Direct Effect, Indirect Effect and State Liability

Introduction

• Article 288 of the TFEU provides that Regulations are ‘directly applicable in Member
States’. Thus, regulations automatically become a part of national legislation and do not
require any Member State to take any further steps to implement it (Variola SpA v
Amministrazione Italiana delle Fiananze).

• The early view of the Community was that all community legislation should uniformly apply
in all Member States and once made, Member States should not further interfere.

• However, the Treaties are silent on the applicability of treaty article. If the situation was
left at that state, this would have meant that the only way in which individuals could
challenge European law was that, it would have had to be incorporated in to national
legislation or the law came in the form of a regulation.

• The ECJ has played an important role in ensuring that Direct Effect along with supremacy
was developed to ensure that EU law was uniformly applied within the Member States.

Types of ways a citizen can enforce their European Union rights.

• There are 3 types of ways a citizen of a Member State can enforce their European Union
rights.

Indirect Effect Direct Effect State Liability

Activity 1: Distinguish between Direct Effect and Direct Applicability

1. Direct Effect

a. What is Direct Effect (DE)

• DE means that, subject to certain conditions, Union law creates rights and
obligations which individuals may rely on and enforce in their national courts.

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• This principle was recognized in the case of Case 26/62 van Gend en Loos v
Nederlandse Administratie der Belastingen [1963] ECR.

FACTS:
The claimants, van Gend en Loos, imported chemicals from Western
Germany to the Netherlands where they were asked to pay import taxes at
Dutch customs, the defendants, which they objected to on the grounds that
it ran contrary to the European Economic Community’s prohibition on inter-
State import duties, as per Article 12 of the Treaty of Rome. The defendants
contended that as the claimants were not a natural person but a legal
person, they could not claim such rights.

HELD:
“The Community constitutes a new legal order in international law, for
whose benefit the States have limited their sovereign rights, albeit within
limited fields, and the subjects of which comprise not only the Member
States but also their nationals... according to the spirit the general aspect
and the term of the Treaty, Article 12 should be interpreted in such a sense
as to produce direct effect and to create individual rights which internal
courts should protect”.

Significance:
o Normally the question of the operation of an international treaty in
the domestic legal system is determined by the constitutional law of
the individual country concerned.
o In this case, the ECJ decided that it had jurisdiction to decide the
effect of the Treaty of Rome on a Dutch citizen.
o Nothing is said in the Treaty about the effect of Treaty Articles on
individuals, and it looked as if the only way that individuals could
use EU law to enforce their rights was by leaving it to the
Commission and the Member States to do so. However, in van
Gend en Loos the Court addressed this problem and at one stroke
transformed the legal status of the Treaty from a conventional, if far-
reaching, Treaty governed apparently by the normal rules of
international law, into the foundation of a sui generis ‘new legal
order’ that would operate directly for the benefit of the citizens of
the signatory states.

b. Types of Direct Effect

• Vertical Direct Effect (VDE):

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 • Horizontal Direct Effect (HDE):

c. Development of the criteria laid down by Van Gen den Loos.

• The ECJ, in Van Gen den Loos, held that in order for a EEC treaty article to have
direct effect it if:
Ø It was clear and precise;
Ø It was unconditional;
Ø Its operation did not require a legislative implementing measure on the part
of the state;
Ø Creates a negative obligation.
“The wording of Article 12 contains a clear and unconditional prohibition which
is not a positive but a negative obligation. This obligation, moreover, is not
qualified by any reservation on the part of states which would make its
implementation conditional upon a positive legislation measure enacted
under national law. They are very nature of this prohibition makes it ideally
adapted to produce direct effects in the legal relationship between Member States
and their subjects.”

• The criteria was subsequently developed by the ECJ in Alfons Luttike GmbH v
Hauptzollamt Saarlouis (1966), which concerned whether a particular treaty
article having a positive obligation could be directly effective:

Held: that the said Article (110) which imposed a positive obligation to abolish taxation
was directly effective and therefore, individuals could rely on this provision before their
national courts from time to time.

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• Similarly, the requirement that a measure must not be dependent on further action
is not the obstacle that it, at first, appears. This is because, whenever the Treaty
(or other measure) includes a time limit within which such further action should
take place, the Court has held that, once that time limit has expired, the measure
has direct effect (Defrenne v SABENA [1976] ECR 455)

• The central idea, then, is whether a provision is capable of being applied by a

national court (whether it is ‘justiciable’). Even a lack of clarity will not necessarily
prevent direct effect – because the national court can seek clarification from the
Court of Justice through the Article 267 TFEU preliminary reference procedure if
necessary. As a result, direct effect of Treaty provisions has become the norm,
rather than the exception.

d. When discerning whether Union law is directly effective, we must identify the
source of law and the capability of said law to be directly effective.

