Direct Effect and Indirect Effect

1. Direct Effect and Indirect Effect Does EU law enable private enforcement, i.e. can nationals of Member States use EU law within their national courts? In 1963 in Case 26/62 NV Algemene Transporten Expeditie Onderneming van Gend en Loos v Nederlandse Administrative der Belastingen [1963] ECR 1, the Court of Justice allowed private enforcement of Treaty articles.

2. Direct Effect and Indirect Effect Van Gend en Loos had imported ureaformaldhyde from Germany into The Netherlands. On import van Gend en Loos had been charged a customs duty which was in breach of the free movement of goods between Member States. As a result van Gend en Loos issued proceedings in the Dutch court claiming re-imbursement of the customs duty he had paid. The Court referred the question to the Court of Justice asking whether it was possible for van Gend en Loos to rely on an EC Treaty article.

3. Direct Effect and Indirect Effect Now before this case enforcement proceedings against a Member State was the responsibility of the Commission, i.e. enforcement under Article 258 TFEU. But even if the Commission had taken action it wouldn�t have helped van Gend en Loos to get the customs duties he had paid reimbursed. This was the argument The Netherlands put forward, i.e. that there was a mechanism for dealing with breaches of EU Treaty articles so there was no need for individuals to bring an action in the national courts.

4. Direct Effect and Indirect Effect However, the Court dismissed this argument: �The Community constitutes a new legal order of international law for the benefit of which the States have limited their sovereign rights, albeit within limited fields, and subjects of which comprise not only the Member States but also their nationals. Independently of the legislation of Member States, Community law therefore not only imposes obligations on individuals but also intended to confer on them rights which became part of their legal heritage. These rights arise not only where they are expressly granted by the Treaty, but also by reason of obligations which the Treaty imposes in clearly defined ways upon individuals as well as upon Member States and upon institutions of the Community.

5. Direct Effect and Indirect Effect The fact that these Articles of the Treaty enable the Commission and the Member States to bring before the Court a State which has not fulfilled its obligation does not mean that individuals cannot plead these obligations, should the occasion arise before a national court. The vigilance of individuals concerned to protect their rights amount to an effective supervision in addition to the supervision entrusted [to the Commission].� This case creates the Principle of Direct Effect allowing individuals to rely on Treaty articles, within their national courts, to assist in their case.

6. Direct Effect and Indirect Effect However, van Gend en Loos lays a conditions on this reliance: �The wording of Article 12 (now Article 30 TFEU) contains a clear and unconditional prohibition which is not a positive but a negative obligation. This obligation, moreover, is not qualified by a reservation on the part of States which would make its implementation conditional upon a positive legislative measure enacted under national law.

7. Direct Effect and Indirect Effect Thus to rely on a Treaty article, that Treaty article must be clear , unconditional i.e. not qualified by reservation. N.B. Member States often argue that a Treaty article was not clear or unconditional, e.g. did not impose upon a Member State a positive or negative obligation.

8. Direct Effect and Indirect Effect In Case 149/77 Defrenne v Sabena [1978] ECR 1365, an air stewardess made a claim against her employer for equal pay. At Article 119 (now Article 157 TFEU): �Each Member State shall during the first stage ensure and subsequently maintain the application of the principle that men and women should receive equal pay for equal work.� Belgium had not enacted legislation to bring this about, so the issue was whether the claimant could rely on the Treaty article?

9. Direct Effect and Indirect Effect Unlike van Gend en Loos this Treaty article did not impose a very precise negative obligation on the Member States, i.e. a principle is not very specific, and the terms pay, and equal work were not defined. However, the Court considered that the principle of equal pay for equal work was identifiable and therefore the phase was sufficiently precise to be able of having direct effect. The Court was concerned that the Community�s aims should not ignored and that if the national courts were unsure of the exact meaning of a relevant provision, the ECJ was more than willing to clarify its scope in a preliminary ruling.

10. Direct Effect and Indirect Effect What we can say then is that a Treaty article will have direct effect provided that: Intended to confer rights on individuals; It is sufficiently clear and precise, and It is unconditional. But what about a regulation, which in its own right is not that dissimilar to a Treaty article in that it is directly applicable (Article 288 TFEU)

11. Direct Effect and Indirect Effect If regulations are immediately part of the domestic law of Member States there is no reason why; so long as the provisions are sufficiently clear, precise and unconditional and relevant to the situation of an individual litigant, they should be able to regulations before their national courts. This was confirmed in Case C-253/00 Antonio Munoz Cia SA v Frumar Ltd [2002] ECR I-7289, in which a regulation (Regulation 200/98) laid down the standards by which grapes are classified.

