoroughly and comprehensively … taking into consideration the arguments and evidence submitted’ (para 149).

Very similar concerns animate the Court’s treatment of UEFA’s ownership and marketing of media rights (ESL paras 210-241). It does not exclude that practice may be justified despite the apparent anti-competitive effect consequent on the centralised control claimed by UEFA at the expense of clubs acting as sellers of rights unilaterally, bilaterally or multilaterally, but it does insist on a hard evidence-based look at the possibility of exemption under Article 101(3) and at the basis of claimed efficiency gains under Article 102. This is to be done by the national court (maybe also by the Commission enforcing the Treaty competition rules).

Doubtless the Commission’s 2003 decision on joint selling of rights to the Champions League will need close attention (2003/778/EC, AT.37398). That Decision is particularly interesting for not looking at the argument that promoting solidarity in sport through income redistribution might justify the anti-competitive consequences of centralised selling. In 2003 the Commission saw no need to consider solidarity because it concluded that the economic benefits of the joint selling met the criteria stipulated by Article 101(3) and it needed to look no further. ESL finds the Court willing to consider  improvements in production and distribution resulting from the centralised sale and the ‘solidarity redistribution’ of the profit generated as of benefit to supporters, consumers, that is to say, television viewers, and, more broadly, all EU citizens involved in amateur football. It also mentions maintaining a balance and preserving a certain equality of opportunity as between the participating professional football clubs, given the interdependence that binds them together. Moreover it notes (better maybe: it claims) there is a trickle-down effect from those competitions into smaller professional football clubs and amateur football clubs which, whilst not participating therein, invest at local level in the recruitment and training of young, talented players, some of whom will turn professional and aspire to join a participating club. And ‘the solidarity role of football, as long as it is genuine, serves to bolster its educational and social function within the European Union’ (ESL paras 234-235). But the benefit ‘for each category of user – including not only professional and amateur clubs and other stakeholders in football, but also spectators and television viewers – must be proven to be real and concrete’ (ESL para 236).

It seems, then, that UEFA cannot exclude new forms of competition unless it shows that Articles 101(3) and 102 are satisfied. That, I think, requires a much more sophisticated set of criteria than UEFA currently has, even in the newly (2022) renovated form. Most of all, ESL is simply the beginning in trying to understand how far UEFA, as gatekeeper, may go in excluding new competitions which are different from existing forms of competition but which are open and based on sporting merit. There is now – after ESL – in principle more room to compete in the market for football competitions in Europe.

 

Conclusion

The Court has opened the door to those who would wish to revolutionise football in Europe. This does not mean there will be a SuperLeague or anything like it. There is no guarantee who will win the power struggles to come. A lot will depend on the attitudes of the elite clubs and of the fans, on sources of funding (certainly not limited to Europe), as well as on the skill deployed and the strategies pursued by UEFA and by those who would wish to dislodge UEFA from its current position of power. The top-down ‘pyramid’ structure of governance in sport is robust and typically defended with vigour from those near or at its top. Tension between UEFA and the elite clubs is nothing new. Moreover history tells us that competing Leagues in football tend not to survive. This, however, is not true in all sports and perhaps it will not be true in football in future. There is a lot of politics here, a lot of commercial incentives, a lot of cultural and social dimensions. But as of 21 December 2023 as a matter of law UEFA’s power as a ‘gatekeeper’ able to dictate the pattern of football competitions in Europe seems significantly weakened.