EU Law Blog

The Court of Justice has handed down a very significant Opinion in Case Opinion 1/09 on the compatibility with EU law of a draft agreement which aims to set up a new European Patent Court system. We’ve written about that before.

The Opinion is significant because of the manner in which the Court examines the roles of national courts and of the EU courts in safeguarding the proper application of EU law.

The Court concluded that the system as envisaged would be incompatible with EU law because it ousts the jurisdiction of national courts to apply EU law. The envisaged agreement, by conferring on an international court which is outside the institutional and judicial framework of the EU an exclusive jurisdiction to hear a significant number of actions brought by individuals in the field of the Community patent and to interpret and apply EU law in that field, would deprive courts of member States of their powers in relation to the interpretation and application of EU law and the Court of its powers to reply, by preliminary ruling, to questions referred by those courts and, consequently, would alter the essential character of the powers which the Treaties confer on the institutions of the EU and on the member States and which are indispensable to the preservation of the very nature of EU law.

The Council drew up a draft international agreement, to be concluded between the member States, the EU and non-member countries which are parties to the European Patent Convention to create a court with jurisdiction to hear cases related to the European patent and the future Community patent. The new court system forms part of a new integrated system for the European and Community patent to be issued by the European Patents Office. Currently, although the procedure for granting that right is unitary, the European patent breaks down into a bundle of national patents, each governed by the domestic law of the States which the holder of the right has designated. By contrast, the distinguishing feature of the future Community patent is that it would be unitary and autonomous and would have equal effect throughout the European Union. It could be granted, transferred, declared invalid or lapse only in respect of that territorial area.

The draft international agreement aims to establish a European and Community Patent Court composed of a court of first instance - comprising a central division and local and regional divisions – a court of appeal and a joint registry.

The Council requested the Court to give an opinion on the compatibility of this new court system with EU law pursuant to Article 218 § 11 TFEU. 21 member States, the European Parliament and the Commission intervened. The Court dealt first with the basic question whether the TFEU prevented the creation of a new court system outside the one it already sets up.

It held that Article 262 TFEU does not preclude the creation of the patent court system envisaged. While it is true that under that provision there can be conferred on the Court of Justice some of the powers which it is proposed to grant to the Patent Court, the procedure described in that article is not the only conceivable way of creating a unified patent court. Article 262 TFEU provides for the option of extending the jurisdiction of the European Union courts to disputes relating to the application of acts of the EU which create European intellectual property rights. Consequently, that article does not establish a monopoly for the Court of Justice in the field concerned and does not predetermine the choice of judicial structure which may be established for disputes between individuals relating to intellectual property rights.

The Court also held that the creation of the patent court system was not in conflict with Article 344 TFEU: That article merely prohibits member States from submitting a dispute concerning the interpretation or application of the Treaties to any method of settlement other than those provided for in the Treaties. The jurisdiction which the draft agreement intends to grant to the patent court system relates only to disputes between individuals in the field of patents.

Then the Court of Justice went on to examine the envisaged court structure n the light of the fundamental elements of the legal order and judicial system of the EU, as designed by the founding Treaties and developed by the case-law of the Court.

And that is where the problem lay.....

The Court recalled that the founding treaties of the EU, unlike ordinary international treaties, established a new legal order, possessing its own institutions, for the benefit of which the States have limited their sovereign rights, in ever wider fields, and the subjects of which comprise not only member States but also their nationals (see, inter alia, Case 26/62 van Gend & Loos [1963] ECR 1, 12 and Case 6/64 Costa v ENEL [1964] ECR 585, 593). The essential characteristics of the EU legal order thus constituted are in particular its primacy over the laws of the member States and the direct effect of a whole series of provisions which are applicable to their nationals and to the member States themselves (see Opinion 1/91 [1991] ECR I‑6079, paragraph 21).

Article 19(1) TEU provides that the guardians of that legal order and the judicial system of the EU are the Court of Justice and the courts and tribunals of the member States.

