EU topic 2 - Direct Effect, Indirect Effect and State Liability

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  • Created on: 18-11-18 01:18

Limitations of Direct Effect

- Conditions for direct effect must be satisfied. 

- Van Gend en Loos criteria - must be sufficiently clear and precise and unconditional. 

- Directives can only have vertical direct effect. 

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What is Indirect Effect?

Provisions can be used by national courts in interpreting the meaning and scope of national legislation. This principle was established in Von Colson & Kamann v Land Nordrhein-Westfalen (Case 14/83) [1984] ECR 1891.

Von Colson - summary of events:

Two female social workers who applied for jobs with the prison service of a German Federal State. They were rejected for less qualified males as it was believed it would be a problem to hire two female workers in a male prison. Argued this was discrimination. Relied on German law implementing Directive 76/207. Successful in German labour court - BUT under national law only entitled to nominal damages, so travel expense.

reference made from German court to COJ. COJ found that Article 6 of the Equal Treatment Directive was not sufficiently clear, precise and unconditional to be directly effective. Court turned to Article 5 EC.

Article 5 EC - requires that Member States ‘take all appropriate measures’ to ensure that their obligations under EU law are fulfilled i.e. principle of indirect effect. National courts required to interpret domestic laws in conformity with the wording and purpose of directives.

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4 Notes from Von Colson

- uncertainty as to whether or not indirect effect would be available where the law in question was not passed specifically to implement a directive. 

- the duty to interpret extended only so far as the national court was given discretion to do so under national law. 

- if an award of compensation was made, that award had to be adequate in relation to the damage sustained and therefore had to be more than purely nominal. 

- Harz v Deutsche Tradax (Case 79/83) --> (was against private company in Harz) the interpretive duty imposed on national courts by the principle of indirect effect applies irrespective of whether a case can be characterised as vertical or horizontal and so applied as equally to the claimant in Harz as it had to the claimants in Von Colson. 

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Marleasing SA v La Comercial Internacional de Alim

Required that they interpret national law only in as far as it was possible to do so.

Spain between two private companies and concerned an EU directive, the Company Law Directive 68/151, and pre-existing Spanish laws.

Spain had not implemented the Directive and the deadline for implementation had passed. Marleasing sought to have the defendant company declared void on the basis that the company had been created to defraud creditors by putting assets beyond their reach. It sought the declaration on the ground of ‘lack of cause’ because it lacked a lawful cause. This ground was provided for by the Spanish Civil Code.

In response, La Comercial relied on the later unimplemented directive, included an exhaustive list of grounds on which a declaration of nullity could be declared. Lack of cause not among them. Direct effect was not available  because the case involved a horizontal action between two private companies. However, indirect effect was available. The Court of Justice held that: 

' applying national law, the national court is required to do so, as far as possible, in the light of the wording and the purpose of the directive'

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The Court of Justice’s decision in Marleasing did

•it made it clear that the provisions of an unimplemented directive could be used to interpret national law, even in a purely horizontal action between individuals.

•it is clear from this decision that it does not matter if the national law had been made before or after the directive: the directive can still be used to interpret that law.

Indeed, the Grand Chamber of the Court of Justice has held in Pfeiffer v Deutsches Rotes Kreuz, Kreisverband Waldshut eV (Cases C-397 to 403/01) [2004] ECR I-8835 that the obligation to interpret national law in conformity with EU law requires the national court to consider national law as a whole. 

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Limits to how far the interpretative obligation

Wagner Miret v Fondo di Garantía Salarial (Case C-334/92) [1993] ECR I-6911 

 Directive 80/987 - required each Member State to pay wages and other outstanding claims owned to the employees of companies which had become insolvent.

Spain already had a national law which provided for a guarantee fund, but this  excluded senior management. No steps were taken to amend the Spanish law following the adoption of Directive 80/897.

Wagner Miret was a senior manager of an insolvent company and so could not apply to the fund. He sought to rely directly on Directive 80/987 which did not require or sanction the exclusion of senior management from compensation in the event of their company becoming insolvent. 

Court of Justice held that the directive was not directly effective because it was too imprecise to satisfy the conditions for direct effect. Accepted that it was not possible to interpret the national law in a way that was consistent with the requirements of the directive. The Court of Justice thereby confirmed that indirect effect would not be possible where the national law expressly contradicts the provision of EU law.

