EU Law Blog

Preliminary Rulings in the Area of Freedom, Security and Justice: Urgent Procedure Adopted

Some time ago we posted a note about future amendments to the Rules of Procedure of the Court of Justice to provide for an urgent procedure for preliminary rulings in the areas of freedom, security and justice.

Those amendments have now been adopted and published.

The Protocol on the Statute of the Court of Justice is now amended by Council Decision 2008/79, published today, which allows for the possibility of an urgent procedure in the areas covered by Title VI of the EU Treaty and Title IV of the EC Treaty.

The Rules of Procedure of the Court of Justice are amended accordingly by inserting a new Article 104b that sets out the new urgent procedure. The referring national court may request that the urgent procedure be applied or the Court of Justice may decide to apply it of its own motion in exceptional cases. The parties to the national proceedings, the member State of the court making the reference (but not all member States) and the EC institutions may submit written observations within the time fixed by the Court of Justice. That deadline may be quite short.

Article 9 of the Rules of Procedure is also amended to the effect that a special chamber of five judges will be designated to deal with these new urgent references.

The new procedure enters into force on March 1st 2008.

The Council has made an interesting "Statement" on how it thinks the new urgent procedure should operate.

Cosmetics, Free Movement and Harmonization Directive: Case C-257/06

The Court of Justice handed down a neat judgment in Case C-257/06 Roby Profumi SrL v. Comune di Parma dealing with the relationship between a directive that harmonizes the law completely and the free movement provisions of the EC Treaty.

That's sometimes an issue that is obscured in certain student text books but which is of great practical importance.

The judgment in Case C-257/06 concerned the obligation imposed by Italian law on the importer of cosmetic products to provide the requisite national authorities with certain information on the products and their manufacturers.

The referring national court asked whether such obligations were compatible with Article 28 EC as well as with Directive 76/768.

The Court recalled that Directive 76/768 provided exhaustively for the harmonization of national rules on the packaging and labeling of cosmetic products (see, inter alia, Case C-77/97 Unilever, paragraph 24; Case C-220/98 Estée Lauder, paragraph 23, and Case C-99/01 Linhart and Biffl, paragraph 17). Consequently, when the question referred concerns harmonization at the EC level, the national measures relating thereto must be assessed in the light of the provisions of that harmonizing measure and not those of the EC Treaty (see, Case C-150/88 Eau de Cologne & Parfümerie-Fabrik 4711, paragraph 28; Case C-37/92 Vanacker and Lesage, paragraph 9, and Case C-324/99 DaimlerChrysler, paragraph 32).

Oh, and by the way, the Court held that the Italian obligations were compatible with Directive 76/768.

Article 228 EC - Portugal Ordered to Pay Penalty Payment: Case C-70/06

The Court of Justice in Case C-70/06 Commission v. Portugal ordered Portugal to pay a periodic penalty payment of €19,392 (US$ 28,493.64) per day for failing to comply with its previous judgment in Case C-275/03 Commission v. Portugal.

In its judgment in Case C-275/03 Commission v. Portugal the Court of Justice had held that Portugal had failed to comply with Article 1 §1 and Article 2 §1(c) of Directive 89/665 on the coordination of the laws, regulations and administrative provisions relating to the application of review procedures to the award of public supply and public works contracts by making the award of damages to persons harmed by a breach of Community law relating to public contracts, or the national laws implementing it, conditional on proof of fault or fraud.

Portugal did not repeal the offending national legislation and so the Commission brought fresh proceedings under Article 228 EC. The Commission asked the Court to impose a penalty payment until such time as Portugal complied with the judgment in Case C-275/03. It did not ask for a lump sum, however, because it brought the action under its Communication 96/C 242/07 of August 21st 1996 on applying Article [228] of the EC Treaty, and Communication 97/C 63/02 of February 28th 1997 concerning the method of calculating the penalty payments provided for pursuant to Article [228] of the EC Treaty which provided for periodic penalty payments only, unlike its Communication of December 2005 (SEC (2005) 1658) which takes account of the judgment of the Court of Justice in Case C-177/04 Commission v. France.

In Case C-70/06 - the first in which Portugal was ordered to pay a penalty payment - the Court found for the Commission.