The Court recalled that its role is to ensure respect for the autonomy of the EU legal order thus created by the Treaties (see Opinion 1/91, paragraph 35).

Member States are obliged, by reason, inter alia, of the principle of sincere cooperation, set out in the first subparagraph of Article 4(3) TEU, to ensure, in their respective territories, the application of and respect for EU law (Case C‑298/96 Oelmühle and Schmidt Söhne [1998] ECR I‑4767, paragraph 23). Further, pursuant to the second subparagraph of Article 4(3) TEU, the member States are to take any appropriate measure, general or particular, to ensure fulfilment of the obligations arising out of the Treaties or resulting from the acts of the institutions of the EU. In that context, it is for the national courts and tribunals and for the Court of Justice to ensure the full application of EU law in all member States and to ensure judicial protection of an individual’s rights under that law (Case C‑432/05 Unibet [2007] ECR I‑2271, paragraph 38).

The national courts, in collaboration with the Court of Justice, fulfill a duty entrusted to them both of ensuring that in the interpretation and application of the Treaties the law is observed (Case 244/80 Foglia [1981] ECR 3045, paragraph 16, and Joined Cases C‑422/93 to C‑424/93 Zabala Erasun and Others [1995] ECR I‑1567, paragraph 15).

The judicial system of the EU is a complete system of legal remedies and procedures designed to ensure review of the legality of acts of the institutions (Case C‑50/00 P Unión de Pequeños Agricultores v Council [2002] ECR I‑6677, paragraph 40).

The Court of Justice examined the basic characteristics of the new system. It held that the international court envisaged in the draft agreement is to be called upon to interpret and apply not only the provisions of that agreement but also the future regulation on the Community patent and other instruments of EU law and rules of the FEU Treaty concerning the internal market and competition law. Likewise, the new patent court system may be called upon to determine a dispute pending before it in the light of the fundamental rights and general principles of EU law, and even to examine the validity of an act of the EU.

Thus, the new patent court system as envisaged:

–        takes the place of national courts and tribunals, in the field of its exclusive jurisdiction described in Article 15 of that draft agreement,
–        deprives, therefore, those courts and tribunals of the power to request preliminary rulings from the Court in that field,
–        becomes, in the field of its exclusive jurisdiction, the sole court able to communicate with the Court by means of a reference for a preliminary ruling concerning the interpretation and application of European Union law and
–        has the duty, within that jurisdiction, in accordance with Article 14a of that draft agreement, to interpret and apply EU law.

The Court of Justice held that while it has no jurisdiction to rule on direct actions between individuals in the field of patents, since that jurisdiction is held by the courts of the member States, nonetheless the member States cannot confer the jurisdiction to resolve such disputes on a court created by an international agreement which would deprive those courts of their task, as ‘ordinary’ courts within the EU legal order, to implement EU law and, thereby, of the power provided for in Article 267 TFEU or the obligation to refer questions for a preliminary ruling in the field concerned.

The Court recalled the vital role of the national courts in the EU legal order. Article 267 TFEU aims to ensure that, in all circumstances, that law has the same effect in all member States. The preliminary ruling mechanism thus established aims to avoid divergences in the interpretation of EU law which the national courts have to apply and tends to ensure this application by making available to national judges a means of eliminating difficulties which may be occasioned by the requirement of giving EU law its full effect within the framework of the judicial systems of the Member States. Further, the national courts have the most extensive power, or even the obligation, to make a reference to the Court if they consider that a case pending before them raises issues involving an interpretation or assessment of the validity of the provisions of EU law and requiring a decision by them (Case 166/73 Rheinmühlen‑Düsseldorf [1974] ECR 33, paragraphs 2 and 3, and Case C‑458/06 Gourmet Classic [2008] ECR I‑4207, paragraph 20). The system set up by Article 267 TFEU therefore establishes between the Court of Justice and the national courts direct cooperation as part of which the latter are closely involved in the correct application and uniform interpretation of EU law and also in the protection of individual rights conferred by that legal order.

