European Union

The Commission recently adopted a new Communication on the "Implementation of Article 260(3) TFEU" (SEC(2010) 1371 final) to take account of the changes to what is now Article 260 TFEU (ex Article 228 EC) made by the Lisbon Treaty.

Article 260 TFEU is the provision that allows the Commission to take a member State to the Court of Justice for failure to respect a Court judgment.

The Lisbon Treaty made two changes to the provision. First, as regards the procedure, the Lisbon Treaty removes the pre-litigation stage of issuing a reasoned opinion. Consequently, since the entry into force of the Lisbon Treaty, if the Commission considers that a member State has not complied with a Court judgment, it has to accomplish only one pre-litigation procedural step, namely the sending of a letter of formal notice requesting the member State to submit its observations. After that, the Commission can refer the matter directly to the Court by virtue of Article 260 §2. That should speed up the procedure, automatically reducing the average duration of the procedure to between eight and 18 months.

The second change is more substantial: the Commission can propose to the Court, even at the stage of the infringement proceedings pursuant to Article 258 (ex Article 226 TEC), that it impose a lump sum or penalty payment in the same judgment which finds that a Member State has failed to fulfill its obligation to notify measures transposing a directive adopted under a legislative procedure. Before that change, the Commission had to obtain a declaratory judgment from the Court first and then apply to the Court a second time to request the imposition of a lump sum and penalty payment.

The purpose of the new Communication is to set out how the Commission will behave in taking those cases to the Court. It makes clear that it it will, principally, ask for the imposition of a periodic penalty payment as it considers that such a penalty is the more appropriate to secure rapid implementation of directives. The Commission states that it will also, depending on the circumstances, seek the imposition of a lump sum. It states that it may revise its practice in the light of member States' behavior and seek the imposition of a lump sum in all cases.

Interestingly, the Commission clarifies that in cases before the Court where it has proposed only a penalty, the Commission will withdraw its action if the member State notifies the transposition measures required to put an end to the infringement. In contrast, in cases pending in which it has also proposed a lump sum, it will not withdraw its action simply because the required notification has been made and will pursue the action until a judgment is obtained.

The Commission's earlier Communication, SEC(2005)1658, sets out how it would apply Article 228 EC but no longer seems available online.

The House of Lords European Union Select Committee - of which we are big fans - is currently conducting an inquiry into the workload of the Court of Justice and the impact of the Lisbon Treaty. In the words of Lord Bowness: “There is a general perception that the Court is unable to handle its current workload and could face difficulties in managing an increase to its workload within reasonable timescales due to the Lisbon Treaty changes. We want to consider how the Lisbon Treaty changes will be felt in terms of workload and efficiency, for example by looking at the turnaround times for disposal of cases and how these compare to other courts of equivalent standing”.

The oral evidence given by British lawyers and civil servants made available here is really worth reading.

More problematic is some of the evidence presented by interest groups and academics available here. One's instinctive reaction to some of it "Hello, has anyone some comparative law perspective?". How can Professor Damian Chalmers seriously claim that "The Court of Justice decides far more cases than senior domestic courts [...] Whilst courts of cassation give high number of judgments, domestic constitutional courts typically give 50-60." Just a cursory glance at the French Conseil d'Etat, for example, would put him on the right track.

Anyway, we await the conclusions and recommendations of the Committee eagerly.

The Court of Justice has handed down an interesting, well written and important judgment on the competent jurisdiction to deal with disputes concerning services offered on the internet in Joined Cases C-585/08 and C-144/09 Pammer and Hotel Alpenhof. The Court held that if a trader simply publishes a website to engage in trade that does not of itself mean that its activity is directed to other member States. Consequently, the special rules on jurisdiction in Regulation 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters which aim to protect consumers are not necessarily triggered.

The stories of the two cases go like this.