12. Direct Effect and Indirect Effect The ECJ held that since the purpose of the regulation was to keep products of unsatisfactory quality off the market, and to ensure the full effectiveness of the regulation, it must be possible for a trader to bring civil proceedings against a competitor to enforce the regulation. This case confirms that regulations by their very nature operate to confer rights on individuals which must be protected by the national courts; i.e. although the relevant provisions in the regulation did not confer rights specifically on Munoz, it applied to all operators in the market.

13. Direct Effect and Indirect Effect Now this brings us to an interesting point because Munoz is a case between private parties. If we think back for a moment on the cases we have so far considered then we have: van Gend en Loos � a case of a private party bring a case against a Member State (The Netherlands) Defrenne v Sabina � a case of an employee bring a case against her employer, i.e. a private party against another private party Munoz � a case of one trader against another, i.e. also a private party against another private party.

14. Direct Effect and Indirect Effect So we have discovered that the principle of direct effect relates to not only cases were an individual sues a Member State but also were an individual sues another individual. This is referred to a vertical direct effect and horizontal direct effect.

15. Direct Effect and Indirect Effect State (or emanations of the State) ? Vertical Direct Effect Individual or Individual or Undertaking ? Undertaking (Natural or Legal Persons) (Natural or Legal Persons) Horizontal Direct Effect

16. Direct Effect and Indirect Effect van Gend en Loos is the first case confirming vertical direct effect and Defreene is the first case confirming horizontal direct effect. So we know that the principle of direct effect relates both vertically and horizontally to Treaty articles and regulations.

17. Direct Effect and Indirect Effect So what about Directives? Remember that Article 288 TFEU a directive: �shall be binding as to the result to be achieved upon each Member State to which it is addressed but shall leave to the national authorities the choice of form and method.� Directives are not directly applicable and may: Leave some discretion to the Member State, i.e. conditional, and Be in general terms and therefore not sufficiently precise.

18. Direct Effect and Indirect Effect In Case 41/74 Van Duyn V Home Office [1974] ECR 1337 A Dutch women, had been refused leave to enter the UK, where she wished to take up employment with the Church of Scientology. Her action against the Home Office was based on Union law guaranteeing the free movement of workers. She sought to invoke Article 3 Directive 64/221. The UK claimed that the Church of Scientology was socially undesirable and therefore they refused to allow her entry into the UK based on the issue of public policy.

19. Direct Effect and Indirect Effect The Court held that �In particular where the Community authorities have by directive imposed on Member States the obligation to pursue a particular course of conduct, the useful effect of such an act would be weakened if individuals were prevented from relying on it before their national courts and if the latter were prevented from taking it into consideration as an element of Community law. Article 177 (now Article 267 TFEU) which empower national courts to refer to the Court questions concerning the validity and interpretation of all acts may be invoked by individuals in the national courts. It is necessary to examine, in every case, whether the nature, general scheme, and wording of the provision is question are capable of having direct effect on the relations between Member State and Individuals.

20. Direct Effect and Indirect Effect Thus from van Duyn we get: Directives are binding and will be more effectively enforced if individuals may rely on them than if they cannot. Article 267 TFEU allows national courts to refer questions concerning any Union measure to the CoJ or GC, including directives, and this implies that such acts could be invoked by individuals before national courts, and The CoJ/GC can interpret and/or consider validity

21. Direct Effect and Indirect Effect There is one other rationale and is the argument based on estoppel; i.e. Member States are precluded, by their failure to implement a directive properly, from refusing to recognize its binding effect. In Case 148/78 Pubblico Ministero v Tullio Ratti [1979] ECR 1629 Directive 73/173 required Member States to introduce into their domestic law rules governing the packaging and labelling of solvents. This had to be done by Dec. 1974. Italy had failed to implement the Directive and maintained in force a different national regime. Ratti produced his solvents in accordance with the Directive, not the Italian law. In 1978 he found himself the subject of criminal proceedings in Milan for non-compliance with Italian law. The question was, could he rely on the unimplemented Directive?