So, because the new system had the effect of ousting the jurisdiction of national courts in the application of EU law, the Court found it incompatible with the EU Treaty.

That is all well and good. But our searching minds thought about BIT arbitration..... Has the Court of Justice inadvertently affected that ?

The Court of Justice, the General Court and the Civil Service Tribunal have published a summary of their case statistics for 2010.

There's good news and bad news. The good news first: The average time for dealing with cases before the Court of Justice has decreased (preliminary references now take 16.1 months on average).

The bad news: the volume of cases is increasing. The number of new cases before the Court of Justice jumped significantly from 562 in 2009 to 631 in 2010 (that's the highest number brought in the Court's history). Likewise, the number of cases brought before the General Court has increased from 568 in 2009 to 636 in 2010. Cases are dealt with more speedily there. Finally, the number of staff cases in the Civil Service Tribunal has increased too which perhaps shows what a difficult employer the Commission is. Cases in the Civil Service Tribunal seem to take ages (18.1 months in 2010 compared with 15.1 months in 2009).

For last year's statistics, see here.

The Court of Justice has handed down an intriguing judgment in Case C-137/09 Marc Michel Josemans v. Burgemeester van Maastricht about the right to restrict the access of non-residents to places called "coffee shops" which sell dope legally in the Netherlands. The Court held it is possible to restrict entry to such places to residents and ban non-residents from them in order to combat drug tourism and what it calls the accompanying public nuisance.

Here's the story. In principle, the Netherlands bans the possession of and dealing in all manner of narcotic drugs. Yet, it has a policy of tolerance with regard to cannabis and in particular allows the establishment of coffee-shops. Don't be mistaken, you don't go to such coffee shops to sip a latte because their main activities are the sale and consumption of weed. Local authorities may authorize such establishments in compliance with certain criteria. In a number of coffee-shops, non-alcoholic beverages and food are also sold.

Maastricht is a pleasant town on the banks of the Meuse close to the German and Belgian borders. To try to prevent drug tourism the Municipal Council of Maastricht banned any coffee-shop owner from admitting to his establishment persons who do not have their actual place of residence in the Netherlands. So, if you lived over the border, you could not go and smoke up in a Maastricht coffee shop with your Dutch friends.

The plaintiff in the main case, Mr Josemans, runs the ‘Easy Going’ coffee-shop in Maastricht. He was denounced for allowing foreign residents to his coffee shop and so the local Mayor closed his place down. Mr Josemans challenged that decision, claiming the Municipal ban on foreign residents constitutes unjustified unequal treatment of citizens of the European Union and that, more specifically, people who are not resident in the Netherlands are denied the possibility of buying non-alcoholic beverages and food in coffee-shops, which is contrary to European Union law. The case reached the Dutch Council of State, which then referred a number of questions to the Court of Justice.

The first question referred to the Court of Justice was what provisions of EU law applied to the sale of cannabis and what provisions applied to the sale of non-alcoholic beverages.

The Court held that narcotic drugs which are not distributed through channels which are strictly controlled by the competent authorities to be used for medical and scientific purposes are, because of their very nature, subject to a prohibition on importation and offering for sale in all the member States (Case 221/81 Wolf [1982] ECR 3681, paragraph 10; Case 240/81 Einberger [1982] ECR 3699, paragraph 10; Case 294/82 Einberger [1984] ECR 1177, paragraph 15; Case 269/86 Mol [1988] ECR 3627, paragraphs 15 and 18; Case 289/86 Vereniging Happy Family Rustenburgerstraat [1988] ECR 3655 paragraphs 17 and 20 and Case C-158/98 Coffeeshop‘Siberië’ [1999] ECR I-3971 paragraph 14). As narcotic drugs which are not distributed through such strictly controlled channels are prohibited from being released into the economic and commercial channels of the EU, a coffee-shop proprietor cannot rely on the freedoms of movement or the principle of non-discrimination, in so far as concerns the marketing of cannabis, to object to municipal rules such as those at issue in the main proceedings.