The plaintiff in Case C-585/08 Peter Pammer, is domiciled in Austria and is a traveler of the old school who wished to travel by freighter from Trieste (Italy) to the Far East. He booked a voyage with the German company Reederei Karl Schlüter, through a German travel agency specialising in the sale on the internet of voyages by freighter. When Mr Pammer went to Trieste and saw the vessel he refused to embark on it because it did not, in his view, correspond to the description which he had received from the agency. He claimed a refund of the price he had paid for the voyage. But Reederei Karl Schlüter reimbursed only a part of what Mr Pammer had paid. So, Mr Pammer brought proceedings in the Austrian courts, before which that German company raised a plea that they lacked jurisdiction on the ground that it did not pursue any professional or commercial activity in Austria.

As for Case C-144/09 – a topical case now that the ski season is upon us – the defendant, Oliver Heller, domiciled in Germany, reserved a number of rooms, for a period of a week, in Hotel Alpenhof, in Austria. Mr Heller had consulted the hotel’s website and made his reservation by email, using the address indicated on the site for that purpose. Mr Heller didn’t like the hotel and left without paying his bill. The hotel then brought an action before an Austrian court for payment of the price of his stay. Mr Heller raised a plea of lack of jurisdiction, submitting that, as a consumer domiciled in Germany, he could be sued only in the German courts.

The two cases reached the Oberster Gerichtshof (Supreme Court, Austria), which then asked the Court of Justice whether the fact that a company established in a member State offers its services on the internet means that they ‘are directed’ to other member States too. If that were so, consumers domiciled in those other States who have recourse to the services could benefit, in the event of a dispute with the trader, from the more favorable rules of jurisdiction laid down by Regulation 44/2001 and in particular its Article 15 (1) c).

The Court held that the mere accessibility of the trader’s or the intermediary’s website in the member State in which the consumer is domiciled is insufficient to consider that the trader is directing its activity to the State of the consumer’s domicile within the meaning of Article 15 (1) c). The same goes for a mention of an email address and of other contact details, or of use of a language or a currency which are the language and/or currency generally used in the member State in which the trader is established.

The problem arose because Article 15 (1) c) of Regulation 44/2001 sets out protective rules of a consumer in the event of a dispute with another party to a contract. A consumer plaintiff may bring proceedings against another party to a contract either in the courts of the member State in which that party is domiciled or in the courts where the consumer is domiciled and proceedings may be brought against a consumer defendant only in the courts of the member State in which the consumer is domiciled if “the contract has been concluded with a person who […] by any means, directs [his] activities to that Member State […].”

Painfully, Article 15 (1) c) does not give any clue what “directing” its activity to the member State of the consumer’s domicile could actually mean. The provisions on consumer contracts were reworded in more general terms when the Brussels Convention was transformed into a regulation in order to ensure better protection for consumers with regard to new means of communication and the development of electronic commerce. The EU legislature has removed the conditions, formerly in Article 13 of the Convention, requiring, first, the trader to have addressed a specific invitation to the consumer or to have advertised in the State of the consumer’s domicile and, second, the consumer to have taken in that State the steps necessary for the conclusion of the contract, replacing them with conditions applicable to the trader alone.

The Court held that the wording of Article 15(1)(c) must be considered to encompass and replace the previous concepts of a ‘specific invitation addressed’ to the consumer and ‘advertising’, covering, as the words ‘by any means’ indicate, a wider range of activities. That change - made because of the development of internet communication - both strengthens consumer protection and makes it more difficult to determine the place where the steps necessary for the conclusion of the contract are taken.

It also held that, unlike classic advertising which can be a direct invitation to consumers in other member States, internet communication has an inherently worldwide reach and is thus accessible in all States throughout the EU. It does not follow that the words ‘directs such activities to’ must be interpreted as relating to a website’s merely being accessible in Member States other than that in which the trader concerned is established. The Court noted that the EU legislature did not go as far as to provide that mere use of a website, whatever the territory targeted, amounts to an activity ‘directed to’ other member States which triggers application of the protective rule of jurisdiction referred to in Article 15(1)(c) of Regulation No 44/2001.