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Court of Justice has simply held that national courts are not required to interpret national law contra legem, that is, against the clear meaning of its words. 

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More limitations

=> Criminal Proceedings Against Pupino (Case C-105/03) [2005] ECR I‐5285

The Grand Chamber of the Court of Justice held that the obligation on national courts to interpret national law in conformity with a directive exists only once the deadline for the implementation of that directive has passed.

=> Von Colson principle. In Adeneler v Ellinikos Organismos Galaktos (ELOG) (Case C-212/04) [2006] ECR I-6057

=>Criminal Proceedings Against Kolpinghuis Nijmengen BV (Case 80/86) [1987] ECR 3969

Court of Justice held that indirect effect was limited by the general principles of EU law, in particular the principles of legal certainty and non- retroactivity. These principles prevented a Member State from relying on a directive itself and independently of an implementing law to determine or aggravate criminal liability. 

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What is State Liability?

Allows an individual to recover compensation from a Member State where he or she has incurred loss as a result of the failure of that Member State to fulfil its obligations under EU law.

The case which first established the principle of state liability is Francovich & Bonifaci v Italian Republic (Cases C-6/90 & C-9/90) [1991] ECR I-5357. 

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Francovich & Bonifaci v Italian Republic

The employers of Francovich and Bonifaci had become insolvent which resulted in them not being paid outstanding wages. Directive 80/987: It required each Member State to establish guarantee institutions from which employees of insolvent companies could recover at least some of their lost wages.

However, Italy had not implemented the Directive and the deadline for implementation had passed. Moreover, the Commission had found Italy in breach of its obligations under EU law in not having implemented the Directive. As there was no national law under which Francovich and the other claimants could recover their losses, they turned to the Directive. The Italian court referred the case to the Court of Justice. 

Neither direct effect nor indirect effect could be relied upon in this case: the Directive’s provisions did not satisfy the conditions for direct effect and there was no pre-existing national law which could be interpreted through indirect effect in conformity with its object and purpose. What the Court of Justice did find, however, was that Italy could be held liable for not having implemented this Directive in breach of its obligations under EU law

Court of Justice justified this based on Article 5 EC - requirement on Member States to fulfil their Treaty obligations also included remedying the consequences of breaching those obligations.

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Three Conditions for State Liability

-the result prescribed by the directive should entail the grant of rights to individuals. 

-possible to identify the content of those rights on the basis of the provisions of the directive. 

-the existence of a causal link between the breach of the State’s obligation and the loss and damage suffered by the injured parties’. 

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Principle Expanded and Conditions Refined

Brasserie du Pêcheur SA v Germany and R v Secretary of State for Transport ex p Factortame Ltd (No 4)

Brasserie du Pêcheur concerned a claim by French brewers against Germany for damages after being forced to stop beer exports to Germany. Factortame concerned a claim for damages by Spanish fishermen against the UK after legislation was passed which effectively prevented them from fishing in UK waters by requiring fishing vessels to be British owned and managed from the United Kingdom. Both concerned claims arising from primary Treaty provisions rather than a directive as had been the case in Francovich. 

The Court of Justice held that the principle of state liability applied to any case in which a Member State breaches EU law, irrespective of whichever organ of the State was responsible, including a national legislature, and even if the measure had direct effect. It also held that it was not necessary for the Member State to have had limited discretion as to how it should act as Italy had in Francovich. State liability could also arise where the Member State had a wide discretion. What was necessary was that the breach be ‘sufficiently serious’.

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New Three Conditions

1.The rule of law infringed must be intended to confer rights on individuals. 

2.The breach must be sufficiently serious. 

3.There must be a direct causal link between the breach of the obligation resting on the state and the damage sustained by the injured parties. 

The Court stated that it needed to be determined whether the Member State had ‘manifestly and gravely disregarded the limits of its discretion’. Factors taken into account:

•The clarity and precision of the rule breached. 

•The measure of discretion left to the Member State by the rule. 

•Whether the breach was intentional. 

•Whether the breach was excusable. 

•The extent to which a position taken by a Union institution may have contributed to the breach. 

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