But a close reading of the judgment shows how surprisingly interesting it is. The Court repeated its traditional case law according to which it must assess in each case, in the light of the circumstances of the case, the financial penalties to be imposed (Case C‑304/02 Commission v France, paragraph 86, and Case C‑177/04 Commission v. France, paragraph 58). The Commission’s suggestions do bind the Court but are a useful point of reference (see Case C-387/97 Commission v. Greece, paragraph 80, and Case C-278/01 Commission v. Spain, paragraph 41). Similarly, guidelines such as those contained in the communications of the Commission do not bind the Court but contribute to ensuring that the action brought by that institution is transparent, foreseeable and consistent with legal certainty (see, Case C‑304/02 Commission v France, paragraph 85, and Case C‑177/04 Commission v France, paragraph 70).

It restated that the basic criteria to be taken into account to ensure that penalty payments have coercive force and Community law is applied uniformly and effectively are, in principle, the duration of the infringement, its degree of seriousness and the ability of the Member State to pay. In applying those criteria, regard should be had in particular to the effects of failure to comply on private and public interests and to the urgency of inducing the member State concerned to fulfill its obligations (see, inter alia, Case C‑304/02 Commission v France, paragraph 104, and Case C‑177/04 Commission v France, paragraph 62). What happens is that a basic amount per day is multiplied by coefficients representing the gravity of the infringement, its duration and the ability of the member State to pay.

In this case, the Court held that the Commission had assessed the degree of seriousness of the infringement too severely.

On the other hand, the Court was more severe than the Commission in other respects. The Court sort of indexed linked the ability of Portugal to pay. The coefficient of 3.9 suggested by the Commission did not adequately reflect the evolution of the factors which are at the basis of the evaluation of Portugal’s ability to pay, in particular, as regards the growth of its gross domestic product. Therefore, the Court looked at point 18.1 of the Commission's Communication of 2005 for inspiration and raised it from 3.9 to 4.04. Similarly, the basic amount to which the multiplier coefficients are applied must be fixed at €600, in accordance with the indexing of the amount of €500 set by the Commission in point 15 of that communication, in order to take account of movements in inflation since the publication of the Communication of 1997. The Court also held that the Commission's calculation of the duration of the infringement did not take proper account of its full duration from the moment the Court handed down its judgment in Case C-275/03 and should not include some grace period as suggested by the Commission.

That's how the Court arrived at a figure of €19,392 for every day of delay in implementing the measures necessary to comply with the judgment in Case C‑275/03 whereas the Commission had suggested a figure of €21,450 (US$31,517.56) per day.

Ratification of Reform-Lisbon Treaty in the United Kingdom

The ratification process of the Reform-Lisbon Treaty is underway in the United Kingdom. That process is sure to generate some interesting, even heated, debates.

The British House of Commons Library has published an informative research paper on the bill that, if passed, will ratify the new Treaty in British law. The research paper summarizes the Treaty and how it will be ratified in the United Kingdom. Also, there is an Appendix describing briefly the ratification process in the other member States.

The House of Commons Foreign Affairs Committee has published this informative, well researched and interesting report on the Foreign Affaires and Foreign Policy aspects of the Lisbon-Reform Treaty. At times it does not spare the British Government some criticism such as when it concludes:

We conclude that there is no material difference between the provisions on foreign affairs in the Constitutional Treaty which the Government made subject to approval in a referendum and those in the Lisbon Treaty on which a referendum is being denied.

Single and Continuous Infringement, Limitation Periods and Antitrust: Joined Cases T-101/05 and T-111/05

The judgment in Joined Cases T-101/05 and T-111/05 BASF and UCB v. Commission is noteworthy for what it says about the problem of finding "a single and continuous infringement" of the antitrust rules.

According to Article 25 §1 b) of Regulation 1/2003, infringements of Articles 81 and 82 EC are time-barred after five years. The Commission therefore tries to circumvent that limitation period by contending that past conduct is part of "a single and continuous" infringement which is not time-barred.

In this particular case, the Commission tried to claim that a global cartel between North American and EU producers of choline chloride which lasted from October 1992 to April 1994 and which would have been time-barred was part of a single and continuous cartel between the EU producers alone in the EEA market from March 1994 to September 1998 and which was thus not time-barred. That permitted the Commission to increase the duration of the infringement by two years and thus to increase the amount of the fines imposed in its decision.