The Court stated it was clear from the proposal for a regulation that the EU legislature rejected a suggestion by the Commission seeking the insertion, in the preamble of Regulation No 44/2001, of a recital according to which the marketing of goods or services by electronic means accessible in a Member State constitutes an activity ‘directed to’ that State. That interpretation is also borne out by the joint declaration of the Council and the Commission at the time of the adoption of Regulation No 44/2001, reproduced in recital 24 in the preamble to Regulation No 593/2008, according to which the mere fact that a website is accessible is not sufficient for Article 15(1)(c) of Regulation No 44/2001 to be applicable.

If the use of a website on its own is not directing activities towards a consumer in another State, what is ?

The Court gives guidance on that issue too. It held that the following matters, the list of which is not exhaustive, are capable of constituting evidence from which it may be concluded that the trader’s activity is directed to the member State of the consumer’s domicile, namely the international nature of the activity, mention of itineraries from other member States for going to the place where the trader is established, use of a language or a currency other than the language or currency generally used in the member State in which the trader is established with the possibility of making and confirming the reservation in that other language, mention of telephone numbers with an international code, outlay of expenditure on an internet referencing service in order to facilitate access to the trader’s site or that of its intermediary by consumers domiciled in other member States, use of a top-level domain name other than that of the member State in which the trader is established, and mention of an international clientele composed of customers domiciled in various member States. It is for the national courts to ascertain whether such evidence exists.

We may have hinted at this before: Bilateral investment treaty litigation is the new, big frontier of EU law.

This arbitral award in the case of Eureko BV v. The Slovak Republic will delight some, worry others.

The story, much abbreviated, goes something like this. The Slovak Republic and the Netherlands had concluded a bilateral investment treaty (BIT) back in 1992 (the Slovak Republic, becoming independent and separated from the Czech Republic in 1993 succeeded to the original BIT). The BIT contained the usual clauses protecting inward investment and a clause providing for arbitration in the event of dispute. Eureko BV, a Dutch corporation providing insurance cover including health insurance, invested heavily in the Slovak Republic when that country liberalized its health insurance market in 2004. But then, in late 2006, a new Slovak government sought to reverse the liberalization of 2004. Eureko claimed that change in policy ruined its investments in the Slovak Republic and began arbitration proceedings against that state in accordance with the arbitration clause in the BIT.

Slovakia claimed, among other things, that the arbitration proceedings should cease as the arbitration Tribunal lacks jurisdiction because the arbitration clause is incompatible with EU law. It claimed that since it had acceded to the EU in 2004, the stipulations of the BIT on capital movements and investment were superseded by the provisions on free movement of capital in the EU and breach the provisions on equal treatment and non-discrimination.

The Arbitration Tribunal decided in its carefully reasoned award of October 26th 2010 to dismiss the objections to its jurisdiction and to continue with an examination of the merits. The Tribunal held that the issues raised by the Slovak Republic concern the merits of the case and no provision of EU law actually prohibits investor-state arbitration.

What is really a cause for concern is the involvement of the European Commission. That institution submitted a brief which, if the Tribunal's description of it (paragraphs 176 to 196 of the award) is anything like accurate, is wildly anti- arbitration. It would seem to be very wrong too. The Commission seems to have claimed that the arbitration clause constitutes discrimination against investors of other nationalities whose nations had not concluded similar BITs with the Slovak Republic (thus ignoring the judgment of the Court of Justice in Case C-376/03 D v. Inspecteur van de Belastingdienst ECR [2005] I-5821, paragraphs 52 onwards. The Commission also relied heavily on the judgment of the Court of Justice in Case C-459/03 Commission v. Ireland ECR [2006] I-4635 (the famous "MOX Plant" case, see our post here) but that case concerned disputes between member States and the exclusive jurisdiction of the Court of Justice laid down in what is now Article 258 TFEU (ex Article 226 EC) not between investors and States. And if that were not bad enough, the Commission stated it was "firmly opposed to the 'outsourcing' of disputes involving EU law" to tribunals outside the EU courts (see paragraph 184 of the award).

Is the Commission seriously claiming that a choice of jurisdiction clause which selects a court of a non member State would breach EU law if a point of EU law had to be decided in a dispute to be submitted to that court ?

The enduring financial crisis in Europe has exposed a tremendous weakness in the supervision of financial markets. What supervision was actually exercised not only failed to prevent a crisis but may have precipitated it.