As for the marketing of non-alcoholic drinks is concerned, the Court held that it appears to constitute a catering activity characterized by an array of features and acts in which services predominate as opposed to the supply of the product itself (Case C-491/03 Hermann [2005] ECR I-2025, paragraph 27). Consequently, the free movement of goods aspect is entirely secondary to that of the freedom to provide services. As a result the Court examined the rules at issue in the main proceedings only in the light of the freedom to provide services (Case C-275/92 Schindler [1994] ECR I‑1039, paragraph 22; Case C-71/02 Karner [2004] ECR I-3025, paragraph 46; Case C-36/02 Omega [2004] ECR I-9609, paragraph 26; Case C‑452/04 Fidium Finanz [2006] ECR I-9521, paragraph 34; and Case C‑233/09 Dijkman and Dijkman-Laveleije [2010] ECR I-0000, paragraph 33).

The Court also held Article 12 EC (now Article 18 TFEU), which lays down a general prohibition of all discrimination on grounds of nationality, does not apply in this case as it applies independently only to situations governed by EU law for which the EC Treaty lays down no specific rules of non-discrimination and the principle of non-discrimination has been implemented, in the area of the freedom to provide services, by Article 49 EC (now Article 56 TFEU) (Case 305/87 Commission v Greece [1989] ECR 1461, paragraphs 12 and 13; Case C-443/06 Hollmann [2007] ECR I-8491, paragraph 28; and Case C‑269/07 Commission v Germany [2009] ECR I-7811, paragraph 98). Similarly, Article 18 EC (now Article 21 TFEU), which lays down generally the right for every citizen of the Union to move and reside freely within the territory of the member States, finds specific expression in the provisions guaranteeing the freedom to provide services (Case C-92/01 Stylianakis [2003] ECR I-1291, paragraph 18; Case C-76/05 Schwarz and Gootjes-Schwarz [2007] ECR I-6849, paragraph 34; and Case C-56/09 Zanotti [2010] ECR I-0000, paragraph 24). As citizens of the EU who do not reside in the Netherlands and wish to go into coffee-shops in the municipality of Maastricht to consume lawful goods there are to be regarded as ‘persons for whom’ services ‘are intended’ within the meaning of Article 49 EC, it is not necessary for the Court to rule on the interpretation of Article 18 EC.

The Court had then to deal with the second question posed by the referring national court, whether the rules on the freedom to provide services precluded the restriction of selling non-alcoholic beverages to non residents and whether such a restriction was justified on grounds of public policy.

The Court affirmed is consistent case law according to which the principle of equal treatment, of which Article 49 EC embodies a specific instance, prohibits not only overt discrimination by reason of nationality but also all covert forms of discrimination which, by the application of other criteria of differentiation, lead in fact to the same result (Case C-3/88 Commission v Italy [1989] ECR 4035, paragraph 8; Case C-388/01 Commission v Italy [2003] ECR I-721, paragraph 13; Case C‑28/04 Tod’s and Tod’s France [2005] ECR I-5781, paragraph 19; and Case C-147/03 Commission v Austria [2005] ECR I-5969, paragraph 41). Article 49 EC also precluded a measure which distinguished residents from non-residents, because it is liable to operate mainly to the detriment of nationals of other member States, since non-residents are in the majority of cases foreigners (Case C-224/97 Ciola [1999] ECR I‑2517, paragraph 14; Case C‑388/01 Commission v Italy, paragraph 14; Case C‑103/08 Gottwald [2009] ECR I-9117, paragraph 28; and Case C-73/08 Bressol and Others [2010] ECR I-0000, paragraph 45 - see our post about that case here).