The Court of First Instance found that the Commission was wrong in this instance and the global cartel was separate from the EEA one and in reality time-barred.

The judgment of the Court of First Instance goes into a fairly long general expose of what is "a single and continuous infringement". It's not always easy to follow and the English is sometimes obscure. Nevertheless, it is the single best attempt so far by the EC courts to sort out the concept.

The Court explains that the concept of a single infringement can be applied either to the legal characterization of the anti-competitive conduct (see Case C-49/92 P Commission v. Anic Partecipazioni, paragraphs 112 to 114) or to the personal nature of the liability for the infringement. In the former case, the infringement remains the one and the same even if it undergoes some slight mutations over time. The latter case is not well explained but seems to mean the case of an undertaking knowingly participating at some stage and in some capacity or other in an infringement committed by others, thus contributing to the realization of an overall plan. In that case, the participating undertaking is liable to be punished for the whole infringement, rather like a person who aids and abets the commission of a criminal act by others (see Joined Cases C-204/00 P, C-205/00 P, C-211/00 P, C-213/00 P, C-217/00 P and C-219/00 P Aalborg Portland and others v. Commission, paragraph 258).

The Court held that the existence of a common objective consisting in distorting the normal development of prices provides a ground for characterizing the different agreements and concerted practices as the constituent elements of a single infringement. The decisive question is whether those different agreements etc were complementary in nature.

But the Court introduces an important qualification. It finds that a single objective cannot be determined by a general reference to the generic distortion of competition on the market since, explains the Court, "an impact on competition... constitutes a consubstantial element of any conduct covered by Article 81 §1 EC". It is necessary to examine any circumstance capable of establishing or refuting that link such as the period of application, the content and the objective of the different agreements and concerted practices in issue.

Returning to the particular facts of this case, the Court of First Instance held that the global cartel involved the sharing of markets between the North American and EU undertakings while the later EEA wide cartel involved the EU producers only who shared customers between themselves. Thus, the Court found that the two cartels were not part of a single infringement and did not share a common objective.

Increase in Antitrust Fine and Unlimited Jurisdiction of the CFI: Joined Cases T-101/05 and T-111/05

In its judgment in Joined Cases T-101/05 and T-111/05 BASF and UCB v. Commission, the Court of First Instance did a remarkable thing: It increased the fine imposed on an undertaking for a breach of the antitrust rules.

That is the first time the Court of First Instance has exercised its unlimited jurisdiction in that way.

The Commission adopted a decision on December 9th, 2004 imposing a fine of €34.97 million (US $ 52,016,089.11) on BASF for participating in a cartel prohibited by Article 81 EC relating to choline chloride. BASF brought an action to annul the decision before the Court of First Instance on a number of grounds, including one relating to the manner in which the Commission had calculated the fine imposed on it.

Even though BASF was successful in one respect which need not detain us now - but we'll deal with that aspect of the case in a separate post - the Court of First Instance recalculated the quantum of the fine and actually increased it to €35.024 million (US$ 52,096,411.35).

The Court of First Instance recalled that Article 31 of Regulation 1/2003 conferred unlimited jurisdiction on it to substitute its own appraisal of the penalty imposed by the Commission and to cancel, reduce or increase it where the question of the amount is before it. (see Case C-3/06 Groupe Danone v. Commission, paragraphs 61 and 62). In this case, BASF clearly requested the Court of examine the quantum of the fine with the consequence that it could exercise its unlimited jurisdiction in respect to the amount.

The Court of First Instance also recalled that the 1998 Commission Guidelines on the method of setting fines are without prejudice to the assessment by the EC Courts when they exercise that unlimited jurisdiction (see Joined Cases T-49/02 to T-51/02 Brasserie nationale and others v. Commission, paragraph 169).

In this particular case, the Court of First Instance held that the Commission was wrong to take into account an infringement which had already ceased its effects, was time barred and thus had to be disregarded. That aspect will the be subject of the separate post. As a consequence, BASF was not entitled to any reduction for its coöperation with the Commission under 1996 Commission Notice on the non-imposition or reduction of fines in cartel cases in respect of the infringement that had to be disregarded. That accounts for the increase in fine.