I. Primary Legislation

a. Treaty articles:

II. Secondary Legislation

a. Regulations:

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b. Directives:

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c. Decisions:

d. International Agreements:

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 2. Indirect Effect

a) What is Indirect Effect?

• A principle of interpretation whereby the courts of the member states
of the EU must interpret national legislation as far as possible in a
manner that is consistent with provisions of EU law even if they do
not have direct effect.

• Article 4(3) of the TEU (as interpreted by the ECJ): National Courts
are under a duty to interpret national law consistently with EU Law,
so far as it is possible to do so, whether or not the Directive has a
direct effect.

• This principle was established in Von Colson v Land Nordhein –

Westfahlen (1984):

Facts

• Two female applicants for the posts as social workers in German

prison complained about sex discrimination.
• The directive was implemented in a manner that the only
compensation that could be received was a minimal travelling cost.
• The directive did not pass the Van Gend en Loos criteria, and
therefore was not directly effective.

Held:

It was the national courts duty to interpret the national law in accordance
with EU Law. However this obligation was extended in so far as the national
courts are given discretion to do so under national law.

• The doctrine is based on the idea that national courts are part of the state and,
consequently, are bound by what is now Article 4(3) TEU (formerly Article 10 EC). That
Article requires Member States ‘pursuant to the principle of sincere cooperation’ to‘take
any appropriate measure … to ensure the fulfilment of their obligations’ under the Treaties.

• The effect of the ruling is to shift the responsibility for giving effect to Directives on to
national courts in situations where their governments have failed to introduce adequate
national implementing measures. The principle means that national courts are under a
duty to interpret national legislation ‘in the light of the wording and purpose’ of Union law.

• In von Colson, there was some national legislation which purported to implement the
Community Directive but which did so inadequately (the amount of compensation
available was very small). As a result, it was initially thought that the duty of harmonious

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 interpretation (giving indirect effect to the Directive) only applied to national legislation
which had been intended to implement the Directive in question.

• Whether the rule applied to the interpretation of national law more generally was unclear.
The ECJ has since made clear that the duty applies in relation to all national legislation,
whether passed before or after the relevant Union legislation, and whether intended to
implement it or not.

b) Development of Indirect Effect in the UK:

a. Implementing and non implementing legislation

• Implementing legislation: Legislation passed after the deadline to
implement the Directive has expired.

• Non – Implementing legislation: Legislation passed before the deadline to

implement the Directive has expired.

b. The application of Indirect effect for implementing legislation and non

implementing legislation;

• The House of Lords were reluctant to allow indirect effect for non
implemented legislation;Duke v GEC Reliance.

• The House of Lords were however willing to use the purposive approach
for implementing legislation (Lister v Froth Dry Dock and Engineering &
Pickstone v Freemans Plc)

Lister v Forth Dry Dock and Engineering Ltd

Facts

Following financial difficulties, the defendants, Forth Dry Dock, entered

receivership. Forth Dry Dock was sold to a third party company, however
shortly beforehand the company’s receiver fired all of the company’s twelve
employees as they intended to replace them with a group of employees
who were prepared to work for lower salaries. Moreover, the receivers
lacked the funds to pay the fire employees the money that they ought.
Whilst the EC Tuper Regulation 1981 5(3) found that employees dismissed
‘immediately’ prior to a company’s transfer remained entitled to certain
rights, the question was thus whether the employees could be considered
to have been in employment ‘immediately’ before the transfer when they
had been dismissed one hour prior to the transfer.

Issues

In the event of unfair collective dismissal immediately prior to a company’s

transfer, does the duty to compensate transfer to the receiver.

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Held

Initially, the Court found for the defendants, however on appeal to the
House of Lords, the Court found for the complainants. Rather than taking
a literal approach to statutory interpretation, the Court decided to take a
purposive approach so as to give application to case law authorities from
the European Court of Justice. Lord Oliver noted that the rights provided
under European Community law meant that ‘in the case of an insolvent
transferor [such rights] are largely illusory unless they can be exerted
against the transferee’. Furthermore, European Community law applied to
persons immediately employed before the company’s transfer and those
who ought have been employed had they not been dismissed inequitable.

Pickstone v Freemans PLC (1989)

Facts

The claimant, Ms Pickstone, was an employee of the defendants,

Freemans, where she worked as a warehouse operative and received a
salary equivalent to that of her male counterparts performing the same job.
However, the warehouse checkers, who were male, benefit from a greater
salary than the warehouse operatives, receiving £1.22 per week more. Ms
Pickstone subsequently alleged that the defendants were in breach of the
Equal Pay Act 1970

Issues

Whether an employer is in breach of equal pay legislation where it has

different pay rates for workers completing work of the same value who are
of different genders.