In September 2010, the European Parliament and Council reached a political agreement to adopt three Commission proposals to effect a substantial change in the way financial supervision is to be exercised at the European level: to set up a European Banking Authority, a European Market and Securities Authority and a European Insurance and Occupational Pensions Authority. This document released in September 2010 provides a very brief overview.

When these different regulations are finalized and come into effect on January 1st 2011, the changes will be profound.

Professor Eilis Ferran of the Law Faculty, Cambridge University, England, has written a wonderful overview of the new supervisory system that puts it in its historical context and explains its significance. Here's what the abstract states:

Most of the big decisions about the rules governing financial market activity in Europe are now taken at the EU level. This has not been matched by a simultaneous centralisation of supervisory responsibility. Yet, notwithstanding that frontline supervision remains mostly a Member State responsibility, with a layer of EU-wide structural co-ordination added on top, the longstanding process of step-by-step assumption of supervisory functions by bodies that have a pan-European remit has undoubtedly accelerated in the aftermath of the financial crisis. This article examines the recent EU institutional developments with respect to financial market supervision against the background of arrangements at Member State level, and assesses their significance. It contends that whilst the recent EU institutional reforms are at the boundaries of current legal, political and practical feasibility, they include some key breakthroughs that bring the prospect of the European scene becoming dominated by euro-authorities with direct supervisory power across significant swathes of financial market activity considerably closer.

You can download the entire article, which is highly recommended, here.

There's big trouble brewing between the Council and the Commission.

The European Parliament and Commission have, apparently, concluded a new "Framework Agreement" on how the two institutions should coöperate (for a press release see here). This new agreement, signed on October 20, 2010, replaces the 2006 Framework Agreement (available here (main part), here (annex 1) and here (annex 2)).

The new Framework Agreement generally updates the old one to take account of the Lisbon Treaty. In particular, it seeks to improve the accountability of the Commission by setting up a Question Hour with Commissioners, including the Vice-President for External Relations/High-Representative for Foreign Affairs and Security Policy based on the existing Question Hour with the Commission President. It also provides that if Parliament asks the Commission President to withdraw confidence in an individual Member of the Commission, he will seriously consider whether he should request that Member to resign. The President shall either require the resignation of that Member or explain his refusal to do so before Parliament in the following part-session. The new Agreement also increases the involvement of Parliament in international negotiations and provides that the Commission will provide Parliament with immediate and full information at every stage of negotiations on international agreements and in particular those on trade matters and other negotiations involving the consent procedure. At international conferences, the Commission shall, in view of Parliament's extended powers under the Lisbon Treaty, at Parliament's request, act as facilitator in order to enable the chair of the EP delegation to be granted observer status in relevant meetings and guarantee access to EU facilities for Parliament's delegations.

Despite the European Parliament and the Commission paying lip service to transparency, open access to information and all that jazz, they don't feel that the reading public is fit to see the actual text of the new Agreement. Well, a search of their respective websites has proved vain. Fortunately, Council has published a more-or-less final version dated June 29, 2010, on its public register here.

But now the Council has registered a public protest about the new Framework Agreement and has written to the Parliament and Commission to voice its misgivings. The Council's Legal Service has published a thorough legal opinion on the matter in which it states that the text agreed by the European Parliament and Commission negotiators on June 29 2010 aims, on several points, to modify the balance between the Institutions that was established by the Treaties and according the Parliament powers which are not conferred upon it by the Treaties. The Legal Service recommends that the Council should, by statement published in the Official Journal, reserve the right to submit to the Court of Justice any act or action of the Parliament or the Commission which refers to the Agreement and would have an effect contrary to the interests of the Council and the prerogatives conferred upon it by the Treaties. The Council should in particular reject the provisions on international agreements, infringement proceedings against Member States and transmission of classified information to the European Parliament. The text of the protest and Legal Service Opinion is available here.

UPDATE: A reader kindly pointed us to the text of the new Framework agreement, available here on the European Parliament's website.

FURTHER UPDATE: The new Framework Agreement is now published in the OJ (OJ 2010 L 304, p. 47)