22. Direct Effect and Indirect Effect The Court held that: �This question raised the general problem of the legal nature of the provisions of a directive � Particularly in cases in which the Community authorities have, by means of directive, placed Member States under a duty to adopt a certain course of action the effectiveness of such an act would be weakened if persons were prevented from relying on it in legal proceedings and national courts. Consequently a Member State which has not adopted the implementing measures required by the directive in the prescribed periods may not rely, as against individuals on its own failure to perform the obligations, which its directive entails.�

23. Direct Effect and Indirect Effect In Ratti it was also held: A national could only rely on the unimplemented directive when the time period for transposition into national law had passed. The expiry of the period prescribed for the implementation of the directive became the �trigger point� for reliance upon it. This has been refined somewhat such that Member States should not adopt measures which contradicts the directive before its time period for implementation has passed. Member States should also set aside any measures which conflict with the directive before its time period for implementation has passed.

24. Direct Effect and Indirect Effect Does the directive have to be sufficiently clear and precise? The answer is yes. N.B. There has been quite a lot of case law around this area of sufficiently clear and precise for directives and how clear and precise can be separated out form other parts of the directive. See Case C-346/97 Braathens Sverige AB v Riksskatteverket [1999] ECR I-3419.

25. Direct Effect and Indirect Effect Both van Duyn and Ratti were cases against Member States so we can say that directives have vertical direct effect. Do directives have horizontal direct effect? In Case 152/84 Marshall v Southampton and South-West Hampshire Area Health Authority [1986] ECR 723, Helen Marshall was an employee of the Health Authority. She wished to retire at the age of sixty-five, like her male colleagues. However, the rules of the Health Authority required her to retire at the age of sixty. When she was sixty-two she was dismissed on the ground of her age, so she sued the Health Authority for sex discrimination.

26. Direct Effect and Indirect Effect Directive 76/207 prohibited sex discrimination but because it was a directive it had to be brought into UK law. This was done under the Sex Discrimination Act 1975. However, this Act allowed different retirement ages. The Court of Appeal referred to the ECJ for a ruling as to whether she could rely on the provision of the Directive against the Health Authority. The CoJ held: �With regard to the argument that a directive may not be relied upon against an individual, it must be emphasized that according to Article 189 (now Article 288 TFEU) of the EEC Treaty, the binding nature of a directive, which constitutes the basis for the possibility of relying on the directive before a national court, exist only in relation to each Member State which it is addressed. If follows that a directive may not impose obligation on an individual and that a provision of a directive may not be relied upon as such against such a person.

27. Direct Effect and Indirect Effect Thus directives do not have horizontal direct effect. See also Case C-91/92 Paola Faccini Dori v Recreb Srl [1994] ECR I-3325. The principle of direct effect as regards directives then work against the Member State but does not work against individuals.

28. Direct Effect and Indirect Effect However, this leaves us with two problems: What constitutes the State, i.e. the public sector, and Because directives do not have horizontal direct effect it leads to discrimination between the private and public sectors.

29. Direct Effect and Indirect Effect So what constitutes the State? In Case C-188/89 A. Foster and Others v British Gas plc [1990 ECR I-3313 A case virtually identical to Marshall where Foster, a female employee of British Gas was required to retire at sixty, while her male colleagues retired at sixty-five. British Gas was, at the time, a nationalized industry. Foster sought to rely on Directive 76/207, so the House of Lords asked the CoJ whether British Gas constituted being part of the State.

30. Direct Effect and Indirect Effect The ECJ held: �On the basis of those considerations the Court has held in a series of cases that unconditional and sufficiently precise provisions of a directive could be relied on against organizations or bodies which were subject to the authority, or control of the State or had special powers beyond those which result form the normal rules applicable between individuals� It follows from the foregoing that a body, whatever its legal form, which has been made responsible, pursuant to a measure adopted by the State, for providing a public service under the control of the State and has for that purpose special powers beyond those which result from the normal rules applicable in relations between individuals, is included in any event among the bodies against which the provisions of a directive capable of having direct effect may be relied upon.�

31. Direct Effect and Indirect Effect Thus we have from Foster the criteria which determines whether a body is or is not an organ of the State. These are: Must provide a public service; Be under State control; and Have special powers. These criteria constitute what is called the emanations of the State.