Held

The Court of Appeal determined that Freemans was not in breach however
this was overturned upon appeal by the House of Lords who found for Ms
Pickstone, and deemed that Freemans was in breach of equal pay
legislation. Whilst a literal reading of British legislation would have meant
that Freemans was not breaching equal pay rights as the warehouse
operatives and warehouse checkers were performing different jobs, this
result would mean that Britain was in result of its obligations arising from
European treaties to give force to a directive to legislate and protect equal
pay. Subsequently, the Lords adopted a purposive approach to statutory
interpretation, permitting Ms Pickstone’s claim on the grounds that she was

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 being paid less than male workers completing work of equal value, despite
that the work per se was not the same.

• However, the ECJ, developed the principle of indirect effect and further widened Von Colson’s
Scope by the case of Marleasing SA v LA Commercial Internacional de Alimentacion SA
(1990):

Facts:
Marleasing SA (the Applicant) brought an application before the Spanish national
courts for an order that the contract establishing "La Comercial" was void and that
the formation of La Comercial should be nullified on the grounds that establishment
"lacked cause, was a sham transaction and was carried out in order to defraud the
creditors of Barviesa (a co-founder of La Comercial)". La Comercial argued that
the action should be dismissed in its entirety on the grounds that article 11 of the
First Council Directive 68/151/EEC of 9 March 1968 on coordination of safeguards
which, for the protection of the interests of members and others, which had not yet
been implemented by Spain, provided an exhaustive list of the cases under which
the nullity of a company may be ordered and that "lack of cause" was not a ground
listed therein.

Issue:
"Is Article 11 of [the] Council Directive 68/151/EEC of 9 March 1968, which has not
been implemented in national law, directly applicable so as to preclude a
declaration of nullity of a public limited liability company on a ground other than
those set out in the said article?

Held:

The ECJ held that the Spanish Courts were under a duty to interpret national law
in a way that gave effect to European law.

“..it should be observed that, as the Court pointed out in its judgment in Case
14/83 Von Colson and Kamann v Land Nordrhein-Westfalen [1984] ECR 1891,
paragraph 26, the Member States' obligation arising from a directive to achieve the
result envisaged by the directive and their duty under Article 5 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 national law,
whether the provisions in question were adopted before or after the directive, the
national court called upon to interpret it is required to do so, as far as possible, in
the light of the wording and the purpose of the directive in order to achieve the
result pursued by the latter and thereby comply with the third paragraph of Article
189 of the Treaty."

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• Marleasing also widened the scope of the doctrine by adding onto von Colson - the obligation
is on the Courts regardless of the fact the national provisions were adopted before or after the
Directive. In Marleasing, no national law had been passed at all to comply with the Directive. It
was held that having national legislation passed specifically in the name of the Directive was
not necessary.

• The approach taken by Marleasing by the ECJ was later confirmed in the English Courts:

Web V EMO Cargo (UK) Ltd (1992) 2 All ER 43

Facts:

Held:

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 Webb v EMO Air Cargo (UK) Ltd [1994] ECR I-3567

Facts:

Held:

• Grimaldi v Fonds des Maladies Professionalles (1989): Indirect effect is not only applicable
to Directives, but can be used with any typw of EU legislation.

c) Limits to the Doctrine of Indirect Effect:

a. National Courts are only required to carry out this duty “so far as possible”,
so if there is no relevant national legislation, or if the relevant national law
is only capable of one interpretation, then this doctrine cannot be used.
• What may constitute “so as far as possible” may be determined by
the national court [Wagner- Miret (1993)]

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b. The application of the doctrine is subject to general principles of law, such
as legal certainty and non- retroactivity:

Kolpinghuis (1987)

Held:

It stated that the obligation on the national court to construe domestic

legislation in the light of non-implemented directives was limited by
‘principles of certainty and non-retroactivity’, which in the context of this
case meant that the prosecutor could not use the directive to interpret
national law in such a way as to determine or aggravate the individual’s
criminal liability.

c. The doctrine cannot be applied where it would give rise to, or aggravate,
criminal liability:

Criminal Proceedings against Luciano Acaro (1996)

Held:

“However, the obligation of the national court to refer to the content of the
directive when interpreting the relevant rules of its own national law
reaches a limit when such an interpretation leads to the imposition on an
individual of an obligation laid down by a directive which has not been
transposed, or more especially, where it has the effect of determining or
aggravating, on the basis of the directive…the liability in criminal law of
persons.”

(see also Criminal Proceedings against Berlusconi [2005] ECR I-3565)

HOWEVER:
• such a limitation does not appear to exist in relation to the imposition of
civil liabilities on individuals. In Case 456/98 Centrosteel v Adipol
[2000] ECR I-6007, the ECJ said that the duty to interpret national law
in the light of the wording and purpose of Community law applied even
when this would impose a civil liability on private parties. On this point
see also Case C-185/97 Coote v Granada Hospital [1998] ECR I-
5199, and Cases C-240–244/98 Oceano Grupo Editorial v Rocio
Murciano Quintero [2000].

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