Direct Effect, Indirect Effect and State Liability

Direct Effect and Direct Applicability

Direct effect and Direct Applicability are 2 principles that are similar but should not be confused. Direct Applicability is the automatic incorporation into national law. Both Treaty Articles and Regulations are directly applicable, regulations are not, they must be implemented by the member state. The idea behind this is that they will be able to interpret the law that the EU wish to impose and do so in a way that will be most effective and efficient for that country.

Direct effect is the ability for any National of a member state to be able to rely on an EU law, whether that be a Treaty Article, a Regulation or a Directive, in a national court. As previously mentioned in the Post relating to Article 267, the ECJ is not an appellant court, it only gives directions which are binding. Therefore, for matters of EU law, they need to be enforceable in all national courts.

Treaty Articles have direct effect and automatically are incorporated into national law; however, they must satisfy the criteria from the case of ‘Van Gend en Loos’ (clear precise and unconditional).

Regulations are too automatically incorporated into national law (Article 288 TFEU) and also must satisfy the Van Gend criteria to be directly effective.

Directives are generally not directly effective and must be implemented by the member state. This will then be part of the national law as the national legislature would pass the Act. When the EU creates a Directive, they usually give an implementation period of about 2 years depending on the type off directive it is to come into force. If it is not implemented by then, they can face a fine imposed by the Commission.

A distinction has been made between Vertical Direct Effect and Horizontal Direct Effect.

Vertical direct effect is where a claim is made against the state in order to enforce the rights that were granted in a directive. Horizontal direct effect is where a claim is made from one individual or company against another individual or company.

The ECJ has made it fairly clear that horizontal Direct effect will never be allowed. This was identified in the case of Marshall and confirmed in the case of Fachini Dori.

On the other hand, the case of Van Duyn developed the principle that Vertical Direct effect can be used in a national court as long as it is clear precise and unconditional (Van Gend). This is because they thought it was wrong that individuals are acting in a way that the EU stated they should be, and because the national law hasn’t implemented the law yet potentially making losses.

The case of Publico Ratti, an Italian case, clarified that the implementation period must have passed on the directive in order for direct effect to be used and relied on in court.

In addition to this, the courts have taken a wide view on what can class as the state. In the case of Foster v British Gas, 3 principles were developed that would class an organisation as the state. They said that it needs to be an ‘emanation of the state’:

  1. They are providing a public service
  2. They are under state control or would be under state control if is had not been privatized. In other words, they are prescribed by law.
  3. They have special powers due to their job. Usually any organisation which are prescribed by law will have some special rules and powers they can enforce.

The case of St Mary’s C of E School, the question developed on whether a state organisation needs to have special powers granted to them. It was ruled that this was not necessary and satisfying 2 of the criteria was probably sufficient.

Therefore, the general presumption is that Direct effect applies to treaty articles, and regulations as long as they are clear, precise and unconditional. Regulations can be directly effective in vertical claims if they are clear, precise and unconditional, and their implementation period has passed. Horizontal Direct effect will not be allowed.

Having said that, the case of Mangold has confused these general principles somewhat. In this case, it was said that horizontal Direct effect could be relied on if the directive is developing a fundamental principle of EU law. This is rather confusing considering the ECJ’s past of absolutely refusal to allow horizontal direct effect.

 

Indirect Effect

In order to combat the difficulties that were faced because the lack of availability for horizontal claims to be made in regard to directives, the case of Von Coulson developed the principle of indirect effect.

Indirect effect is where the national courts must interpret national law in line with EU law so far as it is possible to do so. Therefore, there needs to be an existing national provision that can be purposively interpreted to give effect to the EU law. The treaty Article 4 TFEU states that the member state must do its upmost to give rise and obey the EU law, which is where this idea of indirect effect came from.

It must still comply with the Ratti principle and any directives must have passed their date of implementation. Otherwise the Member state would still have time to pass any legislation relating to the Directive.

It will not apply if there is a clear contradiction to the directive. If any national provisions are directly contrary to the proposed directive, indirect effect will not be available. This was clarified in the case of ‘Wagner Miret’ where there was a clear meaning in place already, it could not be interpreted to give rise to the EU law without completely changing the law.

Von Colson was a case which identified that Indirect effect could work in relation to vertical claims. This case regarded travel compensation. The case of Harz v GMBH clarified that it would also be available in horizontal agreements. The case of Marleasing decided that it did not matter if the EU provision was made before or after the national provision, it would still be interpreted to give rise to the EU law.

 

State Liability

If neither Direct or Indirect effect are available, then the claimant may have a claim under state liability. This is where an individual or a company has suffered a loss as a result of the member states breach of EU law in some way. This goes wider than non-implementation of directives. It may be in relation to any breach of EU law that the member state has made.

This was identified as the appropriate remedy in the case of Francovich where 3 criteria were developed to see whether a state liability claim was possible:

  1. Has the EU law granted a right (sufficiently serious to warrant compensation)
  2. Must be clear what right was granted
  3. Must be a causal link between the states breach of EU law and the loss the claimant suffered.

The case of Factortame No 4 identified that in relation to the first of the Francovich criteria, the granting of a right must have been of such significance that if the right was not given, it would be a problem.

The Beer Purity laws case in Germany identified that non-implementation of a directive or implementation of a directive would usually amount to a sufficiently serious breach.

The case of Dillenkofer identified that non-implementation alone was a sufficiently serious breach, on the other hand, implementation would not always amount to a sufficiently serious breach- R v BT.

The case of Kobler identified that any wrong use of EU law which caused a loss would render the provision to be a serious breach

There is a loss of case law which has been distinguished for a lot of reasons and therefore it can be seen to almost be discretionary as to what a serious breach is. There is no definition of the phrase and it can cause ambiguity.

State Liability claims are always only ever for compensation and are only vertical claims. However, if someone is trying to rely on an EU provision in a horizontal agreement, and they make a loss as a result of the state (whatever action the state did in order to make their counterpart act in a way they did which caused the loss) they will be able to take a claim out against the state.

 

By Woodrow Cox

 

 

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