32. Direct Effect and Indirect Effect This then leaves us with the second problem, the discrimination between the public sector and private sector. Example: If a Member State does not implement a directive, on sex discrimination say, then on the one hand the Member States own employees can rely on the directive in seeking a redress, based on the direct effect principle, while on the other hand employees in the private sector, being considered natural and legal persons, could not rely on the unimplemented directive using the direct effect principle, because it is not horizontally effective.

33. Direct Effect and Indirect Effect In Case 14/83 von Colson and Kamann v Land Nordrhein-Westfalen [1984] ECR 1891 von Colson was a female social worker. She was informed that she could not work in a male prison because of her gender. In the national German Court they found that although she had been discriminated against and that she should receive damages, the Court found that under German law all the Court could do was to reimburse her travel expenses. This was because the Equal Treatment Directive 76/207 had not been adequately implemented into German law.

34. Direct Effect and Indirect Effect On referral to the ECJ, the Court held: �However, the Member States obligation arising from a directive to achieve the result envisaged by the directive and their duty under Article 5 (now Article 4(3) TEU) of the Treaty to take all appropriate measures, whether general or particular, to ensure the fulfilment of that obligation, is binding on all the authorities of Member States including, for matters within their jurisdiction, the Courts. It follows that, in applying the national law and in particular the provisions of a national law specifically introduced in order to implement Directive No. 76/207, national courts are required to interpret their national law in the light of the wording and the purpose of the Directive in order to achieve the result referred to in the third paragraph of Article 189 (now Article 288 TFEU)

35. Direct Effect and Indirect Effect Thus von Colson: Identifies the national courts as organs of the State which are responsible for the fulfilment of Community obligations, and That national courts read their national law in conformity with the Directive. This is known as the Principle of Indirect Effect.

36. Direct Effect and Indirect Effect Now von Colson was a case brought against a State employer (von Colson was before Foster), however this was extended to cases against an individual where there was an unimplemented directive. In Case C-106/89 Marleasing SA v La Comercial Internacionale de Alimentacion SA [1990] ECR I-4135 Oviedo, the claimant company was seeking a declaration that the contracts setting up the defendant companies were void on the ground of �lack-of-course�, the contracts being a sham transaction carried out in order to defraud their creditors. Although these grounds were possible under Spanish law they did not form part of Directive 68/151 which now governed this area of law. However, Directive 68/151 had not been implemented in Spain. Spanish Judge asked the CoJ whether he was required to interpret national law in the light of the text and the purpose of Directive 68/151.

37. Direct Effect and Indirect Effect The CoJ Reiterated the view expressed in Marshall, i.e. that directives do not have horizontal direct effect, and Reaffirmed von Colson, i.e. that national courts must as far as possible interpret national law in the light of the wording and purpose of the directive in order to achieve the result expressed in the directive. The CoJ concluded by ruling specifically, and without qualification that national courts: were required to interpret domestic law in such a way as to ensure that the objectives of the directive were achieved and that this obligation applies even in a case where the national law predated the directive and had no specific connection with the directive. N.B. Actions in indirect effect do not have to prove the conditions of sufficiently precise and unconditional.

38. Direct Effect and Indirect Effect What does this mean for national law? National courts must interpret domestic law in conformity with directives, but in general it is left to the national court to decide whether an interpretation is in conformity with a directive � see Case C-91/92 Dori. The national court must interpret the directive in conformity with Union law and thus is required �to do whatever lies within its jurisdiction, having regard to the whole body of rules of national law to ensure that a directive is effective � see Case C-397-403/01 Pfeiffer v Deutsches Rotes Kreuz, Kreisverband [2004] ECR I-79.