The Court went on to examine the tricky issue whether such a restriction may be justified.

It held that the discriminatory rule was justified.

The Court accepted the finding of fact that the rules at issue in the main proceedings intend to put an end to the public nuisance caused by the large number of tourists wanting to purchase or consume cannabis in the coffee-shops in the municipality of Maastricht. According to the information provided by the Mayor of Maastricht at the hearing, the 14 coffee-shops in the municipality attract around 10 000 visitors per day and a little more than 3.9 million visitors per year, 70% of which are not resident in the Netherlands.

The Court also found that given the commitments entered into by the EU and its member Sates, there is no doubt that the objectives of combatting drug tourism constitute a legitimate interest which, in principle, justifies a restriction of the obligations imposed by EU law, even under a fundamental freedom such as the freedom to provide services. It also found that a prohibition on admitting non-residents to coffee-shops, such as that which is the subject-matter of the dispute in the main proceedings, constitutes a measure capable of substantially limiting drug tourism and, consequently, of reducing the problems it causes.

But there was the precedent of Joined Cases 115/81 and 116/81 Adoui and Cornuaille [1982] ECR 1665, concerning the right of residence or establishment of prostitutes. In that case, the Belgian authorities had adopted measures which were more repressive towards prostitutes from other member States working in Belgium than they had taken against the local ladies. The Court had held in that case that a member State cannot validly rely on grounds of public policy with regard to the behavior of a non-national inasmuch as it does not adopt repressive measures or other genuine and effective measures with respect to the same conduct on the part of its own nationals. The Court distinguished that case by pointing out that under international law and European Union law, a prohibition in all the Member States on marketing narcotic drugs, with the exception of strictly controlled trade for use for medical and scientific purposes. By contrast, prostitution, the behavior referred to in Adoui and Cornuaille, aside from trafficking in human beings, is tolerated or regulated in a number of member States (Case C-268/99 Jany and Others [2001] ECR I‑8615, paragraph 57). It cannot be held to be inconsistent for a member State to adopt appropriate measures to deal with a large influx of residents from other member States who wish to benefit from the marketing – tolerated in that member State – of products which are, by their very nature, prohibited in all member States from being offered for sale.

As regards the scope of rules such as those at issue in the main proceedings, the Court held that they apply only to establishments the main activity of which is the marketing of cannabis. They do not preclude a person who is not resident in the Netherlands from going into other catering establishments in Maastricht to consume non-alcoholic beverages and food. According to the Netherlands Government, there are more than 500 such places.

Finally, the Court accepted as a fact that other less restrictive measures such as a restriction on the number of coffee-shops or their opening hours, the implementation of a card system which allows customers access to them or even a reduction in the amount of cannabis per person which may be bought had proved insufficient and ineffective in the light of the objective pursued.

Is this the beginning of a trend of allowing member States to introduce measures discriminating against foreigners? Let us hope it is confined to reefers.

In the meantime, there is some confusion as to whether the "Easy Going" is actually shut down or not.

Season's greetings, Dear Readers !

To help you in those end of year trivia quizzes, you'll be pleased to know that the Council has once again amended its Rules of Procedure to quantify the 62% population threshold set out in the rules on qualified majority voting.

You may recall that Article 3(3), fourth subparagraph, of the Protocol (No 36) on transitional provisions annexed to the Treaties provides that, until October 31 2014, when an act is to be adopted by the Council by a qualified majority, and if a member of the Council so requests, it shall be verified that the member States constituting the qualified majority represent at least 62 % of the total population of the Union calculated according to the population figures set out in Article 1 of Annex III to the Council’s Rules of Procedure.

The Council must adapt the population figures for the coming calendar year. The Council has now done that in its Decision of December 14th 2010 for the year 2011 published here.

The total population of the EU is now 501,090,400. The 62% threshold is now 310,676,100 (up from 309,792,400 last year).

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)