Let's hope that the lawyers for BASF warned their clients of the risk of an increase in the fine and are well covered by their insurance.

Reform Treaty: Taxonomy of Competence

One of the most important changes brought about by the Reform-Lisbon treaty is the establishment of a taxonomy of competence: It defines - or at least attempts to - who does what in the EC.

The new Treaty maintains the existing but frequently forgotten system of conferred powers. According to that, the EC can only do what the Treaty expressly allows it to do and its competence cannot be extend with the agreement of the member States.

The new Treaty then divides the powers of the Union into three categories:
Competence exclusive to the Union;
Competence shared between the Union and the member States which the latter can exercise when the Union does not exercise it,
And exclusive competence of the member States but in which the Union can provide "support, coördination or supplemental action".

Let's look at what each category comprises.

The Union has exclusive competence in the following areas:
The Customs union;
Competition rules for the functioning of the internal market (thus continuing the process of eurapeanization of competition policy);
Conservation of marine resources as part of the common fisheries policy;
Common external trade policy,
Conclusion of an international agreement in the framework of a legislative act of the Union, when required for the exercise of existing internal competence or if existing internal rules will need changing.

Competence is shared between the Union and the member States in the following domains:
The internal market;
Social policy as specifically defined in the Treaty;
Economic, social and geographic cohesion;
Agriculture and fisheries except of the conservation of marine resources which is a matter of exclusive competence (see above);
Environmental protection;
Consumer protection;
Transport;
Transeuropean networks;
Space;
Energy;
Area of freedom (or lack of it !), security and justice,
Joint security issues concerning the protection of public health as specifically defined in the Treaty.

The member States have exclusive competence but the Union can act to support, coördinate or supplement it in the following areas:
Protection and improvement of human health care;
Industrial policy;
Culture;
Tourism;
Education, vocational training, youth and sport;
Civil protection,
Administrative coöperation.

Ostensibly, the new Treaty does not create any new area of exclusive competence for the Union. But it does finish off usurping all competence of the member States in the area of competition law when the internal market is at stake. New competence is created for space and energy policies which is shared with the member States.

The category of areas of competence that are exclusive to the member States but in which the Union can "support, coördinate and complement" the action of the States is a new one. The ordinary legislative procedure applies in those areas (codecision Council/Parliament and qualified majority in the Council).

The new Treaty reinforces the role of the Union in the areas of freedom, security and justice and defence and in its external action but we'll be looking at those separately.

A certain number of safeguards are introduced to prevent "competence creep" or the arrogation of competence by stealth in favor of the Union. In particular, the existing Article 308 EC (to be renumbered as Article 352), the competence clause, will be amended to exclude all use in the field of the common foreign and security policy and to prevent any harmonization measures in areas where the Treaty express excludes them. The new rendering of Article 308 (to be Article 352) contains a clause obliging the Commission to involve national parliaments in the procedure for the adoption o measures based on that article. On the increased role of national parliaments generally, see our previous post "Reform Treaty - Institutional Changes, part 2 (National parliaments and participatory democracy)".

Freedom to Provide Services, Honorary Positions, Expenses and Teaching: Case C-281/06

The Court of Justice handed down a neat judgment recently in Case C-281/06 Jundt on the freedom to provide services and the right to exempt expenses paid for teaching in another member State from income tax.

The facts are as follows. Mr Jundt, a German, resident in Germany and subject to income tax there, taught a 16 hour course at the University of Strasbourg, France. He received a very modest remuneration which was more an expense allowance than an actual remuneration. According to German income tax law, Mr Jundt could apply for his expense allowance to be exempted from German income tax if it had paid to him by a German university. But as it was paid to him by a French university, no exemption was possible and he had to pay full income tax on it. He challenged the refusal to exempt his expense allowance from tax in the German courts. The latter then referred three questions to the Court of Justice on the compatibility of the German exemption scheme with EC law and in particular with Article 49 EC on the freedom to provide services.

The first question deals with the issue whether a teaching activity carried out by a taxpayer of one member State for a public institution established in another member State comes within the scope of Article 49 EC even if it is carried out on a secondary basis and in a quasi-honorary capacity. The Court answered that it is covered by Article 49 EC.