39. Direct Effect and Indirect Effect Does indirect effect impose obligations on nationals? The answer is somewhat complex and as yet unclear, however: A Member State cannot impose a criminal liability on an individual, which it could have done had the directive been implemented � see Case 80/86 Officier van Justitie v Kolpininghuis Nijmegen BV [1987] ECR 3969. For non-criminal liability, in Case C-168/95 Luciano Arcaro [1996] ECR I-4705 the CoJ�s ruling suggests that where an interpretation of national law in the light of a directive amounts to �the imposition on an individual of an obligation laid down in the directive, it goes too far and is neither permitted nor required by EC law.�

40. State Liability Is it possible to claim damages from the Member State? i.e. in which an action for compensation may be brought by an individual against a Member State when the Member State failed to comply with Union law obligations and which resulted in damage or loss to the individual. Case 6 & 9/90 Francovich and Bonifaci v Italy [1991] ECR I-5357, In Francovich, Directive 80/987 required Member States to set up guarantee funds to compensate workers in the event of employer insolvency. The Italian government had not implemented the Directive When Mr Andrea Francovich found himself not only unemployed but owed arrears on his salary because his company had gone into liquidation he sued the Italian State saying that He had been denied protection because the Directive had not been implemented.

41. State Liability So the question for the CoJ was whether the State was liable to make good losses suffered by individuals as a result of the failure to implement the Directive. The Court held that: �The full effectiveness of Community rules would be impaired and the protection of the rights which they grant would be weakened if individuals were unable to obtain redress when their rights are infringed by a breach of Community law for which a Member State can be held responsible.�

42. State Liability Thus the decision in Francovich provides individuals with a remedy which stems from the breach, by the Member State, of the general obligations in Article 4(3) TEU and Article 288 TFEU to comply with Union law, on three conditions That the result prescribed by the directive should entail the grant of rights to individuals. It should be possible to identify the content of those rights on the basis of the provisions of the directive. There exists a causal link between the breach of the State�s obligations and the loss and damage suffered by the injured parties. If these three conditions are fulfilled then the State is liable for damages.

43. State Liability So we have a ruling and conditions laid down regarding directives, but what about other Union laws. In Case C-46 & 48/93 Brasserie du Pecheur SA V Germany and R v Secretary of State for Transport, ex parte Factortame [1996] ECR I-1029 The Court held that the principle of State Liability is not confined to a failure to implement EC directives; Rather all domestic acts and omissions, legislative, executive, and judicial, in breach of Community law, can give rise to liability. Thus, providing that the conditions for liability are fulfilled, it applies to breaches of all Union law, whether or not directly effective.

44. State Liability Factortame also considered the conditions under which a State would be liable: �Firstly, those conditions satisfy the requirement of the full effectiveness of the rules of Community law and of the effective protection of the rights which those rules confer.� Thus the Union law infringed must be intended to confer rights on individuals.

45. State Liability �As to the second condition�Member States liability for breaches of Community law, the decisive test for finding that a breach of Community law is sufficiently serious is whether the Member State� manifestly and gravely disregarded the limits on its discretion. The breach, therefore, must be sufficiently serious.

46. State Liability �As for the third condition, it is for the national courts to determine whether there is a direct causal link between the breach of the obligation borne by the State and the damage sustained by the injured parties.� There must be a direct causal link between the breach of the obligation resting on the State and the damage sustained by the injured party.

47. State Liability One of the key requirements under Francovich and Factortame is that the law infringed must be intended to confer rights on individuals. In Case C-222/02 Peter Paul v Germany [2004] ECR I-9425 The depositors of a failed bank sought compensation for their lost deposits over the maximum threshold of �20,000 provided for in Directive 94/19. The depositors claimed that the banking supervisory body had failed in the duty to supervise the bank in accordance with the directive. The CoJ held that the obligation to ensure supervision was not combined with an independent right to compensation for the consequences of any failure That the individual rights under the Directive were limited to a specified amount of compensation.

48. State Liability What then constitutes sufficiently serious? The breach persists despite a court judgement which has established infringement. A preliminary ruling or settled case law that has made it clear that the conduct constitutes an infringement. Where this is not the case the question of whether or not the breach is sufficiently serious is determined by the actions the Member State took. In Case C392/93 R v Her Majesty�s Treasury, ex parte British Telecommunications plc [1996] ECR I-1631 The ECJ found that although the UK had breach the Directive 90/351, it held that the relevant provisions of the Directive were sufficiently unclear to render the UK�s error excusable. �imprecisely worded and was reasonably capable of bearing, as well as the construction applied to it [by the ECJ] the interpretation given to it by the United Kingdom in good faith��

49. State Liability Finally the claimant must prove that damage has been suffered, i.e. there must be established an actual loss or damage which is attributable, by direct causal link, to a sufficiently serious breach of Community law.