The Court recalled that the concept of ‘services’ means ‘services ... normally provided for remuneration’ (Case C-355/00 Freskot, paragraph 54). It stated that the essential characteristic of remuneration lies in the fact that it constitutes consideration for the service in question (see, inter alia, Case 263/86 Humbel, paragraph 17; Case C-422/01 Skandia and Ramstedt, paragraph 23; Case C-76/05 Schwarz and Gootjes-Schwarz, paragraph 38; and Case C-318/05 Commission v Germany, paragraph 67). So, did the expense allowance received by Mr Jundt bring his activities within the scope of Article 49 EC ?

The Court held that it did. The decisive factor which brings an activity within the ambit of the Treaty provisions on the freedom to provide services is its economic character, that is to say, the activity must not be provided for nothing. There is no need in that regard for the person providing the service to be seeking to make a profit (see, C-157/99 Smits and Peerbooms, paragraphs 50 and 52).

But, it recalled also courses provided by certain establishments that are part of a system of public education and financed, entirely or mainly, by public funds are excluded from the concept of 'services' (see, to that effect, Case 263/86 Humbel, paragraph 18, and Case C-109/92 Wirth, paragraphs 15 and 16). The Court has thus stated that, by establishing and maintaining such a system of public education, normally financed from the public purse and not by pupils or their parents, the State does not intend to become involved in activities for remuneration, but carries out its task towards its population in the social, cultural and educational fields (see Case C-76/05 Schwarz and Gootjes-Schwarz, paragraph 39). However, the present case, the Court pointed out, does not relate to the teaching activity of the universities themselves, financed by public funds but concerns the treatment of the remuneration of services provided to those universities.

The second question referred concerned the justification of the German income tax scheme. The question asked whether the restriction on the freedom to provide services constituted by the fact that national legislation confines the application of an exemption from income tax to remuneration paid by public universities established on its national territory, in return for teaching activities carried out on a secondary basis, but refuses it where that remuneration is paid by universities established in another member State, is justified by overriding reasons in the public interest.

The Court held that the German system was not justified. Even if the objective of promoting teaching, research and development is an overriding reason relating to the public interest, the fact remains that, in order to be justified, a restrictive measure must comply with the principle of proportionality, in that it must be appropriate for securing the attainment of the objective it pursues and must not go beyond what is necessary to attain it (Case C‑478/98 Commission v Belgium, paragraph 41, and Case C‑334/02 Commission v France, paragraph 28). A difficulty was presented by the Court's previous judgment in Case C-39/04 Laboratoires Fournier. It held in that case that it was possible that the promotion of research and development may be an overriding reason relating to the public interest. However, it rejected the argument that a member State cannot be required to promote research carried out in another member State and held that national legislation which restricts the benefit of a tax credit only to research carried out in the Member State concerned amounts to a restriction of the freedom to provide services. The Court ruled that such legislation is directly contrary to the objective of EC policy on research and technological development which, according to Article 163(2) EC, seeks in particular to remove fiscal obstacles to cooperation in the field of research.

The Court held that the German legislation in issue in these proceedings is contrary to those objectives because it discourages persons teaching on a secondary basis from exercising their fundamental freedoms in order to offer their services in another member State by denying them a tax concession which they would have enjoyed had they provided the same services on national territory. By exercising an influence similar to that of the national legislation at issue in Case C-39/04 Laboratoires Fournier, the German legislation in these proceedings infringes the freedom of teachers exercising their activity on a secondary basis to choose where within the EU to provide their services, without it having been established that, in order to achieve the supposed objective of promoting education, it is necessary to limit the enjoyment of the tax exemption at issue in the main proceedings to those taxpayers working on a secondary basis as teachers in universities situated on national territory.

Finally, the third question. That asks whether the fact that the member States are themselves competent to organize their education systems is such as to render compatible with EC law national legislation which confines the benefit of a tax exemption to taxpayers carrying out activities for or on behalf of national public universities.

The Court answered that question in the negative. The Court recalled that member States are in fact bound, when exercising the areas of competence reserved to them, to comply with Community law, in particular the provisions on the freedom to provide services. The Court has ruled thus in several fields, including direct taxation and education (see, Case C-76/05 Schwarz and Gootjes-Schwarz, paragraphs 69 and 70, and Case C-318/05 Commission v Germany, paragraphs 85 and 86).

Population, Voting and Article 205 EC

You'll remember no doubt that Article 205 §4 EC reads:

‘4. When a decision is to be adopted by the Council by a qualified majority, a member of the Council may request verification that the Member States constituting the qualified majority represent at least 62 % of the total population of the Union. If that condition is shown not to have been met, the decision in question shall not be adopted.’

The Council first amended its Rules of Procedure by a Decision of October 11th, 2004 setting out the population figures for each member State. It also set out the figure that represents the 62% threshold.

Just as it did for last year, the Council has amended those rules of procedure to adjust the population figures for 2008. The new Decision dated December 20th 2007 is available here. The 62% threshold figure has increased from 286,020,900 to 306,964,400.

Reform Treaty - Institutional Changes, part 5: Qualified Majority Voting

Let's continue our mini-series on the new Treaty.

One of the biggest changes that the Lisbon-Reform Treaty brings about concerns qualified majority voting.

First, the new Treaty extends the scope of qualified majority voting. 24 existing legal bases currently requiring unanimity in the Council can be adopted by qualified majority. They concern the implementation of the area of freedom, security and justice (border controls, asylum, immigration, Eurojust, Europol), proposals under the CFSP made by the High Representative for Foreign and Security Policy at the request of the European Council, and the arrangements for monitoring the exercise of the Commission's executive powers ("comitology"). Also, 20 new legal bases have been created for adoption of measures by qualified majority. They deal with matters such as the principles and conditions for operating services of general economic interest, the arrangements for protecting intellectual property, energy, humanitarian aid, civil protection.

The second change, and the greater one, concerns the way votes in the Council are calculated. At present each member State has a "weighted vote" (29 for Germany, the UK, France and Italy, 27 for Poland and Spain, down to 3 for Malta). A qualified majority is attained - according to a complicated formula - if the bill is approved by a majority of member States and obtains 255 votes at least out of a total of 345. In addition, a member State may request that the bill be approved by member States representing at least 62% of the Union's population. That's the system established by the Nice Treaty. According to the new Treaty, that system will continue until November 1st 2014.

But from November 1st, 2014, a new system of "double majority" will apply. That new mechanism comprises two parts. The first part is that the bill must be approved by a 55% of the member States (with 27 member States, that is 15 of them). The second part is that those 15 member States must represent 65% of the population of the Union. There's a mechanism to prevent a small number of the populous states from blocking a bill: A blocking minority must comprise at least four member States. If the blocking minority is less than four states, the qualified majority will be deemed to be reached even if the population percentage is not met.

Well, that is the system that applies when the Council acts on a proposal from the Commission. But when the Council does not act on a proposal from the Commission or from the High Representative for Foreign and Security Policy, a threshold of 72% of the member States, representing 65% of the population is required.

There's a transitional period from November 1st 2014 to March 31st 2017 (a concession to Poland). During that period a member State may still request application of the old weighting system in the current Article 205 EC. If new member States accede between now and 2017 the weighting system will be adapted accordingly.

If that were not complicated enough, the system is topped up by another quasi-blocking minority mechanism similar to the Ioannina compromise. That was a mechanism which took its name from an informal meeting of Foreign Affairs ministers in Ioannina, Greece in 1994 that enables a group of states close to a blocking minority but not actually amounting to one to request re-examination of a decision adopted by qualified majority. Under the new system, a group of states that cannot form a blocking minority (1/3 of the member States or states representing 25% of the population of the Union) can temporarily suspend a decision of the Council. In such a case, the Council will not take a vote and will continue to discuss the proposal for a "reasonable time" if requested to do so by a group of member States representing at least 75% of the total number of member States or 75% of the population needed to constitute a blocking minority. From April 1st 2017, the 75% threshold will be lowered to 55%. Although the Council may amend or repeal this simple-majority system, a protocol states that consensus must first be reached in the European Council.

That's it for now. Next installment will be on the changes to the division of competence between the Union and its member States.